Energy Bill [HL] — Second Reading

Part of the debate – in the House of Lords at 12:50 pm on 22nd July 2015.

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Photo of Lord Whitty Lord Whitty Chair, EU Internal Market Sub-Committee, Chair, EU Internal Market Sub-Committee 12:50 pm, 22nd July 2015

My Lords, I declare my interest as chair of a fuel poverty charity and as a vice-president of the Local Government Association. It is quite convenient to follow the noble Viscount, Lord Ridley—at least he gives us a carte blanche to be a bit controversial. What we have just heard makes me move to one of the phrases from later in my speech: that one of the dangers here is that the Treasury has taken over DECC. But it is actually more profound than that. One of the dangers is that the climate sceptics have taken over the Treasury.

There are different perspectives, and not everything in the renewable field is lovely, aesthetically or economically. Nevertheless, I think that the recent decisions by the Government in relation to onshore wind and, indeed, solar power make a proper economic and effective contribution to renewables, to our decarbonisation programme and our security of supply of energy more difficult to attain rather than less.

It is true that this Bill is a pretty thin Bill as energy Bills go. There are only really two bits of it: one related to the OGA and one to effectively limiting the support and the ability to engage in onshore wind projects. I do not have much to say about the OGA; it is following through on decisions taken in the earlier Bill at the end of the last Parliament. I would, however, underline two questions that have already been asked. The first was from my noble friend Lady Liddell, regarding the OGA’s role in effecting the transfer of skills, infrastructure and connections from the offshore oil and gas system to offshore renewable projects. The second was asked by my noble friend Lord Grantchester: will the responsibilities of the OGA extend to the operation of carbon capture and storage, where the emptying North Sea gas and oil fields could provide ready-made storage not only for British operation of fossil fuel facilities accompanied by CCS but also for a large part of Europe as well?

The OGA at the moment is very focused on oil and gas as it is and will be for the next few years, but we need a complete transformation of the offshore system to be connected and to have a holistic arrangement with the still growing—we hope; I part company with the noble Lord, Lord Ridley, here—contribution of offshore wind and perhaps other technologies down the line.

Most of what I will say relates to the issue of the government changes in the cross-subsidy arrangements and the planning arrangements for wind, although it is part of a wider context because the Government have also announced changes relating to the climate change levy and issues related to solar. All of these are affecting both individual investments which are in the pipeline and the general confidence in a stable, forward-looking programme for investors in energy of all sorts, but particularly in the renewable field.

Bringing the end of ROCs forward by one year, as far as onshore wind is concerned, does not sound like a lot. However, if you are already engaged in a project that was relying on ROCs being available until 2017, it pulls the carpet from under such projects. It is, of course, understood that as the costs of technologies such as onshore wind and solar come down, the need for the subsidy diminishes. However, that should not be a precipitate change which will affect decisions already taken by investors, companies and planners on the basis that rebates announced only a few months ago by the Government would remain in place. Many noble Lords will no doubt have received representations on this front. It is clear that independent generators in particular are being contacted by investors asking what the hell is going on, because they thought that they had the economics worked out, that they had done the accountancy and that they understood the degree of government support which would come in the next few years, but suddenly that has changed.

Unless the Minister, the noble Viscount, Lord Ridley, and others think that this is just a few trade associations, green lobbyists and the opposition parties making a fuss about the changes, let me quote from a couple of individual companies involved in this field. A company which is involved in solar energy but also has interests in onshore wind has written to me and spelt out that,

“recent changes to RO on onshore wind, lack of clarity over CFDs and changes to the Climate Change Levy … have created uncertainty for the entire renewable industry. This has put jobs and renewable energy targets in serious jeopardy. Government policy has meant that access to finance for renewable projects is on hold, with now only a select few of projects in the pipeline likely to go forward. The Government’s confidence that there are enough renewables projects in the pipeline to meet renewable targets is far from guaranteed”.

That is from a relatively small company involved in this area. I also quote one of the big six which has invested heavily in this area. It states that its understanding was that:

“During the introduction of Electricity Market Reform”— only about a year ago—

“the Government signalled to investors that there would be an orderly transition to the new framework. To aid this transition it was stated … that the Renewables Obligation … would remain … until 31st March 2017. This was accepted by investors … Since then we have seen the closure of the RO for solar PV schemes on 1st April … followed by the decision to close the RO for onshore wind twelve months earlier than previously indicated”.

This has caused consternation among boards and outside investors and,

“jeopardises the reputation of the UK as a stable and attractive”,

regime for investment. We have to remember that such investors have choices. Whether the investments are being made at the board level of large multinational energy companies or whether investors are going to the market for the funds, they need to see stability. The Government, by a number of individual decisions in aggregate, have caused that confidence to disappear.

There are better ways of doing this. Different timescales would have reflected the need to reduce support as the costs of producing the technology reduced—I recognise that and so do most of the companies—but once you have lost the confidence of the investor community and the boards of major multinational companies in there being a stable, proactive regime for investment in renewables, then you have lost it for a very long time. That jeopardises some of the targets which the Government have set. It may be true, as the noble Viscount, Lord Ridley, said, that it does not jeopardise that much the 2020 target, but it will certainly jeopardise projects which would otherwise have gone ahead and been rolled out from 2020 to 2025 and therefore the targets which are in the DECC plans—or what were the DECC plans, because we do not know quite whether those have changed—in terms of a renewables contribution and the level of decarbonisation as we go forward into the 2020s.

That is a mistake of cardinal importance on the part of the Government. It is not a good start for the new Conservative Government’s intervention. I would hope that they could recover from that. As the noble Lord, Lord Oxburgh, has just said, we need to see the total context in which this is working—we have yet to see it. In the mean time, it is important that this House recognises that what has been announced in the last few days and weeks makes much more difficult, and even more difficult to deliver, all aspects of what was previously a more or less consensual view on the way in which energy policy should go following electricity market reform. I do not think that that was the intention. The intention, according to the Secretary of State—and the Minister has repeated it this morning—was to make bills lower for the consumer. In no sense can bills be made lower for the consumer if we are cutting off one relatively low-cost renewable technology but paying very large sums of money—increasingly for the consumer and, to some extent, the taxpayer—for ones that are more expensive. This is not sensible economics. It is not a rational policy. I hope the Government can do better within a very short period of time.