Mike Weir
Main Page: Mike Weir (Scottish National Party - Angus)Government Levies on Energy Bills
Mike Weir Excerpts
Mr Yeo
I take note of what the hon. Lady says and I respect her views, but she has not quite persuaded me that it will be safe to say no to nuclear in the immediate future. I think it is useful to have it as a weapon in our armoury, notwithstanding the high cost of this first new nuclear power station, but it is worth looking at and updating our assumptions. Nuclear is not exactly going to be in production tomorrow. There are still a few gaps to close between cup and lip before it will be in the bag. I am sure the European Commission’s objections can be adequately dealt with and I shall write to the Commission myself shortly on that very point.
I want to discuss a possible scenario. Of all the technologies being supported at the moment, the biggest expectation is for offshore wind. In 2017, offshore wind will qualify for a strike price of £140 and onshore wind for a strike price of £95, and let us suppose that the price of gas-fired electricity will be about £50 at that time. In effect, we are saying that offshore wind requires a subsidy that is double that for onshore wind and 40% higher than that for large-scale solar PV. Does that really represent good value for money for consumers?
Hitherto, I think that most consumers have been bewildered about the cost of supporting different low-carbon technologies. A system of renewable obligation certificates is obscure even to those of us who have tried to take an interest in the matter for a number of years, but suddenly it is going to become clear that certain technologies are very much cheaper than others. I wonder if, with a generous system of incentives, some of the cost advantages available to onshore wind—I know that it is probably the most controversial form of energy—were shared with the communities hosting onshore wind farms, some constituents might find the possibility of having a couple of wind turbines on the other side of the village green, given the offer of a freeze in their electricity price for as long as they were in production, less unacceptable than they currently do, but I merely speculate.
Staying with 2017, let us suppose that the gas price falls much lower, which many people would of course welcome. That would raise the cost of the already awarded contracts for difference that have to be met from the capped levy control framework. Is there a risk that the Government might have to stop offering any new contracts for difference, because it was clear that all the available money would be used up by the contracts already awarded? In that context, will the Minister explain why the Government think it is sensible to plan for as much as a third of all the electricity generation supported through the levy control framework to come from offshore wind, which is one of the most expensive forms? Will he comment on the danger that some projects that offer better value for money might get squeezed out if too much is allocated to expensive technologies early on?
Without clarity on such issues, there seems to me to be at least a risk of uncertainty in the system putting off some investors. It might at least encourage others to factor into their projects a higher price for the return on capital than would otherwise be needed in a more certain context.
Mr Mike Weir (Angus) (SNP)
I am listening closely to the hon. Gentleman, but I am slightly confused about what he is saying on offshore wind. The whole point of contracts for difference was to give certainty, as well as to give a boost to emerging technologies and get them off the ground. If the Government are now looking at not perhaps granting so many of them, does that not undermine the whole purpose of the contracts for difference system?
Mr Yeo
It depends on our priority. Mine would be to get the largest amount of low-carbon electricity generated at the least possible subsidy cost to consumers. Given the figures that are currently projected, I am simply saying that the mix looks unlikely to achieve that objective. I entirely understand the hon. Gentleman’s point that if we are to support any technology, a degree of predictability is important for encouraging investment—I am not advocating a lot of chopping and changing—but at the same time, we are in the early stages and getting better value for money might be such a high priority, given the burden that energy costs now represent to consumers, that we should consider whether the projected mix is right.
On the subject of uncertainty, although the levy control framework helpfully gives a considerable degree of predictability for the rest of this decade, seven years is not all that long given that the investment cycle in the energy industry is very long. Will my right hon. Friend say when we might get at least an indication of the likely levy control frameworks beyond 2020?
That is particularly important in the light of the issue that the hon. Member for Brighton, Pavilion (Caroline Lucas) has just raised about nuclear. There is clearly at least a perception that nuclear will take a great chunk of levy control framework money in the 2020s. If we do not know the total, some people thinking of bringing on new investments later in this decade may be put off because they fear that not enough money will be available.
John Robertson (Glasgow North West) (Lab)
It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo). He does an excellent job as Chair of the Energy and Climate Change Committee and it is a pleasure to be a member of it.
My great fear is that we are losing sight of climate change. With the country in austerity, people see cheap fossil fuel as an answer to their prayers as they try to keep costs down. However, climate change causes long-term damage, as we have seen with the recent floods, which are more than a little unusual. Some of us believe that that is down to climate change in at least a small way, if not in a large way.
The levies are important. About 50% of the cost goes to pensioners and those on low incomes who need help from schemes such as the warm home discount. The rest goes towards increasing investment in new plants, in the hope that there will be affordable energy in the long run. I have often taken part in debates on these matters and I make no apology for wanting to look after those in society who have the least and who need the most help.
The explanation of the levy control framework by Her Majesty’s Treasury states that its aim is to ensure that the
“fuel poverty, energy and climate change goals”
are met
“in a way that is consistent with economic recovery and minimising the impact on consumer bills.”
I think all Members of the House would agree with that, but sadly it does not happen.
The National Audit Office says that the levy control board has
“focused on cost control and not the associated impacts on energy policy outcomes.”
It is looking at only one half of the equation. We need to look at the impact of the levies on consumers’ bills, whether it is as high as the energy companies say it is or not. However, we can see their worth only if we know what the impact is. The Department of Energy and Climate Change says that its energy and climate change policies will reduce bills by about 11% or £166 by 2020. How can we know if that is the case if we do not know what the impact of the policies will be? We need to be sure about the impact on people’s energy bills.
There are recommendations in the Select Committee’s report that would make the information on that clearer. For example, it recommends:
“Easily identifiable ‘costs per customer’ for each scheme on a consistent basis across years and between reports”.
Clear reporting on how levies are be raised and spent is particularly important because the levy control framework limit will increase from £3.184 billion in 2013-14 to £7.6 billion by 2020-21. Some 83% of people are worried about energy prices, so it is important to ensure that we do not contribute to the increase in prices.
Mr Weir
The hon. Gentleman is making a very good point. Is it not also important that it is made clear exactly what the impact of a levy is on individual bills? We are often told that green levies are pushing up bills, but the renewables obligation actually makes up a relatively small part of the average dual fuel bill.
John Robertson
The hon. Gentleman makes a very good point. I have always felt that the amount of information that goes out to the ordinary person in the street when he opens his gas and electricity bill is either too complicated for him to understand or too simple and does not provide enough information. The Government have to ensure that people are educated. I am not talking only about the education of the general public, but about the education of the energy companies. They need to understand exactly what their job is in relation to customers. Yes, they are there to make money and to deliver electricity and gas, but they forget that they are dealing with real people—real people’s lives and jobs.
There has to be stronger control of the companies. If we are to take money through the levies, we need to ensure that it is spent properly and, to go back to the Treasury’s statement, that it is used to look after people in fuel poverty. We need to make it easier to show that the energy companies are trying to pull the wool over our eyes.
Mr Mike Weir (Angus) (SNP)
We have many debates on the cost of energy to consumers, because the issue is vitally important, especially at this difficult time. The so-called green levies are often identified in the press, and sometimes in the House, as the cause of rising energy bills, but we cannot escape the fact that they are there for a reason. Their purpose is to provide our energy infrastructure for the future, and to ensure that money is invested to promote renewables and take carbon out of the energy system. Only in that way can we reduce energy bills and ensure that they stay low.
Last week the Prime Minister reaffirmed his view that man-made climate change is the most serious problem that affects us all, and it was good to hear that. Let us hope that this time he really means what he says, and will not move on as soon as he has hugged the next husky.
There are still people in the House of Commons, in the other place and outside who deny the reality of climate change in the face of mounting scientific evidence and, indeed, the evidence of our own eyes. The impact of climate change is variable, but it is also undoubtedly dramatic and dangerous. We cannot point to one weather event and say that it is a direct result of climate change, but we can see the pattern that is developing, and acknowledge that our climate is changing. Most of us agree on those points, but if we are to challenge the problem, we must obtain the money and take the measures that are necessary.
We must be brutally honest: if we leave the matter purely to the market, it is highly unlikely that there will be investment in a green economy and carbon-free energy. In the current market conditions, the cheapest form of energy is probably coal. Indeed, more coal is being burned for energy than has been the case for quite some time. However, we also face increasing energy demands, and the combination of the two could spell disaster for our climate. We need only think of the massive smog cloud that engulfed Beijing last week, when even indoors the pollution levels were above World Health Organisation safety levels. To be fair, the Chinese are now coming round to investing in greener energy in order to tackle their problems, but that remains a warning of what we could face if we do not act to tackle our problems. We have done it before: city smogs here became a thing of the past because of regulation, in particular the introduction of the Clean Air Acts.
Totally free markets will not take us where we need to go, so the Government must continue their efforts to ensure that there is real action on tackling climate change and the greening of our energy system. An enormous amount of money is needed for that project, but it should not be seen purely as costs; it should also be seen as investment. As I said earlier to the hon. Member for South Suffolk (Mr Yeo), I was rather concerned about his description of offshore wind farms and the contracts for difference that were needed for them. Having sat through the debates on the Energy Bill and heard what was said about CfDs, I understood that they were variable so that an extra boost could be given to new, untried technologies that needed a lift in order to take off, and so that the subsidy given to established technologies could be reduced. That struck me as perfectly reasonable, because the huge cost of offshore energy will undoubtedly require that extra boost. I would caution against considering alternatives to it just because it is expensive; it has reduced the need for onshore energy.
As we heard from the hon. Member for Truro and Falmouth (Sarah Newton), renewables are making a great difference to local economies throughout the country. They are driving the development of many parts of the new economy. Renewable energy is now a significant part of Scotland’s economy: 11,695 people are in full-time employment in the industry, an increase of 5% over the last year, and the industry is confident that it will continue to expand and employ more people. The latest figures from the Department of Energy and Climate Change show that in 2012 renewables accounted for 40.3% of gross electricity consumption in Scotland—7.5% more than in 2011—and for nearly 30% of Scotland’s total, a record proportion.
In my constituency, there are plans for substantial offshore wind arrays that have the capacity not only to generate huge amounts of renewable energy, but to push investment opportunities and new jobs. However, that will happen only if the CfDs are there to make it happen. My area used to have huge engineering works that went in the dreadful recession of the 1980s, but engineering survived in niche businesses and we are now seeing a real revival in businesses associated with the oil and gas industry—which is vital to the north-east of Scotland and where businesses such as GE Oil and Gas in Montrose are expanding—and many more smaller firms that are part of the oil and gas supply chain and increasingly the renewable supply chain as well. That is where much of the future development will come from.
Apprenticeships are growing, giving real opportunities for youngsters in my area to get a good long-term career, and the skills are transferable into the new renewable industries, giving continuity and a real future in sustainable jobs.
There are problems in the way that electricity market reform has been introduced, however. There have been delays, which have caused concern about investment. Some of the proposed developments have not come to fruition because of the changes to EMR, particularly in respect of onshore wind farms. SSE pulled out of two protected developments.
Much of what has been done has been possible only because of the renewable obligation. I accept that has put some costs on our energy bills, but it has also allowed us to fund programmes that have led to greater efforts to insulate homes, reducing energy use and future bills for consumers.
The hon. Member for South Suffolk mentioned the effect of nuclear—when debating with the hon. Member for Brighton, Pavilion (Caroline Lucas), I think. I was interested in what he said about almost off-the-peg stations coming from China. I have some dubiety about the future of nuclear, it must be said, and my friend the hon. Member for Glasgow North West (John Robertson) and I have debated that on many occasions. The cost of Hinkley Point is of interest to me, and interests in the European Union seem to be looking slightly askance at that. It is worth noting that the cost of the subsidy to Hinkley Point alone is over four times the total cost of the renewables obligation across the whole of the UK during its first 10 years in operation. That puts into perspective the amount of money that is involved. It is also worth noting that I saw a story earlier this week that a plan for a similar design in Finland which is already vastly over-budget and way behind schedule has now been put back for several more years. We really have to wonder just what contribution nuclear will make to energy in the foreseeable future. It seems to me this contract is ruinously expensive and will impact adversely on energy bills throughout the country.
We have to ask whether energy bills are now too high, however. Unfortunately, I think that is true, but it cannot be laid at the door of the so-called green levies. Let us look at the breakdown of costs in our energy bills as set out in the Commons Library note “Components of an energy bill”. It sets out that environmental and social levies amount to between 8% and 10% of the typical domestic dual-fuel energy bill. That is the proportion before the changes announced by the Chancellor in the autumn statement, which, as has been said, removed the funding of the warm home discount from energy bills and should have reduced the proportion further.
Figures produced by the Department of Energy and Climate Change break things down further, and that leads to an estimate that only 2% of the average dual-fuel bill is due to the renewables obligation, which up until now is what has supported large-scale renewable generation, feed-in tariffs and small-scale renewables. That amounts to some £30 a year on the mythical average bill.
I do not deny that for hard-pressed families even such a sum is significant. However, it is not the main driver for increasing energy prices. That is the wholesale energy costs, which according to DECC’s own figures account for between 46% and 48% of the bill. These costs are susceptible to many outside forces, of course. Prices are currently rising quite sharply with the increasing tension in Ukraine as Russia is a major supplier of energy, and in particular of gas to Europe.
I was also interested in the point the hon. Member for Southampton, Test (Dr Whitehead) made about CfDs and gas prices. The idea behind that, as I understand it, was that we would have a definite price for gas. That rising cost is the main driver for energy bills so, in theory at least, if we have a set cost under CfDs for that gas, it should prevent the spikes we have seen in the past and give the consumer, as well as the company, some certainty about what they are going to pay, although nothing in this world is certain.
Bob Stewart (Beckenham) (Con)
I am just trying to get this clear. The hon. Gentleman mentions figures of about 8% to 10%, reducing to 2% for renewables, with 46% as the cost of the energy. Is the rest tax? What is the tax percentage in the average energy bill in the hon. Gentleman’s example?
Mr Weir
It is not my example; I refer the hon. Gentleman to the House of Commons Library note on this subject, which sets out clearly the various elements, as I do not have it with me today. Obviously, energy companies will make a profit, and part of the taxation on energy bills is 5% VAT. The point about the 8% and the 2% is that only 2% of the bill is directly relatable to the renewables obligation. The differences between the two are the social obligations—the insulation costs and the other costs for creating warmer homes and reducing future energy bills.
It will be interesting to see how these changes feed into energy costs. If, as is claimed, the major companies are operating a hedging strategy for gas that forces them to buy well in advance, there should be little immediate effect—I am referring to the current rise in prices because of what is happening in Crimea. But those who buy the bulk of their supplies on the spot market may well see an immediate impact. It will be interesting to see whether there is a turnaround in who has the higher energy prices as a result of that.
A further major element in bills is the network costs charged to energy suppliers, which, according to the note, make up 20% to 23% of the costs. I have spoken on that issue many times in this House, as well as on the unfairness of the costs, which discriminate against generators, particularly renewable energy generators in the north of Scotland compared with major generators in the south. The regulator, Ofgem, has been looking into this matter, in a seemingly endless investigation, Project TransmiT, which I understand has been put back yet again to a possible introduction in April of next year. There must be more action and a fairer system of transmission reduces the costs faced by renewable energy. That would have a positive impact on bills by reducing the cost to the consumer.
All that having been said, we do need to look at the balance between investment and the price paid by consumers. I support the idea that some of the costs that have been imposed upon consumers are taken off bills and put on general taxation, specifically those relating to providing energy efficiency and insulation measures. It is not often I agree with the Minister, but that was correct.
Mr Weir
The hon. Gentleman need not worry too much.
Under the green deal, many measures under the energy company obligation are left to the energy companies to set up and administer, but that is not working. I have raised concerns about aspects of the specific schemes, but the overriding fact is that there is now a complete lack of trust in the energy companies and having them approach people offering such schemes will not achieve the take-up we need. Suspicion alone will stop many people taking up what could be a good scheme. We should be made to examine how we deliver these things, because if we were to have a more focused scheme, we could do more, for example, in hard-to-heat homes in the areas mentioned by the hon. Member for Truro and Falmouth, by making sure that these specific issues are tackled.
I have raised other issues relating to the ECO, one of which may interest the hon. Lady, who, like me has many constituents who are off the gas grid: many energy companies will not have replacement boilers for off-gas-grid appliances. I have written to all the major companies to press them on the issue. I have raised it at ministerial round-table meetings—I am sure that the Minister is fed up with hearing about it—and in the House, but the situation remains. We really need action on such areas. We were told by Ministers that the ECO was technology-neutral, but that is clearly not so for off-grid consumers.
The Government’s usual mantra of energy efficiency and switching simply does not wash with those who are struggling to pay their bills. The savings on offer would barely scratch the surface of the problem. All too often, energy companies seem to be carrying out a follow-my-lead strategy on price rises. If someone switches when their company raises prices, they may just be delaying their own price rise until the next company makes its move. It is not surprising that cynicism has taken hold among the general public. We must make it clear to our constituents that there is no silver bullet to solve the problem of energy prices. Yes, we need to look closely at how the energy companies operate, which the hon. Member for Glasgow North West has talked about on many occasions. In fact, that is one of the things on which we agree.
We need transparency in the system to see not only how the companies make their money but the inequalities. In the Energy Act 2013, the Government sought to take powers to implement the Prime Minister’s promise to put everyone on the lowest tariff, but, as I have said many times, the Act does not seem to have that effect. What it does is to require the energy companies to facilitate the switch, but the offer to do that may well not be obvious to many people who receive a mass of paper through their doors from the energy companies. There must be a much more proactive effort to put people on to the lowest tariff. It also seems that, under this scheme, it is only the lowest tariff operated within the type of contract the person already has. As I have said before, that is fine if someone is on a direct debit tariff, but if they are on a prepayment meter, for example, they will still be stuck on a higher tariff, and there is little being done to help those people.
If we are to explain clearly what the costs of energy are and to do what we can to reduce energy bills, we need to ensure that everyone is on the lowest possible bill. We need to get away from the fact that companies can claim that bills are the result of green levies or other levies, when clearly that is not the case.
I have spoken a great deal about prepayment meters before, and I will not do so again any great length again. However, I will just say that the citizens advice bureau in Scotland cites the case of a single parent with two children. The mother currently has to lose £7 to arrears every time she puts £10 in the meter. The £3 remaining is entirely insufficient to heat her home. Such things cannot be allowed to continue if we are serious about bringing the public on board. They must understand that we are serious about not only ensuring that the infrastructure is in place and that we move towards green energy, but about doing what we can to reduce energy bills.
I have also spoken before about the fact that some people who have prepayment meters or who are in arrears often do not have bank accounts. The banks are not interested in the low-income customers. Indeed many of them have moved out of areas such as the rural parts of my constituency.
The hon. Member for Truro and Falmouth mentioned off-grid customers, so I will give another plug for my favourite campaign for earlier winter fuel allowances for elderly people who are off the gas grid. I am pleased to see that the Labour party has now adopted that as policy. I have been campaigning for it for some time, and I am glad to have its support for that policy. It is interesting to note that both major parties have supported that at one time or another. Strangely enough, they have done so when they have been in opposition, not in government—call me a cynic, but there we go. We will wait and see.
All too often when we debate energy, we focus on electricity consumers. We must look at the whole system, and I am glad that we have the opportunity to do so today. I think that I have spoken for long enough, and I will end by saying that this is a good opportunity to make the point that we should not just look at green levies. There is a reason we have this ongoing system: to decarbonise our energy and ensure that bills stay low in future.