Energy Bill [HL] — Second Reading

Part of the debate – in the House of Lords at 1:09 pm on 22nd July 2015.

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Photo of Lord O'Neill of Clackmannan Lord O'Neill of Clackmannan Labour 1:09 pm, 22nd July 2015

My Lords, first, I draw attention to interests which I have declared. I am an officer of a fuel poverty charity and I have advisory roles in one or two other areas of energy.

I suppose that a debate of this nature should be determined by the Long Title of the Bill, in so far as that determines the content, but a lot of today’s debate has been about what is not in the Bill rather than what is. While it is a great temptation to go on at length about what is not in the Bill, there is quite a lot of substance here, to which we should give proper consideration.

The drop in oil and gas prices and the impact on exploration and production, particularly in the UKCS, and its knock-on effects on tax revenues and a broad range of industrial activities in the North Sea certainly serve to underline the sensitivity with which we must deal with North Sea matters. As my noble friend Lady Liddell said, we are world leaders and one of the reasons that we are is because it is so damn difficult to do anything in the North Sea, given the climatic and other conditions there. In some respects, it is a bit like what Frank Sinatra said of New York: if you can do it in the North Sea, you can do it anywhere.

The point also has to be made that, when Ian Wood was called upon to review the circumstances, we probably could not have asked a better person to do it. Anything that he says certainly requires our attention and respect. I think it is fair to say that he has produced a series of recommendations which, across this House, we would all want to see accepted.

We have to recognise that, under successive Governments since the mid-1990s, there has been a series of initiatives of a collaborative character involving all sides of the North Sea interests and, because of that, a number of difficult crises have been ridden out. However, it is also fair to say that the challenge of having a consistently—and likely to be lengthy—low price of oil and gas is one of the biggest crises. It is expensive and difficult in these circumstances to maximise the recovery from the North Sea, so the setting up of the OGA is to be welcomed. The powers that it has been given are sensible ones. On the proposals for funding, although there is an understandable concern about the possibility of retrospective legislation in relation to the levies, they are not beyond the wit and intelligence of the department to have a go at.

While the general powers of the OGA and its capacity to become involved at various levels are to be welcomed, I would make one cautious point. I think that the noble Lord, Lord Oxburgh, was moving towards this in the question that he asked about the number of officials from DECC who will go to the OGA. Now that we have Ofgem and the OGA, there is a danger of having a department which is far smaller than the arm’s-length agencies over which it has a notional degree of control. I make this point because, when push comes to shove in debates in Cabinet and elsewhere, the size, strength and critical mass of the department can be an important factor in pushing the case which that department wishes to advance in these arenas. We therefore have to get some reassurance that this does not mean that the department itself will be denuded even further. We know that it is one of the smallest departments, with a relatively small budget, but along with BIS it is responsible for some of this country’s most significant earning capabilities.

The OGA will have the function of MER, and you might say that that has the ring of coming out of one of Stalin’s five-year plans. Maybe that is going a bit far, but when you consider that we have a Conservative Government establishing a quango, funded by levies, to regulate a vital part of the UK economy with the potentially extensive powers of intervention of this authority, it is, as someone said to me the other day, a wee bit like the BNOC—the British National Oil Corporation, for those of us who are old enough to remember that. It is a bit like the BNOC, but unfortunately—I speak here as a socialist—while it may have control, it does not have ownership. Maybe that is for another day, or we should leave it to those in the Labour Party seeking higher office than me to try to work out. That is probably the least of their worries at present. However, as a sensible form of intervention it enjoys a great deal of support across the House.

However, there is one area which I hope the OGA will have powers for, and perhaps the Minister could clear this up. It has been a hobby-horse of mine for years that we have insufficient gas storage capability in the United Kingdom. It may be that, in the years that lie ahead, we will enjoy an increased supply of gas worldwide and that it will be at low prices, but the volatility of gas prices has had a detrimental effect on the cost of energy for UK consumers, both industrial and domestic. I have always felt that there was a case, and I think I am not alone in this, for having a greater storage capacity in the UK—not as much as Germany or France, which have different conditions. But as we know, year by year the amount of gas that we get from the North Sea is declining and it might therefore be prudent to look afresh at this. Will that come within the responsibilities of the OGA? I would like to know.

Mention has been made of renewables. I am a wee bit of a sceptic on renewables; I am not antagonistic to them but I have often felt that the pudding has been overegged in some areas. When we talk about the scarring of the countryside by having windmills, I am reminded of the attitude in the 1930s and 1940s to the hydro schemes, which are now held up as the greatest thing since sliced bread: “Here is this cheap form of power generation—the only thing we do not have is enough water”. I was reminded that, in the 1930s, one of the advocates of what is now one of the jewels in the Scottish energy crown, the Pitlochry hydro scheme, was expelled from the Perthshire hunt for daring to advocate something so radical, which was going to destroy the countryside. We should therefore perhaps take the rhetoric of the noble Viscount, Lord Ridley, with a fair amount of salt.

The other side of the issue is that a number of small wind-farming facilities are supporting smallholdings and small farms, and keeping them going. In turn, they enable the husbandry of the area round about to be sustained and, very often, enable people to have access to the hills. I had that issue in my constituency in Scotland when I was an MP, and it is not given sufficient attention.

Having said that, it is unfortunate that the Government are withdrawing the subsidies to wind farms in the precipitate way that they are because there will be casualties from this. It would be interesting to know whether the ministry has made any estimate of the likely cost of those proposals which are currently partially in train but which will not enjoy the necessary degree of subsidy to be self-sustaining. As my noble friend Lord Whitty said, it was precipitate. There are obviously going to be casualties here, and I hope that when we get to Committee, we can look at the fine print of this.

I also make the point that it is very good to have localism and give powers to local authorities but, at the same time as doing that, one would expect that the local authorities had the capability and resources to undertake proper planning reviews of the sites which could be the source of some controversy in their communities. It is fair to say that a number of the rural local authorities are woefully underresourced and will probably not be able to do this job. Has the Minister given proper attention to that?

There are obviously a number of issues that we could go into here. I think that it is fair to say that we are sailing very close—sorry, that is a dangerous metaphor—but it is problematic in relation to our capacity to generate electricity. We know that National Grid has one or two innovative schemes which will come in over this winter. Nevertheless, we need to have the energy debate put into context and to have some indication of what is actually happening at Hinkley. We know that the latest delay is the Austrian hurdle, but it seems that every possible delay is embraced by the French owners on the basis that it gives them more time to try to get their capital arrangements made. They do not now seem to have the money to undertake the programme that they signed up for, despite the fact that we are giving them a very attractive price for nuclear power.

At the end of the day, this Bill is primarily about the OGA and the question of the withdrawal of wind farm subsidies. I welcome the OGA and I have some misgivings about the wind farm subsidy withdrawal and the manner in which it has been handled, but when we get to Committee we will be able to look at that in far greater detail.