The noble Lord, Lord Jenkin, raised the issue of judicial review. All Ministers are beset with advice from officials saying, “If you do this you will be subject to

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judicial review”. There are both positives and negatives from that. The process in this proposed new clause would protect people against frivolous attacks on judicial review. It would mean that the Minister had to go through a process with a body embedded in statute, had some responsibilities to Parliament and consisted of people with a wide range of technical, legal and financial expertise. I am afraid that reference to an ad hoc committee is not the same. It was also argued that it is Parliament’s job. It would probably help Parliament in the guise of select committees, as my noble friend Lord O’Neill suggested, to do its job in relation to what are vital contracts that will last for an enormously long time and have tremendous implications for our future energy situation. At the very minimum, the Government need to recognise that reassurance is needed that the proper process has been gone through.

The noble Lord, Lord Oxburgh, who is no longer in his seat, mentioned continuity. People who are appointed for four and eight years in this area will outlast every Minister and most officials. It is important that that kind of expertise is retained. I would think of extending the terms if I were writing the proposal properly. The Government may have views on that. Having that separate from the day-to-day responsibilities of Ministers and officials, and the month-to-month responsibilities of a regulator is an important part of the process that we are putting into law. We are moving into unknown territory in some respects and doing so by a leap of faith—one that is well informed by those who have been involved, but not understood by those who have not been involved.

It would be a protection for Ministers, as well as for the process, the counterparty and the Secretary of State, if we had a body with this authority, independence and statutory backing. I am disappointed that the Minister is not tempted to go down this road. As I said, I never expected her to pick up the exact wording, but this concept needs to be maintained in our minds. It may well be that we will return to this later in the proceedings. I beg leave to withdraw the amendment.

Amendment 55ZF withdrawn.

Clause 7 agreed.

Amendment 55ZG not moved.

Schedule 1 agreed.

Clause 8 agreed.

7.15 pm

Clause 9 : Supplier obligation

Amendment 55A

Moved by Lord Berkeley

55A: Clause 9, page 7, line 29, at end insert—

“(4) Regulations must set the duration of support provided by CFDs to renewable technologies at a minimum of 25 years.”

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Lord Berkeley: My Lords, I tabled the amendment as a result of a lot of communication from the renewables sector about its concerns about raising finance, given the current uncertainties that are going on, not only around the Bill but around a few others things that I will mention. The sector says that that is making it difficult to raise finance, which of course means that less electricity will be produced.

The risks and uncertainty are around the strike price and whether and how much of their power these companies can sell. In addition to that, there are other uncertainties such as planning. The planning system has become better in recent years with the legislation that both Governments have taken forward, but it is still uncertain. We still sometimes see ministerial decisions that look a little odd. It takes time and a lot of money, as we all know. But there is also the question of political risk. However, it is not helpful when Ministers and, I am sorry to say, Prince Charles make statements about not liking windmills or something. This does not apply only to windmills, but these technologies should be developed and commissioned and permissions sought for their planning on their merits, be they offshore or onshore. We have even heard about how successful PV is in Germany today, because the sun is shining.

There is a risk to these new developments. The renewables sector has said to me very strongly that if it could get 25 years, duration of support for CFTs, it would encourage companies and their investors to go for a greater volume of the different technologies, not only the ones that are going up already quite successfully but new ones, much more quickly and easily. I beg to move.

Viscount Ridley: My Lords, I know that particularly in the case of offshore wind a Royal Academy of Engineering report is forthcoming, which I hope we will see before Report. Rumours are that it is extremely negative about the risks and dangers of the practicalities of installing wind turbines on a large scale, and in particular on their likely lifetime.

If we were to consider giving an offshore wind company a 25-year contract for a technology that is supposed to last 20 years, and many engineers think will not last more than 15 years, we will not have done the consumer and indeed the taxpayer a service. We would have let them down very badly. We have to take into account that a lot of these technologies will turn out not to last as long as we thought and deliver the benefits that we thought they would. In the case of offshore wind, once again, it is becoming clearer by the day that the carbon dioxide savings that offshore wind will deliver will be very disappointing because of the need for backup power, the need for that backup power to be open cycle, as has been mentioned, and because of the cost and carbon cost of some of these technologies.

It would be a mistake on behalf of the consumer to enter into these eye-wateringly high, £155 per megawatt-hour, strike price costs for a quarter of a century when all sorts of things may change over that time.

Baroness Liddell of Coatdyke: I should remind your Lordships of my registered interest as a director of the Offshore Renewable Energy Catapult. I am not going

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to debate with the noble Lord the benefits or otherwise of offshore wind, other than to say that it is not a brand-new technology. I can remember something like 20 years ago inaugurating the first offshore wind farm at Blyth in Northumberland. The technology in its basic form is tried and tested, and is another bit of our armoury. Those of us who, like me, are in our prime, remember the six-day war and the consequences of not having a wide basket of energy sources available to us.

I am not 100% certain that I agree with my noble friend that we should be talking about contracts of a length of 30 years. However, we are talking here about a probing amendment and the uncertainties. We are coming into a big part of the Bill, where we are going to talk about uncertainty for investors. It is about how you secure a rate of return and mitigate risk. That is what was in my noble friend’s mind when he tabled his amendment, and on Thursday we will come to an amendment from the noble Lord, Lord Roper, which also brings us back to the issue of uncertainty.

I support what my noble friend is trying to do. There is a bit of a debate on the length of time, but the key to this aspect of the debate is to remove uncertainty. When the noble Lord, Lord Jenkin, was speaking, I came across a good analogy. When you get on a plane, after take-off the pilot comes on and says, “Don’t worry, I’ve never flown this plane before, but I’ll have read the manual before it’s time to land”. We have a wee bit of a feeling like that about this Bill.

The Earl of Caithness: I hope that my noble friend will not be lured by the special pleading of the noble Lord, Lord Berkeley, on this issue. I particularly thought that the noble Lord was wrong to say that it was unhelpful for anyone to say that they disliked windmills. I dislike windmills; I happen to be able to count 11 wind farms out of my window, which is probably more than anyone else can in the Committee, and I would be very pleased if they were not there for 25 years. It does not do tourism much good and, as a countryman, I think that it spoils the country. If there were modern, different technologies that could replace wind farms, which I agree are at the moment essential, although perhaps not in that quantity and dispersal that I can see, I would be only too pleased if they were removed.

One of the most interesting bits of evidence that we got in European Sub-Committee D was how wrong everybody has been on energy in the past. I see that the noble Lord, Lord Whitty, is in agreement with me. For those of us who were relatively new to this subject, it is fascinating how wrong the forecasters have been time and again in the past 15 years. So for goodness’ sake let us not fall into the same mistake of tying the Government down to a 25-year timescale when things could change. I have absolutely no doubt that they will—and do not let us give too much security to the producers of electricity. Capitalism is about taking risks. In the past, people have taken enormous risks. Some have fallen flat on their face and some have been hugely successful. However, it should not be for us as the consumer or the taxpayer to featherbed them; they must take a fair share of the risk. It is a very difficult

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balance that the Government are trying to get right, so please let us not make it more complicated by tying them to a 25-year timescale.

Viscount Ridley: My Lords, I quickly intervene because I failed to declare an interest. The noble Baroness, Lady Liddell, mentioned Blyth, which reminded me that one of the turbines at Blyth turned out to have been built on land on which, although I do not own it, the mineral rights were reserved by my grandfather. Therefore, I discovered that I was unwittingly receiving money from a wind turbine. I shall give that money away so that I do not feel sullied by it—but anyway, I feel that I should declare it.

Baroness Liddell of Coatdyke: I should reassure the noble Viscount that the wind farm that I inaugurated was offshore, so he is to be congratulated if he managed to get some money out of it.

Baroness Worthington: My Lords, I am grateful to my noble friend Lord Berkeley for tabling this amendment for no other reason than that we found out that very interesting fact. We cannot support this amendment. I have great sympathy with the concerns that have been raised that 25 years may be too long, but the way this amendment is phrased means that it would capture all renewable technologies. There is a great range of technologies that the strike prices are seeking to bring forward, and at the moment it seems that the majority of them might be conversion to biomass. I do not think you would want to lock that in to 25 years. I support the spirit behind the amendment of questioning and trying to understand the different lengths of contracts. That is something that we could discuss, but I do not think this amendment should make its way into the Bill.

We now have the draft delivery plan and the strike prices for renewables. The plan contains some suggested lengths for contracts, but I do not think we yet have anything similar for CCS and nuclear. We are expecting some more information on that in early August, when we will all be having a much deserved and well earned rest. It would be helpful if the Minister were to say something about that in her response.

Baroness Verma: The amendment moved by the noble Lord, Lord Berkeley, seeks to ensure that renewable technologies in receipt of a CFD have a contract life of at least 25 years. As the noble Lord is no doubt aware, we have recently published more detail on the contract terms, building on the operational framework of November 2012. This reconfirms our position that the appropriate contract length for payments to renewable technologies receiving a generic CFD remains 15 years.

In determining the length of the CFD, we considered a number of factors. The 15-year length is based on a trade-off between value for money for consumers, affordability within the levy control framework and bankability for investors. For the purpose of setting the contract lifetime, we have assumed that investors will require debt to be repaid within the CFD life. Therefore, having too short a contract length could

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impact on the cost of debt finance, given the increased exposure to wholesale price risk. Our analysis also indicates that investors discount very heavily the last few years of revenue from a project, particularly when compared to the social discount rate. Taking all these factors into account, extending the length beyond 15 years would not necessarily be significantly valued by the investor but would come at a cost to consumers.

In addition, the noble Lord may be aware that guidance from the European Commission states that support must be less than the accounting life of the asset. Extending the lifetime duration as the noble Lord proposes would extend a CFD beyond the asset life of a number of renewables technologies, which are generally less than 25 years. All these factors suggest to us that a contract life of 15 years is still appropriate.

I should also make clear that just because there is a generic contract, that does not prevent the Secretary of State directing the counterparty to issue a contract which differs on certain terms where that is considered appropriate. We have retained the ability to do this and would look to treat such occurrences on a case-by- case basis.

The noble Baroness, Lady Liddell, asked about the uncertainties of risk, mitigating them and ensuring appropriate rates of return. The strike price provides certainty on levels of support for the length of the contract. There will also be some change in legal protections. More details on the CFD terms will be published in early August, as the noble Baroness, Lady Worthington, said.

The noble Baroness, Lady Worthington, asked about nuclear and CCS. As she knows, we are currently in negotiations on a nuclear project, so I am not able to comment further on that point. On CCS, it may be better if I write to her. I hope that the noble Lord, Lord Berkeley, will withdraw his amendment.

Lord Berkeley: My Lords, I thank the Minister for her reply and am grateful to all noble Lords who have spoken on the amendment. I did not expect that it would be accepted but we have had a good debate. The noble Earl, Lord Caithness, indicated that I had a go at him for not liking windmills, which is not true; I did not mention his name.

The Earl of Caithness: You commented that you did not like people who said that they did not like windmills; I just fall into that category and am happy to be there.

Lord Berkeley: Perhaps I may suggest that if the cap fits, wear it. More seriously, as regards whether the specified period is 30 years, 20 years or whatever, I worked briefly on North Sea oil projects 30 years ago, some of which did not last that long. My noble friend declared her interest and I am sure that windmills will need regular servicing in that time. The key question after they are built is whether they will continue to operate, produce good electricity when we want it and make a good return for their investors. We have had a useful debate and I shall mull over what noble Lords have said. I beg leave to withdraw the amendment.

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Amendment 55A withdrawn.

Clause 9 agreed.

Clause 10 : Direction to offer to contract

Amendments 55AZA and 55AA not moved.

Clause 10 agreed.

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Clause 11 : Payments to electricity suppliers

Amendments 55AAA to 55AAC not moved.

Clause 11 agreed.

Clauses 12 to 14 agreed.

Committee adjourned at 7.33 pm.