Energy: Renewables

I am very grateful to the noble Lord, Lord Beaumont of Whitley, for securing the debate. We face two major energy policy challenges: tackling climate change and ensuring energy security. The noble Lord, Lord De Mauley, asked a number of detailed questions about the Energy Bill, and I will endeavour in the time allowed to answer those and many of the other questions that have been asked. Given the opportunity to debate the Energy Bill, perhaps some of those questions could be answered then. I will write to noble Lords in response to any specific questions that the noble Lord may have. Renewables have an important contribution to make, but the link with security of supply is not simple. The Government are absolutely committed to renewable energy as a key contributor to meeting climate change goals. If, for example, we raised the level of renewable energy to the 20 per cent of UK electricity generation proposed, we would reduce our total carbon emissions by 10 per cent. The noble Lord, Lord Beaumont, referred to the relatively low levels of the UK’s deployment of renewables compared with some of our European colleagues. The UK has traditionally relied on secure sources of domestically produced oil and gas, so our sources of renewables, such as wind power, are relatively expensive. Other member states have used other energy sources, such as biomass and hydropower, so they have higher renewable levels than the UK for historic reasons. The noble Lord also talked about the local generation of renewable sources. The Department for Communities and Local Government recently published PPS1, which requires local authorities to consider climate change and renewables in local planning frameworks. We also provide grants for low-carbon building programmes. At the end of last year, we launched a strategic environmental assessment on a plan for up to 25 gigawatts of new offshore wind development rights in UK waters. This plan could increase the potential for offshore wind by 2020 from 8 gigawatts to 33 gigawatts, which is enough power for the equivalent of all UK homes. This year we will overtake Denmark as the country with the highest operating offshore wind capacity in the world. We are rated No. 1 as an investment location for offshore wind by KPMG. We have also launched a feasibility study into a possible tidal power generation scheme on the River Severn—a project with the potential to provide 5 per cent of the UK’s electricity needs. We are introducing measures to strengthen the renewables obligation to allow renewables to compete fairly with lower cost, fossil-fuel-based electricity generation. Members of the Committee have discussed feed-in tariffs extensively, but will be aware that we will look at all options, including feed-in tariffs for microgeneration, as part of the consultation on the new renewables energy strategy. In April, we will introduce a renewable transport fuel obligation and reforms for the planning regime, which will remove some of the main barriers to renewable deployment. But I undertake to discuss with the DCLG the specific issues that have been raised by the noble Lord about planning and noise levels. Under current measures, we expect that by 2015 we will have tripled the amount of electricity that we can get from renewable sources and by 2010 we will have increased renewable transport fuel five-fold. The noble Viscount, Lord Eccles, asked about biofuels and biodiesel. The bulk of biodiesel is sourced from Eastern Europe and the prices are suppressed, which has led to the mothballing and dramatic cuts in production of UK plants to which he referred. Current biofuel production capacity in the UK is 1,000 kilotonnes per annum. We have concerns, as the noble Lord expressed, about the sustainability of biofuels. Changes in land use and the impact on food prices are a major concern. As a result, it is anticipated that crude oil will provide a significant portion of this. On 21 February, we announced that the Renewable Fuels Agency will review the emerging evidence of the indirect impacts of biofuel production. The initial analysis will be provided to Ministers as soon as possible with a full report to follow during the summer, which I am sure will be available. It will take into account in particular those indirect impacts, including deforestation and the conversion of permanent pasture, which are a concern. Security of supply is about reliability and affordability. Renewables could play a key role in reducing or increasing dependence on imported fossil fuels. At times of high demand, they can reduce the use of more expensive fossil fuel plant in the generation mix and result in lower annual average energy prices, as well as lower carbon emissions. But renewable energy is neither cheaper nor more reliable at this point. As we have discussed, the prices of biofuel and biomass are volatile and may not be domestically sourced. Other renewable sources, such as wind and solar, have zero fuel costs, but they are currently expensive to install. Intermittent renewal sources, such as wind and wave power, display some regenerating capacity, but not on a like-for-like basis. We will need both other forms of low-carbon base-load capacity to be sure that we have sufficient responsive generation to deal with the effects of intermittency. These issues will be particularly relevant at the levels of renewables needed to meet the EU 2020 target and they become particularly pressing. I should like to assure my noble friend Lord Berkeley that we are in discussions with the Ministry of Defence about their objections related to interference with radar systems in air traffic controls and defence radar. We are working with MoD air defence to identify mitigation solutions and evaluate replacement radar in order to minimise objections to wind farm developments. The MoD will be in a position to confirm or not whether the new air defence radar technology works in mitigating the interference from wind farms by the end of 2008 after the first new such radar has been installed at one of the east coast radar installations. Renewable energy has a part to play, but does not entirely solve the security of supply issue. Our energy policy therefore focuses on promoting energy efficiency, ensuring security of supply by allowing the most diverse energy mix possible and promoting open and liberalised markets. The starting point of any sensible energy policy is to save energy, which is one of the most cost-effective ways to reduce carbon emissions. So we are introducing measures which are expected to reduce carbon by 2.3 million tonnes a year by 2020. Alongside increasing energy efficiency we are ensuring a diverse energy mix. By 2020 we will be importing at least 60 per cent of our gas. It is clearly in our interest to ensure that we do not become over-dependent on any one region of the world for our supplies. In addition to a range of geographical sources, we need a range of low-carbon technologies, and to operate in a competitive energy market. With an independent regulator, we can ensure that energy prices continue to remain competitive, although I acknowledge that at times they are higher than consumers would like. That means that there has to be a place for nuclear, for carbon capture and storage and for necessary new investment in fossil fuel plants, as well as renewable sources. The noble Lord, Lord Beaumont, referred to fluctuations in oil and gas prices. There are of course legitimate concerns about volatility. In the past five years, wholesale oil prices have ranged from $22 to $98 per barrel—I have not yet seen the $200 per barrel figure—and gas prices have ranged from about 1.5p per therm to £1.80. That is not atypical for traded commodities. Nickel prices have ranged from $8,000 to $50,000 per tonne in the same period. We expect a certain degree of volatility and expect that trend to continue in future. That said, UK retail gas prices are still very low compared with the European average. After the price rises in January and February this year, UK domestic gas prices for medium customers are estimated to be 33 per cent lower than the EU median, 39 per cent lower than Germany and 20 per cent lower than France. UK wholesale gas prices are driven higher because they are linked to gas prices in the rest of Europe, and wholesale gas prices on the Continent are strongly linked to the price of oil. Along with that linkage, the predominance of rigid long-term gas supply contracts means that European gas markets are less responsive than the UK’s to gas flows and do not always respond to price signals—as we found a couple of winters ago, as the noble Lord, Lord De Mauley, mentioned. We strongly support the European Commission’s proposed legislation to develop transparent, well regulated EU gas markets, bringing benefits to consumers throughout the EU. We as a Government remain completely committed to the EU's 2020 renewables target. I refute any suggestions that that commitment has been wavering; we are firmly committed to meeting our fair share of that target. Over the summer, we will consult on the most cost-effective way to meet the UK’s share, and we will introduce a new renewables strategy next spring, showing our continued commitment to renewables as a part of a coherent energy policy. I am conscious of the time and I will come back on any questions that I have not managed to answer in writing or in debate on the Energy Bill. [The Sitting was suspended from 3.57 to 4 pm.]