The Committee consisted of the following Members:
Alison Groves, Lloyd Owen, Committee Clerks
† attended the Committee
The following also attended (S tanding Order No. 119(6) ) :
Penny Mordaunt (Portsmouth North) (Con): It might be helpful if I take a few minutes to explain the background to the Commission communication and the reasons why the European Scrutiny Committee recommended it for debate.
According to the Commission, the EU is currently on track to achieve the target set in 2007 of a 20% share for renewable energy by 2020. However, it also says that the economic crisis has made investors cautious; that private investment is determined by the stability and long-term clarity of policy in this area; and that previous energy road maps have suggested that growth will drop after 2020 if further steps are not taken.
The communication seeks to address the policy framework until 2020, and possible options beyond then. It notes that, following the setting of mandatory national targets, renewable energy producers have become a significant factor in the market. It goes on to consider the integration of renewables into the single market; their relationship with the opening of the electricity market; the need for infrastructure development; the position of consumers; technology innovation; and the sustainability of renewable energy.
The Commission concludes by looking at renewables policy after 2020, noting that the key driver of binding targets will have expired by then, and the risks that, if policy initiatives are not adequate, renewable energy growth will slump. It says that if this is to be avoided, a supportive policy framework will be needed to address remaining market or infrastructure inadequacies, and to consider concrete milestones for 2030. It has therefore explored four broad policy options, but concludes that specific 2030 milestones can be designed only in the light of post-2020 climate policy, the degree of competition in the various markets, and the degree of energy diversity and technology innovation expected in 2020.
The Government have welcomed the communication. They say that the overriding policy goal should be to encourage investment. They also say that any legislative proposals relating to 2030 milestones would need to take into account the uncertainties surrounding future deployment potential and the comparative costs of all low-carbon technologies.
This is the latest in a series of Commission communications on renewable energy. The European Scrutiny Committee felt that as it provided a useful degree of elaboration in a number of respects, it should be debated in the European Committee.
The Minister of State, Department of Energy and Climate Change (Mr John Hayes): The UK renewable energy sector has a role to play in helping us to reach our emission reduction goals and it supports both economic growth and energy security. It reduces our dependence on imported fossil fuels and is making a real investment in the UK economy, with 20,000 jobs and £10 billion of investment in the past year. Nevertheless, renewable energy is only one part of the picture in relation to energy generation. We are pursuing other low-carbon technologies—specifically nuclear and carbon capture and storage, which will transform gas generation—and, of course, we are pursuing more traditional means of generation to meet our energy needs and guarantee energy security. We need to achieve the right level of deployment on every front.
Our goals on renewables are framed by the binding 2020 targets, which have been mentioned already and which have been established at EU level. We are making progress towards delivering against those targets. For example, we now deliver about 4% of our energy needs through renewables, and that number is rising. We now lead in the field of offshore wind, and the pattern that I have described is being repeated across the EU. It is important, therefore, that we work with EU counterparts and closely follow potential developments across Europe.
Given the long lead times and the strategic nature of the energy industry, it is not surprising that the Commission is now turning its attention to what happens beyond 2020, in the way that my hon. Friend the Member for Portsmouth North described. The communication covers the Commission’s emerging thinking on the major issues and opportunities after the end of the decade. This is very much the start of the debate, and it is a debate with which we will need fully to engage.
Notwithstanding our strong support for meeting our emissions targets, we are not minded to support further renewable targets after 2020, primarily on the grounds that that could introduce unnecessary inflexibility. To ensure that we meet our energy needs and climate change objectives, we must invest in a diverse range of sources. All investment must be optimal and must represent the best value for the taxpayer and consumers, and for the future generations that will benefit from it.
My predecessor’s explanatory memorandum sets out the details of the communication, so I will not repeat them, but it is worth highlighting some of the key features and our position on them. I note the Commission’s commitment to developing renewable energy post-2020. We approach that in the context of the 2050 targets, with which the Committee will be familiar, and our wider decarbonisation agenda. We welcome the Commission’s intention to find ways to support improvements to the state aid scheme in respect of renewables. State aid is sometimes problematic in that the process can be time-consuming and occasionally difficult to navigate but, regardless of the sensitivities, it is important that we do not encourage unnecessary bureaucracy. We would expect that to fit in with the Commission’s wider work to modernise state aid.
We also welcome the potential for improvements in sustainability standards. We believe that, as set out in the UK bioenergy strategy, bioenergy can play an important part in the energy mix. We want to support that with a credible and sustainable commercial supply chain. In some areas, we are more cautious, and we will look to work with the Commission and other member states over the coming months to explore what is being considered. For example, we are still developing our position on renewable energy trading, following a call for evidence that we ran across the summer. We do not understand with any certainty what, if any, potential there might be here, but we will certainly be keen to see changes that make the process of trading as straightforward as possible. We do not yet know enough about potential Commission proposals and capacity mechanisms. We know that the Commission is keen to create some consistency across member states in respect of such mechanisms, and we have our own emerging proposals, from the draft proposals that were published, with which the Committee will be familiar. We know that the Commission is keen to avoid any arrangements that might undermine cross-border co-operation, but at this stage we do not believe that our proposals are likely to be limiting in that respect.
I have, of course, already mentioned our reservations about post-2020 targets. In summary, our strategy is one of close engagement over the coming months. We propose that the UK should consider the merits of any legislative proposals that might be put forward by the Commission, and engage fully in their development. However, we must support such proposals only when they add value, and do not diminish our own priorities or the effectiveness of the UK’s approach. My fundamental priorities in those terms are energy security, maintaining bills as low as reasonably possible, sustaining greater investment and, of course, being minded about our commitments in respect of emissions.
The Chair: We now have until 5.30 pm for questions to the Minister. I remind Members that they should be brief. It is open to a Member, subject to my discretion, to ask related supplementary questions.
Does he have a view on what the Commission is aiming at there? To what extent does he consider that the emerging proposals relating to capacity payments either overturn or support the view that the EU has taken?
The hon. Gentleman refers to the Commission’s suggestion that it wants greater flexibility across Europe very much in the terms I have just described: a more plural system, a more competitive system and a system where there is more competitive pressure. It is important that we do not prohibit that in developing our own strategy. But to do that in a way that guarantees energy security by making sure there is sufficient capacity is a significant challenge. The hon. Gentleman will understand that. He is expert on these subjects and has spoken in the House on them over many years. We are mindful of getting that balance right. That is in part about when we put in place a capacity mechanism, what form it takes and whether it is regarded as something that should be short term or a long-stop provision. He will be familiar will all of those things but I am too and in constructing where we go from here, we will certainly be mindful of the point that the Commission makes.
Dr Whitehead: I thank the Minister for his comprehensive answer and the guidance as to the direction he has taken. In that context, has he had a further look at his departmental response to the documents? It states:
“We are working to ensure the GB Capacity Market is consistent with the single market, and considering how to ensure Demand Side Response, storage and interconnected capacity can participate. We are discussing our approach with the European Commission and other member states.”
Could he elaborate on those discussions and tell us what issues he has discussed with the European Commission on demand-side response and storage and interconnection capacity in relation to capacity payments?
Mr Hayes: The answer to the first question happily coincides with his second question. I am delighted to know that my own perspective on these things is closely aligned with that of the Department. I would not want it to be any other way although, of course, my interpretation and analysis is the more important of the two. As he will know, a similar debate about capacity is going on across most of the European nations. Most of them are putting into place some kind of capacity mechanism. It varies from place to place. In Scandinavia, Sweden has a very different model for handling capacity, regarding it as a supplement to rather than separate from the mainstream market. Nevertheless, countries across Europe are debating these issues. The Commission has been keen, therefore, to ensure coherence, given the character of the Europe-wide energy marketplace.
Discussions have taken place between our Department, the Commission and other member states at official level and, prior to my time at the Department, at ministerial
A judgment about interconnection is very important when considering capacity. For example, the hon. Gentleman will have read the Ofgem analysis published about a week ago, which was fairly pessimistic about changing patterns of capacity due to ageing generating plant. It predicted that capacity could fall to 4%. It estimated that currently conservative capacity is around 14% or 15%. Some say it is more; other analyses say it is closer to 20%. Part of the reason we differ somewhat from Ofgem is around the capacity for interconnection and the role that will play in supplementing capacity. Ofgem takes a slightly less optimistic view about that possibility than the Department of Energy and Climate Change, for example.
The discussions taking place are, firstly, about ensuring that in public policy terms there is a reasonable degree of consistency, given the character of the European market and, secondly, that in practical terms things such as interconnectivity are fed into our assumptions and, therefore, our modelling about the state of capacity and what measures we need to put into place to ensure energy security.
Dr Whitehead: The Minister will no doubt have had a good look at the paragraph in the initial communication that talks about the question of the extent to which member states may count contributions of renewables entering their country from other EU members as part of their own renewables target. Has the Minister communicated with the Commission on any prospects or suggestions that the EU could consider such arrangements relating to UK targets? In particular, has he communicated whether such arrangements, if they were connected to the UK by a secured interconnector, would come fully within those arrangements, or, if they were connected by a secure interconnector from states that are associated with the UK but are not bound by EU treaty obligations?
Mr Hayes: It may have been in this room that I led for the Opposition on the Bill that put into place the emissions trading scheme. I cannot remember whether the hon. Gentleman was on that Committee—he may have been—but he certainly took a keen interest in that debate all those years ago. Of course, this situation is not quite the same but he will recognise some similarities in the question he has asked. The prospect, as he rightly says, is that there would be a trading arrangement for renewables. I mentioned it briefly in my opening remarks. It is at an early stage of development, but he is right that we need to have discussions about it. I will inquire as to what discussions have taken place prior to me coming into my job and I will ensure that, if we feel that there is a need for greater co-operation and certainly for greater communication, that takes place. It seems appropriate for me to raise that when I first speak to the Energy Commissioner, which I am due to do. We have already corresponded, as hon. Members might have guessed.
The hon. Gentleman is also right to say that we have had a full and thorough dialogue with the Commission. There are, of course, ongoing discussions about how the proposals might work in principle, although, as I have said, the details have yet to be worked out. The real issue, as he will understand, is that we do not yet know what our need to trade might be. As we head towards the end of the decade, we will be in a better position to know whether there is a need to trade in order to meet our targets, and other countries will know the same. Trade will only occur if there is a surplus and a deficit in the right place at the right time.
I see nothing wrong in principle with this proposal. It is very much in the spirit of the original legislation around emissions trading. It is not the same, but there is a parallel in principle. Given the interconnectivity of the marketplace across Europe, once it is accepted that there has to be some coherence, it is not unreasonable to accept that there might also be some trading to reinforce that coherence. It is in the early stages and we are in discussions—all member states are—with the Commission, but I will ensure that the discussions are focused in the way that the hon. Gentleman described. I will personally take an interest in ensuring that they are discussed at a political level as well as at an official level.
Andrew George (St Ives) (LD): It is a pleasure to serve under your chairmanship, Mrs Riordan. In the Minister’s opening remarks, he emphasised that the top priorities for the Government as he saw them were energy security and price, but he did not mention the importance or potential importance of the renewable sector in providing an economic driver for the UK economy if the Government can get clarity and consistency in the signals to the sector, which would give the sector confidence. In some cases it is a rather infant technology, and in other cases it is a maturing technology, with a maturing capacity. If those signals are clear and consistent, there is a widespread acceptance that the UK can not only have the capacity to meet some of its own need, but can also become a driver in terms of our exports to the wider world. Does the Minister accept that perception of the role of the renewables industry?
Mr Hayes: Of course, the hon. Gentleman’s diligence is renowned and we, as he will freely acknowledge, more often agree than disagree across a whole range of issues. On this occasion, however, he must have either misheard or not heard me, because I emphasised at the very beginning of my contribution that the renewable sector is, as he describes, making a significant contribution to our economy and can make a still more significant contribution. I spoke of 20,000 jobs and a £10 billion investment in the past year alone. Nevertheless, as a valued colleague, he is right to prompt me to repeat that, because it is important that we do not see the renewable sector as a drain, but as a potential virtue. Therefore, one must be scrupulous in making the argument for it. That involves being critical, where necessary, of the different elements of the sector and backing what works and what, as I have said, is sustainable, and the hon. Gentleman would want that. I am therefore looking
Dr Whitehead: I note that the Minister says that there should be no European-wide renewables target post-2020 and that therefore a UK contribution to such a target would be unnecessary, because there would be no overall target. I am sure, however, that he will have seen that the EU, notwithstanding that debate, considers the existence of a strengthened European emissions trading scheme a sine qua non. Does the Minister agree with that, or does he have a different view on the future of the ETS post-2020 in addition to his thoughts and comments on the necessity or otherwise of a target?
Mr Hayes: It is important to have a framework for how we will meet our 2050 emissions commitment and it must include a pan-European dimension, so I can reassure the hon. Gentleman on that. Indeed, that is the reason why, in weeks rather than months, we are looking to develop a clear strategy, at the heart of which will be an energy Bill—the most significant piece of legislation in this area for a long time. I am therefore with the hon. Gentleman on the need to ensure that we take a proactive rather than reactive view of the situation, which is built around a long-term strategy about how to build sufficient capacity to meet demand. He is also right that renewables have an important part to play in that mix—it will be a mix and I use that word advisedly—because of the resilience that not depending on a single generating source brings and quite apart from the other virtues of renewables. However, I am not sure that that would be greatly helped by another target. I am inclined to say that there is a view that we need a few more weapons and fewer targets. That is perhaps an exaggeration, but we certainly need to ensure that the necessary mechanisms to meet need are in place. As I described at the outset, flexibility is very important, and I am not sure that such a target would benefit flexibility as we move forward.
That the Committee takes note of European Union Document No. 11052/12, and Addenda 1 to 3, a Commission Communication: Renewable Energy—a major player in the European energy market; notes that the Government’s position is one of cautious welcome for the broad proposals, which may help to improve the development of renewable energy across the EU; and new renewable energy legislative proposals put forward by the Commission, and to support those proposals which add value and do not diminish the effectiveness of the UK’s current regime.
We have had a useful exchange of questions, not least from the hon. Members for Southampton, Test and for St Ives, which has reinforced three things. The first is that it is essential that the Government provide greater clarity around energy strategy as a precursor to the confidence that will lead to the necessary investment across a range of energy types.
I hesitate to be partisan, because such matters are more about the national interest and the common good, but it is hard to square that kind of strategic thinking with the imperatives of a democratic polity. We are
If I were to be partisan, I might say that over the past 25 years—to be immensely polite—an insufficiently strategic view has been taken. Assumptions were made post-privatisation about what would occur: there would be a high level of investment and a more plural energy marketplace would emerge, but neither has happened. If we look at the investment profile post-privatisation, it has not been what is needed, and that is why we are where we are now. If we look at the character of the marketplace, certainly in the conventional generating areas—it is slightly different in the renewable area—there has been a concentration of influence and authority, so I think this reform needs to address that and it also needs to look at our long-term energy needs. That is the first point to emerge.
The second point that has emerged is the need to be mindful of the character of the energy marketplace across the continent. On the discussions that are taking place, we need to ensure that there is coherence and consistency. We need to recognise the effects of interconnection on capacity, for example, and the growing relationships that exist across countries in respect of energy supplies. The hon. Member for Southampton, Test mentioned trading as an example, of which there are others too. It is absolutely right that we discuss with the European Commission and our European partners how their energy strategies are developing and how they relate to ours.
The third thing that emerges from the proposal is the need to make a new and confident case for renewables based on an argument that can be won. Investment has to be optimal. As the hon. Member for St Ives said, renewables can make an important contribution to jobs, skills and growth. What we do in renewables needs to be married to our strategy more generally in respect of other forms of power generation. That provides the mix that adds to resilience and therefore to sustainability. Not wishing to delay the Committee longer that is necessary for appropriate scrutiny and diligent analysis of what is before us, I am delighted to move the motion in the name of the Government.
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): It is a pleasure to serve under your chairmanship again, Mrs Riordan. I congratulate the European Scrutiny Committee on allocating time for the debate this afternoon and for providing all the documentation, which made for some interesting reading during the conference season, in between everything else that was going on. The hon. Member for Portsmouth North provided the background. In the documents were responses from the then Minister with responsibility for energy, Malcolm Wicks. I am sure every member of the Committee will want to pay tribute to someone who was an excellent Energy Minister. His family are in our thoughts at this time.
Mr Hayes: I am grateful to the hon. Gentleman for giving me the opportunity to endorse that tribute. I knew Malcolm well; I was immensely fond of him. He was an excellent Minister and a fine Member of Parliament. I am delighted to add my remarks to the hon. Gentleman’s and my commiserations to those who loved him.
I was interested in the non-partisan way in which the Minister introduced the debate. He noted the failings of the free market and the case for market intervention in energy policy in future. That is right. Markets do not always work. Indeed, looking at the energy market more widely, that has proved to be the case in recent years. The motion is not particularly contentious—so neither is the debate—and it commits us to consider further the merits of forthcoming renewable energy legislative proposals by the European Commission. That is an entirely sensible approach to take, but a number of issues in the Commission’s documents are pertinent to the current debate on energy policy both in the UK and Europe. We touched on some of those issues when questioning the Minister.
We hear from all quarters about the need for certainty for investments. We hear it from the Government—indeed, we heard it from the Minister today—and we hear it from the Opposition, from industry, from investors and from green campaigners. It is one of the few things that unites everyone with an interest in the wider energy debate. The Commission notes that investors need
That is one thing that investors in the UK do not quite have. We hope that, very shortly, we will have an energy Bill that will be more detailed than the draft Bill, so that we can move towards providing some of that certainty and predictability.
It is a particularly timely moment to discuss this issue. When the Minister appeared at the numerous fringe meetings that he was invited to attend, he was asked about the letter to the Secretary of State for Energy and Climate Change, and copied to the Chancellor, from some significant renewable investors. I will paraphrase slightly from what was reported back to me and he can tell me if I have got it wrong: his response was that he would not be unduly influenced by those who wrote that letter. He is right not to be, as there are lots of interests in the sector, but it is crucial that we provide such confidence.
When the Minister talks about being able to make the new case for renewables, or a more robust or more persuasive case, a big part of that must include cost reduction. Cost reduction, particularly in offshore wind, comes through scale. That scale will only come with the manufacturing sector within the UK and with the right signals to invest for companies that have indicated that they intend to invest but are waiting for the detail of the energy Bill. Those points are relevant to the documents. Those matters can make a big difference to growth. We know already that in the current economic difficulty the green economy has provided a significant amount of the growth in the economy. It has the potential to do so, as well as helping us to meet those other wider objectives.
Mr Hayes: The hon. Gentleman will know that part of the draft energy Bill relates to the contracts for difference. Again, without wishing to anticipate the detail of the Bill before it is published, he would be surprised if they were not in the final version of the Bill. They allow for precisely that kind of investment, certainty in the long term, and, combined with Ofgem’s welcome market liquidity, will go a long way to providing the sort of catalyst that he describes, particularly in those areas where, because they are relatively new technologies, the scale has not yet driven down costs. We are mindful of the point that he makes. Although never wanting to be dictated to by any commercial interest, we are in the business of supporting investors in precisely the way that he described.
Tom Greatrex: I thank the Minister for that intervention. He brings me on to my next point, which is on contracts for difference and the issues around providing that catalyst, as he describes it. I have no desire, Mrs Riordan, to stray into the debates about the energy Bill that we will no doubt have shortly, but clarity is needed in primary legislation on the mechanism and how it will work. That will be particularly important in accelerating some of those significant investment decisions.
My hon. Friend the Member for Southampton, Test touched the Commission’s comments on the mechanism’s capacity payments, which are another significant element of the energy Bill. Again, I make the same point on detail, which will be vital in bringing forward investment. As we know and many people will say, the money is there, but the investment decisions have not yet been taken, because that landscape needs to be set out as fully as possible. I implore the Minister to set out as much of that detail as he can when the Bill is published or when the Bill starts being discussed in Parliament, so that we do not repeat some of the difficulties with the last Energy Bill—not about this aspect of energy, but in relation to the green deal—where so much was left to secondary legislation. A lot of detail was missing when the Bill was debated, so some progress was not made as quickly as it could or should have been.
Mr Hayes: I am reluctant to stray from the subject at hand and to delay the Committee unduly, Mrs Riordan, but the hon. Gentleman is right. It is tough to strike a balance on how much detail we can go into on the practical side of the Bill’s implementation, particularly on some of the details on pricing. He will understand that those discussions are ongoing, and I can assure him that the Opposition will be fully involved and briefed at the earliest opportunity.
Tom Greatrex: I thank the Minister for that reassurance. I will move on from the capacity points, because they were covered by my hon. Friend the Member for Southampton, Test. I am sure that they will be lodged in the Minister’s mind and his thinking for the near future.
One of the other observations made by the Commission is that, if the market arrangements are to deliver the necessary investment and flexibility, they need to bring
An area where the Commission identifies opportunities for reducing emissions is through energy efficiency and demand reduction. That is another area where I hope that the Department’s work and the high-level report assessing the barriers, which it brought out in July, will be integrated within the proposed legislation. The Secretary of State for Energy and Climate Change said in the summer that he aimed to graft demand-side measures on to the Bill, and the Select Committee has made clear the dangers with that. He said that at a Liberal Democrat summer school, so many people may not have heard that. I want to underline the importance of that for our domestic considerations and, more widely, for our European discussions.
The Commission documentation also refers to 2030 milestones and targets. I heard what the Minister said about targets. However, I wish to make the point that sometimes those targets can be useful in helping to keep us on the right road. Although I understand his caution and note his comments on flexibility, those milestones
Mr Hayes: I have nothing exciting or informative to add beyond what I have said already in this important and valuable debate, to which I have made a significant contribution. However, I will affirm that the hon. Member for Rutherglen and Hamilton West is right that all the issues debated today are not only relevant to cross-European discussions but central to the plans that we will make through the energy Bill. Most of what he said rightly focused on that, and I disagree with hardly a word. I do not know whether that is reassuring or worrying for either of us. Let us assume optimistically that it is reassuring. It underpins the fact that we are all mindful of the significance for our country. Getting these judgments right is tough but necessary and will be in the long-term interests of Britain, regardless of who sits on which side in the Chamber.
I thank the European Scrutiny Committee for giving us the chance to enjoy this short debate and my hon. Friend the Member for Portsmouth North for the helpful way that she introduced it. I will detain the Committee no longer.