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British companies are leading the world, but the challenge is formidable, and we need to know how the Minister thinks it will be met. What contributions does
he think will be made by different technologies over the time in question, not in percentage terms but in terms of output? If the technology does not come from wind, where might it come from? Marine technology will make a massive contribution in years to come, but we cannot realistically expect it to do so by 2020. According to reports published this week, the cost of solar energy has fallen significantly, but we shall not be able to make the most of that unless we have financial systems to stimulate the technology and make its use possible.
I was encouraged by the Minister’s observation that there might be a case for doing more about feed-in tariffs, and I hope he will do more when the Energy Bill is debated in Committee in another place. Amendments will be tabled that will enable us to drive forward the agenda, and if no amendment on feed-in tariffs is tabled, both sides of the House will feel that a major opportunity has been missed. We also need to do more about microgeneration: it has huge potential, but without a system of funding through feed-in tariffs nothing will happen.
The Minister mentioned the Severn barrage. It is unlikely that it could be built by 2020. It has the advantage that, unlike most other forms of renewable energy, the power that it generates would be predictable, but it would probably not be much cheaper than wind. It would require a funding system all of its own, and it is not yet evident how that could be arranged. It would also raise huge environmental concerns. Some of those who have been involved in the technology believe that lagoons might be a better solution, and they might indeed be better for the environment, but they would undoubtedly be more expensive than the barrage. A couple of weeks ago, I visited La Rance in Brittany to see the largest working barrage in the world, built by the French 40 years ago. It is an incredibly impressive structure, which shows what could be done here but also highlights some of the challenges involved, including environmental challenges.
The problem is that the Government have signed up to a project without knowing how they will deliver it. Perhaps officials in the Department of Trade and Industry, as it was then, thought that the then Prime Minister, Tony Blair, would go to Brussels and sign up to a commitment for 20 per cent. of our electricity rather than for 20 per cent. of our energy. Their reaction was one of complete horror. Perhaps that poisoned challice was Tony Blair’s parting gift to his successor.
We need to know rather more about the cost. In the explanatory memorandum, the Minister says that his initial estimate of the direct cost to the United Kingdom of the 15 per cent. target is at least £5 billion a year, plus indirect costs in higher energy prices. What does he mean by “direct cost”? Does he mean the cost of what he has described as the enormous investment in renewable technology and its infrastructure? Can he confirm that although it may include the cost of connecting renewable electricity facilities to the national grid, according to a study by Pöyry Energy Consulting, which his Department commissioned, it does not include the cost of the investment in infrastructure required to meet the target more generally?
Does the direct cost include the so-called resource cost—the extra cost to the economy of using more expensive sources of energy than could otherwise be used? Can the Minister confirm that the study by Pöyry Energy Consulting suggests that the resource cost will be at least €5.1 billion a year up to 2020, or, in current prices, about £4 billion? Pöyry also says that if an effective market does not develop for the trading of renewable energy and the United Kingdom has to provide for all its own renewable energy needs, that resource cost will rise to €6.7 billion, or £5.3 billion, a year. It says that the lifetime cost to the United Kingdom of meeting the target could be as high as €93 billion. Those are huge figures. In his motion, the Minister talks of cost-effective ways of delivering his proposals. What has he in mind?
At a time when consumers are profoundly worried about rising costs, what will be the cost to them? How will the Minister carry people with him? At present, if people were asked whether their priority was secure energy, green energy or cheaper energy, they would probably say that they wanted the cheapest possible energy. The age of cheap energy has gone, but in terms of what will be relatively achievable in the future, cost is clearly a particularly important aspect. Has the Minister had discussions with the CBI, the Institute of Directors and other business groups about the impact of these costs on the economic competitiveness of the United Kingdom? We all agree that this is the direction in which we should move, but surely we should do so with our eyes open and be aware of the costs involved.
Paddy Tipping: I am interested in the points that the hon. Gentleman is making, and I agree with many of them. He has stressed the key issue of affordability. Is he saying that his party accepts that energy prices will continue to rise?
Charles Hendry: We have all seen what happened to the predictions of the DTI and the Department for Business, Enterprise and Regulatory Reform about energy prices. There is a massive difference between those predictions and where the prices have ended up. Certainly for the foreseeable future, by which I mean the year ahead, it is hard to see how energy prices could do other than rise. It is likely that in the first quarter of next year gas prices will be 50 per cent. higher than they are now. The forward market in energy across the board is very high. We also know that for every 1 per cent. of economic growth, energy demand goes up by 1.5 per cent. Given that the Chinese and Indian economies are still growing at a rate of at least 4, 5 or 6 per cent., the energy supply will be very tight, and will continue to be expensive for the foreseeable future.
As the Minister will know, the directive is covered by article 175(1) of the treaty establishing the European Community. Can he confirm that such measures are covered by qualified majority voting, meaning that the British Government would have no veto over the proposals? Would it not be more appropriate for the directive to be covered by article 175(2), which relates to environmental laws that significantly affect
“a Member State's choice between different energy sources and the general structure of its energy supply”,
and under which there would be no QMV? The Government would then be able to use its veto.
Mr. Heathcoat-Amory: My hon. Friend is making a powerful point. He has already cited the unrealism of the targets, and the huge potential cost to our constituents. Does he think it wise for us to accept or negotiate a directive under majority voting that would render it beyond the democratic control of the House, and therefore our constituents, after the next election? Will he press very hard for a good answer to the question that he has just raised? There was an alternative—namely to found the measure on a different legal base subject to unanimity. Is that the policy that he would advocate?
Charles Hendry: I think there is a very strong case for unanimity to apply. That returns us to what the Minister said about biofuels. He said that unless the directive was adapted to take account of the Government’s concerns about biofuels, they would reject it. However, under QMV, they would not be able to reject it There is a strong case for something of such fundamental long-term importance to be endorsed by all member states individually.
It is still far from clear what will count towards the renewable energy target. The Minister said that there should be trading, about which Baroness Vadera has spoken elsewhere. It is interesting to note that that is Government policy. Does the Minister envisage a limit to how much can be traded, or will he argue that no limit should be imposed on the grounds that a limit would restrict fair and free trade?
The Minister said that the major projects that would not be completed by 2020 should be included, citing the Severn barrage. How far advanced would projects have to be in order to be included? What if a project were due to be completed in 2022 or 2025? What cut-off date has he in mind?
Peter Luff: Has my hon. Friend yet met any independent expert who thinks that these targets are achievable? If they are not, a very worrying loss of confidence could be created in our whole environmental agenda.
Charles Hendry: There are certainly people who have a vested interest in the types of technology that would be used and who say that the targets are achievable, but even they would say that the targets are very challenging. All the independent experts are saying that “very challenging” is an optimistic phrase. I find it difficult to see how we get from where we are today to where we need to be by 2020 when I look at the huge investment that will be required.
Baroness Vadera has also suggested that nuclear power and coal-fired power stations equipped with carbon sequestration and storage should be included. What is the Government’s position? Do they now consider both nuclear and carbon capture and storage to be renewable technologies—a difficult assumption to come to—or are they negotiating to have the definition of the directive broadened to be “low carbon” rather than “renewable”? I could see why other countries such as France or Poland would wish to encourage that, but we need to see what the Minister has in mind to try to take this forward.
The directive talks about the additional financial support that will be required for renewables and the Minister refers to this in the explanatory memorandum. Has he been able to establish what level of support will
be required, how it would be delivered and whether he is completely satisfied that it can be given under EU rules on state aid? The directive would also require member states to give electricity from renewable sources priority access to the national grid. There is great merit in that idea if we want renewables to come forward, but can he confirm that he has made the nuclear companies aware of this? New build nuclear would require massive investment in the national grid, in part because the volume of electricity it will be generating would be so much greater than from existing power stations. Has he spoken to the nuclear industry to make it aware that its national grid needs would come behind those of renewable electricity facilities? What are the implications of that for a new fleet of nuclear power stations?
Steve Webb: Is the hon. Gentleman advocating that renewables should have a prior claim over nuclear in terms of access to the grid?
Charles Hendry: I accept that there is a need to look at the way in which the national grid operates. It does not make sense at the moment, where people are connected directly in the order in which they have applied. For example, a wind farm that does not have planning consent and will not get it for years will be connected before one that already has planning consent. That does not make sense. I believe strongly that there is a role in the debate for nuclear, but if we end up with a system in which investment in nuclear is put at risk because of that priority, that will need to be addressed. I do not think it is as straightforward as one or the other.
Dr. Alan Whitehead (Southampton, Test) (Lab): Does the hon. Gentleman note that article 14 of the draft directive states that member states should give priority connection to renewables? Does he support that part of the directive, disregarding its consequences, or is his support conditional and rather lukewarm?
Charles Hendry: My support is conditional. If we ended up with new investment in nuclear being put at risk by that one clause, that would give me profound concern. We have to look at the matter and I would be interested in the views of the nuclear industry. The future energy provision for this country is so finely balanced that to start putting in place artificial barriers would be counter-productive.
The Minister spoke at length about biofuels and the requirement that all member states get 10 per cent. of their transport energy from biofuels by 2020. I have referred to the fact that it would be better if this were done under a system of unanimity rather than by qualified majority voting. Clearly, attitudes to biofuels have been changing; perhaps we were overly positive a year ago and are now overly pessimistic, as we do not take sufficient account of the potential of second generation biofuels and cellulosic biofuels, allowing crops to be used for food and the remainder for fuel.
The directive rightly puts down many restrictions, but we need to know with clarity where the lines in the sand will be with regard to biofuels being included. This debate is bound to continue, especially in the light of the publication of a report by the scientific committee of the European Environment Agency
which estimated that the amount of land required to meet the directive's 10 per cent. target is greater than the total volume of land available that could be used for bioenergy production without harming the environment of the EU. The scientific committee has gone further and called for the suspension of that 10 per cent. biofuels target. In the light of these concerns, does the Minister agree that there is a case for dealing with biofuels separately from this directive, so we can do so from a position of greater understanding about the full impact of their development?
Can the Minister tell us about the inclusion of biomass? At 350 MW, the Port Talbot renewable energy plant will be one of the largest in Europe. Although it is not renewable on a day-to-day basis, because the wood that it burns releases carbon, it produces renewable energy over the lifetime of the project, as the trees planted to replace those cut down for burning will absorb the carbon dioxide that the plant produces. Would such plants count towards our EU 2020 targets?
A lot of questions need to be answered. We are at times critical of the Government’s decision to hold another consultation because they simply do not know which way to turn. But there is a strong case for further consultation on this exercise and it is crucial that industry and other interest groups take part in the programme. I hope that the Minister will make sure that there is a real understanding of the urgency. He talked about a renewable energy strategy being produced next spring. To many of us that is leaving it rather late. We need to push the programme as far forward as quickly as we can. What we do not have is time on our side. Every month of delay makes these targets even more challenging to reach. I hope that the Minister will be able to give us reassurance on these points of concern.
7.6 pm
Michael Connarty (Linlithgow and East Falkirk) (Lab): I thank the Minister, if he was involved in the decision to debate this subject on the Floor of the House. I certainly thank the hon. Member for Wealden (Charles Hendry) for what was clearly a speech based on having read the directive and the report of the European Scrutiny Committee report of 27 February 2008. The Committee was so concerned about the issues contained in the directive and the dilemmas facing the Government that we thought it should be debated here.
There has been some diversion from the task before us, which is to look at the draft directive. The Minister has got it right in the motion, which states that the draft directive
“should be revised to provide Member States with sufficient flexibility as to ensure the overall EU and Member State renewables targets can be achieved in a cost-effective way.”
Little has been said about the cost. The Minister’s assessment to our Committee was that we would need an investment of £5 billion per annum between now and 2020 to reach the target of 15 per cent. The reality, as the hon. Member for Wealden said, was that we have fallen far short of our previous aspirations; they were aspirations and have not really been targets. The problem with the directive is that it gives the power to the Commission not just to set a target for 2020, but to review it every two years and to take action against states that do not reach their two-year targets.
Every country is expected to deliver a flowchart as well as a commitment to mandatory targets by 2020. The flowchart will be assessed every two years and the Commission can then use its powers. If it goes through by QMV, those powers can be punitive. The Commission can use the European Court of Justice to force countries to do what the Commission has decided they should do. Flexibility is desperately needed in relation to the directive because I do not believe that it is necessarily well founded.
Having viewed the EU for the past 10 years as a member of the Scrutiny Committee and as Chairman for the last couple of years, it is clear to me that Euro-fudges are driven by political alliances, often in the major states within Europe. It is clear that the alliance between the SPD and, it hopes, the Greens to get back into power in Germany has affected all energy policy in the past four or five years. The Green agenda—an anti-nuclear and pro-renewable agenda— is not necessarily based on what it should be based on: a carbon count. It should not be based on the form of generation, which should be sustainable and help security of supply, but on the basis of the carbon count of that type of energy. Yes, renewables might be shown to be a low-carbon form, but they are a very expensive low-carbon form and we have yet to deal with the major problems associated with it.
My hon. Friend the Minister referred to microgeneration. The point has been made that if grid access is challenged for a major base-load because of the problems associated with trying to get lots of microgeneration or small generation from wind farms, is that the right choice to make for the country and in sustainability terms? I believe that there was a motion before the European Parliament recently through which it rejected the biofuels proposal because of its effect on the sustainability of food production. I heard that a representative of the Commission’s directorate-general said that there will be enough spare land when the common agricultural policy is properly reformed to allow Europe to generate as much biofuel as is required to meet its targets. I do not know whether that is likely to be more than a wish on its part.
On why we are at such a low base, we should consider paragraph 1.9 of our 15th report. On targets—this is the UK’s own assessment—it said that we are
“at less than 2 per cent...and only expected to rise to 5 per cent. by 2020.”
This directive is asking for a massive increase in commitment to renewables, and it is not one that the UK can sustain, for a number of reasons that I have outlined. We are all dealing with one of those reasons at the moment: our constituents are fed up to the back teeth with the increase in fuel prices. Using biofuels will add to the cost of car fuel and to domestic fuel prices. We and the Government must take that into account—every Government in Europe has to take that into account, given the new range of costs of commodities such as oil and gas.
There is much to fight for in the directive, much that is good in it. However, on the question of unanimity versus qualified majority voting, raised by the hon. Gentleman, if I recall correctly, the Government’s
opinion was that article 175(2) should be used in respect of renewable fuels, so unanimity would be required. That has been resisted by the Commission. The Government’s first task is to go back and argue the case. Our report points out that, following the 2007 spring European Council that approved the general outline of the White Paper and introduced the draft directive,
“the Commission made a political commitment to all Member States that it would attempt to agree the national targets by unanimity.”
The first thing that the Government must do is to ensure that these targets are agreed by unanimity. That means every country on that rather odd table appended to our report, which demands that we increase from 1.5 to 15 per cent., but which also demands that a country such as Sweden, which has a very good record, increases from 39.8 to 49 per cent. It might be more difficult for Sweden to achieve that than for us to achieve an increase from 1.5 to 15 per cent. It is as if the figures have been worked out on the back of the proverbial fag packet—on the basis of some rule of thumb made by a Commission directorate-general official. Unanimity is required first, and with unanimity comes the ability of our Government properly to negotiate and to get the flexibility that they are calling for in the motion, which I will support.
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