Clause 64

Energy Bill – in a Public Bill Committee at 9:00 am on 6 March 2008.

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Decommissioning notices relating to offshore renewable energy installations

Question proposed, That the clause stand part of the Bill.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Good morning to you, Mrs. Humble, and to the Committee.

Let me make a very brief introduction to the clause. As hon. Members know, one of the themes in the Bill is the decommissioning of various infrastructure involving oil and gas drilling and exploitation, as well as gas storage in the future. The Bill also focuses on the decommissioning around carbon capture and storage in the future, decommissioning relating to nuclear, which we discussed at useful length recently, and the decommissioning of renewables.

The clause concerns renewables and their eventual decommissioning. The Government are committed to ensuring that renewables play an increasingly important role in the UK’s energy mix. It is anticipated that a large proportion of the renewable electricity in the future will be generated offshore. The reforms of the renewables obligation, as we discussed in part 2, are intended to support that growth by providing increased levels of support to the offshore wind industry.

As a signatory to the United Nations convention on the law of the sea, the Government have international obligations to ensure that redundant offshore installations are removed from the sea bed to ensure safety of navigation and to ensure the protection of fisheries and the rest of the marine environment.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I am grateful to the Minister for giving way quite so early. Can he tell us how many turbines he is considering in relation to this? In particular, the Government have talked about 33 GW of offshore wind, so that is the 8 GW plus 25 GW. Does he expect that to be the installed capacity or the available power? In other words, if there was a 40 per cent. load factor, one would need more than that to get 33 GW. Therefore, is that the total capacity or the actual output?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Perhaps I can come back with the details later. The Secretary of State has indicated that, in a future licensing round, that kind of capacity will be available. It will be subject to environmental assessment and so on, so it is difficult at this stage to predict precisely the number of offshore wind turbines. As I understand the developments—and this is a matter for the commercial sector—we may well see much larger  wind turbines in the future. There is a lot of work going on offshore and I know that our new Energy Technologies Institute is interested in the implications of offshore wind and whether future technology might be different from the onshore wind turbines that we have had. If I can return to the hon. Gentleman’s specific question at some stage, I will.

In line with the “polluter pays” principle, sections 105 to 114 of the Energy Act 2004 introduced a statutory decommissioning scheme for offshore wind and marine energy installations. The provisions in chapter 2 of the Bill are intended to strengthen the decommissioning scheme in the 2004 Act. The clause will add associates of the developer into the list of persons from whom the Secretary of State may require a decommissioning programme.

Clause 65 ensures that funds set aside for decommissioning cannot be accessed by creditors in the event of a company becoming insolvent and will be available only for the purpose that they were originally set aside for. Clause 66 ensures that the Secretary of State has access to the necessary information when making a judgment on the suitability and financial viability of a decommissioned programme put forward by an operator.

As I mentioned, clause 64 amends the Energy Act 2004 by adding associates of the developer, such as a parent company, to the list of persons from whom the Secretary of State may require a decommissioned programme. The ability to require a decommissioned programme from an associate follows practice in the offshore oil and gas sector, which is set out in section 30 of the Petroleum Act 1998. It seeks to ensure that the costs of decommissioning can be met without recourse to the taxpayer in cases where the developer does not have the financial resources to meet those costs, but the associate does. The issue of not having recourse to the taxpayer is central to our decommissioning programme.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

As the Minister says, the clause defines an associate, and again we have the issue of definition. When we queried the threshold last time, the Minister said that we would come to it—I think with reference to oil and gas but it applies here as well. Under the clause, an associated company would own more than half of the share capacity, but under the nuclear provision, it would be 20 per cent. of capacity. Does the Minister not think that there is a risk of companies organising their business to get under the 50 per cent. threshold here? If it was necessary to add a 20 per cent. threshold for nuclear, why does the same consideration not apply to this clause as well?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I think, as we discussed when we considered the nuclear issue, that the issues at stake when it comes to nuclear are mighty big ones in terms of the decommissioning costs. As we noted, hundreds of millions of pounds are involved, and then there is the sheer importance of an effective decommissioning of a nuclear plant and of disposing of the waste in the ways that we have discussed. That might be why we were advised to be more rigorous when it comes to nuclear, but the provisions here, by looking at associated companies, are prudent in terms of safeguarding the taxpayer.

Provided the associate has adequate financial resources, the new power will enable the Secretary of State to approve a decommissioning plan that would otherwise have had to be rejected if it had come from a developer with inadequate financial resources of its own. The clause will provide greater clarity and certainty for developers and investors by giving the Secretary of State more options to approve decommissioning programmes in a wider range of circumstances, with a wider range of developers. As a result, we will have firmer foundations for growing the robust and internationally competitive offshore renewables sector that we all wish to see.

For the purposes of the provisions in this chapter of the Bill, the clause includes a test used to define associates. A company—let us say company A—is an associate of another company, B, if A controls B or if a third company controls both A and B.

In summary, these provisions will further improve the business environment for offshore renewables by providing the Secretary of State with greater flexibility in approving decommissioning programmes. They will now allow the Secretary of State to look to a controlling associate for a decommissioning programme where the developer does not have sufficient assets of its own. That is already the case for oil and gas. These new provisions should allow more programmes to be approved, which in turn will assist more offshore renewables projects to proceed.

On associate definitions, definitions are consistent with the oil and gas regime. The difference from the nuclear regime reflects, as I was saying, the greater liabilities and we mentioned as an example somewhere between £600 million and £900 million. The hon. Member for Northavon is interested in the noughts and there are quite a few noughts there.

I think that that is the answer—we just need greater rigour and greater safeguards when it comes to nuclear energy, so we have £600 million or more compared with, say, £10 million for offshore wind energy. I do not think it is a full answer to the hon. Member for Wealden’s question but it might help if I say that at the moment there are currently some 394 MW of installed offshore renewable energy generating capacity in the UK, with a further 3.1 GW of capacity consented. There is a further 2.1 GW of generating capacity under consideration, with another 3 GW expected from developers that have been issued with round 1 or round 2 licences from the Crown Estate.

On the hon. Gentleman’s question about 33 GW in the future, we are not in a centrally planned state, so one cannot predict that that will be the amount. We have tried to facilitate those kinds of developments, but I am advised that it is roughly 2 MW per turbine at the present time. However, as I indicated, the feeling I get from industry is that in future, some of these offshore capacities could be much larger, so the number of turbines would therefore be smaller than the current arithmetic might dictate.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

It is a pleasure to serve under your chairmanship, Mrs. Humble. It is also a great pleasure to find that our friends from the Liberal Democrats are here with us today, still in their posts.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

It took the hon. Gentleman 10 minutes to get to that.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

Exactly. Had I had a chance to get to it earlier, I would have done so. However, whether the Liberal Democrats are here to abstain in person or whether they will be voting against one another remains to be seen.

We have touched on some important issues during the Minister’s speech. We have to get a greater understanding of the order of magnitude that we are looking at. He says that we do not live in a centrally planned economy—sometimes it feels a bit like that, but I realise that we cannot determine exactly how many turbines there should be. However, there is a fundamental issue as to whether the Government’s idea for 33 GW is for installed capacity or total output. If it is total output, one needs many more turbines to deliver that, because the load factor offshore is typically about 40 per cent. If one wants to get 33 GW of output, 80 GW of installed capacity is needed. So, we are looking at a massively different order of magnitude. To understand the decommissioning process, we need greater clarity on this issue.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

Does my hon. Friend share my concern about the lack of attention that has been given to the possible effect on our very busy shipping lanes—particularly between Britain and France—if there is to be an explosion in the number of offshore wind farms?

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

In some cases, I am relatively relaxed about it. Many of the offshore turbines will be built on sandbanks, which is the logical place to put them—shipping should not be going where there are sandbanks. In most cases that would be all right. However, if one looks at the potential numbers, an enormous amount of the turbines would have to be put into deep waters. To take that a stage further, 33 GW of output, if it was 2 MW per turbine, is 16,000 turbines. If one needed the 80-plus GW to deliver that amount of output—

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

Right. Now that raises an entirely different challenge for the Minister, which is that if one has only 33 GW of installed capacity, the total output from that will be about 8 GW. The Government cannot meet their European commitments with 8 GW of wind power. If we are getting only 8 GW of power from them—[ Interruption. ] Sorry, I mean 12 GW; I bow to the economics graduate maths of my colleagues. We will be unable to get close to the European commitment of 15 per cent. of our energy to come from renewable sources by 2020. The Government cannot have it both ways—we need greater clarity from them on this.

We are, however, still looking at a huge number of turbines. If one wants 33 GW of installed capacity, at 2 MW per turbine that will come out at 16,000 turbines. Even if one goes to the highest expectation for how powerful those turbines could be, which is potentially 5 MW, one is still looking at an enormous number of turbines—7,000. The physical construction programme implications of that—how many can be built each day—present a major challenge.

The Government now have a gaping hole between the renewables that they think they can achieve and what will be their commitment to the European Union to meet their 2020 target. I hope that the Minister can give us some assurances on how we can deliver this, because the Government are trying to have it both ways.

Some other issues need clarifying. Who will be responsible for inspecting offshore renewable installations to ensure that they are still safe? We are looking, potentially, at thousands of offshore turbines. They will have sophisticated remote monitoring systems to show how they are working and how much electricity they are generating. However, that is not the same as having up-to-the-minute information on the safety of an installation. Just this week, we saw pictures in the papers of a wind turbine disintegrating in the force of the wind. What will happen if they start to break up? How will the process work for requiring the immediate dismantling of the residual elements of a turbine? A fractured turbine is a much greater danger in relation to shipping and others issues than a turbine with all its blades in place.

Presumably, this also relates to underwater installations. How will they be monitored and by whom? Who will determine that such installations have stopped working permanently and are genuinely at the end of their lives? Will there be a certification of worthiness, so that an inspector can say that an installation’s useful life is over, even if the operator does not agree?

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art 9:15, 6 March 2008

There is also the question of installations being liable to possible terrorist attack.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

That is always going to be a risk in our current environment. One needs to be able to react quickly when there is a terrorist atrocity and to ensure that the installations affected have been made safe and decommissioned effectively.

Will the Minister also tell us more about how the decommissioning fund will work? Over what period will the operator contribute to the fund? Will there be a standard formula or different options? How much will need to be put into the fund before a wind farm starts operating? Who will manage the fund, and who will establish how much needs to be put in and whether it needs to be topped up from time to time?

The final point relates to the Severn barrage or potential Severn lagoons. I am not certain whether that counts as an offshore or between-shore installation, but it would be useful to know from the Minister whether it is covered. I assume that a Severn barrage would be designed and constructed to be permanent, and not to be decommissioned at all. The hope is that it would be generating power over many decades, with parts replaced as necessary. Therefore, does there need to be a decommissioning fund for a project such as the Severn barrage or would it be exempt from the rules that the Minister is suggesting?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Environment, Food and Rural Affairs

Good morning, Mrs. Humble. In this section on offshore renewables, it seems appropriate to ask a couple of questions about the connection between offshore renewables and the grid.

The Government’s model, as I understand it, is that if I want to set up an offshore wind turbine, I might be responsible for the connection to the mainland. I am not sure about that. Presumably, in the context of the clause, I would be responsible for decommissioning the connection when I am done—not just the turbine, but the infrastructure. As it is critical for the roll-out of wind turbine networks, how is that interconnection process going to work?

If an operator not only has to get a turbine out there and running, but is also responsible for the connection to the mainland and from there to the grid, and if that is a purely private obligation, that could be a serious disincentive to the roll-out of offshore wind power. If there were some concept of a grid—a trunk network akin to the motorways—perhaps with the state paying, or at least ensuring that it was non-competitive, there would be more of a boost to the offshore renewables we are talking about.

The Minister has not yet been clear about where that infrastructure will come from. Decommissioning arises only if the private sector provider has put in the infrastructure. I may be hazy about that as I am new to the issue, but I get the sense from the industry that there is considerable concern that the roll-out of offshore renewables will be hindered if the Government require the offshore renewable developers also to put in place the infrastructure to bring the power onshore. If there is an area offshore where several providers—several energy companies—are in place, is it rational to expect them to have their own separate infrastructure to bring the power onshore and, indeed, from the point where it touches land to the point where it accesses the grid, or is there any scope for sharing? If everybody has to do everything for themselves, there is great multiplication and additional decommissioning costs at the end of the process.

Earlier in the Bill, we looked at renewables obligation certificates and giving extra incentives to different sorts of technology. Presumably, that is a key part of the Government’s renewable energy strategy, so they will want to remove barriers. How does the Minister see the infrastructure working and being operated between these offshore renewable installations and the mainland and then the grid? Who would own it, who would provide it and who would decommission it in the context of the clause?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Again, this has been a useful debate and happily, small sections of it were relevant to the clause. I say that because there could be a debate about offshore wind, but this is not that debate; this is something rather narrower about decommissioning.

Let me try to be helpful, because the hon. Member for Wealden was interested in capacity and how it relates to generation. I am advised that 33 GW of capacity equals about 8 GW of generation, so I hope that that is helpful. I am trying to work out the arithmetic and I think that is where we are, for the obvious reason that the wind does not blow all the time. Let us just make the obvious point, because I get a lot of correspondence from constituents of MPs saying, “What happens when the wind stops?” Basically, because of the national grid, there is a mix of energy sources and we need the base load and so on.

Let me say at the outset that we have never said that where we are now with our planning will necessarily get us to the European target, although of course if we move towards real capacity offshore, as we hope to, that will help. As I said in earlier sittings, in the light of the European target, which is likely to be 15 per cent. or thereabouts—we are still discussing that—we are now developing a new renewable energy strategy. We hope to be able to consult on that and to issue a paper sometime during the summer. I see it in two phases. What we have done in the past, and what we were planning prior to the Euro target of 2020 gets us quite a long way, but it does not get us to the 15 per cent., or whatever it will be. That will require something of a revolution, which is good because we need a wider revolution in terms of decarbonising our economy, so we are working hard on what steps we now need to take. I certainly recognise that the gigawatts and how that translates into generation will not, by itself, enable us to hit our target.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I will not go into further extended discussion about gigawatts as I realise that the Committee’s eyes are glazing over, but does the Minister agree that to get 15 per cent. of our energy from renewable sources translates into about 35 to 40 per cent. of our electricity having to come from renewable sources? That is what independent people are generally saying: in order to reach the European target of 15 per cent., a much higher proportion—35 to 40 per cent. of our electricity—will have to come from renewables.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I would not want to be tied to a certain percentage, but I think the hon. Gentleman has the right order of magnitude. In terms of hitting our European target, whatever it turns out to be—let us say, for the sake of argument, 15 per cent.—clearly the easiest way of doing that is in terms of electricity. Obviously we want to make progress in other ways, on motor transport for example, but the easiest way is in terms of electricity, so the implication for the future proportion of our electricity generated from renewables is significant. Therefore, I agree with the hon. Gentleman on that.

Let me deal with some other issues. The hon. Member for East Devon asked about shipping. Principal shipping lanes will be avoided. We are not going to plant wind farms in the middle of a big, obvious shipping lane. For non-principal lanes, developers would need to reach a commercial agreement with those who use them. I hope that the hon. Gentleman is reassured that we have that issue in mind. In terms of the safety inspection of offshore installations, I think—although sometimes I am wrong, so I will check—that it is the responsibility of the Health and Safety Executive. If I am wrong about that, I will correct myself in due course.

The hon. Member for Northavon asked about a fund with regard to offshore decommissioning. Our judgment is that unlike with nuclear power, that is not necessary because of the orders of magnitude. Earlier I contrasted what may be a £10 million figure with the much larger number of noughts needed for nuclear, and we do not think that that is necessary. It is important for the Secretary of State to be sure that there is financial security at the start of the life. That is where we need the reassurances.

I am not sure whether the hon. Member for East Devon is a supporter of offshore wind or not—

Mr. Swire indicated assent.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Good. The hon. Gentleman is understandably worried about terrorist attack. We are all worried about that, and a number of measures are in place—it is not just an issue for offshore wind. However, because of the wide range of areas covered, a terrorist attack on a single or multiple wind farm, or other renewable station, would not have a significant impact on generating capacity. That is not to say that we are relaxed about it—of course we are not—but given the scale involved, I do not think that it is a big issue.

The hon. Member for Northavon asked about grid transmission. We had an earlier discussion about the new regime on transmission under clause 40. On my understanding, the regime that we are putting in place does not require or even allow the installer to run the grid to shore. That will be subject to competition; it is a new regime and other companies will be players in installing those grids.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

With regard to offshore connectivity to the main grid, is it envisioned that that will be by underground power lines or by overhead power lines? If they will be overhead power lines, what effect will that have in areas of outstanding natural beauty, which are often around the coast where the power will be coming onshore?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I may need to come back to the hon. Gentleman on the exact arrangement there. Certainly, the power lines will run under the sea, but I will come back to him about what I suspect may be slightly different arrangements for when they come onshore. In terms of areas of outstanding natural beauty, the lines will only affect that of fishes and other sea creatures, as they will run under the sea. I am advised that such power lines tend to be underground, but it would depend on particular licensing and consents.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art

The Minister will be aware that there is a real issue here. Of course I appreciate that the power lines will be under the sea when they are offshore, but they have to come onshore at some point in order to connect to the grid. My question is simple. When the power comes onshore on our coastline, will it still be underground? If it is overground, there will be huge cables and pylons and so on, and they are unsightly and would disfigure our coastal landscape. This warrants more than a slightly flippant remark about it endangering fish and other such life.

Photo of Hugo Swire Hugo Swire Chair, Speaker's Advisory Committee on Works of Art 9:30, 6 March 2008

I am well known for my sense of humour, but I like the coastline.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I want to try to deal with the point, but I think that I can best deal with it later, if there is an opportunity to do so, or in correspondence. I can well imagine that the arrangement might be rather different, depending on matters such as terrain and proximity to the grid and so on. I shall have to come back to the hon. Member for East Devon on this issue; I do not think that there is one particular answer. I have visited a number of such sites and I am trying to remember the arrangement, but I suspect that it will vary. I appreciate that the hon. Gentleman wants to protect natural beauty. I do not know whether that is a cue for my hon. Friend the Member for South Thanet.

Photo of Stephen Ladyman Stephen Ladyman Labour, South Thanet

I will try to be helpful to my hon. Friend. One of these lines has been planned to come ashore in my constituency, on a site of special scientific interest. I can assure him that it will be under the ground, hidden from view, and that it will not emerge until it gets to the substation. I warn him, however, that my local fishermen are worried about the effect of magnetic fields on the sex life of skates, so he might have to deal with that at some point.

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

Some humour! I thought that it was quite good. I thank my hon. Friend the Member for South Thanet for his intervention, but it is far too early in the morning to pursue that particular issue. To help the hon. Member for Northavon, we discussed the matter of transmission earlier. We are pursuing an approach based on competitive tendering for offshore transmission, so the person who builds the installation will not have the responsibility for wiring it up to the shore and protecting natural beauty. We expect that all round 2 projects will want to connect directly to the shore—round 2 is where we are at the moment.

On the hon. Gentleman’s point about the grid, in future, given the issues surrounding the gigawatts and the number of wind turbines, ideas about some kind of grid become quite interesting. We discussed the idea of a European grid—not across the whole of Europe, but where appropriate. Some kind of hub and spoke offshore transmission system, with multiple developers using a single line to shore, is likely to be what we will want in certain areas. That line would be owned by the people involved in the process, and they would have the decommissioning responsibilities for that as well.

I am now advised that I can be more precise on health and safety. The Health and Safety Executive took over administrative responsibility for the health and safety of, among other things, offshore electricity installations in 2006. It is worth noting that the formal statutory transfer of those types of electricity-related safety functions forms part of the Bill. We will probably come on to issues affecting electricity safety this afternoon. I think that I have dealt with that point, which is again about offshore lines connecting to shore.

Subject to the normal consent process, the developer will make a proposal that we will consider. In doing so, we will consider issues such as visual impact and  impact on environment when deciding whether to grant consent under the Electricity Act 2004. I shall try to come back to the hon. Member for East Devon on the practicalities of what happens currently, but I may not be able to do so immediately.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I raised the issue of the Severn barrage. The Minister has not yet come back on that point and I would be grateful if he did so. Will he also tell us how this aspect of the Bill relates to hybrid facilities? We had a discussion in an earlier sitting about the Eclipse Energy project, which you may be familiar with, Mrs. Humble, as it is just off the coast of your constituency. It will be a combined renewable wind and gas facility. When the wind is blowing, the facility will be used to create electricity; when it is not, the gas from a significantly depleted gas field will be used to honour the project’s electricity commitments. Will that fall under two separate decommissioning funds or is there some element in these measures to take account of such hybrid facilities?

Photo of Malcolm Wicks Malcolm Wicks Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform

I do not think that there will be one specific regulatory regime for hybrids. There are already regimes in place; the Bill will reform and improve those regimes, but again I am sorry that I will have to come back to the hon. Gentleman on how the two regimes will work together. That is a detailed and important question, and I am glad he asked me about that.

The Severn barrage is—like the hon. Gentleman, I hesitate to say “offshore”—a rather especial project. The Government have indicated their interest in it in principle, as he knows. Following the work of the Sustainable Development Commission, we are proceeding to investigate that, but it is going to take quite a lot of study, not least in terms of the ecology and environmental impact. We are looking at the kind of studies that we will require; it is not going to be built tomorrow.

I am not a lawyer, but my guess would be that, were the project to proceed, it might require new legislation. No doubt, as part of that, we would look at some issues concerning eventual decommissioning. In my mind’s eye, I can see a movement in 150 years’ time to save the Severn barrage. The successor to the hon. Member for East Devon might say that it is an area of such natural beauty—so loved and featuring on postcards and photographs—that it must be saved, even though, after so many years, it may not be fit for its original purpose, but I jest, at the risk of annoying him.

Question put and agreed to.

Clause 64 ordered to stand part of the Bill.