Energy Bill [HL]
Lord Bourne of Aberystwyth Excerpts(8 years, 1 month ago)
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Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 1.
“( ) Schedule 1 to the Oil Taxation Act 1975,”
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, the amendments in this group add the relevant provisions of the Oil Taxation Act 1975 and the Corporation Tax Act 2010 to the legislation listed at Clause 2(6), which contains the Secretary of State’s relevant oil and gas functions. This ensures that the functions provided for by these Acts fall within the definition of “relevant functions” and can be transferred from the Secretary of State to the Oil and Gas Authority by regulations made under Clause 2(2).
Schedule 1 to the Oil Taxation Act 1975 and Part 8 of the Corporation Tax Act 2010 contain the important oil and gas functions of determining oil fields, cluster areas and whether an oil field project is materially complete. These functions form the basis of oil taxation and are currently undertaken by the Oil and Gas Authority in its capacity as an executive agency. Amendment 2A to Commons Amendment 2 simply seeks to ensure that the function of determining whether an oil field project is materially complete is also transferable to the OGA.
These amendments are technical in nature and simply seek to put it beyond doubt that these key functions can be transferred to the OGA once it becomes a government company, as we have always intended. I beg to move.
Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 2.
“( ) Chapter 9 of Part 8 of the Corporation Tax Act 2010,”
Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 3.
Lord Bourne of Aberystwyth
My Lords, following a Division on Report in this House, a new clause was added to the Bill. This new clause rewrote the OGA’s principal objective in three significant ways. First, it removed the Wood review’s central premise to maximise the economic recovery of UK petroleum within Part 1A of the Petroleum Act, and replaced it with an objective to maximise the economic return of UK petroleum. Secondly, it imposed on the OGA an obligation to retain oversight of the decommissioning of oil and gas infrastructure. Finally, it imposed an obligation on the OGA to secure oil and gas infrastructure for reuse for the transportation and storage of greenhouse gases. Noble Lords will know that these changes were reversed in Committee in the other place.
The OGA has important functions in respect of both decommissioning and the storage of carbon dioxide. However, the change to the principal objective made on Report detracts from the OGA’s focus on maximising economic recovery and is damaging to the North Sea. This is unacceptable—particularly at a time of unprecedented challenge for the oil and gas industry. The OGA should remain focused on maximising economic recovery, and anything other than this risks seriously weakening its ability to provide crucial and urgent support to our oil and gas industry.
The amendment made at Lords Report stage had significant potential knock-on effects. By diluting the OGA’s principal objective, it would not only risk the premature decommissioning of key North Sea infrastructure but seriously jeopardise vital skills and experience, including those that could help to promote the longevity of the industry through carbon storage projects. From this perspective, the amendment is self- defeating.
The Lord Bishop of Chester
My Lords, speaking briefly from these Benches but entirely personally, because bishops take different views on this, I welcome the realism that lies behind the Commons amendment. Following on from the contribution of the noble Lord, Lord Howell, it may well be that nature’s way of carbon capture and storage is some sort of vegetation. That may be the solution, but it is hardly a function for the Oil and Gas Authority to supervise. The great cost of extracting carbon dioxide—which can be done perfectly easily, technically—and then transporting it under the North Sea would increase energy prices in this country to an extent that would make the recent threat to our steel industry look like simply the foothills. It would have a major impact in raising energy costs. So the Commons amendment limiting the function of the Oil and Gas Authority is realistic and entirely supportable.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords for participating in the debate on this amendment. I will try to cover the points raised and do justice to some very important ones. First, there is nothing inconsistent in having a laser-like focus on the development of the North Sea as a principal objective set out by the Government and developing CCS. I reassure noble Lords who raised the issue—the noble Baronesses, Lady Featherstone, Lady Liddell and Lady Worthington—that the Government are very much wedded to the importance of CCS. As the noble Baroness, Lady Worthington, said, we set up an advisory committee chaired by the noble Lord, Lord Oxburgh, who I do not think is in his place. He brings to this task great expertise. It has cross-party representation, with all principal parties here represented and also the Scottish nationalists from another place. We will be responding to the advice that we receive from the committee, which I think will come in a timely way at the end of the summer or the beginning of the autumn. I know that the committee has met at least three times already and is driving this agenda very hard.
I will mention what we are doing on CCS to reassure noble Lords. There is collaboration with key partners who are also developing CCS; we are sharing data and research with them. Officials in the department are working on CCS; this is not an area where there is no activity. Our science and innovation budget has been increased, and we are looking at how we can usefully use it. There are developments on Teesside with industrial CCS, which is important. My noble friend Lord Howell made a valid point about carbon capture usage, which is also a key part of what we are looking at—but these things are best done together.
I thank my noble friend Lord Ridley for mentioning the issue of Canada; we study progress there very closely. I also thank the right reverend Prelate the Bishop of Chester for injecting some realism about the importance of having that laser-like focus on the North Sea, but, at the same time, as has rightly been accentuated and stressed by other noble Lords in the debate, developing a CCS strategy. With that, I commend the amendment.
Lord Bourne of Aberystwyth
Moved by
That this House do agree with the Commons in their Amendments 4 and 5.
Lord Bourne of Aberystwyth
My Lords, Commons Amendments 4 and 5 overturn amendments made at Lords Report stage. They reinstate the original wording of Clause 17, to require the Secretary of State to carry out reviews of the OGA’s performance and functions on a no more than three-yearly, ongoing basis. There is broad consensus that measures are needed to ensure that the OGA remains well equipped to address the diverse challenges faced by the oil and gas industry. Its role and scope, including in relation to the storage of carbon dioxide, needs to be appropriate, sufficient and regularly evaluated. As such, the Government introduced provisions requiring review of the OGA’s effectiveness in exercising its functions, as well as review of the fitness for purpose and scope of such functions.
However, requiring an initial review to take place no later than one year after the Bill comes into force, and then annually for subsequent reviews thereafter, would be an incredibly onerous process for government, the OGA and industry. Moreover, it would likely have myriad unintended consequences. It would require the almost continuous evaluation of the effectiveness of the OGA, with very little time to implement the recommendations from each review. Reviews would be extensive, needing to cover both statutory and non-statutory functions, and an assessment of effectiveness against external factors, such as changes in the regulatory landscape, operational practices across the UK continental shelf and environmental and economic factors.
All this would be required as part of the review to enable the Secretary of State to produce a report setting out the findings of the review which is to be laid before Parliament. This would create significant resource burdens both for the OGA and government, and risk obstructing the work of the OGA. This process would be inefficient and likely to result in an ineffective review. It would weaken the OGA’s ability to act as an independent regulator free from government intervention. It would also create a review process significantly out of step with other regulators.
There will be other mechanisms in place to ensure that the OGA’s performance and functions are appropriate. The OGA will publish, on an annual basis, a refreshed five-year business plan and an annual report and accounts. The need for an arm’s-length body charged with effective stewardship and regulation of the UK continental shelf was a central recommendation of the Wood review. I believe that the original three-year review periods introduced by government must be reinstated to avoid conflict with that recommendation. I beg to move.
Lord Bourne of Aberystwyth
Moved by
That this House do agree with the Commons in their Amendment 6.
“Onshore wind power: closure of renewables obligation on 31 March 2016
(1) In Part 1 of the Electricity Act 1989 (electricity supply), after section 32LB insert—
“32LC Onshore wind generating stations: closure of renewables obligation
(1) No renewables obligation certificates are to be issued under a renewables obligation order in respect of electricity generated after 31 March 2016 by an onshore wind generating station.
(2) Subsection (1) does not apply to electricity generated in the circumstances set out in any one or more of sections 32LD to 32LL.
(3) In this section and sections 32LD to 32LL “onshore wind generating station” means a generating station that—
(a) generates electricity from wind, and
(b) is situated in England, Wales or Scotland, but not in waters in or adjacent to England, Wales or Scotland up to the seaward limits of the territorial sea.
(4) The reference in subsection (1) to a renewables obligation order is to any renewables obligation order made under section 32 (whenever made, and whether or not made by the Secretary of State).
(5) Power to make provision in a renewables obligation order or a renewables obligation closure order (and any provision contained in such an order) is subject to subsection (1) and sections 32LD to 32LL.
(6) This section is not otherwise to be taken as affecting power to make provision in a renewables obligation order or renewables obligation closure order.”
(2) The Renewables Obligation Closure Order 2014 (S.I. 2014/2388) is amended as follows.
(3) In article 2(1) (interpretation), after the definition of “network operator” insert—
““onshore wind generating station” means a generating station that—
(a) generates electricity from wind, and
(b) is situated in England, Wales or Scotland, but not in waters in or adjacent to England, Wales or Scotland up to the seaward limits of the territorial sea;”.
(4) In article 3 (closure of renewables obligation on 31st March 2017)—
(a) in the heading, after “solar pv stations” insert “or onshore wind generating stations”;
(b) in paragraph (1), after “solar pv station” insert “or an onshore wind generating station”.”
Lord Bourne of Aberystwyth
My Lords, the Government remain committed to delivering our manifesto pledge to end new subsidies for onshore wind. To deliver on this commitment the Government are intent on bringing forward the closure of the renewables obligation to new onshore wind in Great Britain. It is the Government’s view that all the government amendments in this group are consequential on each other.
Commons Amendment 6 reinserts the early closure clause removed at Lords Report stage. It gives effect to the manifesto commitment to end new subsidies for onshore wind. As I set out during our earlier debates, the Government have engaged widely on their intention and have considered in detail each of the proposals that have been raised, not only by noble Lords and Members in the other place but by many valued industry stakeholders during the passage of the Bill. The Government are committed to protecting consumers from the rising costs of energy bills while also protecting investor confidence. It is the Government’s opinion that the new clauses presented here do exactly this.
To protect investor confidence, the Government have proposed a grace period for those projects, meeting certain conditions as at 18 June last year, as outlined in the Statement on that date by my right honourable friend the Secretary of State for Energy and Climate Change, Amber Rudd. The grace period conditions set out in Commons Amendment 7 are intended to protect those projects which already had the following as at 18 June last year: first, relevant planning consents; secondly, a grid connection offer and acceptance of that offer, or confirmation that no grid connection is required; and, thirdly, access to land rights.
In addition, and to address feedback from industry, certain projects which have been granted planning permission following a successful appeal will also be eligible for the grace period. This will include those projects which have, as a result of a judicial review or an appeal, had a negative planning decision which was made on or before 18 June last year subsequently overturned.
The Government have also taken on board concerns raised by industry about an investment freeze. Following industry engagement after the 18 June announcement last year, we have seen evidence that certain projects have been experiencing difficulty securing funding due to legislative uncertainty caused by the Bill’s passage through Parliament. We have, therefore, sought to address this through the investment freezing condition. This will ensure that projects which meet the approved development condition, and which would otherwise have been able to commission and accredit under the RO by the original closure date, 31 March 2017, are not frozen out of the process. This investment-freezing condition has been designed specifically to protect the projects that were intended to be able to access the grace period as proposed on 18 June last year but which have been unable to secure debt funding pending Royal Assent due to legislative uncertainty. Indeed, feedback from industry suggests that it supports and welcomes such a measure.
The Government want to take a consistent approach to all onshore wind projects eligible to accredit under the RO. The Commons amendments therefore also seek to ensure that an existing grace period for delays caused by grid or radar works will continue to apply. Let me reiterate so no ambiguity remains: this is a manifesto commitment based on plans which we signalled well before the election. The honourable Member for Coatbridge, Chryston and Bellshill, Mr Philip Boswell, said at Committee stage in the other place:
“We agree that swift passage of the Bill with clear and consistent RO grace period provisions is needed in order to provide certainty to investors in the onshore wind sector as quickly as possible. The renewables industry fears that the longer legislative uncertainty over RO closure persists, the greater the risk of otherwise eligible projects running out of time to deliver under the proposed grace periods”.—[Official Report, Commons, Energy Bill Committee, 2/2/16; col. 127.]
On Commons Amendment 8, the Government would like to see an equivalent approach to closure of the RO to onshore wind taken across the UK. Commons Amendment 8 gives the Secretary of State a power to make regulations, which, if made, would prevent suppliers in Great Britain using Northern Ireland renewables obligation certificates. These would relate to electricity generated by new onshore wind stations and any additional capacity added to existing wind stations after the onshore wind closure date. This power allows for circumstances to be specified in regulations when such Northern Ireland renewable obligation certificates may still be used, and for the setting of a later date than the onshore wind closure date. The power has been included with an intention to protect consumers in Great Britain from the costs of any additional support which Northern Ireland chooses to provide.
This is a backstop power; it would be used only if Northern Ireland does not close its renewable obligation to new onshore wind on equivalent terms to the rest of the United Kingdom. As my honourable friend the Minister of State Andrea Leadsom confirmed in the other place, this power would be used only in relation to new onshore wind stations and additional capacity in Northern Ireland that do not meet closure conditions equivalent to those in Great Britain.
I am pleased to say that renewable obligation in Northern Ireland has now closed to large-scale new onshore wind stations with a capacity above 5 megawatts with effect from 1 April 2016, and that Northern Ireland is currently consulting on closing stations at 5 megawatts and below on equivalent terms to the rest of the United Kingdom. The Government continue to engage with Northern Ireland with a view to effecting closure on equivalent terms to Great Britain through Northern Irish legislation, but this backstop power is included with a view to delivering on our manifesto commitment across the whole of the United Kingdom.
Amendment 10 seeks to ensure simply that the provisions set out in Commons Amendments 6, 7 and 8—that is, the early closure of the RO to new onshore wind in Great Britain, together with the related grace-period provisions, and the backstop power relating to the RO in Northern Ireland—will come into force on Royal Assent. As my honourable friend the Minister of State Andrea Leadsom set out in the other place, the Government intend the provisions implementing the early closure of the RO to come into force on the date of Royal Assent and do not intend to backdate these provisions.
Government amendments to Commons Amendments 6, 7 and 8 further clarify that the onshore wind closure date will be the date on which the Bill achieves Royal Assent. These changes are set out in government Amendments 6A, 6B, 7A to 7S, 7AJ to 7AL and 8A to 8C. The amendments also include a number of consequential changes to the investment-freezing condition, extending it by one month to account for the additional period of legislative uncertainty. The amendments further ensure that projects seeking to access the grid or radar delay condition would continue to have an additional 12 months to accredit where they satisfy the relevant eligibility requirements. The Government are making these changes to provide clarity and certainty for the industry, and our policy makes it clear that we are taking steps to protect consumer bills while also balancing the interests of industry. I beg to move.
Lord Foulkes of Cumnock (Lab)
I shall speak to Amendments 7U, 7V, 7W, 7Y, 7AC, 7AD and 7AE which are in my name. The Minister is a good friend of mine, and I have great respect for him. Before he became a Minister, he and I used to work together on the great issue of devolution of powers to Scotland and Wales. We worked very well together, so I want to reassure him that I have every interest in him continuing in his post. I do not want him to do anything that would threaten his future. That is why I want to reassure him that everything that I am suggesting is in line with the Conservative election manifesto pledge.
Lord Grantchester (Lab)
My Lords, I shall speak to Amendment 7AB, tabled in my name. The Energy Bill started in your Lordships’ House shortly after the generally unexpected Conservative majority in the general election last year. It focuses primarily on the setting-up of the Oil and Gas Authority. Into the Bill, the new Conservative Government thrust two new clauses on onshore wind, closing down early, to a date of 18 June, the renewables obligation. Hurriedly, the Government agreed to consider exceptions, as grace periods, to allow schemes to complete as they had travelled a long way through the development stage, in good faith and at considerable cost.
While understanding that the Government have to draw a new line somewhere to give effect to this measure, your Lordships’ House was not content that sufficient logic had been applied and passed the Bill to the Commons with these two clauses omitted from it. These clauses now return to your Lordships’ House but without material amendment having being made in the Commons to these grace period proposals.
Amendment 7AB proposes a logical, consistent, clear, honest and fair extension to the exceptions agreed by the Government. The wider onshore wind industry has come to a consensus and supports this single, narrow extension to the existing renewables grace period criteria. The proposed change is for projects that have achieved democratic local consent for their development at a planning committee on or before 18 June 2015 but received Section 75 in Scotland and Section 106 in England and Wales agreement after that date. At present they are excluded.
This cannot be said to be against Conservative Party policy. It is widely considered that a decision made by a democratically elected local planning committee embodies the principle of giving local people the final say. To deny this extension is to deny and prevent local people having the final say on wind farm applications.
The publication of a resolution to grant permission is considered by both developers and local authorities to be a procedural step and that planning permission is to follow—in effect, agreement is all but made. The industry is not aware of any commercial project that received local community consent at planning committee and was not awarded a written decision because of a failure to complete a Section 75/106 agreement. Continuing to proceed on the basis that planning consent is secured, developers have greater sunk costs at this stage. Formal notice is expected because a resolution by a planning committee is a real and substantial commitment.
The lack of logic in the Government’s position arises from the concession they have granted to projects refused permission at 18 June but subsequently agreed on appeal. Projects refused on 18 June, although overturned, can qualify, whereas agreements resolved on 18 June and subsequently fulfilled cannot. This is a bizarre interpretation. The legal advice that the industry has received categorically states that there is as much “legal right” to a planning permission resolved at local level as there is to a permission subsequently granted on appeal following a refusal by a planning committee. As I have said, the Government are content to allow these successful appeals to proceed.
Grace period concessions for anomalies and complexities around the criteria should allow for projects which have local consent but missed the cut-off date due to the time needed for a planning authority to complete a Section 75/106 agreement and issue a decision notice. It would comply with Conservative policy that locally approved wind farms be enabled to go ahead.
To allow this concession will not open—I will not say floodgates—a gale of projects coming forward. I understand the industry has put forward a list of projects that received resolution for approval but where formal permission was issued after 18 June. The list totals seven projects—six in Scotland and one in England. This totals just under 90 megawatts. To put this into context, 90 megawatts would power 50,000 households—a mere fifth of 1% of more than 26 million households and about 1% of the present onshore wind capacity of over 8,500 megawatts. Surely the Minister cannot contend this to be a major concession.
As to the amendments tabled by the noble and learned Lord, Lord Wallace of Tankerness, he has worked tirelessly on trying to get a fair outcome for projects started in good faith by people who have committed substantial time and assets to bring forward onshore wind developments—which, after all, will be the least-cost technology providing low-carbon power. He has worked extensively, engaging with industry and the Government, to get a resolution that does the decent thing by these developers.
This measure closing down the renewable obligation has been one of the many taken by this Government that has done severe damage to investor confidence and led to a Commons departmental committee issuing a report on investor confidence in the UK energy sector.
I do not doubt that the amendments the noble and learned Lord has tabled are thought through with good intentions. However, I have targeted this side of the House’s focus specifically on the very minimum that could be considered reasonable, given that onshore wind developments are likely to be coming to an end in any case. His Amendment 7X, in part, supports my case. Yes, we want to be fair where we can, considering that the provision can be said to be in the Conservative Party manifesto, and the Commons has expressed its decision. We ask the Government to think again on the small measure I propose, at the very least, and show some consistency
I thank my noble friend Lord Hain for bringing this situation and his amendment to the attention of the House today. It allows me to underline just how destructive the Government’s arbitrary cut-off date of projects has been. A great amount of uncertainty now exists throughout the renewables sector and I urge the Minister and his department to open a dialogue with their Welsh counterparts to resolve this anomaly as quickly as possible.
I turn now to the amendments in the name of my noble friend Lord Foulkes of Cumnock and supported by my noble friend Lady Liddell and others. My noble friend’s Amendment 7Y, in part, also supports the case that I have made. Unfortunately, he includes other provisions that go beyond the small, narrow extension to the Government’s concessions. The fact that six of the seven projects arising from this extension are in Scotland shows the importance of wind power for jobs and enterprise there. He has identified the effect on schemes locally in Scotland in his remarks. It is unfortunate that the Government have brought back the renewables obligation scheme to be solely under the reserve of the Westminster Parliament by withdrawing it from being a devolved matter.
From the amendments that have come forward, I consider it reasonable to press ahead with the amendments that I propose.
Lord Bourne of Aberystwyth
My Lords, we have had a wide-ranging debate on the opposition amendments which I shall try to cover in my response. I shall take the speeches in the order in which they were made.
I acknowledge the great efforts that have been made by the noble and learned Lord, Lord Wallace, the noble Lords, Lord Foulkes, Lord Grantchester and Lord Hain, and the noble Earl, Lord Lindsay, and I thank them for their comprehensive suggestions and the detailed drafting of the amendments. I also thank them for their hard work and forensic skill—particularly that of the noble and learned Lord, Lord Wallace—in putting them forward.
I understand the points that are being made. There is, by and large, a doctrinal difference in attitudes to onshore wind between the Opposition and the Government. Hence it was in our manifesto and not in those of other parties. That should be our starting point.
I should make one thing clear that I hope I do not need to make clear. There were many references to my right honourable friend the Secretary of State for Scotland and projects being in his constituency and I hope no one was suggesting that there should be special treatment in that regard. Let me make it clear that there will not be—nor would the right honourable member for Dumfriesshire, Clydesdale and Tweeddale expect such.
I thank the noble Lord, Lord Foulkes, for his unusual, unprecedented and almost unique accolades. We go back a long way on devolution and, as he knows, I have the greatest respect for him. I am about to damage him with his Benches in the same way as he damaged me with mine but I thank him for his contribution. I contest the point he is making about these being mere technicalities—they are much more than that.
As noble Lords will appreciate, I cannot respond to all of the detailed projects because I do not have knowledge of every single one. Of those I do, I will endeavour to say what I can on them, but I cannot specifically carry the knowledge of where we are on them all. I certainly would encourage noble Lords and the developers to be in touch with the department because officials are keen to engage, to be helpful, and to give clarity in relation to these different projects.
I pay tribute to the noble Lord, who I know makes great efforts on behalf of his part of Scotland and the area he used to represent, and he has put forward a powerful case. I shall pick up on a point made by the noble Baroness, Lady Quin, and say that of course there would be an impact on deployment. Obviously if we alter the law it will not be just in relation to Scotland, it will apply to the whole of the country. It will not be laser-like on a particular area, so it will increase deployment, as the noble Lord, Lord Grantchester, indicated in his remarks. His figure was higher than that suggested by my noble friend Lord Lindsay. Further, as has been indicated, we have undertaken extensive consultation.
I turn to the points made by the noble Lord, Lord Hain, and I thank him very much indeed for making me aware of what he was going to say in relation to Llynfi Afan in the Afan Valley and the Gamesa project there. As he knows, DECC officials have already been engaged with the developer and they are happy to continue to do that. I am also certainly happy to write to Gamesa, as he indicated. From what I gather, this is not a difficulty with the Welsh Government, as has just been suggested. I do not think that that is the case at all. This project has planning permission so we will certainly take a close look at it and clarify the position. If I can help in that regard, of course I will.
I turn to the points made by the noble and learned Lord, Lord Hardie, on the issue of the grid and radar delay as set out in the letter that we sent to him. If I can, I will get officials to contact him again in case there is a lack of clarity on that or if there is an ambiguity; I do not think there is. I know that it is an issue that matters to other noble Lords as well.
I turn to the noble and learned Lord, Lord Wallace, who raised many points with forensic skill, as he does. As he has been around the legal block a bit he will know that cut-off dates are always a problem. It can be suggested that they are capricious or arbitrary, but virtually all legislation has cut-off points in it, and there will always be someone on the other side of them who you wish you could help. But in reality a cut-off point has to be set, and that is what we have done. I can understand that it does not appeal to some people, but of course it is arbitrary only in the sense that any date is arbitrary, so even if we moved in the way he has suggested, there would be other projects that would fall just the other side of the line.
I think that the noble and learned Lord’s ultimate conclusion was that there is no hybridity in this Bill. If that was his conclusion, I agree with him; this is not an issue about hybridity. Scottish developers are subject to Scottish planning law and those in England and Wales are subject to English and Welsh planning law. It is not unusual for differences in law to arise on either side of the border these days, and indeed it is now happening more and more in relation to Wales as well, producing different practical results. I do not think that that causes hybridity unless a specific private interest is affected, but I do not see that being the case here. So, with regret, I do not think that I can move on any of the points he has raised. We have made our position very clear.
Perhaps I may just say in response to some of the matters that have been brought up in relation to Scotland—I understand the particular interest in Scotland because of the massive deployment there; it has benefited massively, there is no doubt about that—that it was not a significant issue in the House of Commons. I did not think it was and so I double-checked it. That is not to say that it is not a matter that needs to be addressed, but it is interesting to note that it did not seem to be a massive issue in another place.
The noble Baroness, Lady Worthington, set out a position in relation to CFDs and the Scottish Government. We have set the rules for CFDs and we have said that they will not be considered for the round of CFDs in this year, but I am very willing to ensure that we engage with the Scottish Government, as we do on energy issues, to see if there is anything that we can do in relation to future CFD rounds. I will take that away and look at it.
The noble and learned Lord, Lord Wallace, raised an issue about what he saw as the improved clarity set out in the letter that I sent to him. That is the correct position, and we will ensure that the letter is circulated to noble Lords who have participated in the debate and we will make use of it too if it is helpful to developers, as indeed we do. The correct position is set out in it, so I will be happy to do that.
The noble Lord, Lord Grantchester, spoke kindly about our unexpected election victory as he saw it, and he also said quite rightly, for which I thank him, that one has to draw the line somewhere. That is a very realistic position. We can take different views as to where the line should be drawn. He talked about democratic control, but I would make the point that this does not stop wind farms deploying onshore, it ends the subsidy. People need to grasp that. The position is that we do not want to carry on subsidising where there is no continued need for subsidy. That is the basis on which we are moving and one of the prime reasons for this provision.
Lord Bruce of Bennachie (LD)
My Lords, I apologise for not being here at the beginning of the Bill, having only joined the House since then. On the basis of what was said by my noble and learned friend Lord Wallace and the noble Earl, Lord Lindsay, like the noble Baroness, Lady Quin, I represented an area which had an awful lot of applications, but we found that the big developers got in very quickly and were able to process their applications, whereas the small community proposals took a lot longer and found it more difficult, so they were later in the field. They have been caught by this. Does the Minister not recognise that the Government could find themselves in a situation where they are seen to have gone against communities in favour of big business? That just compounds the difficulty and the ideological divide that the Government are pursuing.
Lord Bourne of Aberystwyth
The noble Lord is wrong on the issue because, with the grace period and with the investment-freeze conditions, we have allowed for movement on these issues. I take the point that he is making but I do not agree with it.
I am just double-checking, but I hope that I have now done full justice to the comments that have been made.
Lord Wallace of Tankerness
My Lords, I do not think that the Minister has addressed two points, one of which is the investment-freeze conditions and green organisations such as Triodos, which do not appear to qualify. Even at this late stage, would he be prepared to look at this again? I also refer to the points made by the noble Earl, Lord Lindsay, and myself with regard to community investments. I do not think that the Minister has specifically addressed that issue as regards the Dalquhandy and West Douglas development.
Lord Bourne of Aberystwyth
Taking the latter point first, I think that I did so in response to the comments made by the noble Lord, Lord Bruce. We do not see any reason for distinguishing between community projects and others. That would only give rise to difficulties.
On the investment-freeze conditions, I think that the noble and learned Lord is pursuing the lenders point. There is no intention to alter the list. It is something that I think could be done in the future without primary legislation, but there is no proposal to change that. I apologise for not covering it earlier.
I think that I have covered all the main points, and with that, I ask noble Lords to withdraw their amendments.
Amendments 6A and 6B (as amendments to Commons Amendment 6)
Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 7.
“Onshore wind power: circumstances in which certificates may be issued after 31 March 2016
(1) Part 1 of the Electricity Act 1989 (electricity supply) is amended as follows. (2) After section 32LC (inserted by section [Onshore wind power: closure of renewables obligation on 31 March 2016] of this Act) insert—
“32LD Onshore wind generating stations accredited, or additional capacity added, on or before 31 March 2016
The circumstances set out in this section are where the electricity is—
(a) generated by an onshore wind generating station which was accredited on or before 31 March 2016, and
(b) generated using—
(i) the original capacity of the station, or
(ii) additional capacity which in the Authority’s view first formed part of the station on or before 31 March 2016.
32LE Onshore wind generating stations accredited, or additional capacity added, between 1 April 2016 and 31 March 2017: grid or radar delay condition met
The circumstances set out in this section are where the electricity is—
(a) generated using the original capacity of an onshore wind generating station—
(i) which was accredited during the period beginning with 1 April 2016 and ending with 31 March 2017, and
(ii) in respect of which the grid or radar delay condition is met, or
(b) generated using additional capacity of an onshore wind generating station, where—
(i) the station was accredited on or before 31 March 2016,
(ii) in the Authority’s view, the additional capacity first formed part of the station during the period beginning with 1 April 2016 and ending with 31 March 2017, and
(iii) the grid or radar delay condition is met in respect of the additional capacity.
32LF Onshore wind generating stations accredited, or additional capacity added, on or before 31 March 2017: approved development condition met
The circumstances set out in this section are where the electricity is—
(a) generated using the original capacity of an onshore wind generating station—
(i) which was accredited on or before 31 March 2017, and
(ii) in respect of which the approved development condition is met, or
(b) generated using additional capacity of an onshore wind generating station, where—
(i) the station was accredited on or before 31 March 2016,
(ii) in the Authority’s view, the additional capacity first formed part of the station on or before 31 March 2017, and
(iii) the approved development condition is met in respect of the additional capacity.
32LG Onshore wind generating stations accredited, or additional capacity added, between 1 April 2017 and 31 March 2018: grid or radar delay condition met
The circumstances set out in this section are where the electricity is—
(a) generated using the original capacity of an onshore wind generating station—
(i) which was accredited during the period beginning with 1 April 2017 and ending with 31 March 2018,
(ii) in respect of which the approved development condition is met, and
(iii) in respect of which the grid or radar delay condition is met, or
(b) generated using additional capacity of an onshore wind generating station, where—
(i) the station was accredited on or before 31 March 2016,
(ii) in the Authority’s view, the additional capacity first formed part of the station during the period beginning with 1 April 2017 and ending with 31 March 2018,
(iii) the approved development condition is met in respect of the additional capacity, and
(iv) the grid or radar delay condition is met in respect of the additional capacity.
32LH Onshore wind generating stations accredited, or additional capacity added, between 1 April 2017 and 31 December 2017: investment freezing condition met
The circumstances set out in this section are where the electricity is—
(a) generated using the original capacity of an onshore wind generating station—
(i) which was accredited during the period beginning with 1 April 2017 and ending with 31 December 2017, and
(ii) in respect of which both the approved development condition and the investment freezing condition are met, or
(b) generated using additional capacity of an onshore wind generating station, where—
(i) the station was accredited on or before 31 March 2016,
(ii) in the Authority’s view, the additional capacity first formed part of the station during the period beginning with 1 April 2017 and ending with 31 December 2017, and
(iii) both the approved development condition and the investment freezing condition are met in respect of the additional capacity.
32LI Onshore wind generating stations accredited, or additional capacity added, between 1 January 2018 and 31 December 2018: grid or radar delay condition met
The circumstances set out in this section are where the electricity is—
(a) generated using the original capacity of an onshore wind generating station—
(i) which was accredited during the period beginning with 1 January 2018 and ending with 31 December 2018,
(ii) in respect of which both the approved development condition and the investment freezing condition are met, and
(iii) in respect of which the grid or radar delay condition is met, or
(b) generated using additional capacity of an onshore wind generating station, where—
(i) the station was accredited on or before 31 March 2016,
(ii) in the Authority’s view, the additional capacity first formed part of the station during the period beginning with 1 January 2018 and ending with 31 December 2018,
(iii) both the approved development condition and the investment freezing condition are met in respect of the additional capacity, and
(iv) the grid or radar delay condition is met in respect of the additional capacity.
32LJ The approved development condition
(1) This section applies for the purposes of sections 32LF to 32LI.
(2) The approved development condition is met in respect of an onshore wind generating station if the documents specified in subsections (4), (5) and (6) were provided to the Authority with the application for accreditation of the station.
(3) The approved development condition is met in respect of additional capacity if the documents specified in subsections (4), (5) and (6) were provided to the Authority on or before the date on which the Authority made its decision that the additional capacity could form part of an onshore wind generating station.
(4) The documents specified in this subsection are—
(a) evidence that—
(i) planning permission for the station or additional capacity was granted on or before 18 June 2015, and
(ii) any conditions as to the time period within which the development to which the permission relates must be begun have not been breached,
(b) evidence that—
(i) planning permission for the station or additional capacity was refused on or before 18 June 2015, but granted after that date following an appeal or judicial review, and
(ii) any conditions as to the time period within which the development to which the permission relates must be begun have not been breached,
(c) evidence that—
(i) an application for 1990 Act permission or 1997 Act permission was made on or before 18 June 2015 for the station or additional capacity,
(ii) the period allowed under section 78(2) of the 1990 Act or (as the case may be) section 47(2) of the 1997
Act ended on or before 18 June 2015 without any of the things mentioned in section 78(2)(a) to (b) of the 1990 Act or section 47(2)(a) to (c) of the 1997 Act being done in respect of the application,
(iii) the application was not referred to the Secretary of State, Welsh Ministers or Scottish Ministers in accordance with directions given under section 77 of the 1990 Act or section 46 of the 1997 Act,
(iv) 1990 Act permission or 1997 Act permission was granted after 18 June 2015 following an appeal, and
(v) any conditions as to the time period within which the development to which the permission relates must be begun have not been breached, or
(d) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, planning permission is not required for the station or additional capacity.
(5) The documents specified in this subsection are—
(a) a copy of an offer from a licensed network operator made on or before 18 June 2015 to carry out grid works in relation to the station or additional capacity, and evidence that the offer was accepted on or before that date (whether or not the acceptance was subject to any conditions or other terms), or
(b) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, no grid works were required to be carried out by a licensed network operator in order to enable the station to be commissioned or the additional capacity to form part of the station.
(6) The documents specified in this subsection are a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, as at 18 June 2015 a relevant developer of the station or additional capacity (or a person connected, within the meaning of section 1122 of the Corporation Tax Act 2010, with a relevant developer of the station or additional capacity)—
(a) was an owner or lessee of the land on which the station or additional capacity is situated,
(b) had entered into an agreement to purchase or lease the land on which the station or additional capacity is situated,
(c) had an option to purchase or to lease the land on which the station or additional capacity is situated, or
(d) was a party to an exclusivity agreement in relation to the land on which the station or additional capacity is situated.
(7) In this section—
“the 1990 Act” means the Town and Country Planning Act 1990;
“1990 Act permission” means planning permission under the 1990 Act (except outline planning permission, within the meaning of section 92 of that Act);
“the 1997 Act” means the Town and Country Planning (Scotland) Act 1997;
“1997 Act permission” means planning permission under the 1997 Act (except planning permission in principle, within the meaning of section 59 of that Act);
“exclusivity agreement”, in relation to land, means an agreement by the owner or a lessee of the land not to permit any person (other than the persons identified in the agreement) to construct an onshore wind generating station on the land;
“planning permission” means—
(a) consent under section 36 of this Act,
(b) 1990 Act permission,
(c) 1997 Act permission, or
(d) development consent under the Planning Act 2008.
32LK The investment freezing condition
(1) This section applies for the purposes of sections 32LH and 32LI.
(2) The investment freezing condition is met in respect of an onshore wind generating station if the documents specified in subsection (4) were provided to the Authority with the application for accreditation of the station.
(3) The investment freezing condition is met in respect of additional capacity if the documents specified in subsection (4) were provided to the Authority on or before the date on which the Authority made its decision that the additional capacity could form part of an onshore wind generating station.
(4) The documents specified in this subsection are—
(a) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, as at the Royal Assent date—
(i) the relevant developer required funding from a recognised lender before the station could be commissioned or additional capacity could form part of the station,
(ii) a recognised lender was not prepared to provide that funding until enactment of the Energy Act 2016, because of uncertainty over whether the Act would be enacted or its wording if enacted, and
(iii) the station would have been commissioned, or the additional capacity would have formed part of the station, on or before 31 March 2017 if the funding had been provided before the Royal Assent date, and
(b) a letter or other document, dated on or before the date which is 28 days after the Royal Assent date, from a recognised lender confirming (whether or not the confirmation is subject to any conditions or other terms) that the lender was not prepared to provide funding in respect of the station or additional capacity until enactment of the Energy Act 2016, because of uncertainty over whether the Act would be enacted or its wording if enacted.
(5) In this section—
“recognised lender” means a provider of debt finance which has been issued with an investment grade credit rating by a registered credit rating agency;
“the Royal Assent date” means the date on which the Energy Act 2016 is passed.
(6) For the purposes of the definition of “recognised lender” in subsection (5)—
“investment grade credit rating” means a credit rating commonly understood by registered credit rating agencies to be investment grade;
“registered credit rating agency” means a credit rating agency registered in accordance with Regulation (EC) No 1060/2009 of the European Parliament and the Council of 16 September 2009 on credit rating agencies.
32LL The grid or radar delay condition
(1) This section applies for the purposes of sections 32LE, 32LG and 32LI.
(2) The grid or radar delay condition is met in respect of an onshore wind generating station if, on or before the date on which the Authority made its decision to accredit the station, the documents specified in subsection (4), (5) or (6) were—
(a) submitted by the operator of the station, and
(b) received by the Authority.
(3) The grid or radar delay condition is met in respect of additional capacity if, on or before the date on which the Authority made its decision that the additional capacity could form part of an onshore wind generating station, the documents specified in subsection (4), (5) or (6) were—
(a) submitted by the operator of the station, and
(b) received by the Authority.
(4) The documents specified in this subsection are—
(a) evidence of an agreement with a network operator (“the relevant network operator”) to carry out grid works in relation to the station or additional capacity (“the relevant grid works”);
(b) a copy of a document written by, or on behalf of, the relevant network operator which estimated or set a date for completion of the relevant grid works (“the planned grid works completion date”) which was no later than the primary date;
(c) a letter from the relevant network operator confirming (whether or not such confirmation is subject to any conditions or other terms) that—
(i) the relevant grid works were completed after the planned grid works completion date, and
(ii) in the relevant network operator’s opinion, the failure to complete the relevant grid works on or before the planned grid works completion date was not due to any breach by a generating station developer of any agreement with the relevant network operator; and
(d) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, the station would have been commissioned, or the additional capacity would have formed part of the station, on or before the primary date if the relevant grid works had been completed on or before the planned grid works completion date.
(5) The documents specified in this subsection are—
(a) evidence of an agreement between a generating station developer and a person who is not a generating station developer (“the radar works agreement”) for the carrying out of radar works (“the relevant radar works”);
(b) a copy of a document written by, or on behalf of, a party to the radar works agreement (other than a generating station developer) which estimated or set a date for completion of the relevant radar works (“the planned radar works completion date”) which was no later than the primary date;
(c) a letter from a party to the radar works agreement (other than a generating station developer) confirming, whether or not such confirmation is subject to any conditions or other terms, that—
(i) the relevant radar works were completed after the planned radar works completion date, and
(ii) in that party’s opinion, the failure to complete the relevant radar works on or before the planned radar works completion date was not due to any breach of the radar works agreement by a generating station developer; and
(d) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, the station would have been commissioned, or the additional capacity would have formed part of the station, on or before the primary date if the relevant radar works had been completed on or before the planned radar works completion date.
(6) The documents specified in this subsection are—
(a) the documents specified in subsection (4)(a), (b) and (c);
(b) the documents specified in subsection (5)(a), (b) and (c); and (c) a declaration by the operator of the station that, to the best of the operator’s knowledge and belief, the station would have been commissioned, or the additional capacity would have formed part of the station, on or before the primary date if—
(i) the relevant grid works had been completed on or before the planned grid works completion date, and
(ii) the relevant radar works had been completed on or before the planned radar works completion date.
(7) In this section “the primary date” means—
(a) in a case within section 32LE(a)(i) or (b)(i) and (ii), 31 March 2016;
(b) in a case within section 32LG(a)(i) and (ii) or (b)(i) to (iii), 31 March 2017;
(c) in a case within section 32LI(a)(i) and (ii) or (b)(i) to (iii), 31 December 2017.”
(3) In section 32M (interpretation of sections 32 to 32M)—
(a) in subsection (1), for “32LB” substitute “32LL”;
(b) at the appropriate places insert the following definitions—
““accredited”, in relation to an onshore wind generating station, means accredited by the Authority as a generating station which is capable of generating electricity from renewable sources; and “accredit” and “accreditation” are to be construed accordingly;”;
““additional capacity”, in relation to an onshore wind generating station, means any generating capacity which does not form part of the original capacity of the station;”;
““commissioned”, in relation to an onshore wind generating station, means having completed such procedures and tests in relation to the station as constitute, at the time they are undertaken, the usual industry standards and practices for commissioning that type of generating station in order to demonstrate that it is capable of commercial operation;”;
““generating station developer”, in relation to an onshore wind generating station or additional capacity, means—
(a) the operator of the station, or
(b) a person who arranged for the construction of the station or additional capacity;”;
““grid works”, in relation to an onshore wind generating station, means—
(a) the construction of a connection between the station and a transmission or distribution system for the purpose of enabling electricity to be conveyed from the station to the system, or
(b) the carrying out of modifications to a connection between the station and a transmission or distribution system for the purpose of enabling an increase in the amount of electricity that can be conveyed over that connection from the station to the system;”;
““licensed network operator” means a distribution licence holder or a transmission licence holder;”; ““network operator” means a distribution exemption holder, a distribution licence holder or a transmission licence holder;”;
““onshore wind generating station” has the meaning given by section 32LC(3);”;
““original capacity”, in relation to an onshore wind generating station, means the generating capacity of the station as accredited;”;
““radar works” means—
(a) the construction of a radar station, (b) the installation of radar equipment,
(c) the carrying out of modifications to a radar station or radar equipment, or
(d) the testing of a radar station or radar equipment;”;
““relevant developer”, in relation to an onshore wind generating station or additional capacity, means a person who—
(a) applied for planning permission for the station or additional capacity,
(b) arranged for grid works to be carried out in relation to the station or additional capacity,
(c) arranged for the construction of any part of the station or additional capacity,
(d) constructed any part of the station or additional capacity, or
(e) operates, or proposes to operate, the station;”.”
Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 8.
“Onshore wind power: use of Northern Ireland certificates
(1) The Electricity Act 1989 is amended as follows. (2) Before section 32M insert—
“32LM Use of Northern Ireland certificates: onshore wind power
(1) The Secretary of State may make regulations providing that an electricity supplier may not discharge its renewables obligation (or its obligation in relation to a particular period) by the production to the Authority of a relevant Northern Ireland certificate, except in the circumstances, and to the extent, specified in the regulations.
(2) A “relevant Northern Ireland certificate” is a Northern Ireland certificate issued in respect of electricity generated after 31 March 2016 (or any later date specified in the regulations)—
(a) using the original capacity of a Northern Ireland onshore wind generating station accredited after 31 March 2016 (or any later date so specified), or
(b) using additional capacity of a Northern Ireland onshore wind generating station, where in the Authority’s view the additional capacity first formed part of the station after 31 March 2016 (or any later date so specified).
(3) In this section—
“NIRO Order” means any order made under Articles 52 to 55F of the Energy (Northern Ireland) Order 2003;
“Northern Ireland certificate” means a renewables obligation certificate issued by the Northern Ireland authority under the Energy (Northern Ireland) Order 2003 and pursuant to a NIRO Order;
“Northern Ireland onshore wind generating station” means a generating station that—
(a) generates electricity from wind, and
(b) is situated in Northern Ireland, but not in waters in or adjacent to Northern Ireland up to the seaward limits of the territorial sea.
(4) Power to make provision in a renewables obligation order by virtue of section 32F (and any provision contained in such an order) is subject to provision contained in regulations under this section.
(5) This section is not otherwise to be taken as affecting power to make provision in a renewables obligation order.
(6) Regulations under this section may amend a renewables obligation order.
(7) Section 32K applies in relation to regulations under this section as it applies in relation to a renewables obligation order.”
(3) In section 32M (interpretation)—
(a) in subsection (1), for “32LB” substitute “32LM”;
(b) in subsection (7), for “32L” substitute “32LM”.”
Lord Bourne of Aberystwyth
That this House do agree with the Commons in their Amendment 9.
Lord Bourne of Aberystwyth
My Lords, Commons Amendment 9 removes a clause that was inserted on Report in this House. This aspect of carbon accounting has been debated throughout the passage of the Bill, with amendments tabled in this House and the other place. I am sure many noble Lords will recall the debates; I will briefly go through the carbon accounting technicalities.
The Climate Change Act sets a target for the United Kingdom to reduce emissions by 80% by 2050, compared to 1990 levels. It also requires the Government to set intermediate targets to reduce emissions along the way—these are the carbon budgets. Carbon budgets are a cap on the emissions allowed over successive five-year periods. For example, the first carbon budget covered the period 2008 to 2012, and we met this budget with 36 million tonnes of carbon dioxide equivalent to spare. We set these carbon budgets 12 years in advance, so by 30 June this year we will be setting the fifth carbon budget, covering the period 2028 to 2032.
As well as setting each carbon budget, we also make regulations which set carbon accounting rules for each budget period. These rules, in addition to what is set out in the Climate Change Act, tell us how to calculate those budgets and, therefore, whether we have met them. Under the current rules, we count the United Kingdom’s actual emissions for some sectors, and for other sectors we reflect how the EU emissions trading system works. For transport, buildings, agriculture, light manufacturing and some other areas we count the UK’s actual emissions. For the power sector and heavy industry, we effectively reflect how the EU ETS works, instead of counting the UK’s actual emissions.
The EU ETS is a scheme in which emissions from power and heavy industry are capped and reduced at an EU level. Emissions are reduced by issuing a declining number of emissions allowances to member states which are then traded by power stations and industrial sites across the EU. Our current carbon accounting rules tell us to count the UK share of the EU ETS emissions cap for the purpose of carbon budgets. In this way, carbon budgets reflect how the EU ETS works. Noble Lords will recall that the previous amendments tabled in both Houses would have stopped us from reflecting how the EU ETS works in our accounting from carbon budget 5 onwards. We have been clear on the reasons why we cannot accept this approach at this time.
In short, this is a very complex issue. There are arguments for and against different accounting methods, and weighing these up needs careful consideration of a number of factors, such as potential impacts on consumers, businesses and industry, and cutting emissions at least cost. At the moment, we are focused on setting the fifth carbon budget, and doing that by 30 June this year, as required by the Climate Change Act. We are doing this on the basis that it will be permissible to adopt the current accounting framework. Including these provisions in the Bill would have risked delaying setting the fifth carbon budget. It would have therefore risked missing the statutory deadline and not complying with the Climate Change Act.
Commons Amendment 12 is a technical amendment that reflects the fact that the clause on the United Kingdom carbon account was removed in Committee in the other place. It amends the Long Title of the Bill accordingly. I beg to move.
Lord Grantchester’s Amendment to the Motion on Commons Amendment 9
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords who have participated in the debate on the carbon accounting process and in particular the noble Baroness, Lady Worthington, who I know feels strongly about this issue. She will know that we have spoken about it at some length and probably have a measure of agreement on many of the principles. I will perhaps not go into the details of why we are not able to move forward in some respects, although we feel that her amendment as drafted, requiring regulations on carbon accounting by the end of 2017, is impractical because of the understandable obligations to consult with the devolved Administrations and so on. There are issues with the detail. I will not go into other aspects of it, except to say that we certainly recognise the need to address some of these concerns. There are other issues with carbon accounting that distort, as things stand, such as international aviation and international marine.
Let me address some of the points made by my noble friend Lord Howell. I do not want to get sidetracked on to steel because that issue was addressed yesterday in a Statement. Electricity costs are certainly an issue and a factor, but of course it goes far beyond that, as I am sure that my noble friend would acknowledge. Tata in Port Talbot has a blast furnace, so the electricity costs are less significant there than they would be if it were an arc furnace, which is one of the issues to be looked at. The Government are looking at that in the round to see what we can do there, but again it is not simple. It is not just about altering the carbon accounting rules, as there are issues obviously about state aid, the World Trade Organization and so on. It is a complex issue. I hope that I have been able to cover why we are unable to accept the amendments to the Motion at this time.
Baroness Worthington
Before the Minister sits down, could he be a bit clearer about this? We have obviously taken on board the very sensible comments of the Minister of State in the other place, having looked at the debate in detail. We do not wish to pre-empt the outcome of a review but we do think that, taken in the round, this Energy Bill does not seem to be in keeping with its time and place in history. It is many months after Paris, where we committed to trying to get this big issue of the global climate back on track. Can the Minister not just look again at this and precisely give us the reason why?
Lord Bourne of Aberystwyth
I think the noble Baroness is aware of the reasons why. I do not want to be provoked into going into some of the discussions we have had, but it is not as if she is unaware of some of the reasons why we cannot progress. I do not want to go into those in any detail except to say—
Lord Bourne of Aberystwyth
Let me just finish this point. We are not unsympathetic to the principle of looking at this—I think I have made that clear—but we do not feel it is timely to do it at the moment in the way suggested. I do not really want to go any further than that.
Lord Teverson
My Lords, I thank the Minister for giving way and I do not wish to take up the time of the House, but I interrupt because it is not reasonable—
Lord Teverson
I am sorry, but I do not think it is right procedurally for the Minister to say that he has had a private conversation with another Member of the House or that that is a sufficient answer when the rest of the House is not privy to that conversation. That is not reasonable.
Lord Bourne of Aberystwyth
It is perfectly in order for me to have discussions with other Members. I have indicated that there is some sympathy for looking at the accounting principles—but not, as I indicated in my speech, at this time. I have indicated that the timetable is unrealistic. I hope that in the future we can look at these issues, but the Government do not feel it is timely to do it in the way suggested. That is something that has been shared with other Members: there is no great secrecy about that.
Lord Grantchester
I thank all noble Lords who have spoken this afternoon and thank the Minister for the considered way he has responded to issues. On reflection, following the wider debate, I conclude it would be best to press the Government more strongly to be more certain about the outcome of the review. I will therefore not press the amendment in my name, but instead support the amendment in the name of my noble friend Lady Worthington. She is a recognised expert on climate change and a very forceful advocate that the UK must take strong, decisive action to reduce emissions to mitigate its effects.
Lord Bourne of Aberystwyth
Moved by
That this House do agree with the Commons in their Amendment 10.
Lord Bourne of Aberystwyth
Moved by
That this House do agree with the Commons in their Amendment 11.
Lord Bourne of Aberystwyth
My Lords, Commons Amendment 11 is a technical amendment that was inserted to avoid infringing the financial privileges of the other place. Now that the money and ways and means Motions have been passed, the short title of the Bill can accordingly be amended. I beg to move.
Lord Bourne of Aberystwyth
Moved by
That this House do agree with the Commons in their Amendment 12.
Renewables Obligation Closure Etc. (Amendment) Order 2016
Lord Bourne of Aberystwyth Excerpts(8 years, 2 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Bourne of Aberystwyth
That the draft Order laid before the House on 25 January be approved.
Relevant document: 24th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, the draft instrument closes the renewables obligation 12 months early to solar PV generating stations at 5 megawatts and below from 1 April 2016. It would apply both to new generating stations and to existing stations that wish to add additional capacity up to the 5 megawatts threshold.
Solar PV is an important part of the low-carbon energy portfolio. It has seen very strong growth in recent years, due in no small part to support from the renewables obligation and the feed-in tariff schemes. Almost 40% of the UK’s solar PV capacity over 3 gigawatts was installed during 2015 alone. Hand in hand, the costs of installing solar PV have reduced dramatically. According to data from Bloomberg, the capital cost of a ground-mounted PV system fell by about 60% between 2010 and 2015.
In many ways, this progress is good news, making a valuable contribution to our renewable electricity generation, but the amount of deployment has also raised concerns about its impact on the levy control framework—the budget which caps the amount of support paid for through consumers’ energy bills. I am sure that noble Lords will agree that there is a need for government to act responsibly when there is a risk of exceeding such a budget. That is why we have introduced a number of measures to deal with the projected over-allocation of renewable energy subsidies. In these measures, we have aimed to strike the right balance between the interests of consumers and those of developers.
This time last year, under the coalition Government, we were considering a similar order relating to the early closure of the renewables obligation scheme to large solar farms—those over 5 megawatts. Solar farms at this large scale were deploying much faster than previously expected, and we were rightly concerned about the impact this speed of deployment could have on the levy control framework. At the time, it was decided not to extend the closure to projects at 5 megawatts or below because the evidence suggested that these smaller schemes posed less of a risk to the costs of the levy control framework.
Noble Lords will recall, however, that in the debate last year—under the coalition Government—it was made clear that the deployment of smaller-scale projects would be closely monitored. If deployment was shown to be growing more rapidly than could be afforded, measures would be considered to protect the integrity of the levy control framework. That monitoring revealed that, if we did not act, up to four times more new solar capacity would be eligible for support this year and next under the renewables obligation than we previously estimated—within a range of 2.4 to 3.8 gigawatts, compared to the 600 megawatts to 1 gigawatt that had been estimated. I am sure that noble Lords will agree that in such circumstances, the need for further action is essential.
In taking this action to complete the early closure of the renewables obligation to solar, we have aimed to strike the right balance between protecting bill payers and protecting developers who have made significant investments, while being conscious of the need to decarbonise our energy infrastructure. That is why the order makes provision for a number of grace periods, which mirror those offered last year as part of the large-scale closure. Stakeholders have welcomed this consistency. One respondent to our consultation said:
“Technologies must be treated equally as far as possible and the requirements outlined are in line with those proposed for early closure of the RO to solar above 5 megawatts”.
One of the grace periods was designed to protect developers who could show that a significant financial commitment had been made on or before the date on which the proposals were announced. This required evidence that a planning application had been made, among other things, as a proxy for the financial commitment.
Following the consultation, we are changing the criteria to clarify that we intended to protect projects that had made a valid planning application, in line with planning legislation across Great Britain. This is because we received evidence during the consultation from many planning authorities that some developers were submitting incomplete planning applications just to meet the cut-off for eligibility for the grace period.
Lord Wallace of Tankerness (LD)
I am interested in what the noble Lord is saying. He seems to be saying that if there is clear evidence of a significant financial investment being made before a planning decision was made, developers will qualify for the grace period. Why is he not currently doing the same for onshore wind, where the cut-off seems to be far more arbitrary?
Lord Bourne of Aberystwyth
The parallel here is with the schemes above 5 megawatts and the undertakings then given to look at this in the same way in the light of increased deployment, which has certainly happened. I appreciate the point—it is different, there is no doubting that—but this is a continuation of what happened with schemes above 5 megawatts. That is the reason for the treatment we are going for.
When we closed the renewables obligation early to large-scale solar farms last year, we saw a rush of projects accrediting to beat the closure date. More than 1.5 gigawatts of solar were accredited in March 2015 alone. That is equivalent to around 5,000 football pitches. This time round, we had evidence to suggest that costs of solar PV had fallen further and faster than previously anticipated. I have already mentioned the steep fall that there has been. We have therefore proposed excluding new solar projects at 5 megawatts and below from our grandfathering policy if they do not meet the significant financial commitment criteria. This has been necessary to avoid locking in possible overcompensation in the event of a similar rush of projects accrediting before 31 March 2016. This change in policy would mean that projects which are not grandfathered would not maintain their support level if a banding review determined a lower level of support. This proposal was necessary as a cost control measure. We confirmed this change in policy last December, and at the same time started to consult on the results of the banding review. We are currently considering the consultation responses; the consultation finished at the end of January. Subject to the outcome of that process, changes would be implemented through a separate amendment to the renewables obligation order 2015 later this year.
On the impact of the order, our analysis indicates that the early closure proposed in it will save between £60 million and £100 million per year from consumer bills: over the 20-year period of the obligation, that is £1.2 billion to £2 billion in real terms over the lifetime of the projects. Over 8 gigawatts of solar is already deployed and we estimate total solar deployment under the levy control framework subsidy regimes will reach 12.8 gigawatts by 2020, following this closure, taking account of what we are doing today and the action taken in the recent feed-in tariff review. Without this intervention, we estimate that it would be very close to 20 gigawatts, or some 8 gigawatts above what we projected. The electricity market reform delivery plan is our best estimate of what we need to hit the renewables 2020 target, which set out an intention to deploy between 10 and 12 gigawatts at the upper end. In fact, even with these changes, we are on track to exceed that range. This further underlines the need to take action now to prevent further solar deployment under this scheme.
Before I close, I should mention that we have taken the opportunity in this order to remove an inconsistency between the renewables obligation closure order 2014 and Article 91 of the renewables obligation order 2015. This had been drawn to our attention by stakeholders. This technical amendment makes it clear that an operator of an offshore wind station benefiting from a closure grace period can apply to Ofgem for registration of offshore wind turbines until 31 March 2018. I do not think that that is controversial.
This Government are committed to combating climate change, but in the most cost-effective way for bill payers. In tackling climate change at home, British families and businesses are better off inside the European Union. It provides a more stable and long-term framework to attract investment in UK clean energy projects, helping to keep bills down, create new jobs and boosting our energy security. Accordingly, the costs of solar are continuing to fall, and we expect solar to be delivered without subsidy over the coming years. However, since solar PV has been such a success in the United Kingdom, by summer 2015 the costs imposed on bill payers associated with support for renewable and low carbon electricity generation were forecast to reach £9.1 billion in 2020-21, significantly above the target of £7.6 billion. These costs, if they reached that level, would lead to increases in consumer bills. It is therefore only right that we have looked at ways to protect value for money and affordability under the levy control framework.
I hope that noble Lords will agree with me that on balance, the approach we have taken is the right one, closing a demand-led scheme and taking action on overcompensation while still allowing solar to deploy under the revised feed-in tariff scheme. This will ensure that solar PV is supported in a way that offers better value for money for consumers. I commend this draft instrument to the House.
Amendment to the Motion
The Lord Bishop of Salisbury
My Lords, it is curious to rehearse the same arguments so soon after the recent debate on feed-in tariffs. It is very disappointing in the wake of the success in Paris of COP 21, and the enthusiasm engendered from that about a new level of ambition in response to human-caused climate change. I feel as though the Minister is in a position of defending the indefensible. The noble Baroness, Lady Byford, made a very good point about the place of subsidies and pump-priming. Therefore, it is disappointing that the Government are not working more effectively with the renewable energy sector to build on the considerable success of that industry.
In its analysis of the impact of the changes to feed-in tariffs, DECC estimated that there could be a loss of 18,700 jobs. There is no equivalent analysis in relation to the impact of the withdrawal of renewable obligations, but going towards no subsidy will undermine a sector that is moving rapidly to a position of needing less subsidy. The House’s Secondary Legislation Scrutiny Committee has been critical of the analysis of this in the EM by not highlighting the level of opposition to, or the paucity of support for, the proposed changes, or acknowledging the concerns expressed by a large number of respondents about the methodology used by DECC to justify its proposals. The desire for increasingly competitive pricing would be a good deal more compelling if this were a feature of the whole electricity market, but last week the Government’s Competition and Markets Authority drew attention to the highly uncompetitive features of the market, dominated as it is by the big six companies.
The desire to cap the levy control framework has introduced two thought errors into the Government’s proposals. The first is that, if the costs of decarbonisation are not to fall on already hard-pressed consumers, further support will be needed in addition to the LCF. However, as has already been pointed out in this debate, the additional cost to the consumer is estimated to be less than £1 per annum. This does not feel like the right way to address this issue. The second point is something that I have referred to before. The desire not to exceed the LCF cap means that we are content with hitting mid-range targets, whereas we ought to be seeking to exceed them on renewable energy in order to escalate the process towards decarbonisation. Many Members of the House want the Government to go back and think about this again. The issue is one of creating a strategy for energy that addresses the need, which was identified in Paris, to move rapidly towards a low-carbon economy.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords for their participation in this debate. I will of course address some of the points that have been raised but, before doing so, perhaps I may just clarify one or two issues.
First, the Government are of course committed to combating climate change, as the right reverend Prelate kindly acknowledged, through our participation in Paris and the marvellous result achieved there. However, we want to do so in the most cost-effective way for bill payers.
The solar industry in the United Kingdom has been a success story and has seen significant cost reductions. The noble Baroness, in opening, did not talk about the Liberal Democrat position on subsidies. The noble Lord, Lord Teverson, sought to clarify that, but I think the opponents of what we are seeking to do need to set out what level of subsidy they regard as acceptable at this stage, because, crucially, the costs have come down: so much so that the largest solar developer in the United Kingdom, Lightsource Renewable Energy, has said publicly—it is on its website—that it will be building subsidy-free sites this year. This order does not end solar and, if we can get solar deployment without the subsidy, that raises the question of why we are subsidising it. This Government believe that when the costs of deploying come down—as they have—so should support. This statutory instrument is a necessary step to protect bill payers and to end subsidies where they are not needed.
Before looking at some of the specifics raised in the debate, I want to set out what the costs of the renewables obligation and indeed other renewable policies, such as feed-in tariffs and CFDs, will be over the lifetime of this Government. There seems to be a feeling that we are cutting off all renewable subsidies. That is not the case. The cost on the levy control framework goes up every single year in this Government, and that is after the action we are hoping will be taken today. The total cost in 2015-16 is £5.23 billion. Next year it will be more than £6 billion. In the succeeding year it will be more than £7 billion. In 2018-19 it will be over £8 billion. In 2019-20 it will be £10 billion, and in 2020-21 it will be nearly £11 billion. So to those who suggest that somehow we are turning our face against renewables and ending subsidies, I can say that that is not remotely the case.
I shall address some of the specific points that were raised. As I said, the noble Baroness, Lady Featherstone, did not talk about the position of the Liberal Democrats in relation to subsidy, but I remind the Liberal Democrats that the coalition Government—after all, it was a department led by a Liberal Democrat Minister—recognised the need to revisit the 5 megawatt and below solar subsidies if we had overdeployment, or if overdeployment were projected. Overdeployment is projected by a ratio of 1:4, so it really needs to be addressed, and this is quite consistent with what the Liberal Democrats said when they were in government. We are taking this action for two reasons. It is not just about the levy control framework; it is also about the subsidy. We do not believe that we should be paying subsidies where they are not needed. The evidence is— I quoted the largest developer—that they are not needed.
The noble Baroness raised the issue of roof-top solar. We do not accept that the feed-in tariffs have been set too low to support commercial roof-top solar. Almost 8 megawatts of installations over 50 kilowatts have secured a feed-in tariff since the scheme reopened in February. That is significant and demonstrates that there is ample opportunity under the existing FIT scheme to do just that.
Lord Wallace of Tankerness
My noble friend Lady Featherstone mentioned investor confidence. My noble friend Lord Teverson and the noble Lord, Lord Grantchester, referred to the Energy and Climate Change Committee in the other place and its deep concerns about the cumulative effect of government policy on investor confidence, not just in solar or onshore wind but generally. Will the Minister please address the points that were very effectively made about investor confidence?
Lord Bourne of Aberystwyth
My Lords, of course investor confidence is an issue. In the department we meet the industry on a frequent basis—I met representatives of the solar industry just this week. Some of the concerns that are being expressed tonight were not expressed to me on that occasion. Of course there is a healthy dialogue, but I do not recognise some of the wilder statements being made about the lack of investor confidence. Industry will always take a particular view, and there will be some in industry who will not want to see an end to subsidies—I understand that; why would they? However, as a Government, we have to see how money can be well spent.
It has been a good debate, but I urge noble Lords to reject the amendment and support the order, which is a necessary part of ensuring that we get value for money, do not overdeploy in this area and end subsidies that are not needed.
Baroness Featherstone
I thank all noble Lords for their contributions; I thought that serious and considered points were made on all sides. The Minister said that I did not address the issue of subsidy. I took it as read that we all want to see the end of subsidies, but the issue is the methodology for delivering that. As I explained that at great length during the debate on the fatal Motion that I tabled to annul the feed-in tariff, I did not want to rehearse all those arguments. However, again, as the levy control framework calculations are still not before us, we cannot examine the evidence of the case.
Arguments were made about the costs to consumers. We are all concerned about the cost to consumers, but I laid out the price range involved in the cost of risk. The £1 per annum that would be saved feels a very poor argument in terms of reducing costs when, at the same time, the Government are so willing to invest in those energy sources that are so much more expensive, such as nuclear and diesel.
Lastly, on the overdeployment of solar, until the Government come forward with a plan illustrating how they are going to reach their renewable targets, we may be reliant on extra electricity because renewable heat and renewable transport are in so much trouble. Therefore, although I appreciate the arguments and agree with the noble Baroness and the noble Lord, we are not going to see eye to eye on this issue. I am very grateful for the support of the Labour Benches on this, and for the arguments of the noble Lord, Lord Grantchester, which were well made. I seek to test the will of the House.
Energy Security: Hinkley Point
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Baroness Featherstone
To ask Her Majesty’s Government what actions they are taking to ensure that the UK’s long-term energy security is protected, in the light of uncertainty regarding Hinkley Point.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, good progress continues to be made on the deal so that Hinkley Point can provide clean, affordable and secure energy that families and businesses can rely on now and in the future.
Baroness Featherstone (LD)
I thank the Minister, but he will be aware that there is a certain amount of coverage in the media: the finance director of EDF has quit; the value of EDF shares is falling; and EDF does not have a legally binding contract with the Chinese. If it does not proceed with Hinkley Point, what is the Government’s plan B for the security of our energy supply in future years, given that the support for renewables industries has been completely undermined by the Government and that there is still no commitment to the Swansea Bay tidal lagoon, which would provide energy for 120 years—three times as long as would a nuclear power station?
Lord Bourne of Aberystwyth
My Lords, EDF has said that it is working hard to take a final investment decision in the near future with the full support of the French Government. We believe—along with the Minister who took the initial decision, Ed Davey—that the Government negotiated a good deal; he repeated that this week.
Lord Howell of Guildford (Con)
My Lords, does my noble friend agree that, whatever happens at Hinkley—obviously, there are some serious problems there—we have a perfectly good and better-time nuclear programme in place and in the pipeline for the longer term? Will he accept that the real threat to our energy security, which is leading to humiliating talk for this great industrial nation that we should have to deal with power cuts, comes from the failure to build new gas turbines in sufficient quantities to ensure that our power supply is regular in the 2020s and early 2030s? Will my noble friend finally agree that this arises from the gross mishandling and mismanagement of our energy policy in recent times and in the past and that it must now be corrected? We should all give full support to the Government to get that correction in place.
Lord Bourne of Aberystwyth
My Lords, I am grateful to my noble friend for his support. My right honourable friend the Secretary of State, Amber Rudd, has made it clear that energy security is the number one priority for this Government. That is why the project at Hinkley is so important. It will deliver 7% of our energy needs.
Lord West of Spithead (Lab)
My Lords, does the Minister agree that this is a mess of the Government’s own making? We have chosen the wrong type of reactor; costs and timescales are at least doubling and may get even more than that. More broadly, will the Minister confirm that protection is in place to ensure that UK firms keep more than 70% of the supply chain contracts for the third planned reactor and beyond and are not squeezed out by the Chinese supply chain firms, because that is the plan of the Chinese supply chains?
Lord Bourne of Aberystwyth
No, my Lords, I do not agree with that. The costs that are increasing are essentially those of EDF. We have a strike price that is agreed, constant and unchanging. I believe that it is a good deal for the Government and that the supply chain is secure. The noble Lord should know that 60% of jobs in the supply chain are already guaranteed for the UK.
Lord Cunningham of Felling (Lab)
My Lords, is it not sadly clear that the ability to be energy self-sufficient, where nuclear power should be making a significant contribution, is jeopardised because we are unable to build the power stations ourselves? We are dependent on the French, the Chinese and the Japanese. Let me say, in case anyone wants to disagree, I do not hold the present Administration responsible for those circumstances. However, as the Minister will recall, the Chancellor of the Exchequer made an important announcement in the Autumn Statement about support for the development of small modular reactors. Will the Minister tell the House how much support has been given to date, to whom it has gone and for what purpose?
Lord Bourne of Aberystwyth
My Lords, the noble Lord is absolutely right about the importance of small modular reactors. He will know that £250 million was announced in the spending review specifically for that purpose in this Parliament. We will bring forward proposals on that early this year—that is, in the spring.
Baroness Young of Old Scone (Lab)
Is the Minister aware that the Chancellor is making the situation worse by flip-flopping our energy policy from the Treasury and cancelling the carbon capture and storage project, onshore wind, the feed-in tariff arrangements, the zero-carbon homes and the Green Deal, and causing huge investor and company unrest and insecurity? We will not deliver an energy supply that is secure for the future as long as that continues. What are the Government going to do to stop the Chancellor flip-flopping energy policy and to restore investor and market confidence?
Lord Bourne of Aberystwyth
My Lords, the noble Baroness is wrong: there is no flip-flopping over energy policy. It is absolutely clear and it was set out in my right honourable friend the Secretary of State’s speech that we regard security as the number one proposal. We are ending subsidies. We are moving away from subsidies to a market-based approach, which is the right thing to do. It is important that we balance the interests of the public purse with the interests of decarbonisation and security, and that is what we are doing.
Viscount Hanworth (Lab)
My Lords, would the Government be prepared to consider taking a significant share in the equity of EDF? Then the Company might become part of a nationalised industry owned jointly with the French. At present, we are in the process of underwriting all the risks of the Hinkley C project, so surely we should also expect to partake in any profits that might derive from that project.
Lord Bourne of Aberystwyth
My Lords, this is a commercial deal, as the noble Viscount should be aware. It is a matter for EDF if the costs increase: they are EDF costs. We have a strike price, as I have indicated, which is firm and unchanging and will guarantee us energy up to and beyond the 2030s—for 60 years from when this comes on stream.
Lord Marlesford
My Lords, is not one of the problems that, in negotiating with EDF on the two nuclear power stations at Hinkley and Sizewell in Suffolk—I declare my interest in the latter—the Government were outfoxed by EDF? EDF has shown an astonishingly ruthless determination to get exactly what it wants, lacking, in some cases, in integrity. To give one example, in Suffolk, in order to persuade people that there was support for its local transport plans, EDF summoned a meeting at which £20 notes were handed out and the people were filmed.
Lord Bourne of Aberystwyth
My Lords, I have no knowledge of that particular evening in Suffolk. I wish I had known about it—I could have been there. I return to the point that this is a good deal for the Government. It was a good deal when it was struck and it is a good deal now. It will provide 7% of the energy needs of the country, which is enough to power London twice over when it is fully on stream in the 2020s.
Electricity Supplier Payments (Amendment) Regulations 2016
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Lord Bourne of Aberystwyth
That the draft regulations laid before the House on 25 January be approved. Considered in Grand Committee on 2 March.
Electricity Supplier Payments (Amendment) Regulations 2016
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Lord Bourne of Aberystwyth
That the Grand Committee do consider the Electricity Supplier Payments (Amendment) Regulations 2016.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, this instrument amends regulations concerning the contracts for difference scheme and the capacity market. As noble Lords will be aware, these schemes were introduced as part of the electricity market reform programme introduced in the previous Parliament.
Specifically, a series of technical amendments will be made to the CFD supplier obligation, which is levied on all licensed electricity suppliers in Great Britain to meet the costs of CFDs, in order to improve its efficiency and transparency. Separately, the instrument will amend the levies that fund the bodies responsible for managing CFD contracts and for managing settlement under the capacity market, which I shall outline to noble Lords now.
The first of these schemes, contracts for difference, or CFDs, encourages investment in low-carbon generation at a lower cost of capital due to the long-term price stabilisation provided under the contracts, which reduce overall costs to consumers of transitioning to a low-carbon generation mix. Then, through the capacity market, regular payments are provided in return for reliable capacity being available when needed, to ensure that sufficient capacity is available to meet demand. A fundamental aspect of both schemes is the competitive auction process for awarding contracts, which drives down costs to consumers.
As noble Lords may be aware, the first CFD allocation round in October 2014 resulted in 25 renewable generation projects being awarded CFDs at a significantly lower cost than would have been achieved through the renewables obligation scheme, which is being phased out. The capacity market auctions were held in 2014 and 2015, with the latest auction securing 46 gigawatts of capacity at a price of £18 per kilowatt per year. A recent transitional auction for demand-side response was also held earlier this year.
Noble Lords will have seen that the Government made an announcement yesterday of a number of changes to the capacity market framework to ensure that it remains fit for purpose to meet our security of supply needs, including bringing forward delivery by holding a new early auction for delivery in winter 2017-18. We have now launched a consultation on these changes, and in due course will be taking final decisions and will present revised regulations.
However, the regulations we are considering today have a different purpose, and in them the Government are simply looking to make several minor amendments to the payment arrangements in order to improve the efficiency with which CFD costs are recovered from electricity suppliers, which will ultimately reduce costs to consumers, and to set the rates for the operational levies relating to both schemes. In order to implement these amendments, three sets of regulations will need to be amended by this instrument. Subject to the will of Parliament, these changes are due to come into force by 1 April 2016.
Before we commence the debate, I will describe these amendments briefly. First, the Electricity Supplier Payments (Amendments) Regulations 2016 amend the instrument that established the CFD supplier obligation mechanism in order to improve its efficiency. As I outlined earlier, the CFD supplier obligation is levied on all licensed electricity suppliers in Great Britain to meet the costs of CFDs. It is set on a quarterly basis by the Low Carbon Contracts Company, a government-owned company that acts as the counterparty to CFD contracts. The supplier obligation is comprised of a levy which is paid on every unit of supply, and a reserve amount. The levy and reserve amount are calculated based on forecasts of payments to CFD generators. These supplier payments are then reconciled against actual payments following the end of every quarter.
This instrument makes a number of minor and technical amendments to improve the efficiency and transparency of the supplier obligation. They are designed to minimise costs both to suppliers and ultimately to consumers. The most significant of these amendments amend, first, the calculation of the levy that is paid by electricity suppliers so that it is a better estimate of suppliers’ actual liabilities. Secondly, they allow this levy to be reduced without notice in circumstances where the Low Carbon Contracts Company considers that electricity suppliers are likely to pay significantly more than they need to. Thirdly, they improve the transparency of CFD costs in the future by requiring the Low Carbon Contracts Company to forecast CFD costs for at least 12 months ahead and to publish the date that each generator is expected to start receiving CFD payments.
These changes were the subject of a public consultation and received a largely favourable response. We estimate that when combined with further regulations that the Government intend to lay in due course, they will reduce the costs to consumers of CFDs by approximately £38 million over the period 2016 to 2020. The Government intend to lay further regulations in due course as not all of the proposals consulted on are being implemented by this instrument due to cost and their impact on the CFD settlement system.
The second objective to be delivered through this instrument is to set a revised operational cost levy for the Low Carbon Contracts Company and to set a revised settlement costs levy for the Electricity Settlements Company, the company responsible for transactions relating to the capacity market. The increases to the budgets of both companies reflect the operational requirements and objectives of the Low Carbon Contracts Company and the Electricity Settlements Company in 2016-17. Both levies were subject to public consultation, allowing the opportunity for scrutiny of the key assumptions in the budgets and, importantly, to ensure that they continue to represent value for money for consumers.
Finally, before we start the debate, I would like to assure noble Lords that the Government will continue to evaluate and monitor the measures introduced under electricity market reform to ensure that they remain effective and continue to represent value for money. I beg to move.
Lord Grantchester (Lab)
I thank the Minister for his introduction to the regulations. As he rightly says, they are mostly technical in nature and do not impact on policy to any large degree. The ESO regulations around the CFD counterparty to raise funds are largely operational and, quite understandably, are likely to be subject to amendment through operational experience in order to improve efficiency and increase transparency with a view to reducing the costs of the scheme for suppliers and their consumers.
All the amendments included in the regulations appear sensible and come with a very large acceptance on the part of stakeholders, both through consultation responses and through discussions at a stakeholder event in October last year. The main amendments are largely financial and will lead to changes between the balance of funding moving more towards the interim levy and away from the reserve payments. Notice periods for changing the interim levy rate will become more flexible, deadlines will become more helpful, and generally information, data and recognition of commercial sensitivities will improve the scheme’s operations. Within the structure of the scheme, that is commendable.
However, seeing the details of its workings, the CFD counterparty mechanism struck me as somewhat cumbersome. While I am sure that there are unlikely to be major changes to the structure, nevertheless the Minister might enlighten the Committee about why the scheme is set up with quarterly contributions to reserve funds and a yearly operational costs levy for the capacity market settlement body.
I understand the reasoning behind setting up the CFD counterparty in relation to Treasury implications and as the mechanism through which CFDs will be administered and paid, but I understand that suppliers strongly urged the Government to allow the CFD counterparty to operate a working capital model for funding cash flow and building reserves as a more commercial way to operate. Surplus levies could then be rolled into subsequent levy periods to smooth out volatility of payment. Can the Minister confirm whether reserves and operational cash flow costs are to be reconciled to suppliers every year and balanced?
In the reconsiderations of the scheme, did the Minister’s department put any thought into whether working capital arrangements at a marginal cost to public borrowing requirements could be less cumbersome and less costly to operate? In trying to widen and increase the pool of supply participants, are the Government confident that the costs on small independent suppliers are not constraining their participation? I am sure that the Minister will confirm that the CFD counterparty body will be audited, but are there other operational cost checks on the operation of the body?
Perhaps I may widen my remarks beyond the supplier obligation to CFDs in general for a moment. I take the opportunity today to ask the Minister whether the Government will set any technology requirements or specific exclusions for participants in the next auction. I am thinking here of onshore wind and solar technologies. Can the Minister confirm that they will still be allowed to participate so that these technologies can develop and generators will have a continuing route to market for returns on their investments? With the challenge of climate change and the changes required of the UK energy market, we wish to be technology neutral.
Lord Bourne of Aberystwyth
My Lords, I thank the contributors to this important debate. I am grateful for the contributions from the noble Lord, Lord Grantchester, and my noble friend Lord Deben. I will deal with the points in the order in which they were raised, turning first to the points raised by the noble Lord, Lord Grantchester.
The point about the organisation of the levy and the fact that we are looking at it in terms of supplier obligation is for the precise reason he hinted at, that we did not want to put a pressure on the public purse. That is why it is funded in the way it is and why we looked at the working capital method but decided that it was not good value for the public or the consumer, so the obligation here, as the noble Lord knows, is placed on the supplier. While I appreciate that the marginal cost might not be that great, he will know that the approach of the Government is to bear down on unnecessary costs on the public purse as much as possible, and we felt that this was one.
The noble Lord also asked a question about the review, and he is absolutely right: there will be an audit process. He also asked whether reserves are reconciled at the end of each quarter. Yes, they are, as the operational costs will be at the end of each year; that is absolutely right. Therefore the key principle is that it is an industry-funded system. I thank him very much for the largely warm support he gave to this, and as I say, the essence of this—I am not very often able to do this—is that it saves money for the consumer and at the same time maintains the principle of ensuring that we look at renewables as a large part of the way we are driving forward our policy on decarbonisation. We will of course keep it under review.
On the points raised by my noble friend Lord Deben, indeed I was fearful as soon as he said that he thought that I made a very good job of presenting the case because I knew that something would come along as the sting in the tail. However, he made some fair points. I understand what he said about the legislation sometimes being impenetrable. Of course that is not confined to this area; I can well remember taking the pension schemes legislation through the House of Lords, which was certainly at least as obscure and probably more so. However, the point is well made, and there is a constant battle between trying to ensure that what is necessarily a technical piece of legislation is at least to some extent reconciled with a degree of clarity. I struggle as much as anyone else sometimes to understand exactly what we are doing. We want to take people with us, so it is important that we ensure that we put the case across in very plain and simple ways.
I welcome what my noble friend said about the need to be flexible and to do what we are doing as cheaply and reasonably as possible—that is very much part of the Government’s intention. That was set out in plain language by the Secretary of State when she presented her reset speech. In that speech she set out clearly what we are doing with regard to the CFD auctions, and of course one will be held towards the end of 2016. Pot 2 will ensure that it is open to new technologies and we will come forward with more details on that in due course. But as noble Lords would expect from a Government that are committed to a market approach, again as was made clear in the reset speech, obviously we want to deliver the best solution in terms of decarbonisation in the most affordable way while of course maintaining security of supply. These are the three aims of the department, and as I say they were set out very clearly in the reset speech.
I can reassure my noble friend Lord Deben that we are looking at these issues in terms of value for money with the innovation budget and the budget we have at large. He will know that we are looking, for example, at tidal lagoons across the piece to see if they can possibly deliver part of the mix in a value-for-money way. So that is very much the approach. I agree with what my noble friend said at the end of his contribution about the importance of going forward together across parties, and indeed not just parties. Earlier this afternoon I met Archbishop Gallagher from the Holy See, and we are grateful for what faith leaders, and not least the holy father, are doing in relation to promoting the importance of climate change and stressing how it affects the world at large and the most vulnerable. This is not limited to political parties and I think that we in the United Kingdom, without being complacent, have been adept at building a broad coalition on the need to move forward on decarbonisation across parties and beyond parties. I very much welcome that; in fairness it was evident in Paris in how opposition parties reacted and expressed their support, and in other ways too. I would certainly associate myself and the Government with what was said there.
If there is anything I have missed, it will be picked up and I will write to noble Lords, but with that I commend the regulations to the Committee.
Infrastructure Planning (Onshore Wind Generating Stations) Order 2016
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Lord Bourne of Aberystwyth
That the draft order laid before the House on 14 January be approved.
Relevant documents:15th Report from the Joint Committee on Statutory Instruments, 23rd Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on Monday 8 February.
Oil and Gas: UK Continental Shelf
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Lord Bruce of Bennachie
To ask Her Majesty’s Government what action they intend to take to assist the viability of oil and gas exploration and development on the United Kingdom continental shelf in the light of the reduced price of oil.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, during his visit to Aberdeen on 28 January, my right honourable friend the Prime Minister set out an action plan to help build a bridge to the future for the industry. This includes a £20 million package of new investment in exploration, innovation and skills, and a new oil and gas ambassador.
Lord Bruce of Bennachie (LD)
My Lords, the oil and gas industry is probably facing its worst ever crisis since it was established more than 60 years ago. Will the Government now scrap the supplementary charge and will they clarify the liabilities on decommissioning which might help that to proceed? This industry has provided tens of billions of pounds worth of investment and hundreds of thousands of jobs for many decades. Will the Government ensure that their action plan will enable it to do so for many decades into the future?
Lord Bourne of Aberystwyth
My Lords, it is true that representations have been made on the fiscal front and the Chancellor will be considering those. We must recognise that it is not all doom and gloom. Bob Dudley, the chief executive of BP, said last month that the North Sea remained viable economically and would be for decades to come.
Lord Forsyth of Drumlean (Con)
My Lords, is it not quite obvious by now that Scotland and the oil industry have benefited enormously from having the strength of the United Kingdom around them? Had the Scottish people voted for independence, they would not have been able to benefit from the wider resources of the United Kingdom and the Prime Minister’s welcome involvement in supporting the oil industry in the north-east of Scotland.
Lord Bourne of Aberystwyth
My Lords, my noble friend is absolutely right about the strength of the United Kingdom and the resilience that it has afforded to the oil industry over a period of time. Long may that resilience continue.
Lord McFall of Alcluith (Lab)
My Lords, Scotland has its very own carbon crisis. The Minister mentioned a supplementary tax. That was imposed in the 2011 Budget and increased from 20% to 32% on the basis that oil prices had doubled. They have now crashed from $114 a barrel—happy days for the SNP—to less than $30 a barrel. There must be a compelling case for scrapping that supplementary tax in its entirety and engaging once again with Sir Ian Wood and others to ensure that, in a bleak global environment, there is at least some viable future for the North Sea oil industry.
Lord Bourne of Aberystwyth
My Lords, the noble Lord is right that the fall in oil prices is an international problem. He will be aware that there was fiscal reform in the 2015 Budget, with a £1.3 billion injection of extra help over five years through tax cuts. As I have said, the Chancellor will look at representations that have been made to him.
Lord St John of Bletso (CB)
My Lords, are the Government considering a direct subsidy of development capex for exploration and production companies on the UK continental shelf, such as is given to similar companies in Norway?
Lord Bourne of Aberystwyth
My Lords, the package that the Prime Minister announced on 28 January includes £20 million of new investment in seismic exploration. This will be of assistance, together with the City Deal package for Aberdeen which includes a new innovation energy centre. I hope that the noble Lord will welcome it.
Lord Hayward (Con)
Will my noble friend please bear in mind that although this is a major problem for the north-east of Scotland and the Grampian area in particular, the oil and gas industry and exploration on the continental shelf have generated much wealth for the whole of this country, and therefore tackling the particular issues of the continental shelf will benefit large parts of the nation’s economy?
Lord Bourne of Aberystwyth
My Lords, my noble friend is absolutely right about the benefits to the whole of the United Kingdom from oil and gas exploration. He will be aware that two massive new fields to the west of Shetland were opened today by Total in Laggan and Tormore, which is very good news.
Lord Grantchester (Lab)
My Lords, when Sir Ian Wood published his recommendations two years ago, oil was indeed trading at a much higher price than it is today, with the price now dipping to below $30 a barrel. Will the Minister inform the House what effect the Government think this has had on the strength of the recommendation of the Wood review report?
Lord Bourne of Aberystwyth
My Lords, the noble Lord will be aware that the Government have given high priority to ensuring that the recommendations of the Wood report are taken through into law. That is now happening through the Energy Bill, as the noble Lord is aware, so I think that indicates our clear commitment. He is absolutely right; this is a global problem but we are doing what we can domestically to ensure that the UK industry has all the support necessary.
Lord Lawson of Blaby (Con)
My Lords, as I well recall from my time as Energy Secretary, the North Sea oil and gas has had a glorious past. However, is it not clear that its future can be only a shadow of what it has been, and that the future of our indigenous oil and gas industry must lie in the exploitation of our shale resources, which are quite substantial? Will my noble friend undertake to go ahead with that as fast as he possibly can?
Lord Bourne of Aberystwyth
My Lords, I am very much aware that my noble friend has a very distinguished record as a former Energy Secretary. However, I do not think it is true to say that the oil industry is entering a period where its significance is diminished. It is perhaps not what it was, but it is still of enormous importance. The two oil fields to which I referred will be able, when at maximum production, to supply energy to 2 million homes. However, he is absolutely right about the importance of shale and the Government are determined to go ahead with exploration for it.
Lord Hughes of Woodside (Lab)
My Lords, will the Minister comment on the reports in today’s press that the Chancellor is expected to raise taxes on the oil industry at a time when consumers are not really seeing a reduction in price at the petrol pumps? Will he disabuse us of that idea?
Lord Bourne of Aberystwyth
My Lords, matters for the Budget are, of course, matters for the Chancellor. The noble Lord will know that I cannot comment on that.
Lord Spicer (Con)
Further to the question of my noble friend Lord Lawson, what is the projected life of the Total gas fields in Shetland?
Lord Bourne of Aberystwyth
My Lords, the noble Lord is right to raise the importance of the Laggan and Tormore fields. They will be there for a substantial period. I am not sure about the precise period but, as I say, it is a massive find. The greatest part of the energy fields yet unexplored remain to the west of the Shetland Islands and are of massive importance to the country.
Baroness Farrington of Ribbleton (Lab)
My Lords, I declare an interest as a Lancashire resident. Will the Minister care to take away and reflect on the fact that there is great concern and anger at government suggestions that local people should be taken out of the decision-making process for future fracking? Will he care to comment on the fact that all the fracking decisions this Government have taken tend towards the north? Does he envisage any fracking taking place for oil or gas in the south of England, where Conservative support is concentrated?
Lord Bourne of Aberystwyth
My Lords, the noble Baroness will be aware that decisions on fracking are taken by planning authorities; they are not a matter for the Government. She will be aware that there are potential fracking areas throughout the country. That, of course, will be something that planning authorities will take forward.
Infrastructure Planning (Onshore Wind Generating Stations) Order 2016
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Lord Bourne of Aberystwyth
That the Grand Committee do consider the Infrastructure Planning (Onshore Wind Generating Stations) Order 2016.
Relevant documents: 15th Report from the Joint Committee on Statutory Instruments, 23rd Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I will set out the impact of the statutory instrument which I am bringing forward. This affirmative instrument seeks to amend Section 15 of the Planning Act 2008, removing the obligation in that Act to obtain consent from the Secretary of State for Energy and Climate Change to construct, extend or operate an onshore wind farm in England or Wales. To be clear, this provision relates only to proposed new wind farms with a capacity greater than 50 megawatts. Smaller wind farms, including those owned by the community, are already consented by the relevant local planning authority.
This change, alongside secondary legislation and proposed primary legislation in relation to the Electricity Act 1989, will have the effect of removing the requirements for planning consent to be obtained from the Secretary of State for the construction of new onshore wind farms. Instead, developers will need to apply for planning permission under the Town and Country Planning Act 1990, where the primary decision-maker is the relevant local planning authority. This Government were elected with a clear commitment to give local people the final say on whether to have a wind farm in their area. These changes help deliver just that, as was stated in our manifesto.
The changes are further supported in England by the implementation of the Written Ministerial Statement outlined by my right honourable friend the Secretary of State for Communities and Local Government on 18 June last year. The combined effect of the measures is to ensure that new onshore wind is consented to at local level and built only where local people have said they want it.
Finally, I remind the Committee of the support that the Government have received on this issue both in this House and during the Committee sittings in the other place which were held just last week. I should also be clear that the intention of this statutory instrument, and indeed of the statutory instrument already made to the Electricity Act 1989, is purely fully to implement the devolution of onshore wind-consenting powers to local authorities and away from Whitehall. The order does not change or affect the regime for town and country planning in either England or Wales.
Furthermore, once onshore wind-consenting powers are fully devolved to Wales, it will be for the Welsh Assembly and the Welsh Government to determine how new onshore wind farms in Wales are granted consent. On that basis, I beg to move.
Lord Teverson (LD)
My Lords, I thank the Minister for his brief introduction. I fear that I will show a lot of my own personal ignorance about the subject in my questions because, as he said, it is one part of a jigsaw; the question is how it fits in.
Perhaps I am being naive but I expect the Explanatory Memorandum to be fairly objective. Paragraph 7.1 states:
“Local communities are often opposed to onshore wind farm development, arguing that they have direct noise and detrimental impacts on their communities”.
Yes, it is true to a degree that some are opposed but, on the whole, they are not. It is usually a vociferous number of people who object to them and make planners’ and local councillors’ lives very difficult. It is up to them to stand up to that sort of pressure and make the right decision. That does not represent the majority.
Paragraph 7.3 states:
“Such reviews help to strike the right balance between keeping consumers’ bills as low as possible, while reducing emissions in the most cost effective way and ensuring public acceptability of particular technologies”.
As we know, wind power, as shown by the ROC rates and everything else, is one of the cheapest renewable sources of energy, so I am not sure how that paragraph fits in.
Part 10 of the Explanatory Memorandum concerns the impact. I have not read the impact assessment: I think that there was a problem in that it originally referred to the wrong one, but the memorandum states:
“There is no impact on business, charities … voluntary bodies”,
or,
“the public sector”.
Then what is the point of it? I can see the point, but if there is no impact whatsoever, that is rather strange.
I actually welcome the order in principle. The Minister is absolutely right: local communities should have much more say over their local areas and decisions such as these. Placing them back into the local authority planning process is the right thing to do, so I welcome that.
What I want to understand—this is where my ignorance comes out—is how it interacts with the National Planning Policy Framework, which specifically uses the phrase “a golden thread” of sustainable development: that there should be acceptance that schemes should go ahead if they promote sustainable development. Does that still apply when local authority planning decisions are questioned further up the decision tree on appeal?
Paragraph 97 of the National Planning Policy Framework states:
“To help increase the use and supply of renewable and low carbon energy, local planning authorities should recognise the responsibility on all communities to contribute to energy generation from renewable or low carbon sources”.
Then it goes through a list of bullet points of things they ought to do. How do those obligations on local planning authorities tie in with this secondary legislation and the other areas that the Minister mentioned around it?
The Explanatory Memorandum also says that local authorities’ planners have to take account of neighbourhood plans or local plans. I want to understand whether that is a “both” or an “either/or”, because a lot of local plans have renewable energy and wind farms in them. What happens if this is not included in the neighbourhood plan but is included in a local plan, for instance? I suspect that that will often be the case given that neighbourhood plans still do not cover large proportions of areas that local planning committees take an interest in.
I have a couple of other quick things for the Minister. Five-megawatt wind farms are pretty large, and I would be interested to know how many applications for such wind farms there have been over the last five years or so. I do not need a specific answer but perhaps the Minister could give an idea of the kind of scale we are talking about. Also, are there other areas where local authorities do not have control over less than 30 megawatts? A number of parallels have been made with shale gas—which I am not against—where there is a big push the other way in terms of trying to put pressure on local authorities to give permission or to call the decisions in if they do not. I would be interested to hear how the Minister reconciles the two opposite directions that energy policy seems to be going in at present.
Lord Grantchester (Lab)
I thank the Minister for his explanation to the Committee today. The order seems to be primarily technical in that it changes the planning consent process from one where the Secretary of State is included to one where the local planning authorities make the decisions on an application concerning onshore wind-generating stations over 50 megawatts—that is, from the Planning Act 2008 to the Town and Country Planning Act 1990. This is in the context of the Conservative Party’s manifesto for the 2015 election and will make the procedure for consent for stations that generate above 50 megawatts consistent with that governing those that generate less than 50 megawatts. Perhaps to underline the simple policy objective sought here, can the Minister confirm that, apart from changing the ultimate determining authority from the Secretary of State to local planning authorities, no other feature will be affected by this change and that there is no other difference between the two processes for onshore generating stations above and below 50 megawatts?
We are content to support this SI. Indeed, we support the right of local authorities to decide onshore wind power applications so that they can decide on the case made in terms of them supporting jobs, providing energy stability, cutting energy bills and contributing to action to mitigate possible global warming. This change is also reflected in Clause 79 of the Energy Bill, which is currently undergoing scrutiny in the other place. During consideration of the Bill, it has been noted that the Conservative Government judge local authorities effective to rule on onshore wind applications, yet will not allow local authorities to assess applications regarding fracking. We consider that communities should be allowed a pertinent voice in both situations.
Your Lordships’ Secondary Legislation Scrutiny Committee drew attention to the lack of a wider impact assessment on the UK’s generating power. The noble Lord, Lord Teverson, drew attention to the wider impact on the national infrastructure framework. I support him in asking the Minister whether he will report to Parliament six months after the passage of the present Energy Bill to update Parliament on the effect of this SI, especially in relation to the carbon impact and the Energy Bill.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords for their contributions and for their general support. I turn first to questions posed by the noble Lord, Lord Teverson, on the Explanatory Memorandum. He is absolutely right that with this policy we are emphasising the importance of the local say for communities—that is the predominant factor in this legislation. The noble Lord quoted from the Explanatory Memorandum and suggested that it was tilted in favour of one particular view of onshore wind. I recognise, as has become very apparent from the Energy Bill and contributions in other debates, that opinions vary on onshore wind.
Lord Bourne of Aberystwyth
Not at all. I guessed that was what he meant but I just wanted to confirm that. Two developers were involved in discussions about the transition from the old scheme to the new scheme. That perhaps gives a flavour of the fact that it is not that many. I believe that the noble Lord also referred, as did the noble Lord, Lord Grantchester, to the different regimes in relation to shale. In both, local involvement is key. We recognise that. It is right to say that there is talk about a new system for shale gas exploration. There is a difference when a new technology is being brought on but I reiterate that in both systems we consider a local dimension to the decision-making to be vital.
Lord Teverson
Actually, I liked the Minister’s first response, the global one. I thought that was very good.
Lord Bourne of Aberystwyth
I am most grateful. I have mislaid the further questions from the noble Lord, Lord Grantchester. I am not sure whether I have covered everything. Here we are: the noble Lord, Lord Grantchester, asked whether there was any move other than making local authorities responsible for these decisions rather than the Secretary of State. That is essentially true. There is an element of devolution to Wales as well but it just mirrors that in relation to the Welsh Government and Welsh Assembly. There is no other intention here. The noble Lord also referred to the fact that this is coupled with what is now Clause 78 of the Energy Bill—we have lost a clause somewhere along the way—he is absolutely right on that. With that, I commend the order to the Committee.
Energy: Carbon Capture and Storage
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Lord Teverson
To ask Her Majesty’s Government what assessment they have made of the potential in the United Kingdom for the development of carbon capture and storage.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, the Government believe carbon capture and storage has the potential to play an important role in the long-term decarbonisation of the United Kingdom’s power and industrial sectors.
Lord Teverson (LD)
I thank the Minister for that very short reply. In the Committee stage of the Energy Bill this Session, he stated that,
“CCS is central to what we are seeking to do on decarbonisation”.—[Official Report, 7/9/15; col. 1230.]
Given the cancellation of the projects in Scotland and Yorkshire earlier this year, is that still the Government’s view, or is this a new vision of CCS and decarbonisation?
Lord Bourne of Aberystwyth
My Lords, a decision was taken to cancel the competition rather than the projects to which the noble Lord referred. CCS remains vital to what we are seeking to do in decarbonisation. There are many ways in which we are pushing it forward, not least with industrial carbon capture and storage, innovation and, with our partners, looking at joint research and joint sharing of information.
Lord Howell of Guildford (Con)
My Lords, I am sure that the noble Lord, Lord Teverson, is right in theory that, if CCS can be made to work, it will be the means of continuing to burn oil, gas and coal in a low-carbon way and thus preventing the looming power crisis that seems all too likely in the near future, but would not my noble friend agree that, in fact, it is impossibly expensive and that the technique of storing in North Sea oilfields is slightly dubious and not fully proven? Would it not be much better to divert resources, such as they are, to carbon capture and utilisation—a cheaper method of carbon capture and sequestration—and to increased energy efficiency?
Lord Bourne of Aberystwyth
My Lords, my noble friend is right to address the enormous cost of the competition. It was going to cost £1 billion. We remain very active in sharing information and data with the United States, Canada, Norway, South Korea, Japan and China, all of which are pushing forward on this, and we are sharing research and information.
Lord Framlingham (Con)
My Lords, although methods of capturing and storing carbon are becoming more and more sophisticated, the simplest, pleasantest and most efficient way of doing it is still by the use of trees. Can I urge the Minister to do all he possibly can to urge the Government to apply maximum energy on the care of trees and planting of trees, particularly in our towns and cities?
Lord Bourne of Aberystwyth
My Lords, my noble friend is absolutely right on the vital nature of this. It was a leading part of the discussions in Paris and was spearheaded by His Royal Highness the Prince of Wales. The United Kingdom is very much of the same view, as was the rest of the world at Paris.
Lord Broers (CB)
My Lords, getting back to the cost of CCS, I think at the moment the strike price for it is about three times the reference price, which means that if we went that way, the cost would increase three times. We are hoping the price may come down in the 2020s to only twice the cost, but should we not get on with anything we can to understand that situation and the costs more? As the noble Lord, Lord Howell, said, it may not be feasible at all. It is a surprise to most of us that this competition was cancelled.
Lord Bourne of Aberystwyth
My Lords, I agree with most of what the noble Lord said, except about the cancellation. The cancellation was of an extremely expensive project. He is absolutely right that our role, along with others, is vital. We are a leading part of the Carbon Sequestration Leadership Forum internationally and, as I indicated previously, we are talking with key allies about what to do in this area.
Lord Grantchester (Lab)
My Lords, key organisations have written jointly to the Prime Minister deeply concerned about the Government’s decision to withdraw £1 billion of funding for CCS. This decision is no way to encourage businesses or investor confidence and is undermining the development of a low-carbon economy. Will the Government accept that they have perhaps made a mistake in axing this programme, recommit the funds and come up with a new strategy?
Lord Bourne of Aberystwyth
My Lords, I agree with the noble Lord about the importance of CCS, but I disagree with him in relation to the cancellation of the project. As I have indicated, we are looking at other ways of advancing CSS, including an innovation budget, possibly a contract for difference and international co-operation. This is the right way forward with value for money.
Baroness Featherstone (LD)
My Lords, as the UN’s Intergovernmental Panel on Climate Change concluded, CCS is a hugely important part of tackling climate change, particularly with regard to cost-effectiveness. Without the crucial £1 billion investment in the cancelled CCS project—as the Government themselves phrased it just a year ago—how else are binding carbon targets to be met? I urge the Government to reconstitute the £1 billion pioneering project.
Lord Bourne of Aberystwyth
My Lords, the noble Baroness is wrong: it is not £1 million but £1 billion. This is the whole point. It is a massively expensive project. We have to look at value for money and at achieving the best ends for the best value. As I say, we recognise the importance of CCS. That is why we are carrying it forward in so many other ways.
Lord Hain (Lab)
My Lords, if the Minister is as positive about carbon capture and storage as he has indicated with his warm words, why is he slashing its budget so savagely?
Lord Bourne of Aberystwyth
My Lords, I have indicated that it is an issue of value for money. We do not believe that £1 billion spent on a competition is the right way forward. We are spending money elsewhere, such as on industrial carbon capture and storage; we are working with allies; and we have a powerful innovation budget. This is a key area, but we must get value for money.
Lord Teverson
My Lords, surely this cancellation—this U-turn, this emergency brake—has taken away our reputation as decarbonisation leaders in the world, and has taken away investor confidence in the sort of low-carbon energy projects that we want in this country.
Lord Bourne of Aberystwyth
My Lords, anyone who was present in Paris for the conference at the end of the year, post the decision on the cancellation, would recognise that we are seen as having a leading role on decarbonisation. That is the reality.
Feed-in Tariffs (Amendment) (No. 3) Order 2015
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The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, this has been a very wide-ranging debate, which has interested the whole House, and there have been differences within parties as well as across the Floor of the House.
The Government are committed to cost-effective decarbonisation of the United Kingdom’s electricity supply—let me nail that straight at the start. In recent years, we have made huge progress in encouraging the development and deployment of renewable energy and in building a successful renewables industry. The feed-in tariff, or FIT, scheme has been a vital part of this. The FIT scheme now supports more than 830,000 small-scale renewable installations—a figure far in excess of what we expected to deploy when the scheme was first set up.
In 2010, when the FIT scheme was set up, the then Government estimated that it would cost £490 million per year in 2020. That was the estimate. Without the changes that we are seeking to introduce today, we estimate that by 2020 it would cost £1,740 million per year; with the changes, it will still cost £1,300 million per year. Let me just repeat that: £1,300 million per year. There has been a slight tendency in the debate to suggest that the Government are walking away from the renewables sector and not spending anything on FITs, but we will be spending £1,300 million per year, via the LCF. Of course it is not direct—it is via the levy control framework—but it is still a cost for bill payers. We need to establish that at the start.
The noble Baroness, in opening the debate, quite fairly said that subsidies must end—that nobody wants subsidies and that we must do this in a controlled way. I agree, but she did not then suggest how we should do it; she just opposed everything that we were seeking to do. It is a mode of proceeding, but if you are going to be taken seriously about ending subsidies, you should suggest how you are going to do it.
We have of course also made changes as a result of the consultation. The Government were elected with a clear manifesto commitment to keep bills as low as possible as well as to decarbonise. It is a judgment call, and we have been criticised from both sides, by those who think we should not be doing anything at all and by those who think that we should be doing more for the renewables sector. Clearly, the more you increase the subsidy, the more will be deployed. The noble Baroness suggested during her speech that renewables were cheaper than conventional forms of electricity. That is not remotely true. If it were true, we would not need to do anything at all. It was David Attenborough who said that as soon as you have the cost of renewables below the cost of fossil fuels, the problem goes away. We are not at that stage: if we were, we would not need to be doing what we are doing in terms of continuing a subsidy.
What we are doing is responsible. If this order were annulled, we would have to consider closing the scheme altogether, so I welcome the stance taken by the opposition Labour Party on this—I know it is not happy with what we are doing but the right course of action is to regret this rather than to seek, any time there is a policy you do not like, to overturn it by voting strength. That is not what this House should be about. I will say no more about that, but it really is not the right way to proceed.
In response to the noble Lord, Lord Grantchester, who asked why we are bringing it forward in this way, nobody at the start of this Parliament could have foreseen that we would be in this position of having votes all the while against government policies which were being lost in a way that has not happened previously—at least not on this scale, as he himself indicated. I was grateful for what he said on that.
We have listened carefully to the views of industry in the consultation—in particular, the Solar Trade Association’s £1 plan—and took account of its responses in redesigning our scheme. We revised tariffs upwards to reflect evidence that it provided, we allocated more budget to solar under the £100 million cap to reflect its asks and we are implementing a cap system which allows us to recycle underspend and consider the balance of caps between years.