Energy Bill [Lords]
Debate between John Redwood and Philip Boswell
John Redwood
As I have been trying to explain, the reason we end up with dear gas is all the other subsidised interventions we have been making. We cannot run gas flat out and get the benefits of running it in the most economical way possible. Yes, I would rather have a much simpler market. The market worked a lot better in the 1980s and 1990s when we first set up a pretty open competitive market and power prices came down a lot. We had roughly a 25% margin of extra supply so that we were secure and we never had to worry that, if there was a cold day with the wind not blowing when industry was doing quite well, we would have to tell industry to switch its machines off. We did not get to such a position under that regime.
Now that we have a grossly intervened regime with all sorts of subsidies and priorities that do not reflect the economics of power production, we get to exactly the point that the hon. Gentleman rightly identifies, when we have to bid quite high to get people to provide gas-based power because we cannot guarantee full access to the market on a continuous basis. Of course, the more interventions there have been over the years of Labour and coalition and now the Conservatives, the more changes are needed in that intervention regime as the Government tinker or try to change it to make it work better, and the higher the prices tend to have to be because people become more suspicious if Government have so much power and if Government keep changing their mind.
So it is quite easy to get from a relatively free, successful market to a badly damaged, rigged, subsidised market. It is quite difficult getting from a badly damaged, subsidised market where the interventions are not very helpful to one that works better, because there is suspicion in the minds of investors, and they need longer contracts, bigger guarantees and higher prices to give them some kind of offset as they fear the Government may tinker unnecessarily.
This debate is about the amendment. I support the Government in their view. I want the Government to get on with removing the subsidies to onshore wind, as we said we would do. I hope the Opposition and the other place will not delay that further. We gave plenty of notice of this, and the sooner we do it the sooner we will get a bit closer to having a less damaged energy market.
Philip Boswell
Onshore wind is one of the most inexpensive forms of renewable energy, and it is therefore critical to maximise its input into a renewable energy solution across the UK to enable Scotland and the rest of the UK to meet our climate change targets.
Closing the RO early puts in jeopardy £3 billion-worth of onshore wind investment in Scotland alone for a forecast 30p saving in energy bills. This is a false economy because £3 billion of onshore wind investment equates to 63 million tonnes of CO2. That is from DECC’s own analysis and represents a missed opportunity both economically and in terms of hitting climate change targets.
I spoke at length in Committee on the grace periods and the importance of getting them right, so I will not labour the point here. However, it is important that they are fair and do not disadvantage projects which, through no fault of their own, fall through the crack owing to early closure of the RO.
My hon. Friend the Member for Aberdeen South (Callum McCaig) and the hon. Member for Southampton, Test (Dr Whitehead), who is no longer in his place, spoke eloquently about the real and very difficult deterioration in investor confidence caused by the early closure of the RO. Now that that is proceeding, it must be done fairly and with a view to the critical part that onshore wind plays in the overall energy solution for the UK. We must keep the lights on, which is why we intend to press amendment 8 to a Division.
Energy Bill [Lords]
Debate between John Redwood and Philip Boswell
Philip Boswell
The £92.50 strike price at double the current rate for Hinkley C, guaranteed for 35 years, is a case in point. As for alternatives that might be cheaper in future, one possibility is compressed air energy storage, allied to the admittedly intermittent nature of wind power.
I could also tell the right hon. Gentleman about advances in technology in the context of the carbon capture projects in Scotland and Yorkshire. Before coming to this place, I was fortunate enough to work in the energy sector for 13 years, and for some time I was Shell’s contract leader for the carbon capture project. I moved it from the coal-fired power station at Longannet to the Peterhead gas-fired power station, so I understand all too well what “advances in technology” means.
When we were talking about the amine process—before the rug was pulled from under our collective feet—we likened the technology to that of the mobile phones of the 1980s; the right hon. Gentleman is not young enough not to know about those clunky phones. The process would have captured 90% of emissions. Given the advances in technology, were we to retain and develop that process, the figure could rise to 92%, 94% or 96%, with ever-reducing costs. This was a missed opportunity: that is the point that I was making.
Creating market incentives to achieve the two-pronged goal of cheaper and cleaner energy requires a reworking of the United Kingdom Government’s involvement in the energy sector, and a rethinking of their relationship with energy. In the Bill, the Government propose to close the renewables obligation to new onshore wind projects from April 2016, a year earlier than originally planned. Given that the RO is the only current mechanism that enables large-scale onshore wind to enter the power market, the proposed closure poses a significant threat to the future of the onshore wind sector and the United Kingdom’s growing green manufacturing, export and investment potential, while increasing the difficulty and costs associated with meeting the challenging decarbonisation targets.
In the House of Lords, the Government proposed a number of grace periods designed to allow projects that had already committed significant investment on the basis of an expectation to deliver before April 2017 to proceed. Peers rejected the clauses on the RO closure, calling for the Government to respond more fully to the substantive concerns expressed by industry about the closure and the grace periods. I support that position. Investors and developers need clarity from Parliament on the future of the renewables obligation. Without that certainty, investors will be unable to proceed with projects that were expected to be delivered on the basis of RO grace periods. The Government must also explain how new onshore wind projects will in future be able to access and compete in the market for low-carbon power.
Philip Boswell
No, I will make some progress.
Without such a route to market, the Government risk increasing the cost of meeting our long-term carbon reduction targets.
The deployment of onshore wind has greatly helped to keep the cost of decarbonisation down, while creating business opportunities for UK firms. The onshore wind industry has grown significantly in recent years, and now supports some 19,000 jobs. In 2015, the 8.5 GW of operational onshore capacity in the UK met nearly 6% of the UK's electricity demand.
John Redwood
Why, then, was there such a high import component in the wind equipment that we needed, mainly from Germany?
Philip Boswell
We need to invest in research and development to establish that. R and D is another shortfall on the part of this Government and others, which is why we lag behind in respect of wind technology. We are well advanced with North sea and sub-sea technology, because we had the conditions that encouraged research and development, but since that time this Government and its predecessors have failed to do the same for wind.
Scotland in particular has embraced the benefits of onshore wind, with over 5 GW of operational projects, and the country is home to around 70% of the onshore wind projects that are currently in the UK planning system. Onshore wind has been the driving force behind the fact that renewables now account for nearly half Scotland’s gross electricity consumption. It is also the cheapest source of renewable energy, and it will soon compete with conventional forms of power generation. According to the Committee on Climate Change, the full cost of onshore wind projects will be
“similar to that of gas generation in 2020 (e.g. £85/MWh). In practice, some of the best sites could be considerably cheaper and costs should continue to fall”
as efficiencies increase.
The Bill’s impact assessment states that the Government aim to achieve 11.6 GW of operational onshore wind by 2020, and that currently 10.4 GW is operational or under construction, leaving a further 1.2 GW to come forward before RO closure in April, or in the grace periods that the Government propose. It also states that there is 2.9 GW of onshore capacity with planning approval awaiting construction which could have come forward under the RO. That means that up to 1.7 GW of capacity will be lost under the Government’s plans. That amount of onshore wind capacity would generate about 3.8 terawatt hours of electricity, which is equivalent to the annual power needs of more than 900,000 homes. Closing the renewables obligation without explaining how further onshore wind can access the market poses the risk that the UK will fall further behind on our 2020 renewable energy targets, and that the cost of continued decarbonising of the energy system will increase.
The central estimate in the Government’s impact assessment is that early closure of the RO would reduce annual household bills by 30p per year. While the Government and industry must ensure that we minimise the bill impacts of achieving our renewable energy and carbon reduction target, the potential impact of RO closure on the onshore wind sector and on wider energy investor sentiment could increase the overall cost of investment in our energy infrastructure. Moreover, unless a route to market for new onshore wind projects is set out, consumers could face higher bills, because the UK must rely more heavily on more expensive generation technologies as we seek to cut carbon from the power sector into the 2020s. The £92.50 strike price for nuclear generation at Hinkley C, guaranteed for 35 years, is an example of that.
The latest edition of the EY renewable energy country attractiveness index, which was mentioned earlier, now puts the UK at No. 11. For the first time, it has fallen outside the top 10, and it has fallen from its position as No. 5 in February 2014. Indeed, industry and business groups, including the CBI, have been warning of the damaging effect that short-term changes in the framework for renewable and low-carbon technologies are having on the UK’s ability to attract investment into our energy infrastructure more widely. Moreover, a recent EY survey of lenders in the onshore wind sector found that more than half of those who responded were not prepared to lend until the Bill had received Royal Assent, largely owing to the current political and regulatory concerns about the RO and the lack of guidance on the process and timing of the Energy Bill’s amendment in Parliament.
As a leaked letter from the Energy Secretary acknowledged in November 2015, the UK is not on track to meet its 2020 renewable energy target covering the use of renewables in electricity, heat and transport. Of the three sectors, only renewable electricity is on track at present. The overall shortfall—estimated at 50 TWh—is made up of under-delivery in heat and transport. Increasing the share of electricity sourced from renewables is a cost-effective method by which the UK could seek to make up at least some of the shortfall, and has the benefit of involving established industries with a track record of delivering significant capacity over relatively short periods. The lack of clarity for renewables projects in both the RO and its replacement, the contract for difference, means that Scotland is also now at risk of not meeting its own 2020 target to generate the equivalent of 100% of its annual demand for power from renewables by 2020.
In conclusion, I thank those Members who have contributed to this critically important debate, and while I welcome the Government’s energy market reform, as it is an essential step in achieving clean, cheap, and secure energy, I have serious concerns about the ways in which the UK Government have enacted it, particularly in regard to onshore wind, carbon capture, the retention of core oil and gas infrastructure, the green investment bank and solar energy.
The closure of the RO a year early has been a huge blow for small, independent developers, whose projects have now potentially been compromised. Amendments introducing a robust grace period scheme must be introduced in Committee. The UK Government’s backpedalling on the closure date of the RO has created uncertainty among investors.
I look forward to hearing proposals from the UK Government as to how these issues will be addressed and urge all involved to expedite the implementation of this Bill as quickly as is reasonably possible. The energy industry in the UK has been undermined by the Government’s continuous moving of the goalposts and needs legislative stability to attract and retain finance, and to bring back much needed investor confidence that is essential to the success of this industry.