Energy Bill [HL] — Second Reading

Part of the debate – in the House of Lords at 11:50 am on 22nd July 2015.

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Photo of Lord Grantchester Lord Grantchester Opposition Whip (Lords), Shadow Minister (Environment, Food and Rural Affairs) 11:50 am, 22nd July 2015

My Lords, energy policy and its development are necessarily long term, with objectives that endure through many Parliaments across all shades of Government. The UK faces a huge challenge to its energy supplies as sources of power come to the end of their useful life, to which Governments must respond with new sources and new infrastructure. The Energy Bill before your Lordships’ House today reflects both these elements and I thank the Minister for his comprehensive introduction and explanation.

I somehow sense that the Minister is already on the back foot, as he spent the first four minutes of his remarks putting up defensive statements around renewable energy policy. However, there is much in this Bill that is to be commended and has our support, helping as it does the UK oil and gas industry prolong the benefits of North Sea oil reserves. Industry has widely welcomed the OGA proposals. However, we believe that more could be done. With respect to the other main provision of the Bill, regarding a new energy source of onshore wind generation, there is much in the Bill that we believe spreads alarm and fear across the renewable energy market.

The main provisions of the Bill implement the recommendations of the Wood review by putting the Oil and Gas Authority on a statutory basis to maximise the economic recovery of petroleum from the UK’s continental shelf. We agree with this and welcome the MER—maximising economic recovery—strategy.

Part 1 of the Bill relates to the OGA and its core functions. Clause 4 will provide for matters to which the OGA must have regard when exercising its functions. The Bill lists five: namely, minimising future public expenditure, securing the UK’s supply of energy, collaborating with government and industry, encouraging innovation in technology and working practices, and maintaining a stable and predictable system of regulation. We contend that another very important aspect should be added, namely that the OGA must have regard to environmental impacts of activity in tandem with the Climate Change Act 2008. We will want to examine this in Committee.

Other measures in the Bill regarding the OGA provide additional powers in relation to its necessary activities between government, the Secretary of State and the wider industry of licence holders and operators. The Minister has outlined these provisions expertly. However, it is important to recognise that the North Sea supports hundreds of thousands of jobs—more than 400,000. We must look to the future of the North Sea, beyond extracting the last useful drops of oil, and to what employment it could provide. The Bill contains no measures to ensure that infrastructure is not lost when companies decide to abandon their operations. Either to salvage important assets or to stifle potential exploitation by others in the future, companies may well take infrastructure assets with them, making it all the more difficult to establish future projects.

The UK continental shelf supply chain is an integral part of a valuable industrial sector, which generated a turnover of more than £35 billion in 2012—including exports worth £15 billion per year—and which has historically been the largest contributor to the Treasury. The OGA, together with the Oil and Gas Environment and Decommissioning Unit, should ensure continued economic activity in the North Sea. This could include ensuring that infrastructure assets that could be reused later are preserved. Much of this infrastructure could be used in the storage of carbon dioxide. The Bill gives the OGA powers to license sites for CO2 storage but does not do nearly enough to ensure that the necessary infrastructure to transport and store CO2 remains in place. This is happening as part of the Peterhead CCS project.

The Constitution Committee of your Lordships’ House has drawn attention to the retroactive aspects of the Bill at Clause 58, which would validate fees already charged by the Oil and Gas Environment and Decommissioning Unit. Although retrospective provisions are generally to be avoided at all times, the Constitution Committee recognises that these provisions do not retrospectively criminalise any conduct or seem to unpick any judicial decisions. The provisions cover the levy of a narrow set of fees and the Minister has given further reasons today in his remarks for the need to retain the fees already levied. I thank him for that.

Although the majority of the Bill is devoted to providing certainty of benefits for investors in offshore oil and gas, the two clauses that deal with onshore wind as a future energy source do the exact opposite for investors in renewable energy. These changes to the financial support for onshore wind threaten the future of 19,000 jobs supported by that sector. These changes certainly curtail future development of the lowest-cost source of low-carbon power, and by setting dangerous precedents for other renewable sources of energy, investor confidence in a stable UK business environment is being shattered.

The first of the two clauses on wind power devolves the decision-making on planning applications for schemes larger than 50 megawatts to local authorities. This is all very commendable and, so far, we can all agree—except when it is put against guidance issued by DCLG on 18 June that local authorities may only issue planning permission for sites “already identified as suitable” as part of a local or neighbourhood plan. Several authorities, such as Mid Devon District Council and North West Leicestershire District Council, have indicated that this means, far from local authorities being consulted, they will have to reject outright any applications for onshore wind farms, as they have no sites allocated in their local or neighbourhood plans.

The second clause puts an end to public subsidies for new onshore wind farms under the renewables obligation one year early. This sudden change to the renewables obligation is particularly damaging. Closing it one year ahead of schedule means projects that have already received investment and incurred expenditure may not now go ahead. The last Government brought forward plans to close the renewables obligation in 2017, and no indication was given that it would be closed any earlier. Indeed, the noble Baroness, Lady Verma, told the House in a Written Answer in January this year:

“No further comprehensive banding review is planned for the RO scheme”.

The Independent Renewable Energy Generators group estimates that members in the advanced stages of projects have aggregate onshore wind investments of £1.2 billion, with sunk costs either already spent or contractually committed totalling £350 million. A sense of dismay is felt throughout the renewable investor market that this Government cannot be relied on.

The Minister stated that there will be a grace period with three key criteria to enable projects to qualify, namely that a development must have received planning consent, accepted a grid connection offer and have a land lease agreement in place. However, the Government have not specified dates nor taken the lead to contact the estimated 250 projects affected. That this number is put forward would suggest that the Minister’s department has done a jobs and supply-chain sector impact assessment. Can the Minister say whether the department did undertake an impact assessment before the announcement of 27 June? It would an astonishing omission if an impact assessment had not been undertaken, which would be the inference without an answer from the noble Lord. If he can confirm that an impact assessment has been made, will the Minister publish it?

The lack of clarity in the timescale and other important elements of the grace period mean that project financing and development may be delayed, potentially causing eligible projects to fail. The knock-on effect on the confidence of renewable investors into other areas is extremely damaging. As the company E.ON said:

“This jeopardises the reputation of the UK as a stable and attractive market to invest in”.

Long term, that can only be to the detriment of the UK citizen. However, to undermine the future role that onshore wind can play is not inevitable. Although we share the Government’s desire to reduce the costs, we believe that it can be achieved without deterring investment. Companies could still make positive investment decisions based on the grace period proposals with some modest government actions. Will the Government come forward with reassurances and proposals?

These changes make it all the more difficult and expensive for the UK to meet international obligations on renewable targets. In June, the European Commission released a report showing that we are falling behind the trajectory necessary to achieve the UK national target. This comprises three elements: heat, transport and electricity. On transport, the aim is for 10% of transport fuel by 2020 to come from renewable sources. The UK is at present only at 3.5%. On heat, the target is 15% from renewable sources, when the present level is only 4.9%. Yes, on electricity the UK is on track. Yet the Bill may well jeopardise that achievement. What assessment have the Government made of the likelihood of achieving a virtually carbon-free electricity sector by 2030 following the impact of the Bill?

What estimates have the Government made of the effects of these changes on the overall cost of creating a carbon-free electricity sector by 2030? Will the Government commit to maintaining support for onshore wind through the contracts for difference scheme and feed-in tariffs up to the end of 2020, although at a reduced capped price of £80 per megawatt hour? At this price, the Committee on Climate Change has stated that onshore wind could be deemed to be subsidy free when compared with the full cost of unabated gas. By reducing the rollout of onshore wind, meeting 2030 and 2050 decarbonisation objectives will require alternative technologies, which may well ultimately increase costs for consumers given that onshore wind is one of the most cost-effective energy technologies. In contracts for difference, onshore wind has a strike price of £95 compared with £155 for offshore wind.

The Bill severely limits the cheapest way of meeting UK targets. The Bill will increase consumers’ bills and make it more expensive for the UK to decarbonise. The Bill represents a potential wrong turn. The Government must work hard to bring forward the necessary investment still so needed to transform the UK’s energy sector. The Government must not let this become a missed opportunity.