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The Government already support a range of technologies through a variety of different initiatives, including the Environmental Transformation Fund, which was set up in April to encourage and fund industry-led demonstration of carbon abatement technology projects, including CCS. To date, more than £2.2 million has been granted via the fund, £8.8 million for various research projects supported by the research councils and the Technology Strategy Board. We have championed the inclusion of CCS into the EU-ETS directive and pushed for a European-wide financing mechanism for CCS, because it is clear that we will solve these problems not on a national basis alone but on a much wider basis, in which the European Union plays its part. We are also hosting the Carbon Sequestration Leadership Forum ministerial conference in London in autumn 2009. The meeting will provide a forum for the examination of key carbon capture and storage issues among the political and industry leaders.
All the initiatives that I have outlined give equal status to all carbon capture technologies, which is consistent with the Bill and the amendment. I hope therefore that the noble Lord will feel reassured that the Government see CCS as a priority. We are showing global leadership in facilitating its demonstration and deployment, irrespective of the type of carbon capture technology. The only area in which the Government have had to make a deliberate choice regarding a capture technology is in relation to our competition
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The Stern report envisages that CCS would need to contribute up to 28 per cent of global carbon dioxide reductions needed by 2050. That is a massive contribution to the overall challenge that faces the whole world. This clearly indicates the importance of remaining focused on CCS as a global solution. For it to be deployed on such an extensive scale, the technology first needs to be demonstrated on a commercial scale. That is why we announced that we will support one of the world’s first projects demonstrating the full chain of CCS technology on a commercial-scale power station.
The key objective of our project is to demonstrate a technology that is relevant and transferable to global markets. It is of fundamental importance that actions we take in the United Kingdom can also assist other countries in taking steps towards tackling their own emissions. Climate change is a global problem that requires multilateral and multinational solutions. The House will appreciate that coal consumption in power stations in Europe is dwarfed by the amount of coal used elsewhere in the world, particularly India, and of course with the enormous growth of China. One extraordinary fact is that China builds one coal-fired 1-gigawatt power station every four days. That translates to the equivalent of two new Drax 4-gigawatt power stations every month. That is the scale on which China is expanding its power production. That is why we have to look at this issue in terms of the contribution which the United Kingdom can make. I hope that I have already reassured the House that we are very much in the lead on this issue. There are also immense implications and, indeed, opportunities if we get the technology right.
There are also clear advantages of focusing on post-combustion coal technologies. Depending on the type of power station built and the rate of construction, it is estimated that the new-build coal-fired power stations in China alone could emit around 260 million tonnes of carbon dioxide each year. That is almost double the carbon dioxide emissions from the whole of the United Kingdom economy, not just power, but transport and heat as well as electricity. The fact that post-combustion technology can be retrofitted to existing power plants ensures that carbon dioxide emissions that are otherwise locked in through existing and planned new-build power stations can be tackled by installing post-combustion carbon capture technology in the future.
Noble Lords should contrast that with the issue that we are being invited to consider in the amendment. The deployment of pre-combustion technologies is not yet widespread, and it may take years for this to become the case. Because pre-combustion technologies cannot be easily retrofitted, they will have, however successful they are, less relevance over the medium term, when the focus must be on controlling emissions from key developing countries such as India and China.
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I hope therefore that I have explained why early demonstration of post-combustion capture, which can be readily retrofitted, is fundamental to combating carbon dioxide emissions on a global scale. I am confident that we have made the right decision in focusing the competition on post-combustion and stand wholeheartedly behind this decision.
The noble Lord has deployed his case with his usual skill. I know that we are criticised for supporting one commercial-scale demonstration project, yet supporting one project alone represents a significant public commitment that only two other countries in the world are matching. To suggest that the Government should be supporting two or three demonstrations is simply not realistic. We are doing more than any country in the world in this area. That is something in which the House should take pride, rather than being overly critical.
Lord Jenkin of Roding: My Lords, before the noble Lord sits down—bearing in mind that we are on Report—the noble Lord, Lord Teverson, asked about the German plant. It is small, but they claim to have a working CCS plant. Can the Minister tell us anything of what the Government know about that?
Lord Davies of Oldham: My Lords, we of course follow such developments with the keenest interest. The noble Lord will recognise that we are concerned; as I mentioned, we are taking the lead at a conference next year. We are interested in the European response to these issues; there is no doubt that Europe can play a significant part. However, the noble Lord will appreciate that my case is that we could not afford, nor could we be expected to afford, the possible backing of a range of technologies at the enormous cost involved without any guarantee that they would prove successful. We have set up a competition for one which is promising and in which there is a great deal of activity. It potentially produces, as I have demonstrated, benefits that are more widely spread than the pre-combustion technology that the noble Lord, Lord Teverson, brought to the House’s attention.
I am in no way in conflict with the noble Lord’s intentions. I know how well he appreciates carbon capture and storage as a solution in this area. We are as one on that. The issue is whether the Government have the decisions right in backing one technology in circumstances where resources are inevitably limited. I hope that the House will recognise that the Government have strong reasons for pursuing its strategy, and that we are hopeful that it will produce benefits not only for the carbon emissions level and economy of the UK, but for the whole world.
Lord Oxburgh: My Lords, before the noble Lord sits down, I declare an interest as president of the Carbon Capture and Storage Association. I am sympathetic with the amendment. However, given the financial circumstances in which the Government find themselves, I am clear that they really made the only decision that they could if they could support only one technology. No one believes that carbon capture and storage is in itself a complete answer to the world’s problems. Equally, it is clear to anyone who
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I am personally of the view that we will ultimately end up with the present technology. There is a great deal to be done. On the other hand, it would be encouraging if the Minister could give an assurance that, at the research level, the essence of the amendment would be respected. That is the important element.
Lord Davies of Oldham: My Lords, I am grateful for the noble Lord’s intervention, which has extended and advanced my argument in response to the amendment. The House will recognise his great authority in this area. I reassure him that, in my description of the Government’s support for various strategies, continuing research is important and we are indicating the resources that we are prepared to extend on that.
More generally, I know that no one in the House does not share the Government’s—in fact, our whole society’s—objectives on the successful combating of climate change and the issues that the world faces. While I ask the noble Lord, Lord Teverson, to withdraw his amendment, he has occasioned the opportunity for the Government to deploy our full case. I hope that I have been able to reassure him that he is quite safe in withdrawing the amendment.
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Lord Teverson: My Lords, the Minister eloquently described the size of the problem. That is why the amendment is drafted in the way that it is. As regards the point made by the noble Lord, Lord Oxburgh, there is a lot of uncertainty about these technologies, which is why the schemes we are discussing are demonstration projects. We know that the technologies probably work, but we do not know what efficiencies will be lost in electricity generation through their application. That will have a major effect on the efficiency of power generation from coal in the future. We also know that the nuclear technology the Government are pursuing is characterised by base-load non-variability. That is why coal, or a predictable variable source of energy generation, will be even more important in the future. I say to the noble Lord, Lord O’Neill, that the developed world cannot afford not to pursue urgently a number of these technologies. There is a solution, of which the noble Lord is no doubt aware, and which perhaps ties in with the Minister’s reply in that at a European level the—
Lord Woolmer of Leeds: My Lords, does the noble Lord recognise that the cost involved in carbon capture and storage is not just that of the technology at the power station but of pipeline technology, transport technology and the whole technology of deep-sea or underground storage? It would be misleading to suggest to the wider public that the technology costs are overwhelming as regards this particular matter, important though it is. The other expenditures, for example on research, are very much larger than that on technology not at the coal face but at the power station.
Lord Teverson: My Lords, I absolutely agree. That is why it is so important that these demonstration projects determine what that cost is and how viable coal is as a future technology and what contribution it
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Lord O'Neill of Clackmannan: My Lords, on the question of time, does the noble Lord also agree that the most optimistic estimate of commercially viable equipment being available on the market, which has been made by Doosan Babcock, one of the leading British players in this, is that at the very earliest it will be 2020 before any kit of any size can be bolted on to a power station anywhere in the world? The German scheme of which he spoke I think produces something of the order of 30 megawatts. That is a very small output; it has a long way to go.
Lord Teverson: My Lords, I again completely agree with the noble Lord. The German installation is not seen as a commercial venture, but provides evidence on the type of issues that we have been talking about. But because the timescales are long, it is important to understand as soon as possible how viable and how economic this technology is. However, having heard what the Minister says, I accept that in general the Government are technologically neutral. But I hope that in any future competition a broader view is taken in this area. The European Union as a whole has to ensure that a broad range of demonstration projects are brought forward quickly that really show how much we can depend on coal in a low-carbon economy. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Wallace of Tankerness moved Amendment No. 3:
3: Clause 37, page 27, leave out lines 29 to 33 and insert “any grant which is payable out of public funds and awarded under or by virtue of an Act of Parliament, except a grant awarded to support or promote research and development.”
The noble Lord said: My Lords, I have interests in relation to renewable energy declared in the Register of Interests, although I have no financial interest in the Beatrice offshore wind project which I shall refer to not in relation to the companies involved but as a customer of Scottish and Southern Energy, although Talisman has an association with the MREDS project whose steering committee I chair unremunerated for Heriot-Watt University.
I hope that there would be a shared, common objective between myself and the Government—it might be too much to presume that this involves all Members present—to wish to see major expansion of our country’s offshore renewable capacity. The announcement yesterday of a 194-megawatt offshore wind project off Lincolnshire has been claimed as putting the United Kingdom at the top of the league as far as offshore wind generation is concerned. I am sure that even the Minister would agree that there is still some considerable way to go to meet the target set by the previous Secretary of State, John Hutton, last December.
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I have mentioned the Beatrice development, the significance of which is that it is in deep water. Most Members would agree that to achieve the very ambitious targets that have been set, there is considerable importance attached to research and development. That project received research funding from the European Union’s sixth framework research and technological development programme. It received support for its research work from the then Department of Trade and Industry’s new and renewable energy programme and from the previous Administration in the Scottish Executive. It has already delivered a number of significant engineering achievements: the installation of the first turbine in international waters 25 kilometres from shore in water depths of more than 45 metres; the offshore installation of the next generation of a 5 megawatt turbine; the use of jacket substructures in the offshore wind industry; the onshore assembly of the complete turbine—tower turbine and blades—and the transportation of that to shore installation as a complete unit and the offshore installation using a floating vessel and a soft landing system. Each one in itself is a significant engineering achievement and cumulatively they mark out the significance of the project.
The concern that my amendment seeks to address is that, under the Bill, that project would not be eligible for both an upbanded ROC and for the research grants that it has already received, and it gets the option of returning the research grants if it wishes to receive an upbanded ROC. I am grateful to the noble Baroness, Lady Carnegy of Lour, for indicating her support for the amendment, the purpose of which is that grants paid as part of support or promotion of research and development would not fall within the general definition of grants that might have to be handed back.
I have been in extensive correspondence with the Minister’s predecessor, and I thank members of the Bill team who agreed to meet me to discuss these matters. I was certainly encouraged, as were people who made representations to me on this issue, by the letter that I received from the former Minister, Malcolm Wicks, dated 12 September, in which he said:
“We would like to reassure you that it is not our intention to discourage investment and hamper technology development. As you point out, our consultation document made clear that we do not believe that in future a banded Renewables Obligation alone will be sufficient to bring forward technologies which are further from commercial development. It is our intention that such future research and development projects will receive banded ROCs and a grant”.
That is very welcome, and anything that the Minister can say from the Dispatch Box—and on the record—would be very welcome indeed.
Although there appears to have been some reassurance on the position with regard to future projects, I shall address the question of historic projects. I understand the point that the grants were given and accepted, that the companies concerned made a commercial decision at the time and that in some respects we should not be revisiting it. There are a number of points to make in response to those arguments. First, it was understood during the consultation process leading up to the energy White Paper that there is a distinction between
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However, the clause as drafted covers all grants—at least potentially, because it would be applied by order. Secondly, by taking head-on the expectation that only a single ROC, not an upbanded ROC, would apply, the clause does not take account of the fact that since the grants were given and accepted, there has been a significant increase in the costs associated with the DOWNVInD project in particular. At that time, estimated costs were £28.6 million, but have reached an estimated £45.3 million. A number of important technical challenges have had to be addressed which have led to that increase. As a consequence of some of the changes that had to be made in terms of technology, the European Commission, in turn, required further tendering. Because of the time lapses, including the costs of shipping and the tugs that were required, costs grew considerably. Many of those increases were beyond the responsibility and ability of the developers to control them and were imposed upon them. Nevertheless, the costs were very real and were not foreseen when the initial R&D grants were given.
I wish also to make a comparison regarding the position previously taken by the Department for Business, Enterprise and Regulatory Reform on the availability of assistance for new stations for using biomass or mixed waste. It is my understanding that existing stations were to be exempt from grandfathering, and were rewarded upbanded ROCs, in line with new-build stations—a position that I would support. It would appear that a position has been taken with regard to new biomass or mixed waste stations, but that has not been carried through into the limited number of examples of marine offshore development. Certainly the number of ROCs concerned have been calculated to be only a very small fraction compared with those agreed for biomass or mixed waste stations.
Furthermore, under the terms of the grant assistance, the Government get their money back if the developments bear fruit. Some of the revenue has to be returned to the Government in proportion to the value of the grant for the overall project; and when the period of the grant expires, future revenue streams are looked at, a capitalisation is made and money is handed back to the Government up to the full value of the original grant. If a higher banded ROC is available, the Government might well get their money back sooner rather than later. We would all want that to happen. The Government not only get their money back but, thereafter, if we do not do anything about this, the company may get only the value of a single ROC and will possibly have to compete commercially against others that are getting a higher-value ROC. So there are good reasons why marine offshore developments should benefit from the R&D grant assistance and the upbanded ROCs.
This issue has been raised in some of the correspondence about state aids. Sometimes it is frustrating that state aids are used at every turn to try to block developments or initiatives that seem very much to go with the grain of other projects and policies that the
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The projects do not necessarily offer a return to the developers but, rather, have represented some of the costs already incurred. Offering multiple ROCs would not be an offer of excess support, but would allow the developers additional and much-valued support to continue with an important technological development—one which we would all wish to come to fruition and make its contribution to the amount of renewable energy that we can generate offshore. On that basis, I beg to move.
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Baroness Carnegy of Lour: My Lords, I have no financial interest to declare on this matter, but I have added my name to the amendment because I feel strongly about the issue discussed by the noble Lord. I tabled an amendment in Committee to make the same point, my own Member of Parliament, the MP for Angus, having raised the matter in another place and having received a not very satisfactory answer from the Minister. In the event, I could not be present when my amendment was called, so the Minister here has agreed that I can pursue the matter on Report.
What the noble Lord has said is of the greatest importance to certain firms, particularly those involved in the research and development of deep-sea wind and wave generation projects off the north-east coast of Scotland, in the Pentland Firth and elsewhere around our shores. Should the Bill stand as drafted, a number of vital, innovative projects may never happen at all.
What the Government are trying to do in the Bill may be logical for many renewable energy projects: the availability of various grants from various sources has been added to by the new system of banded ROCs in the Bill. It could be argued that, in some cases, a firm should not benefit from both and that they should not be paid twice over. As the noble Lord, Lord Wallace, has just said, it is possible to invoke European rules on that.
However, there are notable exceptions to that argument. Research and development when the sea is deep and the weather wild are exceptionally and unpredictably expensive. Such programmes are often attractive to firms only if they have some initial capital grant help to construct and deploy equipment and subsequent income support for the operation itself and for learning from it. Both grants and banded ROCs may well be needed in some cases. It must also be noted that research grants are not necessarily retained in their entirety, as the noble Lord, Lord Wallace, explained. Whoever awards a grant can claw back a considerable proportion of the money generated during the grant period and subsequently. Europe’s rule does not apply or, at most, only sometimes applies in these cases.
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