Matt Hancock
Main Page: Matt Hancock (Conservative - West Suffolk)Wind Farm Subsidies (Abolition) Bill
Matt Hancock Excerpts
The Minister for Business and Enterprise (Matthew Hancock)
I congratulate my hon. Friend the Member for Wellingborough (Mr Bone) on securing the debate. I know that he has a long-standing interest in ensuring that the nation has affordable, secure, economic and sustainable energy supplies, and the Government fully support that aim. His Bill would eliminate subsidies for onshore wind that are provided by the Government via the renewables obligation, contracts for difference and feed-in tariff regimes, and paid for by bill payers.
Our policy is intended to achieve our goal of reducing subsidies while meeting our global carbon reduction obligations and securing supply at the lowest reasonable cost. The hon. Member for Sunderland Central (Julie Elliott) referred to the “trilemma” in energy policy. Energy policy needs to balance the long-term requirement to live within international obligations on climate change and mitigate the risks with guaranteeing security of supply, which involves the costs of ensuring that enough energy infrastructure is constructed, and with ensuring that those costs are as low as reasonably possible. That is the standard “trilemma”, but rising to the challenge means not only balancing those three requirements, but ensuring that our policy can hit all three goals at once when that is possible.
Alongside new nuclear, gas and carbon capture and storage, renewables, including wind energy, are an important component of the balanced energy mix that the Government are creating. It is clear that we need to increase our use of renewable energy. Renewables provide clean energy and reduce our dependence on finite fossil fuels, but they also increase our energy security, because renewable energy is inherently domestic, and they reduce the need for us to import energy from abroad. At the same time, the construction and operation of renewables create jobs and investment in our economy. It is estimated that £29 billion has been invested since 2010.
According to figures that I looked up when I was preparing for the debate, renewables provided nearly 18% of our electricity in the third quarter of 2014. That has enhanced our energy security and reduced our dependence on imported energy. As we know, the United Kingdom is blessed with a huge number of advantages when it comes to wind generation. We have relatively shallow seas, and ours is a very windy country. The resource is even more pronounced in offshore areas, and it makes sense for us to take advantage of it. We are the clear world leader in offshore wind, in terms of both installed capacity and investment attractiveness.
Let me now respond to, and challenge, some of the common concerns that have been expressed about wind energy, including those expressed by hon. Friend today. It is necessary to deal with those important issues, because we must get our wind energy policy right so that wind can play an appropriate role in our energy mix.
The first issue is whether wind energy actually provides electricity at all. I can confirm that it provided 7% of our electricity at the end of the third quarter of 2014. Of course it is intermittent—the wind does not always blow—but that does not mean that it is an inefficient source of energy. Wind turbines tend to generate electricity for 80% to 85% of the time. Of course they cannot generate during periods of windlessness; that is why they must be part of a balanced energy mix, so that we can draw on other technologies when the wind does not blow. As larger proportions of renewables come onstream, that intermittency will become more of an issue, and we shall have to prepare for it very carefully. It is therefore crucial for our energy policy to be set in a long-term framework.
We accept that back-up is sometimes required, including back-up from coal, gas and biomass. In the longer term, intermittent falls in generation can be dealt with by a range of technologies such as demand-side response, interconnection with other countries, and electricity storage. In the United Kingdom, electricity storage generally means pumped-storage hydroelectricity, but an increasing number of exciting technologies will enable us to store electricity and deal with the intermittency.
Mr Geoffrey Cox (Torridge and West Devon) (Con)
The figure my right hon. Friend the Minister gives for the standard usability and standard functioning of wind turbines of 80% to 85% is one that I do not recognise. Even the wind turbine industry itself suggests the figure is 28% to 30%, and I can tell the Minister that certainly in my constituency the turbines are not working 80% to 85% of the time. When has he ever seen the wind blowing 85% of the time in any part of this country?
Matthew Hancock
Wind turbines require a low wind speed in order to operate and the offshore wind turbines have a very high rate of operation. Moreover, what matters for energy policy is the overall output from any given technology, and while the wind may not be blowing in Devon it may be blowing in Suffolk, so we need to look at intermittency and the impact of the policy throughout the country.
I now want to turn to the impact of intermittency on the stability of the national grid. Research by the Royal Academy of Engineering shows that the grid can accommodate up to 26 GW of wind energy by 2020 without significant grid reinforcement being required, and that is split evenly between onshore and offshore wind—about 13 GW each—as my hon. Friend the Member for Wellingborough set out. We should not be complacent, however. Grid improvements are going to be needed to deal with intermittent renewables of all types and the increasing new nuclear programme. We cannot wait; we need to take action on that now—and, indeed, we are doing so. We will need to be innovative in terms of technology and operational and market incentives to meet this challenge.
I also want to address the point my hon. Friend made about constraint payments. Constraint payments occur when there is insufficient transmission network capacity between where the electricity is generated and where it is used. They are a long-standing part of the system, and to ensure the secure operation of the electricity system the grid is required to balance the supply and demand of electricity at all moments in real time. A cost-efficient transmission network will always have a degree of constraint by design. This system predates wind farms and most constraint payments continue to relate to fossil fuel generators, not wind farms.
National Grid has estimated that about 2% of total metered wind farm output was curtailed in 2013-14. In October 2012 we put a condition in generators’ licences to ensure they cannot profit unfairly from constraints. Constraint costs for wind farms have more than halved since, and we estimate that the total constraint costs of £340 million in 2013-14 represent about 0.7% or £4.20 of the average electricity bill. Of this, £47 million, or about 0.1% or 60p of the average household bill, relates to wind farms. In the medium and longer term, delivery of planned transmission investment will reduce these constraint payments, and there is upgrading work at the moment to ensure that happens.
Another issue that is often raised is whether wind farms actually deliver carbon savings. Wind power has one of the lowest carbon footprints compared with other forms of electricity generation. Work by the Parliamentary Office of Science and Technology published in 2011 looked at the carbon footprint of different forms of electricity generation. This carbon footprint assessment was calculated according to the “life cycle assessment” which aims to account for the total quantity of greenhouse gas emitted over the whole life cycle of a product or process—the making, transporting and erecting of wind farms, as well as their operation. The study found that there was a footprint of 488 grams of CO2 equivalent per kWh for a combined cycle gas turbine and 5.2 grams of CO2 equivalent per kWh for installations off the coast of Denmark. Further studies demonstrate that, even taking into account the whole life time impact on carbon emissions, wind farms have an incredibly low impact.
I want to address a point made by the hon. Member for Sunderland Central about the pipeline and industry. Our offshore wind pipeline is very strong. The UK has the most fully installed operational offshore wind capacity in the world—more than 4 GW as of March 2015—and we are committed to a further expansion, with the UK on track to generate around 10 GW by the end of the decade.
As the Prime Minister has said, onshore wind has an important role to play, and much has already been built and we are set for having 10% of electricity from onshore wind. Let me make it clear that we are committed, once we have reached this 10% which is in the pipeline already, to removing the subsidy and putting onshore wind into the planning system, and also to changing the planning system so that local councils have the decisive say. As the Prime Minister has said—and my hon. Friend read out—if they can make their case, they can, but I suspect they won’t.
Mr Bone
The Minister is addressing this point at more length than I thought he would, as I thought it was uncontroversial. He has just referred to the Prime Minister’s comment that when we have this 10%, we are going to get rid of wind farm subsidies. I am just trying to help the Prime Minister bring that forward. I am not entirely sure whether the Minister is supporting or opposing the Prime Minister, and I think the Prime Minister would like to know.
Matthew Hancock
I am sure the Prime Minister would, and I anticipate that come Monday morning he will be reading Hansard closely to follow the debate. I support the Prime Minister—he will be glad to know—but I do not think this Bill is the right way to enact that policy, and I was going on to explain precisely why. I have a lot of sympathy with this, not least because we are reducing the subsidies for onshore wind. The costs of onshore wind are falling, but the question is how we approach this subject, which is why I was talking about the industry. We want to make sure that, especially with the increasing offshore pipeline that is being built up, we can act in a reasonable way that ultimately removes the subsidies for onshore wind. I also want to go further and bear down on the subsidies for all renewables, and we are putting in place policies to do that as well. So we will remove the subsidies for onshore wind, but we need to do it carefully.
I have read my hon. Friend’s Bill and think it has an unintended consequence: removing the support in the way set out in this Bill would have the unintended consequence of our not honouring commitments signed up to in good faith by the British Government, and the UK Government unambiguously honour their debts.
Mr Bone
I want to make it clear that the Bill absolutely does not do what has been suggested. Existing agreements are to continue for the very reason the Minister explains. Only for future onshore wind farms will there be no subsidy. It will continue for the ones that are in place—and this is only Second Reading so any such details will be sorted out in Committee and we will be able to make progress very quickly.
Matthew Hancock
I take that as my hon. Friend’s stated intention, but that is not what the Bill would do. There are wind farms under construction that expect to come under the existing subsidy regime and they are being built in anticipation of fitting in with legislation passed by this House in the last year or so on what can fit within the renewables obligation. This Bill would remove the subsidy from them because of the way it is phrased. Clause 1(2) states that only those
“onshore wind farms already operational prior to this Act coming into force”
would be placed outwith the Bill, whereas we have said that the renewables obligation will end next year or, in some circumstances, in 2017. There are people who have committed, in anticipation of legislative support.
Matthew Hancock
My hon. Friend is an incredibly persuasive man, but this technical point is important enough to mean that we are still going to have to resist the Bill, while at the same time holding to our clear position of removing the subsidies for onshore wind in an organised and careful way.
Mr Christopher Chope (Christchurch) (Con)
My right hon. Friend talks about the importance of honouring existing commitments. How does that fit in with what we read in the press about the Government now insisting on having a golden share in the nuclear plant at Hinkley Point?
Matthew Hancock
The two subjects are slightly separate. On Hinkley Point, as my hon. Friend knows, we reached a strong heads of terms agreement on the price and many other details, which we then took to the European Commission and succeeded in achieving state aid clearance on 9 October. There are lots of details to be put in place, and we are working with EDF and other stakeholders to achieve that. I do not think that there is an issue of consistency there. I also do not think that there is a read-across to the point that I was making. Ensuring that we get the details right is an important part of landing any energy infrastructure project, whether related to nuclear or to onshore wind, to which the Bill refers.
The question of how we are reducing the subsidies has formed an important part of our debate today. In the case of large-scale onshore wind, we have already cut support rates under the renewables obligation by 10%, and the renewable obligation support for offshore wind projects will also drop by 10% by April next year. At the end of 2012, we introduced a cost control mechanism called contingent digression for the feed-in tariff, which is designed to reduce tariffs in line with falling costs and the level of deployment. Last year, tariffs for all wind turbines were reduced by 20%, and on 1 October 2014 by a further 10%. Clearly the subsidies are already coming down.
Our new support regime, involving contracts for difference, is designed precisely to get the best possible value for money for the available subsidy by introducing a market in the subsidy. My hon. Friends will not be surprised to hear that when we introduced a market mechanism for the available subsidy, we got better value for money and the price came down. Adam Smith would have been proud of the outcome of the CfD auction. Levels of support are therefore decreasing. Indeed, the market cleared at the much lower than expected price of around £80 per MWh for onshore wind, showing that markets work and increase value for money.
The other interesting outcome of the CfD auction was that onshore wind was not the cheapest form of renewable energy. Solar power came out of that auction as the cheapest. Compared with the £80 per MWh for onshore wind, some of the solar projects came through the auction at £50 per MWh, demonstrating clear evidence of a path to lower subsidies. Indeed, an exciting future will soon be within reach, in which the cost of solar will be compatible with the cost of fossil fuel generation. We have already seen instances around the world of lower-cost solar installations being achieved without subsidy and being cost-competitive with fossil fuels.
Part of getting the balance right involves ensuring that we get a broad mix in the CfD auction, and that we can drive down the costs to consumers of offshore wind as well. We are delivering up to £110 million less overall per year than we were doing in the absence of competition. As a result of the auction, we are offering two contracts to offshore wind farms: Neart na Gaoithe, a 448 MW site in the Forth estuary, and the 714 MW East Anglia ONE project. Together, those sites represent 1.2 GW of renewable capacity.
I shall turn now to the question of reaching grid parity and being able to deliver on the intention behind the Bill without the need to pass it, and to do so in an organised and careful way. Costs in the sector are falling, and we are achieving more economies of scale. In the longer term, that will mean that we can reach parity with other renewable and non-renewable forms of energy supply. Doing that in an organised way will allow us to keep investing in the UK. It is therefore vital to do this carefully and cautiously.
Mr Cox
I entirely understand my right hon. Friend’s desire to observe fairness and equity for those turbine developers who already have construction on hand, but will he acknowledge that he should not underestimate the expectation of those on his own side that the Prime Minister and the Government will stand by their commitment to set a clear deadline for the termination of these subsidies, which are causing so much distress across the countryside and throughout constituencies in the south-west such as the one I represent? We must stand by that commitment. We must set a clear deadline, and that deadline must be soon.
Matthew Hancock
I have considerable sympathy for that point of view. We have made it absolutely clear that we will remove onshore wind subsidies in the future, and that the current 10% that is in the pipeline for onshore wind is plenty. After that, if the planning system allows a wind farm to go ahead, and if people want to come forward with a non-subsidised wind farm—and given that the planning system will be tightened to ensure that local people’s voices are heard—there could be future opportunities. As the Prime Minister has said, if they can make their case, they will do so, but I suspect that they will not.
The commitment from Conservative Members is clear. I personally have fought against the placing of onshore wind turbines in some of the most beautiful parts of Suffolk—and therefore the most beautiful parts of the country—in landscapes that were admired and painted by Constable in years gone by and that have changed little since. As a constituency MP, I have fought proposals to put wind farms in places where they would damage the local environment and the local amenity. The policy that we inherited had an override over local considerations because of the impact on climate change of putting up wind farms.
So we have taken steps in the planning system, some of which have been mentioned today, but we are clear that where local people do not want wind farms, the planning system will be strengthened, and there will not be these subsidies when we can remove them. My hon. and learned Friend the Member for Torridge and West Devon (Mr Cox) asked, not unreasonably, for a deadline, so I shall set it out this way. The 10% of the electricity system from onshore wind is expected by the coalition Government by 2020—that is a Government figure—and the Prime Minister has set out that then there will be no need for future subsidies. If, as the costs of all renewables come down, we are able not only to deal with the problem of climate change, but to do so in a way that allows us to remove subsidies sooner, so be it. That framework sets a clear deadline, but the clarity of our commitment to remove subsidies for onshore wind is stark—we shall do this. I hope that gives him the commitment he was seeking.
Mr Bone
I am not sure whether the Minister is talking as a split personality. Is he referring to a coalition commitment or a Conservative party commitment? Is the commitment to having 2020 as the back-stop as the latest time when the wind farm subsidies will go—although it could be earlier—a Conservative commitment or a joint Conservative-Liberal Democrat commitment?
Matthew Hancock
It is certainly not a joint Conservative-Liberal Democrat commitment. Let me be absolutely clear about the distinction. The 10% projection for onshore wind by 2020 is a coalition Government figure—that is a fact on which this discussion can be based—but the commitment is a Conservative party commitment for a future Conservative Government, and we are absolutely clear about that. The distinction is important, but given that we are only a few weeks away from the Dissolution of this Parliament, the way I have been expressing it is that things that have happened in the past and up until now are coalition Government facts or positions, but those relating to the future are, of course, Conservative party positions. That is because we hope and expect to be governing as a single coalition—my goodness, that was a mistake: a single Conservative Government after the election. I hope I have made that precise distinction clear, and I am grateful to my hon. Friend for the opportunity to do so.
Before bringing things to a close, I want to set out why we need to do this in a measured way. The decision by Siemens and Associated British Ports to invest £310 million in offshore wind turbine manufacturing in Hull will create 1,000 direct jobs. It was a significant event for that region last year and it will provide an anchor for building the UK-based supply chain, as well as much-needed skilled jobs in one of the most deprived parts of the UK. To a large extent, that decision was based on the expected size of the UK market, but of course there will be the ability to export overseas. Offshore wind is one area where we have a dedicated industrial strategy, created and delivered by a partnership between government and industry, to ensure that we have the right conditions for UK companies to take advantage of this investment. I wish to pay tribute to and highlight the work of the Offshore Wind Investment Organisation—
Mr Chope
The Minister is drifting on to offshore wind but this Bill deals with onshore wind. In so doing, he is alarming me: is he saying that because the subsidies are being withdrawn from onshore wind we are going to carry on with the subsidy bonanza to all the subsidy junkies who are engaged in the offshore wind business?
Matthew Hancock
The commitment I gave is absolutely about onshore wind. I know that my hon. Friend has concerns about offshore wind, especially off Christchurch, and I understand that. We have had exchanges in this House and discussions about it. We are bearing down on the offshore wind subsidy, as the cost is reducing and industry is reducing its costs. There are links in respect of why we have chosen to resist this Bill, despite there being so much in it we agree with, because we want to make sure that we adopt a planned and careful approach, sticking to commitments that the Government have given and that this House has given to industry, which is developing already.
I also wish to discuss the noise produced by wind farms, because I know it is a significant concern to my hon. Friend the Member for Wellingborough, he raised it and it is important to address the point. Again, this is an area where the Government have taken action. The method of assessing the noise impact of a wind farm is described in ETSU-R-97. That requires the likely impact of wind turbines on local residents and those working in the vicinity to be considered in relation to existing background noise levels, taking into account the characteristics of particular locations. Hayes McKenzie reviewed ETSU-R-97, finding that it is fit for purpose but identifying inconsistencies in the way it was being used in practice to measure and predict the impact of noise. In May 2013, the Institute of Acoustics published good practice guidance which addressed the issues Hayes McKenzie identified. The guide, which was endorsed by the Department of Energy and Climate Change, will help to improve the consistency of the application of ETSU-R-97 in the consideration of wind farm projects. I hope my hon. Friend will see that good work is being done by DECC there, and perhaps it will temper his desire to abolish me—it—at the next opportunity with his next private Member’s Bill.
As my hon. Friend will doubtless be aware, we also recently announced a review of the available evidence on amplitude modulation—AM—noise produced by wind turbines. The aerodynamic noise—the noise produced by the rotating wind turbine blades—includes a steady component, as well as, in some circumstances, a periodically fluctuating, or amplitude modulated, component. One form of AM, commonly referred to as “blade swish”, is an inherent feature of the operation of all wind turbines and can be explained by well-understood mechanisms. It is therefore often called “normal amplitude modulation”—NAM. Some AM, however, exhibits characteristics that fall outside those expected of NAM and can potentially give rise to increased annoyance. Such characteristics include a greater depth of modulation or a changed noise character. For that reason, it is sometimes called excessive amplitude modulation. Research suggests that that form of AM is caused by sudden variations in the direction and speed of the wind, which mean that the wind hits different parts of the turbine blade at different speeds, causing it to stall momentarily. The stalling can then produce a whooshing sound that some people find irritating. The evidence to date indicates that the incidence of AM from wind turbines in the UK is low, but we are committed to increasing our knowledge and understanding of the potential impacts of wind turbines and therefore we keep our evidence base up to date.
Mr Cox
I had cause to look into this some years ago, and I found that a good deal of the research that was being done on wind for the Department was being carried out by experts or consultants retained and used by the wind industry itself. I hope that the figures and the research the Minister is referring to are genuinely independent.
Matthew Hancock
The research is being done by the Institute of Acoustics and it is hard to argue that it would make anything other than a fully objective statement and analysis. We need a view on appropriate advice about the impact of this excessive amplitude modulation and what thresholds might be set in planning considerations, which comes back to the point made earlier about the tighter planning conditions we have already put in place and that we propose in future. We are preparing a specification for the review and intend to publish an invitation to tender soon. I will take into account the point that my hon. and learned Friend makes to make sure that we are careful to ensure that the analysis undertaken is truly objective and we will appoint a contractor to conduct the review as soon as we can after the conclusion of the tendering exercise.
My hon. Friend the Member for Wellingborough mentioned planning and the changes we have introduced and propose to introduce in the next Parliament under a majority Conservative Administration. We have already set out how we are putting in place measures to protect consumers from the cost of supporting wind farms, but we must also protect communities from poorly sited wind farms that are put up in a way that ruins England’s green and pleasant land.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I am the one who has to worry about these issues. In fairness, the Minister has been tempted to deal with nuclear, offshore and other subjects.
Matthew Hancock
Thank you, Mr Deputy Speaker. I am sure that my hon. Friend the Member for Wellingborough would do a remarkable job in your seat, but I am grateful for your guidance.
I want to mention planning, not least because it was raised by my hon. Friend the Member for Wellingborough and because it forms part of the wider arguments about whether we should have subsidies for onshore wind in the future and whether we should end subsidies for onshore wind in the way set out in the Bill or in a careful and measured way, as I have set out.
We have been very clear that wind farms must be well sited to receive planning permission and that communities must be taken into account before planning decisions are made. The reforms we have made to the planning system bear that out. We have also made it compulsory for developers to have pre-application consultations with local communities on onshore wind developments of more than two turbines or when the hub height of the turbine exceeds 15 metres. That means that developers need to engage seriously with communities even before submitting a planning application.
We have also published new planning practice guidance on renewable energy, updated last year, which will help deliver the balance required by the national planning policy framework. That will make it clear that the need for renewable energy does not automatically override environmental protections and the planning concerns of local communities. This is what I was referring to earlier when I said that saving the global environment must not be done in a way that damages our local environment. The new planning guidance has also been published to assist local councils and planning inspectors in their consideration of local plans and individual planning applications.
I also want to touch on the planning recoveries issue mentioned by my hon. Friend the Member for Wellingborough and by the hon. Member for Sunderland Central. Our new planning practice guidance and the requirement for developers to consult local communities before they submit a planning application are crucial steps in improving the quality of proposed onshore wind developments and ensuring that local communities are listened to whether there is a subsidy in place or not, as set out in the Bill. Of course, however, some communities remain concerned when a local planning decision is challenged on appeal.
It is important that local communities continue to have confidence in the appeals process and that the environmental balance expected by the national planning policy framework is reflected in decisions on renewable energy deployment. That is why my right hon. Friend the Secretary of State for Communities and Local Government announced a temporary change to the appeals recovery criteria for a period of six months. In doing so, he explained that he wanted to give particular scrutiny to planning appeals involving renewable energy developments so that he could consider the extent to which the new practice guidance met our intentions. Since that planning guidance was issued, more appeals have been dismissed than approved for more significant turbines, reversing the trend before the guidance was issued, when more approvals were approved than dismissed.
The Secretary of State for Communities and Local Government has found that the guidance is helping to ensure that decisions reflect the environmental balance we need to see, as set out in the framework, but he also recognises that the guidance is relatively new and that some development proposals might not yet have taken on board its intent. That is why after careful consideration he decided on 9 April 2014 to extend the temporary change to the appeals recovery criteria and continue to consider for recovery appeals for renewable energy developments for a further 12 months. We will continue to monitor the impact of recoveries on onshore wind and on investor confidence more broadly. There you have it, Mr Deputy Speaker.
We have been very clear about the fact that onshore wind plays a role in our energy mix. It produced 7% of the UK’s electricity in the last quarter, but we need to ensure that we tackle the challenge of climate change in the way that incurs the lowest possible cost. In the next Parliament, we will in time remove the subsidies from onshore wind, but I hope that that will happen as part of a wider move to drive down the cost of subsidies, especially as the cost of renewables falls and as some renewables, such as solar, are financed reasonably cost-effectively and reach parity with fossil fuels. That will significantly change the debate about renewables because we will reach a point where going green reduces costs, rather than adding subsidies to consumers’ bills.
We should stick to that clear direction and vision, and we should do so in a way that allows the House to abide by its commitments. I take on board the point about the Bill’s intention, which is consistent with the Prime Minister’s words, even if the technicalities are slightly different.
I have not dwelt at all on the utter chaos and catastrophe of the Opposition’s policies, the inconsistencies of which were well drawn out in the debate. I am not going to go there, and I will not talk about how no one can have a freeze that is not a freeze and how the freeze policy was launched by someone standing next to an ice block, so to describe it later as a cap seems inconsistent with the intention at the time.
It is a great pity that the Opposition have no credible policy to speak of, but I suppose that only shows why it is vital that we have a successful outcome to the general election, so that we can continue with the goals that we have set. I look forward to working further on the Bill’s details with my hon. Friend the Member for Wellingborough, but it is clear that the costs of subsidies for wind are falling. We are bringing them down through the power of the ingenuity of mankind and the price discovery of the market. We are clear that we will remove future subsidies for onshore wind, and we will be careful to ensure that local planning considerations and the beauty of the local environment are taken into account. Although I have considerable sympathy with the Bill, it is not the right way to go about the stated policy, and the Government will therefore resist it.