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Energy: Renewables (Economic Affairs Committee Report)

My Lords, I begin by thanking the Government and the Leader of the House for holding this debate so soon after our report was finished and the government response received, and for not having it on a Friday. I hope that this will set a precedent for future debates on Select Committee reports. I congratulate our chairman, the noble Lord, Lord Vallance, not only on the admirable way in which he chaired our committee, but for giving a very good summary of our recommendations today. As we can see from the government response, there is general agreement between the Government and the committee on several recommendations. I do not intend to focus on those because we are already in agreement. I want to focus on one point, which relates to the 2020 target and the various recommendations that we make about that in paragraphs 236, 238 and 258. This is where the Government’s response is weakest; indeed, it is very weak. Some of our witnesses would say that it simply is not credible. The noble Lord, Lord Vallance, has already referred to this, but I will develop it a little further. In so doing, I declare two interests as chairman of British Energy pension funds and as questioning some small-scale wind farm projects in Norfolk. I do not think that either of these will bear on my argument. There are, as we know, two targets. The 2050 target is long-term and much technical development will be possible in that time. However, it is unlikely, in practice, to be effective by 2020. Solar power, low-carbon technology, carbon capture and storage, tidal energy and, of course, nuclear power will make a much more significant contribution in that period. We have covered this in the report. There is time to gain the benefits of the R&D, to make investments and to adjust to technological developments between 2020 and 2050. The target of 15 per cent renewable energy by 2020 is much more immediate. It is an arbitrary date, so we have set ourselves an arbitrary target, which most of our witnesses thought, at best, very challenging, and at worst, unachievable. I will first elaborate more fully on why that is so and turn then to the consequences. I will make five points. First, the Government admit in their response that the 2020 target is ““extremely challenging”” in paragraph 5 on page 5; involves ““difficult trade-offs and costs”” on page 6; ““challenging”” on page 8; and ““ambitious”” on page 17. The Government’s explanations as to how these challenges will be overcome in each of these different sections of the response falls far short of being reassuring. Secondly, there is the reliance on wind farms. I quote briefly from our report: "““The technical challenges and costs of backup generation on a scale large enough to balance an electricity system with a high proportion of intermittent renewable generation are still uncertain. Whereas the highest share of intermittent renewable electricity now being generated in Europe is 15% in Denmark, the UK is expected to reach a share of some 30-40 %””—" by 2020. The Government’s response was: "““Not all of this will come from intermittent sources””." That was all. There was no answer to our main point. I would be grateful if the Minister could respond to these two points. First, can he quantify what ““not all of this”” means? Does it mean that a very high proportion will still have to come from wind farms? Secondly, will he now deal with the point that the government response did not? How will a share of 30 to 40 per cent—or even 30 per cent—be achieved when no other EU Government, however dedicated, and with better support and planning systems with which to achieve it, is anywhere near that figure, nor intending to be so? I have recently been reading the Government’s document, Community benefits from wind power. It makes clear that, as regards the achievements of wind power and wind farms on a much greater scale in some European countries, there are really no lessons to be learnt from them about community benefits here because their systems are so different. If I were in the Government, I would harbour serious doubts about the ability of the wind farm industry to deliver targets on this scale. Onshore, how much will a host of often very small-scale wind farms, dotted around the country, be able to contribute to this massive objective? I suspect that by far the largest contribution will have to come from offshore wind farms, where the scale issues and links to the grid are more achievable. Even here, as we have seen from the serious doubts of some major companies about investing in these major projects, the question mark over achievability by 2020 looks very large indeed. There are also problems about the limits on the supply abilities of the industry to meet these targets. Thirdly, on a separate point about wind farms, in our report—and I think the noble Lord, Lord Vallance, referred to this—we refer to the intermittent nature of wind turbines and some other renewable generators meaning that they can replace only a little of the capacity of fossil fuel and nuclear power plants if security of supply is to be maintained. That is why we drew attention to the point that investment in renewable generation capacity will therefore be in addition to, rather than a replacement for, the massive investment in fossil fuel and nuclear plants required to replace the many power stations scheduled for closure by 2020. The Government’s response was that the scale of investment and the timescale within which it is needed is, of course, ““challenging””. The subsequent paragraphs in the report, about how the challenge is to be met, were, frankly, a fudge. Fourthly, there is the question of affordability, which the noble Lord, Lord Vallance, and my noble friend Lord Lawson have already referred to. I was going to ask how much input the Treasury had into the Government’s response. Then I spotted what I suspect that input is. Twice in the response, the ““extremely challenging”” references had been added to. In one case, "““particularly in the current global economic conditions””—" was added, and in the other, "““particularly given the current investment climate””—" was added. Much of our discussion took place last year before the full impact of the credit crunch and the global situation was evident, so it was not taken into account at that stage. Looking ahead over the next few years, what are the implications of getting sufficient private capital investment? There are even more implications for the Government in the impact of the public investment required to encourage wind farms. In the current and foreseeable economic situation, these seem simply not to be affordable. Finally, a considerable proportion of our current electricity generation will have to be replaced from 2017 anyway. New nuclear plants will be the key in the period up to 2020 and for some time thereafter. I agree with the noble Lord, Lord Broers, about this. With the best will in the world, starting late as we are, new nuclear plants will not have contributed much by 2020. All of these points led us to a conclusion that was, perhaps, not as specific as some of us would have liked, but is nevertheless clear. We should be flexible on the arbitrary 2020 target date, renegotiating it if necessary. Professor Helm pointed out that we should have a credible renewables target, which there is a reasonable prospect of achieving. He was certainly not alone in that. There are consequences to setting, but not achieving, a target of 2020 and depending on wind as the major source. Not only is our credibility is at stake, but the loss of face from failure, because the target was too ambitious, would also be evident. Not only is there a potentially a much higher cost because of the short-term balancing costs to meet intermittency—with the estimates put to us varying between £500 million and £1.4 billion—which will also have an impact, but above all there is the high risk that, as BP put it, because the timescale for the targets is short, "““investment would be skewed to those technologies which work today as opposed to those technologies which might be right for the longer term””." That is why, in paragraph 258, we are also concerned that determination to meet the target may lead to an over-emphasis on promoting short-term options simply because they are available, rather than because they offer the most effective and economical means of reducing carbon dioxide emissions over the longer term. In their response, the Government did not address that point, related to the 2020 target, which is crucial in our report. I hope that the Minister can address it tonight.