Energy Bill [HL] — House of Lords, 2015-09-14
Topic: Energy
David Arthur Russell Howell (Conservative, Centre-right): My Lords, I declare my interests, as I did on earlier days in Committee, as president of the Energy Industries Council, chairman of the Windsor Energy Group and adviser to industries and investors concerned with energy as in the register. I echo what the noble Lord, Lord Foulkes, said earlier. The noble Lord, Lord Bourne, has been exceptionally helpful in the way he has circulated and kept us all up to date with the evolution of government thinking. I realise that this is a changing situation, and even when we have finished with this legislation, we will be looking at further changes in the pattern of energy and energy support, and in world, European and national perceptions of how best to move towards meeting the challenge of climate change and lowering emissions globally, which is itself a matter of constant debate The noble Lord, Lord Cameron, was right to say that investors need certainty. Of course they do. Investors always long for maximum certainty, minimum risk and nice returns. That is nirvana for investors, but when investors or their advisers are dealing with projects and commitments of finance that depend on government support and state subsidy, a certain degree of sagacity and caution is called for. I make a distinction between specific projects where one of the partners is the state or the Government. They must go forward in a legalised, contractual form and should not be departed from. It would be an appalling act of arbitrary sequestration for such things to change. It has happened, I am afraid, but it is not something I wish to see from a British Government. One expects the funds that have been promised by Governments to be given When it comes to a commitment to an apparently unending pattern of subsidy heading into the future, the noble and learned Lord, Lord Wallace, reminded us that the coalition Government had an idea that this sort of subsidy should end. When it comes to investing in something where you will depend on the continual supply of taxpayers’ money, sensible investors ought to be very cautious. Governments change, as my noble friend reminded us, and technological changes change the basis on which the original subsidy policy was evolved. Moods change, and—dare I say it?—even science changes. I would not go as far as Cardinal Wolsey, who lay on his deathbed saying, "Put not your trust in princes", but there has to be a sensible assessment when an investment is profitable simply because taxpayers’ money is promised to it for a long period into the future. There has to be a sensible assessment by the investor, the entrepreneur and the project organiser of how it is going to stand up and how big a risk is being taken. It may be that people see that they can pop in with short-term investments and hope to get out before the policy changes, but that does happen, and a certain realism is required. I agree with the noble Lord, Lord Cameron, that ideally all investors would love total certainty about their returns for ever, regardless of the source The noble Lords who gave notice of their intention to oppose Clause 60 standing part of the Bill want subsidies to go on or feel that they should not have been curtailed in the way they have been, even though, as my noble friend Lord Ridley pointed out, the pipeline is full, which is language for saying that the amount of subsidy element that has been assigned for this has reached its peak in terms of political reality, common sense and our obligations, whether imposed through our Climate Change Act or through conformity with European objectives. Noble Lords think the subsidy is gone, but my question is: when will the subsidies cease? If this is a mature industry, at what point does a mature industry cease to need a very substantial degree of subsidy, quite regardless of the point we made earlier that the subsidy tends to end up in very well-lined pockets and costs a lot for those who can least afford it? As my noble friend Lord Ridley said, onshore wind electricity is still expensive. It is true that it is not expensive compared with offshore, but when you add in the roads, the system costs, the requirements for integration and balancing in a very complicated electricity system and all the other items that my noble friend itemised, we are not talking about cheap electricity. One day, it may be so; one day, onshore, and possibly offshore, will be able to get costs down to competitive rates, possibly to lower rates than anything that is likely to come out of the latest nuclear project from EDF at Hinkley, which has an enormously high rate for 35 years to come. I hope that long before then wind power electricity will be considerably cheaper than anything that EDF is planning, but that still will not make it cheap. We are heading for a major glut in gas production; we can already see that from the fall in oil prices. As gas prices are related to oil prices, the barrel of oil equivalent of the gas price will, for many years to come, be not at all expensive and probably low. Compared with all that, these renewable sources, which have their place, which must contribute and which I support, will remain expensive. In other words, someone has to pay for them Lastly, the noble Baroness, Lady Worthington, has alleged, I think along with others, that there is a contrast between the need to restrain further subsidies—not to halt the development of onshore wind, because if it can get its costs down and, as I mentioned earlier, if many investors believe that they see tax advantages in it, it will go on, even if the subsidies are withdrawn and we close off the renewables obligation completely— and the Government’s attitudes to fracking. I hardly dare mention fracking because almost anything one says in this very controversial area gets wildly distorted. If fracking proceeds in the UK—I say "if" because oil is at $50 and likely to become lower, with many people now talking about $25 and $30—the investment attraction of gas or oil extraction by hydraulic fracturing will, frankly, not be great. It could become an additional gas source to the many already available to us. There is LNG, obviously, and Norway is willing to pipe us a lot more gas, while even the Russians want to sell us gas direct through their Nord Stream pipeline extension. If all those ifs fall into place, we will have gas.