Westminster Hall debate on Contracts for Difference Scheme - Oct 19
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Jim Shannon (Strangford) (DUP) I beg to move, That this House has
considered the Contracts for Difference scheme. This matter is of
some interest to myself as an advocate of renewable energy
projects, such as the enormous tidal stream potential of Strangford
lough in my constituency. I had had a request in for some time to
discuss this topic, and I will be referring to the impact upon
Northern Ireland, but I know that others will refer to the impact
upon Scotland,...Request free trial
Jim
Shannon (Strangford) (DUP) That this House has considered the Contracts for Difference scheme. This matter is of some interest to myself as an advocate of renewable energy projects, such as the enormous tidal stream potential of Strangford lough in my constituency. I had had a request in for some time to discuss this topic, and I will be referring to the impact upon Northern Ireland, but I know that others will refer to the impact upon Scotland, England and so on. I thank all right hon. and hon. Members in advance for their participation in this debate. I understand that some of those who wished to be here are unfortunately unable to due to Storm Babet in north-east Scotland, so our numbers may be reduced. I took part in yesterday’s debate on using our ports for green energy, which seems like it is going to be the future. The Minister was here for that debate yesterday, and it is very pleasant to see him back in this place again today; we look forward to his answers. On the surface, this is an energy issue, but it goes much wider than that. It is also about the Northern Ireland economy, and I know the Minister is, like me, increasingly committed to ensuring that Northern Ireland plays its part in the economy of this great nation of the United Kingdom of Great Britain and Northern Ireland. This is about building a Northern Ireland supply chain into the process. It is about Northern Ireland’s desire to contribute to the Government’s net zero targets and to reach the target together. It is about Northern Ireland’s desire to be an integral part of the United Kingdom of Great Britain and Northern Ireland, to provide support for low carbon delivery for all in this great nation of four nations as one. Without access to the contracts for difference scheme, Northern Ireland has almost been made a no-go area for renewables, and that does not serve the interests of either our Government here or the people of Northern Ireland. In fact, 82% of renewable developers unfortunately do not currently see Northern Ireland as an attractive place to invest. We need to improve that, and my contribution in this debate will be to suggest ways in which that can happen. In a previous answer to a parliamentary question of mine, the Minister stated that in order to address the contracts for difference question, the issues regarding the Northern Ireland Assembly must be dealt with. However, I suggest to the Minister that things have happened since the decisions of the Assembly and the review that the Assembly did in 2019-20, and I will return to that shortly. It is in no one’s interest to insist that one cannot move ahead without the other, because there are ways of moving forward. I respectfully remind Members that other legislation has been imposed on Northern Ireland in the absence of an Assembly, so there must be some balance here. I will give three quick examples only to illustrate the issues of where the UK Government have the power to step in. First, the abortion legislation—the most liberal in Europe—was inflicted on us without thought. Secondly, the Northern Ireland legacy Bill was imposed against the wishes of all political parties from Northern Ireland in the Chamber, and yet victims are now left with no avenue for recourse. Thirdly, and most recently, before the summer recess an incomplete and incredibly inflammatory RSE curriculum change was brought in by direct rule. Those examples show that such things are possible. They are just examples and I will not get into the details, because I know you would not want me to, Dame Angela. I urge the Government to do the same in relation to this matter to show that it is not just on morality issues that legislation is passed without an Assembly, but in fact things that are useful, such as this request from me and others, for Northern Ireland. The UK Government first introduced the contracts for difference scheme in 2014, following the passage of the Energy Bill in 2013. The scheme ensures that renewable energy projects receive a guaranteed price from the Government for the electricity they will generate, giving companies certainty and the confidence to invest their private capital in the UK. I know the Minister has always said that the Government are committed to that, so that issue is not in doubt today. Contracts are awarded to developers through a series of competitive auctions, where the lowest price bids are successful, ensuring value for money for consumers, as they should. Since its introduction, the scheme has been instrumental in providing a route to market for numerous renewable energy projects and has allowed the United Kingdom to become a global leader in technology, such as tidal stream and offshore wind, both fixed and floating. Last year, the Government announced that the scheme would be transitioned into annualised auctions. The first round to take place since the transition was allocation round 5. Others will speak to that and have their own opinions, but allocation round 5 produced a disappointing set of results, as the total gigawatt output was far less than the previous round—mostly because there was no update for either fixed or floating offshore wind. Despite that, for nearly a decade the scheme has provided a route to market for numerous renewable energy projects across Britain, creating green job opportunities, reducing emissions and enhancing energy security. All those are important and we welcome them as giant steps forward. The change to annualised auctions presents a timely opportunity for parliamentarians in this debate in Westminster Hall to come together to debate reforms that will ensure continued success for all renewable technology across all the nations and regions of the entire United Kingdom, including—indeed, especially—Northern Ireland. When the Energy Bill was passed in 2013, it was designed to allow Northern Ireland to join the GB CfD scheme at a future time, should the United Kingdom Government and the Northern Ireland Executive believe that was in the best interests of the United Kingdom. I will outline the case and where we are. Energy policy is devolved to Northern Ireland and, under normal circumstances, should be the responsibility of the Northern Ireland Executive and the Department for the Economy. There has been a desire to design and deliver a Northern Ireland-only CfD, but the ambition is as yet unrealised and has no realistic prospect of happening any time soon. That is where we are and that is the reality, but there is a way forward, which I will put forward. Will the Minister advise what discussions he has had with the permanent secretary for the Department for the Economy, if any, in the last few years, in relation to CfD? The reasons given to justify Northern Ireland’s exclusion from the Great Britain CfD were primarily around systems difficulties with the Northern Ireland shared grid and energy market with the Republic. The justification looked reasonable enough when the UK Government arbitrarily excluded onshore wind from allocation rounds 2 and 3. However, in developing its energy strategy, “The Path to Net Zero Energy”, the Department for the Economy carried out a consultation from December 2019 to March 2020. That has an impact on what I am requesting and the reasons why we have brought those requests forward. The consultation asked respondents: “Do you agree that we should explore with BEIS the possibility of extending the contracts for difference scheme to Northern Ireland?” That is important, as I have highlighted. The consultation found that a massive 92% of respondents answered “yes” to that question. “The Path to Net Zero Energy”, published in December 2021, confirmed that the Northern Ireland Executive are exploring whether the contracts for difference scheme should be extended to Northern Ireland. Why? Because things have changed. Since that time—from 2013-14 and then from 2019-20, or whenever the consultation process took place—opinion has changed, as has the realisation of where the future lies better. I am a great believer, as you and others know, Ms Bardell, that the United Kingdom of Great Britain and Northern Ireland is always better together. We can do things better together. We can deliver things and think things better together by exchanging views. I know the Minister, like me, is committed to the Union and the importance of that. The UK Government should step up to follow through with the plans in motion that allow for Northern Ireland to be included in the GB scheme. In the consultation process an overwhelming 92% of respondents said that they want that change, that integration, that participation and partnership together. This would mean that future allocation rounds have greater success for renewable energy projects across the whole of the United Kingdom—not just mainland GB alone, but elsewhere. That is so important. One reason why Northern Ireland did not join the scheme was due to the exclusion of onshore wind. However, that argument has moved on. Onshore wind returned to the scheme in AR4 in 2021 and has been hugely successful in Scotland in both rounds. The inclusion criteria have changed from what it was in 2013-14 when the Northern Ireland Executive looked at it, and the consultation process has moved that along to another stage. A different approach is needed—not the 2013-14 one, but the one that comes off the back of the consultation process in 2019-20. In this year’s allocation round 5, onshore wind made great gains, adding more than double the number of successful projects compared to the previous year. Again, that is an indication that the change in the United Kingdom is real, and we in Northern Ireland want to be part of that change. In allocation round 5, 24 projects were successful and they will go on to create some 40% of the total capacity in the round. If Northern Ireland had been included in the scheme, onshore wind would have had even greater success and would have benefited the whole of the United Kingdom to reach those targets of renewable and green energy that we all want to be part of. It is a technology that Northern Ireland has in abundance. We can add to the net zero targets in a culmination that the Minister always talks about in the Chamber. Another winner of allocation round 5 was tidal stream energy, partly thanks to the Government’s ring-fenced budget for tidal stream that helped to return a record 11 tidal projects with a total capacity of over 500 MW. The scheme and the support provided through contracts for difference would also benefit tidal stream projects in Northern Ireland. For example, Strangford lough in my constituency of Strangford has obvious potential for a tidal stream, which is why there was a trial there with the 2008 SeaGen project. It was an incredibly successful pilot scheme, but it never seemed to get off the ground. I want to put on the record my thanks to the Minister for his response to my request to visit. He was well received and I hope he enjoyed his time in my constituency, down in Portaferry with all the scientists at the Queen’s University research station. They think we could be part of this great, great scheme for the whole of the United Kingdom. Every one of us who had the opportunity to see the Minister present that day recognised his interest in the subject matter, and those that we met that day are keen to see the project—SeaGen as it was then —commissioned. The trial was commissioned by Marine Current Turbines with an investment of £12 million. The project involved the installation of two 600 kW turbines producing 150 kW of electricity to the grid in July 2008. SeaGen generated electricity at its maximum capacity for the first time in December 2008. I remember that scheme very well; I was a member of the Assembly back then. I was also a member of Ards borough council. We were incredibly excited. Those of us who had a vision for net zero and green energy recognised, even back in those days, that this is where we want to be and need to be. It is more of an issue today because we are all looking at it as time has marched on. The scheme has produced 5 GWh of tidal power since its commissioning. That is equivalent to the annual power consumption of 1,500 households. That is exciting because we had the evidential base and could see that producing the energy for every house in Portaferry and maybe every house in Strangford—just as examples. Including Northern Ireland in the contracts for difference scheme can ensure more projects like this one go beyond a trial to help strengthen the UK’s energy security and meet net zero targets. That brings me to my final point. It is important that we recognise that, as it stands, Northern Ireland is being disadvantaged. The unavailability of contracts for difference is deterring British investment in Northern Ireland. As one who believes honestly and proudly in the strength of the Union of the United Kingdom of Great Britain and Northern Ireland, it is clear to me and I am sure to other Unionists, as it is hopefully clear to the Minister and everyone else, that extending the remit of the CfD scheme will significantly support the United Kingdom to meet its net zero commitments. Crucially, it will enable Northern Ireland to play an increased role in reducing UK carbon emissions, if all the regions are working together. I want Northern Ireland to be a part of that and, if I can accumulate and sum up in one sentence what I hope to achieve, I hope the Minister will agree that that is worthy of consideration. I believe that the alternative of providing Northern Ireland with access to the GB CfD scheme is the best available option for us in Northern Ireland to allow for greater levels of private investment and faster delivery of renewable energy. The 2019-20 consultation, along with the recommendation and the final figures from 2021, saw 92% of businesses saying the same thing. Northern Ireland’s inability to participate in CfD is placing it at a competitive disadvantage to mainland GB. I know of at least two companies that are keen and willing to consider tidal energy possibilities and potential in Strangford lough. The change in the CfD scheme will be the difference for that success, which I want us all together to have within this great nation. In the light of our shared commitment to strengthening our Union, I ask and request that the Government investigate providing Northern Ireland with access to join the contracts for difference scheme. The reform we are asking for would benefit everyone—especially us in Northern Ireland—when it comes to meeting net zero targets across this great United Kingdom, and would ensure that Northern Ireland’s generators are provided with access to the GB scheme to ensure greater levels of private investment and to increase Northern Ireland’s capacity to deliver renewables. We want to be part of that, and I know the Government want us to be part of it too. I am putting forward a solution for how we can deliver that together for everyone, to help the United Kingdom of Great Britain and Northern Ireland secure its pathway to net zero. I know the Minister, right hon. and hon. Members are all committed to the Union—except for maybe one person! We are committed to delivering on the CfD scheme. We all see the benefits of that. Northern Ireland industry and her people are in grave need of support and help, and this inclusion in the United Kingdom can make change happen and will make a real difference to industry. The Minister’s hands are not tied. The precedent has been set. He must do the right thing and level the playing field to ensure that Northern Ireland can be part of that team of the four regions together, delivering net zero by making sure that Northern Ireland is part of the CfD scheme. 15:19:00
Peter Aldous (Waveney) (Con) Contracts for difference have been around for a very long time. They were originally developed in the UK in 1974 as a way to leverage gold. The context in which we are considering them today is their use as a means of supporting new low-carbon electricity generation, as introduced by the Energy Act 2013. Over the past decade, they have been remarkably successful. They have enabled the UK to become a global leader in the offshore wind sector, which will be the focus of my attention over the course of the next few minutes. CfDs have been the foundation stone for securing significant inward investment into coastal communities all around the UK, including Lowestoft in my constituency, and the first four allocation rounds were remarkably successful. Unfortunately, this undefeated run came to an end with round 5, when no offshore wind bids were submitted, as the core parameters did not take into account the changed geopolitical situation in the light of covid and the war in Ukraine, and the uncertain and inflationary global economic outlook that has ensued. It is vital that lessons are learned and that we get back on track ahead of allocation round 6. The work to do this should be set in the context of the UK providing a response to the US’s Inflation Reduction Act, and I suggest that that should come in the Chancellor’s autumn statement next month. I shall say a few words about that later, as the energy industry is globally footloose. Although the UK has been very attractive to investors—in many respects, it has been the come-to place—we cannot rest on our laurels, and we are now in danger of being overtaken. As Keith Anderson, the chief executive of Scottish Power, has said of the US: “We can’t possibly hope to outspend them. What we can do is outsmart and outpace them.” After the failure of auction round 5, it is vital that auction rounds 6 and 7 are successes. One failure is a blip, but two risk setting a trend that will send a negative signal to developers and investors, and the situation could then become very difficult to retrieve. This is particularly important for the continued development of the offshore wind industry off the East Anglian coast, with ScottishPower Renewables and Vattenfall’s forthcoming projects in mind. The parameters that the Government should take into account are as follows. First, there is a need to provide more clarity, consistency and certainty with regard to the longer-term pipeline of projects. That will give developers, supply chain businesses and infrastructure providers the confidence to invest, often way ahead of demand. A clear pipeline will help to deliver long-term apprenticeship initiatives, optimise the cost profile of development and better facilitate strategic investment in the national grid. We also need to improve the way we incentivise developers to commit to invest in UK infrastructure and supply chains. This can be achieved through non-price factors in the CfDs, provisions in seabed auctions and improved collaboration in supply chain plan delivery. Dusting off and reviewing the offshore wind sector deal, which was originally signed in Lowestoft in 2019, would be very welcome. The feedback I am receiving, which is welcome, is that ahead of the draft allocation framework for allocation round 6 being published next month, there is positive and ongoing engagement between the Department, trade associations and developers. I would suggest that the key points that need to be addressed are as follows. First, the administrative strike price must be set at a level that takes account of market pressures, so that this time, developers do actually bid. Secondly, so as to give certainty to the market, there should be a ringfenced pot for offshore wind. That is vital, taking into account the targets that Government have set for offshore wind delivery. Thirdly, taking into account the missed opportunity with allocation round 5, the pot budget and parameters should be set so as to reflect the pipeline that is now available in order to secure maximum capacity through allocation round 6. Work along those lines is necessary so as to correct the mistakes that were made in allocation round 5. However, at the same time, we cannot ignore the new world order. As I have mentioned, we cannot and should not get into a subsidy race to the bottom with the likes of the US, but what we can do is work faster and smarter, building on the foundations that have been laid over the past decade. In the upcoming autumn statement, our energy policy framework should be adjusted to include the following initiatives: first, expanding reforms to capital allowances and introducing new tax incentives and grants; secondly, supporting the UK supply chain through multi-year co-funding for the industrial growth plan; and finally, as we discussed yesterday in the Westminster Hall debate led by my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb), we need policies that unlock private investment in port infrastructure. We invariably herald offshore wind as a great British success story, and indeed, the way that the industry has developed over the last decade has been remarkable. Contracts for difference have been the cornerstone on which this success has been built. They have the advantage that they are flexible and can be adapted. Unfortunately, that did not happen for allocation round 5. It is important that this mistake is not repeated in round 6, and I hope that the Minister will provide the assurances that the industry is seeking. It is vital that he does, as offshore wind is bringing significant benefits to coastal communities such as Lowestoft, and it is imperative that it continues to do so. 15:28:00
Mr Alistair Carmichael (Orkney and Shetland)
(LD)
Dame Angela Eagle (in the Chair)
Mr Carmichael I hope that AR5 is a warning shot—if I may put it that way without mixing too many metaphors—and that in future there will be a better dialogue between Government and industry, because the outcome that we got was pretty much the outcome that the various industries had been predicting. It is, I think, for the Government to keep engaging with industry to learn lessons and see the continued growth in our renewables. Quite apart from the need to meet our net zero targets, for which the growth of renewable energy will be absolutely critical and essential, the question of energy security will be dependent on this. Had we taken some of these decisions earlier, pushed them with more vigour and better resource and used the tools differently, we might be in a better place for energy security today, but we are where we are, and what is important now is that we are able to build the industries for the future. I will concentrate and focus in particular on the development of marine renewables—that is probably the least surprising news of the day for the Minister. That is something in which I have had 20-plus years of involvement, and it is important to my constituency, playing host as we do not just to the European Marine Energy Centre, but to a number of successful projects in the AR4 and AR5 rounds. The decision to include in AR4 a ringfenced pot of £20 million for tidal stream energy generation was absolutely transformative for the industry. I was in a call with the people from EMEC this morning, and although it was not the purpose of the call—we came to it during the course of the conversation —they were talking about how the development that we have had as a consequence of AR4, and now AR5, has helped them to grow their business case. There are still issues that have to be dealt with—the Minister knows some of them; they are not germane to the debate—but that shows what is possible when the right decisions are made here. By following that with £10 million minima in AR5, which led to the deployment of 50 MW of capacity, the sector saw an uptake that exceeded the 10 MW minimum. That demonstrates the way in which the sector is ready and able to go further to help the Government meet their declared policy aims. We have 90 MW deployed in 11 projects across Scotland and Wales. What more do we need to do? Obviously, there will need to be a continued ringfenced pot. We are not yet at the stage of commercialisation where marine renewables would be capable of competing with the other technologies in the auction, so that continued ringfencing will be important. We also need bigger minima in the next round—the AR6—and the sector keeps saying that it wants a target for deployment in the region of 1 GW by 2035. Again, that should be attractive to the Government. If we are to learn the lessons of AR5, listening to the sector—seeing what it comes forward with and what it wants to produce—will be absolutely critical. There is one way in which the Minister can demonstrate that he is listening to and engaging with the industry, and perhaps restoring some of the confidence that was damaged as a result of AR5. The opportunities are still here and, particularly in relation to tidal stream, need now to be followed by opportunities for wave power—there has to be a route to market for wave power. Tidal stream has demonstrated what is possible; it is now for the Minister to look at how we allow other sectors and developing technologies to come forward and take the same opportunities that were given to tidal stream. The lesson of AR4 and AR5 and the ringfenced pot for tidal stream is that the mechanism works. If it can work for tidal stream, surely it can work for wave power as well. There are some opportunities here. We have taken a bit of a knock with AR5, but that should not lead us to challenge in any fundamental way the suitability and durability of contracts for difference. I hope that the Government will continue with CfDs, but that in using that tool we find routes by which we can engage better with the industry—as the Government should do in the interests of meeting their own targets and aspirations. 15:35:00
Steven Bonnar (Coatbridge, Chryston and
Bellshill) (SNP) I rise to speak in this debate in the wake of the disastrous fifth round of contract for difference allocations. It was a tragedy for the climate, for bill payers and for industry, especially in Scotland, where we face the harshest weather and the highest bills, and where, of course, we lead the renewable transition throughout these islands. I should thank the hon. Member for Strangford (Jim Shannon) for securing the debate. He is without question my favourite Unionist. In this policy area, as in every other, the Westminster Government are failing to implement effective policy to ensure that climate targets are met and households are protected. Ambitious climate policies are needed to attract and sustain investment, promote innovation and meet our climate commitments—priorities that are clearly now beyond the will, or perhaps the ability, of this Government. At a time when households across these islands are dealing with soaring energy bills, it is ludicrous that the Westminster Government failed to listen to the warnings of industry ahead of auction round 5. There were clarion calls from industry that the administrative strike price for offshore wind was just not going to cut it. As a result, shovel-ready offshore projects that could have powered 8 million homes are now not being developed. Generation developers are now begging their supply chain partners not to abandon the United Kingdom market while this Westminster Government pretend that everything is just fine. It is not just fine: it is a calamity. Projects will now not be developed, or will be delayed substantially, that would have saved consumers up to £2 billion a year compared with the cost of the gas generation that will fill the gaps. The failure to secure any offshore wind projects risks putting Scotland’s energy security and our net zero targets at risk, and prolongs our dependence on fossil fuels. Among the projects that were not secured because of developers being unable to bid because of the unfeasibly low strike price was the super-project at Berwick Bank, which SSE noted “could play a crucial role in closing the gap between where we are now and where we need to be by 2030.” This disaster was preventable but the Westminster Government chose to put their head in the sand and hope for the best. They failed, and they did so spectacularly. The overall budget for AR5 was £50 million less than that for AR4. On top of that, the industry leaders warned the Westminster Government to consider “inflationary costs and supply chain squeeze” in the auction prices, but the UK Government again chose not to listen. Offshore wind generates more power per megawatt of installed capacity than any other renewable source, and the UK’s unique wind resource and shallow seas mean it has been the central technology in the plans to end the UK’s reliance on fossil fuels for electricity. Offshore wind remains the UK’s cheapest option for large-scale power, so the slowing of development will leave consumers exposed to volatile global gas markets for longer, and it will cost the country more in the long term. Despite the benefits that offshore wind production offers in terms of reliability, predictability and value, the funds available for renewable energy projects are being cut, while the Government continue to write blank cheques for nuclear programmes. The change in pot structures, down from three in AR4 to two in AR5, means that offshore wind is now competing with other established technologies for less funding, and it is not as though everything was going well before the crisis in AR5. The Westminster Government have thus far secured only 27 GW of their target of 50 GW of offshore wind by 2030. To ensure that the funding available for offshore wind is sufficient, Energy UK is calling for offshore wind to be returned to a separate pot, and we back that call. If the contracts for difference scheme is to succeed, sufficient funds must be made available to provide adequate price incentives for further efforts needed to encourage innovation in emerging technologies and offshore wind. I hope that the Minister will answer three questions. What steps will the Department take to recover the failure of AR5 for offshore wind? What does he believe the net loss in offshore capacity will be as a result of their failure in AR5? Will he apply just a tiny wee fraction of the esteem and admiration that he has for the French nuclear industry to the Scottish renewables sector?
Dame Angela Eagle (in the Chair) 15:41:00
Jeff Smith (Manchester, Withington)
(Lab) The contracts for difference scheme has been an important way of incentivising investment in renewable energy, and has played a key role in making renewable energy the cheapest form of electricity in the UK, and in supporting low-carbon electricity generation. We welcome clean power projects that have been delivered by the scheme and those that will start to generate power over the next couple of years. Labour’s aim is to deliver a cheaper zero-carbon electricity system by 2030: quadrupling offshore wind, aiming for 55 GW by 2030; expanding floating offshore wind, fast-tracking at least 5 GW of capacity; more than tripling solar power to 50 GW; and more than doubling our onshore wind capacity to 35 GW, in addition to ambitious plans for nuclear, carbon capture and storage, hydrogen, and long- term energy storage. Successful administration of the contracts for difference scheme as part of a wider strategy will be important in achieving that aim. If we are to accelerate towards a clean power system—towards renewables that are cheaper and less volatile than fossil fuels—we need to ramp up that capacity year on year. We particularly need new offshore wind projects to come forward for investment. Offshore wind has been the dominant technology in previous contracts for difference auction rounds, but of course we have heard today the headline news from the recent AR5 round: the failure to attract any offshore wind bids—a major and avoidable failure by the Government. The Minister has spoken in the House about learning the lessons of the failure of that recent round, and learning from those mistakes, but the truth is that Ministers were repeatedly warned about the impacts of higher inflation and setting an unrealistic strike price. In March 2023, RenewableUK said that “the budget and parameters set for this year’s CfD auction are currently too low and too tight…We’re calling for the Government to revise the CfD budget so that we can stay on track to deliver on our renewable energy targets, as well as creating tens of thousands of high-quality green tech jobs and attracting billions in private investment in the years ahead”. Then in July it joined with Energy UK and Scottish Renewables to make this warning: “The current emphasis on securing renewable capacity at the lowest possible strike price, minimising expenditure rather than maximising benefit, risks creating a less attractive investment environment in the UK. The race to the bottom on strike prices incentivised by the current auction process is at odds with the reality of project costs and investment needs, jeopardising deployment targets.” The Government had time to adapt, so why did they not heed those warnings? Because of that missed opportunity, we will now be more dependent on expensive, insecure fossil fuels. No new offshore wind projects mean that families’ energy bills could be £2 billion higher, and our energy security will be weakened. Every wind farm that we fail to build leaves us more exposed to global instability. The Government are squandering the potential for offshore wind, just as they squandered our potential for onshore wind by effectively banning it. All of that results in higher bills, energy insecurity, fewer jobs and climate failure. I welcome the projects that did come forward through CfD allocation round 5 but, because of the lack of offshore wind bids, the capacity awarded in this round was 7.1 GW less than in AR4—a drop of 66%. Now, the annual capacity expected to be added in 2027 has dropped because of the much lower capacity of bids successful in AR5. Future auction rounds could, in theory, increase the capacity of projects starting in 2027, but that is not likely to come from offshore wind, which has longer lead times. It is a missed opportunity when the offshore wind sector stands ready to deliver. The Government might blame this failure on offshore wind on supply chain inflation and interest factors outside their control, but the reality is that investors and industry issued warnings all year. A similar auction held by the Spanish Government failed last year, while the Irish Government adjusted their price to account for the warnings and managed to have a successful auction. Offshore wind is so much cheaper than gas that the Government could have raised the price in the auction and it would still have saved billions of pounds for families. Labour’s plan for a clean-power energy system will cut bills for the long term, while making the most of the opportunities brought about by jobs in the supply chain. We want them to be good jobs, and we want them to stay in Britain. We will allocate a fund of up to £500 million for each of our first five years in government to provide capital grants to incentivise companies developing clean-power technologies to target their investment particularly at the areas that most need it, investing in UK jobs, skills and supply chains—a British jobs bonus so that, as we take on the climate crisis, we also build a fairer, more prosperous country. That will work by providing an incentive to winning bids in the contracts for difference auction to invest, create jobs and build supply chains in industrial heartlands and coastal communities of the UK, including communities with historical and current ties to fossil fuel production. There will be a clear and transparent incentive for companies to create good jobs in those areas. We hope that the benefits will be particularly felt in Scottish oil and gas communities, coastal communities and the north-east of England. Independent analysis suggests that that policy alone will create up to 65,000 jobs in clean-power industries by 2030. The British jobs bonus will be separate to the contracts for difference so that the fundamental structure, which has successfully made developers compete on costs, would stay the same. The Government have themselves recognised that, while the contracts for difference scheme has successfully driven down renewable energy deployment costs, which is to be welcomed, it has not supported supply-chain investment in the UK. That could jeopardise energy security and our ability to hit deployment targets, given growing global bottlenecks. The Government issued their call for evidence on including “non-price factors” in contracts for difference auctions, so can the Minister give us an indication of the action he will take in response to that to address supply-chain issues? And can he say anything on the timescale for the Government’s potential plans to reform CfDs? I again ask him, how does he plan to reach 50 GW of offshore wind capacity by 2030, and how does he plan to recover the progress that we need to make on offshore wind, following the setback of AR5? It is essential for business and investor confidence that the move to annual CfD auctions does not create a boom-and-bust dynamic, so any suggestion that we can afford a missed year, and can just pick it up again in the next round, is complacency. We cannot afford for the transition to clean power to not be a success. We need that transition quickly to cut bills, boost our energy security, create good jobs and prosperity and tackle the climate crisis. 15:49:00
The Minister for Energy Security and Net Zero (Graham Stuart) As the hon. Member for Strangford knows, and as he has mentioned, he and I have communicated extensively over the past year or so on the question of extending the GB contracts for difference scheme to Northern Ireland. He has asked questions in Parliament about this issue, most recently last month. I believe we know each other’s positions very well by now. Let me say at the outset that I admire his tenacity in continuing to raise this matter with me, which I know he does with the best interests of his constituents and the people of Northern Ireland in mind. However, I am afraid I have to say to him again that I do not believe that what he proposes is feasible—although I understand why he proposes it and why he hopes to find a solution—and nor would it lead to renewables or their associated benefits being delivered faster for Northern Ireland, as he hopes. I will explain why I believe that shortly. First, though, to set the context, I would like to say a few words about the CfD scheme. The scheme was introduced in 2014 and is the Government’s main mechanism for supporting new low-carbon electricity generation projects in Great Britain. CfDs are awarded through competitive auctions that, from this year, are held annually. The lowest-priced bids are successful, which drives efficiency and cost reduction and is a low- cost way to secure clean electricity. It is an interesting—but not necessarily surprising—fact that in every single year that the CfD has existed, industry has said that the prices we have suggested are too low, so this year is no different. I suppose it is also unsurprising that His Majesty’s Opposition should always speak up for the producer interest and be so indifferent, if not deaf, to the interests of the consumer, around whom we should build policy. Winning projects are guaranteed a set price per MWh of electricity for 15 years, indexed to inflation. That provides income stabilisation, making projects that have high up-front costs but long lifetimes and low running costs attractive to investors and lenders. Importantly, the CfD also protects consumers when electricity prices are high, as it did last year. Understandably, this Conservative Government are extremely proud of the CfD scheme and its effectiveness, in not only securing clean generation but doing so at the lowest possible price to consumers—that is what has triggered the 70% reduction in costs for offshore wind. As I say, industry has always suggested that it wants to be paid more, and we have heard from His Majesty’s Opposition that they would be delighted to do so at the expense of ordinary consumers. It was in the light of the challenge of setting the parameters of each CfD that we decided to move to an annual system. The hon. Member for Manchester, Withington (Jeff Smith)—he is not my favourite Unionist, but he is one of my favourite members of the shadow team—seems to have been deliberately innumerate. He will be aware that AR4 covered three years, and AR5 was the first annual auction. Like me, he will be able to divide by three the total generation that was in AR4, and to divine that in terms of annualised generation AR5 was the most successful round of the CfD that has ever existed. I would even gently chide my always loyal and fair colleague, my hon. Friend the Member for Waveney (Peter Aldous), for buying into the idea: at a time when other countries’ rounds have failed, we generated 3.7 GW. We supported geothermal and tidal and, I think, saw a near doubling of onshore wind. That is not to say that I do not regret, and have not previously publicly regretted, the fact that in a highly turbulent geopolitical situation the window for offshore wind did not ultimately allow bids to come in from industry. However, that was one of the key reasons why we decided to move to an annualised system, so that we could quickly move forward. Of course, unlike a solar scheme, for example, these schemes are not things that are brought up quickly: they are developed over many years, with parameters informed by the behaviour of the industry. We always gather the data each year from the industry—companies sign non-disclosure agreements with us and we commission external research—but the most important of all the data we use is behaviour in auctions, because we need that real-world data to inform the parameters we set. It is exactly that process—unchanged but better informed by behaviour in AR5—by which we will set AR6’s parameters, and I am confident that it will be successful.
Peter Aldous
Graham Stuart
Peter Aldous
Graham Stuart I said that I wished we could have better attuned the window to the realities—they changed even after we set the prices in November. That was precisely why we decided on having an annual auction. To put it another way, if what someone offers is always accepted, they might want to consider whether they are overpaying. That is not to say that I in any way revel in the fact that we did not get offshore wind in that round, but I am glad that we had the foresight to move to an annual system and that we are able so swiftly to move on. It will just be the middle of next month when we set out the core parameters for the next round, which will happen next year.
Mr Carmichael
Graham Stuart The CfD scheme is a major UK success story. It has secured more than 30 GW of capacity, including 20 GW of offshore wind, since 2014. It has driven down the price of offshore wind by about 70% in that time, helping to grow the industry and its supply chain both in the UK and globally, although as the hon. Member for Manchester, Withington says, I have previously publicly expressed the desire to do more. We are coming forward with non-price factors as a way of encouraging more of the supply chain to be in the UK. But have no doubt: this has been a phenomenal success for us, for British jobs, for British consumers and for the world. We have the four largest offshore wind farms in the world, with more than 14 GW already in operation and a further 77 GW in the pipeline. It is a pleasure for me that of course the largest offshore wind farm in the whole world is Hornsea 2, named after a small town in my constituency. The UK is a world leader in floating offshore wind, with one of the largest amounts of operational capacity anywhere in the world, at 80 MW to date. The hon. Member for Strangford says that the results of allocation round 5, which concluded in September, were disappointing because the total capacity secured was less. As I have said, I do not accept the characterisation of that round, because it has in fact realised the highest amount, on an annualised basis, of any of the rounds we have ever run. It resulted, in fact, in more projects—95—than we have ever seen successfully done, even though it covered just a one-year window. The round delivered a combined total of 3.7 GW, which is enough to power the equivalent of 2 million homes. As I have said, there was more than double the number of onshore wind projects. We also secured—I have touched on this already—another good result for solar, and four times as many tidal stream projects as AR4 did. I pay tribute to the right hon. Member for Orkney and Shetland (Mr Carmichael) for his doughty support for the sector. I did not realise that his involvement had stretched to 20 years, but when I visited his constituency he was there to characteristically champion the industry. For the first time in our CfD, we had success with geothermal. This vital new renewable capacity was procured in a competitive auction set against, as I say, a backdrop of highly challenging macroeconomic conditions.
Jim
Shannon
Graham Stuart Let me dispense once again with the suggestion that consumers are £2 billion a year worse off because we did not secure any offshore wind in AR5. That figure is entirely wrong and misleading, because it does not take account of future wholesale energy prices. Projects that were unsuccessful in AR5, or chose not to bid, can participate in AR6 in 2024, which is just five months away. Having annual rounds means that there will be minimal delay to deployment at minimal or no additional cost to consumers. The hon. Member for Coatbridge, Chryston and Bellshill highlighted the broader point that the UK, alone among major economies, has halved its emissions since 1990. It can be argued that it is alone among major economies on its path to reach net zero. It is important to note that if we are to stay on track to net zero, which is one of the reasons why the hon. Member for Strangford is so passionate, and he knows this, we need Wales, Northern Ireland and Scotland alongside England to make the appropriate changes. The hon. Member for Coatbridge, Chryston and Bellshill may or may not be aware, given that this is not his day job, that Scotland is behind the curve on performance. It is high on ambition, low on delivery relative to England, and he might want to bear that in mind and have slightly more—
Dame Angela Eagle (in the Chair)
Steven Bonnar
Dame Angela Eagle (in the Chair)
Steven Bonnar
Dame Angela Eagle (in the Chair)
Graham Stuart I will take no lessons either from Labour, which had only 5.4 GW of wind power when it left government in 2010. The Government have more than five times that amount, at more than 28 GW of wind power, and the four largest operational offshore wind farms in the world. It may be difficult for some to hear, but we know that Labour’s record on renewables is truly dismal. When Labour was in power, as recently as 2010, renewables made up less than 7% of our electricity mix; in the first quarter of this year, we had reached nearly 48%. Lessons will not be taken from His Majesty’s Opposition, let alone the Scottish Government, on this front. The absence of offshore and floating offshore wind from AR5 was, as I have said, regrettable. These are challenging times for the offshore wind sector, with increasing global demand putting pressure on supply chains at the same time as increasing costs and core materials, resulting in price uncertainty both here and abroad. As both the Secretary of State and I have repeated on many occasions, our ambition for 50 GW of offshore wind, including up to 5 GW of floating by 2030, remains. I indicate to Members to look at the 77 GW of pipeline that we can see ahead. We are listening to the sectors and, as I have said, the annual auctions mean that we can respond quickly and incorporate learnings into the next round. We will publish the core parameters, including the administrative strike prices and pot structure, for allocation round 6 in the middle of next month. I will turn to the main focus of the debate for the hon. Member for Strangford: the GB CfD scheme being extended to Northern Ireland. When the CfD scheme was being developed around 10 years ago, it was originally intended that it should extend to Northern Ireland as well as GB. For various reasons, which I will not go into here, that did not happen. In December 2021, the Northern Ireland Executive published their energy strategy, the “Path to Net Zero Energy”, in which they set out the intention to implement a support scheme to bring forward investment in renewable electricity generation in Northern Ireland. The strategy indicated that the Northern Ireland Executive were, at that time, exploring with the UK Government the possibility of extending the GB CfD scheme to Northern Ireland, with a view to the inclusion of projects from Northern Ireland in the 2023 allocation round. If that was not possible, the strategy said that the Executive would seek to put in place an alternative support mechanism for investors. In January 2022, the Northern Ireland Executive published the first of their two action plans, outlining progress towards implementing their net zero strategy. In it, the Executive said that they would consult on proposals for a renewable electricity support scheme for Northern Ireland. In February this year, the Executive made good on that commitment and published a consultation inviting views on design considerations for a renewable electricity support scheme for Northern Ireland. The consultation closed in April, and the Northern Ireland Executive are currently undertaking follow-up work on the scheme’s design, informed by the consultation responses they received. I understand that officials in the Northern Ireland Department for the Economy aim to publish the design of the scheme this year, as committed to in its 2023 energy strategy action plan. The consultation clearly sets out the direction of travel: Northern Ireland wants to have its own bespoke support scheme for renewables. In June 2022, Northern Irish and UK Government Ministers agreed that the significant challenges of integrating Northern Ireland into the CfD scheme meant that Northern Ireland would be better off pursuing its own scheme. That objective had cross-party endorsement in the Northern Ireland Executive before they dissolved last year. I believe that the hon. Member for Strangford and I agree that a bespoke support scheme for renewables is the preferred means of securing investment in renewables for Northern Ireland. However, he has argued that the Northern Ireland support scheme cannot be implemented while the Northern Ireland Executive are suspended. If I am putting words in his mouth that he does not agree with, he will intervene on me. He believes that allowing Northern Irish projects access to the GB CfD scheme is the best available option for delivering investment and faster deployment of renewables in Northern Ireland. He knows that I do not agree with him on this. I do not believe that integrating Northern Ireland into the GB CfD scheme is viable. There are several significant challenges to integration, including systemic and technical barriers incorporating the characteristics of the single electricity market into the GB CfD model, as well as the reforms being considered in the GB review of electricity market arrangements. Furthermore, integration would require complex changes to the CfD payment mechanism, secondary legislation and industry codes, and would likely take several years to complete. Integration therefore would not lead to faster delivery of renewable energy in Northern Ireland, which I know the hon. Member for Strangford so fervently hopes for.
Jim
Shannon
Graham Stuart I continue to believe, however, that the development of a bespoke support scheme offers the best and quickest way for Northern Ireland to secure the investment in renewable electricity generation that it needs to achieve its net zero goals. I have not said it explicitly but, of course, energy is devolved, so we are looking to the institutions in Northern Ireland, on behalf of the people of Northern Ireland, to take this on. That is what we would profoundly like to see. I commend the work done by the hon. Gentleman and the Department for the Economy so far, and I encourage us all to support their efforts. I will try—I hope reasonably briefly, with your permission, Dame Angela—to respond to a few of the other points that have been made. My hon. Friend the Member for Waveney chided me in return, to ensure that we do not rest on our laurels and that we respond appropriately to IRA and perhaps EU initiatives in the space. He talked about creating incentives, picking up on the supply chain development issues that many Members have touched on, and ensuring that seabed auctions are a good place to do that. As he knows, I set out the work that the Crown Estate is already doing to put conditions on at that stage, in addition to changes to the CfDs. I take on board my hon. Friend’s points about the administrative strike price, and ensuring that we get it in the right place in order to balance keeping costs down for consumers with getting the generation that we want and need. We will set out the pot details in just a few weeks, so I will leave commenting on his appeal for a ringfenced pot for offshore wind. On his request for the pot to reflect the pipeline, that is the mechanism we use for the CfD. That is one of the reasons for setting out the core criteria in November and providing more details in March—precisely so that we can match the budget and the other elements that make up the CfD with a realistic assessment of the pipeline in place. His Majesty’s Treasury and the Chancellor will have heard my hon. Friend’s points on the issues that, sadly or otherwise, sit with the Treasury rather than my Department. From the right hon. Member for Orkney and Shetland, I heard, as ever, his espousal and support for tidal, and he talked about setting a target for that. The Government remain open and we will continue to consider that, but we have not yet made a decision on whether it would be the right thing to do. It is about doing the right intervention at the right time, based on the stage of development of a particular technology. However, like him, I am proud of the fact that we have been able to see it come on, and see some of the developments in his constituency. The hope to see those operationalised and scaled up here in the UK, with a big and strong domestic supply chain, is one that gives real optimism for the future.
Mr Carmichael On the point of the 1 gigabit target by 2035, does the Minister not take on board the fact that this is now the only technology that does not have such a target? It was sustainable to argue his position in AR4; it is more difficult in AR5, and with every round it will become more difficult still. I say to the Minister again that this is an opportunity to talk to the industry, and engage in a way that works to his advantage by restoring some of the damaged engagement credibility.
Graham Stuart The Opposition spokesman, the hon. Member for Manchester, Withington, talked a little about being able to bring hope to oil and gas communities around the United Kingdom. That is ironic considering the ambition of any Labour Administration, were one to be elected, would be to strangle that industry. Even though, as of last year, we are the most decarbonised major economy on earth, we are still 77% dependent on oil and gas for our primary energy needs. Over the coming years, due to the precipitous fall in production because of the maturity of the basin in oil and gas production from the North sea, and those expected falls in Norwegian production, our dependence on LNG imports and the like is expected to increase. Having seen the price spikes of the last two years and the risks and issues that arise from not having reliable and ideally domestic energy, the Opposition want to put at threat 200,000 jobs supported by the oil and gas industry —cheered on, bizarrely, by the fortunately ever less popular Scottish Nationalist Government—through wanting to stop any new licences. That is despite the fact that the only alternative realistically available is LNG, which the North Sea Transition Authority recently announced had embedded in it four times the production emissions of domestically produced gas. It is environmentally nonsensical and disastrous for 200,000 jobs. Just as a small addition, the industry is expected to bring in £50 billion of tax revenue over the next five years—goodbye to that as well. It is absolutely crazy to have an Opposition spokesman saying he is here on the side of oil and gas communities—he absolutely is not. We have an integrated energy system encapsulated within a legal framework in the Climate Change Act 2008, which means we are making the transition. We are leading the world on making that transition, but we will not speed it or help it, but in fact weaken it, if we do not support new oil and gas licences in order to minimise the necessary inevitable reduction in oil and gas production in our waters. It is bad for jobs, for the environment, for the economy and for tax. On no front does it make any sense at all. I have gone on long enough. I thank everyone for their contributions, not least the hon. Member for Strangford who led the debate. I am happy to keep engaging with him. I admire his tenacity. I recognise what drives him to want to find a solution in Northern Ireland and I entirely share that desire to see something happen. I am confident in our CfD system. It has been a world leader. AR5 was a success even though it did not deliver the way I would like it to have done in offshore wind. I am extremely confident about AR6, where we will again balance getting the generation we seek with ensuring that we look after the interests of consumers and the long-term interests of the United Kingdom. 16:19:00
Jim
Shannon Whenever the right hon. Member for Orkney and Shetland (Mr Carmichael) makes a contribution to a debate or asks a question in the main Chamber, we all sit up and take note, because he has a great deal of knowledge about marine renewables. He wants to see marine power ringfenced, and he is right to do so. The hon. Member for Coatbridge, Chryston and Bellshill (Steven Bonnar) may have stepped in as a replacement spokesperson for the SNP, but he made a valuable contribution. I am reminded of Bruce Forsyth’s catchphrase, “You’re my favourite,” because the hon. Member is perhaps my favourite among his party. We are good friends. We do not support the same football team—he and I know that—but there are lots of things that we can enjoy together. He referred to investment, which is so key to this issue. The job of the Opposition is to challenge, and the shadow Minister, the hon. Member for Manchester, Withington (Jeff Smith), did that. He tried to be positive, but he also engaged with the relevant issues. He wants to make sure that the investment, jobs, skills and opportunities are delivered by 2030, if not before. I will outline the issue again. The Minister summarised where we are, but let us look at the consultation process. The figure of 92%, which I mentioned, refers to the proportion of businesses that say they need investment now. We do not have a working Assembly—that is a fact of life—but 92% of businesses in Northern Ireland want investment, and we need to see that happen. For me, it is quite simple: I want to see us contribute to the net zero target set by the central Government. I want to see jobs and opportunities coming through. Some 50% of global capacity is in tidal stream, and we can do our part to deliver that in Northern Ireland. It is only fair that Northern Ireland is provided with the same route to market as the rest of the United Kingdom. I think the Minister and I will have lots of correspondence on this matter, but it does not mean that we are not friends. We need to chart a way forward so that we can ensure that Northern Ireland is a positive part of the solution that we all want to find. Again, I thank all right hon. and hon. Members for their contributions, and I thank you, Dame Angela, for your patience with us all. We may get a wee bit animated at times, but you kindly bring us into line in a nice way so that we are not offended. For that, we thank you.
Dame Angela Eagle (in the Chair) Question put and agreed to. Resolved, That this House has considered the Contracts for Difference scheme. |