Government Levies on Energy Bills
Debate between Tim Yeo and Mike Weir
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.
Energy Bill
Debate between Tim Yeo and Mike Weir
Mr Mike Weir (Angus) (SNP)
I am listening closely to what the hon. Gentleman is saying. Does he agree that the purpose of setting a decarbonisation target now is surely related to the supply chain? Companies are looking at bringing developments on stream around 2020, as many of them have a long lead-in time, and they want to know now that there will be a market for them after that date.
Mr Yeo
That is certainly one of the reasons for the amendment. It would help to create more jobs in the UK if the supply chain companies received reassurance in that regard.
Even among hon. Members there are signs of enthusiasm for my amendment. At the Liberal Democrat party conference last September, the Chief Secretary to the Treasury proposed a motion to establish a
“target range of 50-100g of CO2 per kWh for the decarbonisation of power sector in addition to existing carbon reductions.”
If every Liberal Democrat Member of Parliament who supported the Chief Secretary on that day were to join me in the Aye Lobby at 4 o’clock, the amendment would be carried. I am sure that all my hon. Friends on the Liberal Democrat Benches are keen to take this opportunity to strengthen their well-known reputation for consistency.