Asked by Baroness Bennett of Manor Castle To ask His Majesty’s
Government what steps they plan to take to ensure the continued
development of the offshore wind industry following the failure to
attract bids in the latest Contracts for Difference round. The
Parliamentary Under-Secretary of State, Department for Energy
Security and Net Zero (Lord Callanan) (Con) My Lords, the
Government are disappointed that no offshore or floating offshore
wind projects secured...Request free
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Asked by
To ask His Majesty’s Government what steps they plan to take to
ensure the continued development of the offshore wind industry
following the failure to attract bids in the latest Contracts for
Difference round.
The Parliamentary Under-Secretary of State, Department for Energy
Security and Net Zero () (Con)
My Lords, the Government are disappointed that no offshore or
floating offshore wind projects secured contracts for difference
in the most recent allocation round. The results provide valuable
learning for subsequent auctions. Work has already started on
allocation round 6, incorporating the results of the recent
round, and we look forward to a strong pipeline of technologies
participating. The Government remain fully committed to our
target of decarbonising the power system by 2035 and to our
ambitions for 50 gigawatts of offshore wind, including up to 5
gigawatts of floating wind.
(GP)
I thank the Minister for his Answer, but can we really wait? Look
at what has happened in other countries: for example, Germany had
a similar experience in December then, in the subsequent two
quarters, lifted its price cap and increased its number of bids
by several times. In the US, Massachusetts had a failure and New
York is now considering petitions to offer a higher price. This
is the low-cost, low-carbon alternative: the industry is now
suggesting that there is a 24-gigawatt gap for the 2030 target.
Surely the Government should be taking immediate action in the
shorter term to fix this problem of their own creation, given
that this was widely predicted to happen before the contracts
closed.
(Con)
I am happy to hear the noble Baroness be so cavalier with bill
payers’ funds; she is, in effect, talking about increasing the
strike price. It is always difficult for the Government to strike
the right balance: we want to get the best value possible for
bill payers, as opposed to providing sufficient revenue for the
companies to build. I obviously know which side the noble
Baroness is on but I want to be on the side of the bill payer. We
have already secured the largest offshore wind sector in Europe
by far; she quotes the example of Germany, which should be very
jealous of the amount of offshore wind capacity that we have. We
secured almost 7 gigawatts in the last allocation round and, in
this round, secured 91 projects with other technologies. There is
a viable long-term pipeline of about 77 gigawatts of wind
available to this Government and we will take advantage of it,
but we will make sure that we do it at the right price for
consumers.
(Con)
My Lords, I am on the side of bill payers. The problem is that
they will have to pay more, because we will not have the
renewable energy that we would have had and will have to use more
expensive gas instead. This was the Government’s fault; everybody
warned that the reserve price was too low. But let us forget the
past. Why can emergency legislation not pass through the House,
which I am sure would be supported by all sides, so that we can
replay this very quickly for the bill payer?
(Con)
The bill payer will be very grateful that 7.5 gigawatts of
construction is already under way, as we speak. We all want to
see more, but at the right price. I understand why industry is
urging us to pay more for this. That is understandable and in its
commercial interests, but I would have expected most Members of
this House to be on the side of bill payers as well. We can do
both: we can get a good deal for the bill payer and take
advantage of the many gigawatts of potential construction in
there, which has either been consented or is under consent.
Following a contract being let, it takes three to four years, on
average, for the capacity to come on stream. Obviously, the
capacity let in previous rounds is coming on stream gradually, as
we speak. As I said, we consented to about 7.5 gigawatts in the
last round. There will be another auction in about six months and
it would take almost that long to pass new legislation.
(LD)
My Lords, what assessment have the Government made of the
increase in potential of both productivity and profitability for
wind power companies to fit turbines to the base of their
installations, where conditions allow, to take advantage of tidal
energy, which provides a baseload. What support are the
Government giving companies prepared to do that?
(Con)
The noble Baroness asks a very good question. Eleven tidal stream
projects were consented in this allocation round, totalling about
41 megawatts. The price for that is currently higher but we need
to develop this technology. I hope, as has been the case with
offshore wind, that if we continue to let more CfDs the price
will continue to come down over time. That was one area of the
round that was successful.
(Lab)
My Lords, given the Government’s monumental failure—and they were
warned about it, as has been said around this House—to attract
any interest whatever from the energy sector in their recent CfD
bidding process for offshore wind projects, can we assume there
will not be any similar complacency when it comes to developing
onshore wind projects, which, in light of the current failure,
must now be the Government’s priority towards achieving net
zero?
(Con)
Again, there is no complacency. I understand that there are many
projects wanting the go-ahead, but we must be careful in making
sure that the consumer gets a fair deal. Lots were consented to
last year; I am sure that lots will be consented to in the
future. The noble Lord talks about onshore wind. I am pleased to
tell him that 24 onshore wind projects were consented to and were
successful in this round, totalling 888 megawatts.
(Con)
Is my noble friend aware that a number of us have taken an
interest in this market, recognising the enormous steps that His
Majesty’s Government have taken on the development of offshore
wind? At a time when it is stated that we are facing a possible
bill of £65 billion to replace the internal grid to all our homes
in the United Kingdom, is it not more appropriate that the
resources we do have should be used for research such as that
into the mix of hydrogen with LPG to see whether it can be used
in the existing pipelines available to every house in the
country?
(Con)
The noble Lord asks a lot of different questions within what he
said. I think his figure of £65 billion refers to the cost of
upgrading property to EPC level C, which is a long-term aim. His
separate question on hydrogen for heating is indeed a
controversial subject. We will make a decision on whether to go
ahead with a hydrogen village trial by the end of the year.
Similarly, another issue facing us is whether to allow blending
of hydrogen into the gas network; you can blend up to about 25%
with the current network. Again, that is an issue where, frankly,
there are a lot of pros and cons on both sides of the argument.
We will make a decision on that by the end of the year as
well.
(CB)
The next round comes in six months’ time. Are the Government
confident that the price will be set at the right level to
attract a good number of significant bids?
(Con)
Of course, that will be our aim. As I said, we want to see more
projects consented to and we will try to get the balance right.
We will certainly learn the lessons from this round. It is
obviously disappointing that we did not attract bids this time,
but the offshore wind industry has been a tremendous success for
the UK. We have by far the largest capacity in Europe. We have
the largest offshore wind farm in the world, the second largest,
the third largest and the fourth largest. One reason that
developers were unable to proceed this time was pressure in the
supply chain. There is pressure in the supply chain because every
other country in Europe wants to copy our example, because they
can see the success we have made of the offshore wind allocation
rounds through the contracts for difference price system. Most
other European countries are trying to adopt the same model; they
are a long way behind us but trying to adopt the same model now.
Of course, that brings pressure in the supply chain, which,
adding in the Covid pressures as well, contributes to the
increase in costs that industry is experiencing.
(Con)
My Lords, is it not the case that wind-generating facilities in
the North Sea tend to cause mayhem with the wild bird population?
Can anything be done about that?
(Con)
My noble friend certainly highlights a concern, but lots of
protections are built in and lots of environmental regulations
need to be adhered to when these projects are consented to and
all the matters are gone into fully, in both environmental and
regulatory permitting. Every energy source has its drawbacks.
Those who are against nuclear would point to its drawbacks; with
coal-fired power stations, there are obviously drawbacks;
gas-fired power stations have their drawbacks. There has been an
increase in new solar farms being developed in the UK. I can
assure noble Lords that, from my postbag, lots of people write in
to complain about those as well. We have to get generation
capacity and electricity supplies from somewhere. No system is
absolutely perfect but offshore wind is certainly one of the
best.
(LD)
My Lords, it is unacceptable that last week’s offshore wind
auction was a failure because of the Government’s insistence on
an unrealistic strike price, yet we remain none the wiser about
the cost of another source of electricity—nuclear energy. The
cost of Sizewell C’s electricity remains shrouded in secrecy. The
only thing we can be sure of is that it will be exceedingly
expensive. The Commons Science, Innovation and Technology
Committee has called for greater transparency on Sizewell’s cost.
Will the Minister take this opportunity to give an updated cost
estimate for Sizewell C? We need to be sure that we are on a
level playing field.
(Con)
I will be happy to supply those figures to the noble Baroness in
writing if I can. Again, it is worth saying that, in a
diversified energy system, it is important to have different
sources of supply. I am very enthusiastic about solar and
offshore wind; they are intermittent but they are cheap when they
are generating. We also need baseload supply, so there will a
role for nuclear and for gas-fired power stations, ideally with
CCUS fitted as well. It is important that we have diversity of
supply, including such things as tidal on a relatively small
scale. Geothermal is another technology that was successful in
getting contracts under this allocation round. Again, these are
nascent technologies that are starting to build up. We need
diversity of supply for our future generating mix.
(Con)
My Lords, I agree with my noble friend that Britain is a world
leader in offshore wind; he is right to boast gently about that.
But he also said that lessons would be learned from what has just
happened. Is my noble friend not right that we got it
wrong—and that we must make absolutely sure that in six months’
time we get it right?
(Con)
I have said that lessons will be learned. As I said, there is a
healthy stream of projects wanting to come forward.
Understandably, the developers want to be paid as much as
possible. The unique thing about offshore wind is that it
involves very high initial capital investment costs. Once the
things are built, they are relatively cheap to operate, unlike
some other sources of generation. It is all about providing
long-term guarantees of revenue for those developers. There is
always a process of negotiation; the CfD auction rounds have been
successful in the past and I am sure that they will be in the
future.
(CB)
My Lords, I declare my interest as chair of Peers for the Planet.
The Minister recognises that the offshore wind industry raised
these issues some time before this round of contracts for
difference. The Government did not listen and we have the results
with offshore wind, as we have seen. At this time, the onshore
wind industry is saying to the Government that the, frankly, puny
changes in the planning regime that they announced will not bring
forward the large-scale increase in onshore wind production in
this country. Will the Government listen in time this time and
put the planning regime for onshore wind on a level playing field
with other renewable infrastructure?
(Con)
I know that the noble Baroness is passionate about onshore wind.
I hope the changes that we announced will produce more capacity.
As I said, we have just let 24 projects under the latest CfD
round. She is right that the industry said in advance of this
round that it wanted to be paid more. Across all the different
areas of government for which I have been responsible, I have
never met a private developer who want to be paid less for what
they do. Let us be realistic: this is a negotiation process. Of
course, industry will say, “We need to be paid more; we need to
be given larger contracts”. That is entirely understandable. We
have to bear in mind our responsibility to the bill payer who
ends up paying these costs. We of course want to see more
renewable capacity laid out—it is intermittent but it is cheap.
We need to produce a strike price that is fair to the developers,
so that they get a return, but also to the bill payers.
(Lab)
My Lords, the Minister is right that we should praise ourselves
for the offshore wind farms, which I must say are most
impressive. However, the interconnectors and so on lie along the
seabed. Like so many other aspects of our energy supply and other
things, the seabed has certain vulnerabilities. We have seen
Russian ships from the main directorate of undersea research
regularly in the North Sea, going along areas where these lie. Is
the Minister happy that we have put enough effort into monitoring
and tracking where they are all the time and then using ships,
aircraft and whatever else to go and make sure that those lines
are still safe?
(Con)
The noble Lord makes a good point. There are a number of such
areas of critical national infrastructure, including
gas-interlinking pipelines and electricity interconnector cables
with other countries, as well as our interconnector cables with
the offshore wind farms. These are all critical vulnerabilities
and the noble Lord can be assured that we monitor these things
closely. We are well aware of the possible threat presented to
them.
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