Energy Bill [HL] — Second Reading

Part of the debate – in the House of Lords at 12:32 pm on 22nd July 2015.

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Photo of Lord Oxburgh Lord Oxburgh Crossbench 12:32 pm, 22nd July 2015

My Lords, I see this Bill as something of a curate’s egg: it is good in parts but less good in others. My main concern is less about the details of the Bill and more about the lack of an overall strategic framework for energy into which we can fit it.

The first part of the Bill deals with North Sea oil and gas—and here I should declare an interest as honorary president of the Carbon Capture & Storage Association. The decision to follow the main recommendations of the Wood review is exceedingly welcome. Although the overall demand for oil and gas is likely to decline with increasing use of renewables, that same increase will increase the need for dispatchable energy. Currently, that need is mostly met by gas and it makes sense to reduce our dependence on imports and to make maximum use of our North Sea resource.

The proposed OGA arrangements are broadly welcomed by the industry, as several noble Lords said. However, for them to work effectively, as indeed the noble Baroness, Lady Maddock, said, it is essential that the detail is right. As this Bill progresses, we should look at that in much more detail and consider what will be put into secondary legislation. One question that the Minister might be able to clear up today is: how many civil servants and at what level is it intended will be transferred from DECC to the Oil and Gas Authority? Furthermore, what oil and gas expertise will remain within DECC to ensure that the department can provide intelligent and informed oversight of the authority?

I turn now to the part of the Bill that relates to wind energy. The Government must recognise that the two provisions in the Bill, one relating to the closure of the ROC scheme one year earlier than originally advertised and the other relating to planning consents for wind farms, will together be seen as a government cold shoulder for onshore wind. It is hard to see how this is consistent with the declared intention of decarbonising our economy in the least expensive way. I do not know whether the Minister is familiar with the review of onshore wind completed by the Baringa Partners consultancy in April of this year, but even if he is not, his officials will be. Using DECC documentation and assumptions, the review shows that after landfill gas, onshore wind provides potentially lower strike prices than any other renewable technology. This finding led to the conclusion that, “Based on DECC’s assumptions, onshore wind is the cheapest source of renewable generation available to the UK today for deployment at significant scale”. It would be helpful to know whether the department accepts those Baringa conclusions. There may well be good reasons why UK onshore wind capacity should not exceed the 12 gigawatts that the department seems to have in mind, but if so, it would be useful to know what they are.

The onshore wind industry in the UK—as distinct from the offshore industry, about which we have talked a little, and is more capital intensive—is one that owes much of its growth to small companies. Indeed, for several years I was the chairman of such a company. The fact that many of these companies are small makes them particularly vulnerable to abrupt changes in government policy. Delayed or cancelled programmes can result in fatal cash-flow problems, or at best simply increase the cost of capital. For these reasons, can the Minister assure the House that he will consider sympathetically representations made on behalf of smaller firms in respect of significant sunk costs that do not fall within the currently proposed period of grace within which planned projects may proceed? I think that this would be seen as a sympathetic gesture by the industry as a whole.

An even better way to decarbonise than wind is not to use the energy in the first place, but rather to save it, particularly in domestic housing. In that case, does the Minister not feel that the decarbonising efforts of his department are being undermined by the Government’s decision to countermand the previously advertised new regulations for low-carbon building that were due to come into force this year? As he will know, there are now companies in the UK that offer to build new, low-cost, near zero-carbon housing at the same price or better than conventional housing. I find this decision particularly odd in the light of a remark made yesterday by the Secretary of State to a Select Committee in the other place: “I am particularly ambitious in the area of energy efficiency”. The decision adds to the impression that there is no cross-government cohesion on energy policy.

The noble Lord, Lord Howell, referred to the massive impact of the commissioning of coal-fired power stations in India and China, and he is absolutely right. Unless the environmental effects of those are brought under control, what we do in Europe really will not have a great effect. What we are doing in this country, which is of considerable importance, is pushing ahead with carbon capture and storage. The main aim of our policy has to be to drive down the costs of CCS to a level at which the technology can be applied—in many cases retrospectively—to coal-fired power stations, particularly in developing countries, but also in other parts of the world. Cost will be the crucial factor.

Turning now to the broader policy context within which this Bill is presented, it is general knowledge that the Government have energy problems. It will be very difficult to keep costs within the arbitrary cap of the levy control framework. It was, and remains, difficult to predict how the EMR would work in detail, how fossil fuel prices will change and how new technologies and other variables will affect us. However, there is a wide perception, particularly in the investment community, that the Government’s support for decarbonisation in general and renewables in particular is incoherent, unconvinced and half-hearted. I am not saying that this is truly the case, but it is widely believed to be so.

Abrupt changes in previously announced policies to save relatively small sums make the Government appear penny wise and pound foolish, and it saps confidence. As long as that remains the case, decarbonisation industries will struggle to find investors. I conclude by pointing out that in a survey of its members published in June this year by the Energy Institute, the professional body for the energy industry, energy policy was identified as the greatest concern. If the Minister can help dispel these doubts and uncertainties, he will do a great service both to the country and to an important part of British industry.