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Energy Bill

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. 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 grants related to research and development and post-demonstration projects that were in receipt of a capital grant—for example, some of the round one wind projects such as Scroby Sands. 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 of 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 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 European Union is trying to promote. The EU is very positively trying to promote the development of renewable energy and recognises the importance in connection with that. The project to which I have referred was in receipt of framework 6 assistance. Therefore, given the recognition of the importance of the development, I hope that that would not be an insuperable problem. 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.