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Offshore Renewable Energy (East Anglia)

Volume 539: debated on Tuesday 31 January 2012

It is a pleasure to serve under your chairmanship, Mr Leigh. I am very pleased to have secured this debate, because it provides an opportunity to focus on the East Anglia offshore renewable energy industry at a particularly important time in its fledgling life. Much work has already been carried out, both by the Government and industry, and exciting times lie ahead, if the right policy and investment decisions are made and seen through.

The future can be bright; thousands of new jobs can be created; the economy can be rebalanced towards the regions and towards engineering and specialist manufacturing; and the country can have a source of energy that is secure, stable in terms of price and environmentally friendly. Looking further ahead, we can build an industry that can compete on a global stage, with firms taking their services and skills around the world, and in due course we can become net exporters of electricity, instead of being importers vulnerable to fluctuations in fossil fuel prices.

We are at the dawn of a new era. The two largest wind farm developers off the coast of East Anglia—Scottish and Southern Energy and East Anglia Offshore Wind—are about to enter important stages in the process of obtaining the necessary statutory approvals for their developments. Moreover, the Lowestoft and Great Yarmouth enterprise zone, which is focused on the offshore energy sector, will come into operation on 1 April.

These are exciting times, but it is important that we ensure that we realise the full potential that this opportunity presents for the East Anglia economy. The Thanet wind farm is a great engineering feat, but much of the value generated by that project went to companies outside the UK. Non-UK ports have been large beneficiaries of the round 1 and 2 offshore wind farm projects. Lessons must be learned so that we can ensure that our coastal communities, such as that in Lowestoft in Waveney, which I represent, benefit fully from this opportunity.

Much good work has already been done and the foundations have been laid. The original foundation stone, which has been there since time immemorial, is the North sea, one of this island’s most vital assets. It is a great resource, out of which the fishing industry in Lowestoft and other ports was created, only to be reduced to a shadow of its former self by the common fisheries policy. The North sea also gave us the oil and gas industry, which has many features that are transferrable to the renewable energy sector—skills, a supply chain of approximately 500 businesses employing more than 10,000 people across Suffolk and Norfolk, and the best health and safety regime in the world. Now the North sea offers another dividend, in the form of wind in the immediate future and, in due course and with the right nurturing, wave and tidal power.

I should emphasise that, while I want to ensure that we realise the full potential that the North sea has to offer, I am conscious that it is an asset, a treasure that we should nurture for future generations. The role of guardian is played by organisations such as the Centre for Environment, Fisheries and Aquaculture Science, which is based in Lowestoft, has a long track record of applying science in the management of fisheries and provides sound impartial advice to support the green economy.

The OrbisEnergy centre in Lowestoft has become a centre of excellence for the offshore renewables sector. Six sites in and around Great Yarmouth and Lowestoft form part of the enterprise zone. The New Anglia local enterprise partnership is a green economy pathfinder, and Lowestoft and Great Yarmouth ports have been granted CORE status as one of five centres for offshore renewable engineering.

All that work is to be applauded, but various challenges need to be addressed if the industry’s full potential is to be realised in East Anglia, and I shall outline those challenges in the time remaining. The first is the policy framework. The offshore renewable industry is highly mobile—investment will flow to the most attractive destinations. It is, therefore, important that the Government send out the right message that there is a stable fiscal regime and a secure support mechanism to encourage the necessary investment in new technologies.

My right hon. Friend the Member for Mid Sussex (Nicholas Soames) addressed the need for a stable fiscal regime when he referred to the oil and gas sector during his Adjournment debate last week. On the need for a reliable support mechanism, the Government’s proposals in the consultation on renewables obligation banding for offshore wind and wave and tidal technologies are acceptable to the industry, but it is vital that those for offshore wind are not reduced any further, because that could delay the projects, and wind supply chain companies might be tempted towards competing European nations.

It is also important that electricity market reform mechanisms are delivered quickly and at a level that gives confidence to developers, investors, manufacturers and contractors to invest in the post-2017 opportunities that will come from the round 3 wind farms.

On the wave and tidal sector, the proposed five renewables obligation certificates per megawatt-hour will help the UK maintain its lead over the other competing nations in this emerging sector, and that can be reinforced if support is forthcoming from the green investment bank. It is also important that the UK takes a lead role in developing transparent European market rules that in due course will allow us to export surplus renewable energy to Europe and vice versa.

The second challenge is planning. As I have said, both SSE and EAOW are at crucial stages in obtaining consent for their developments. There is a concern that the consent process is taking too long, that statutory bodies are not showing sufficient flexibility in considering applications and that they should adopt what the developers call the Rochdale envelope approach.

Delays could have a negative knock-on effect on investment decisions in relation to the wind farms themselves, in terms of the creation and reinforcement of supply chains and in relation to grid connections. That could lead to a loss of confidence in the UK sector just as it has become a world leader. It is important that decisions are made promptly and that statutory consultees are properly funded to cope with the number of planning applications, which will increase dramatically with round 3 applications.

RenweableUK, the trade body for the wind and marine industry, has recommended the establishment of a stakeholder resource fund to build capacity and expertise among statutory consulting bodies. It recommends a total spend over the next three years of £12 million and that the industry should be open to considering the possibility of making contributions itself.

Further down the line—although this is already concentrating people’s minds in Suffolk and Norfolk—is how best to connect the East Anglia Array, which will generate electricity equivalent to five Sizewell C power stations, to the national grid.

Traditionally in Britain, electricity has been generated in the north and the midlands and has been transported up and down the spine of the country. We are now looking to change this axis so as to transmit power in an east-west direction. It is important that, if possible, use is made of the existing infrastructure. At present, the National Grid Company is establishing whether that will be possible. If not, it will be necessary to provide a new transmission route. In doing so, open dialogue will be vital from the outset between communities, the National Grid Company and councils, to ensure that all factors are taken into account when determining the most appropriate and best means of transmission, whether overground or underground, and when determining cost—both immediate and whole life—and environmental impact.

All parties must face up to this challenge. With 25% of the current electricity generating capacity due to be retired by 2016, it is important to move quickly to ensure that the lights do not go out. At the same time, however, we must not unnecessarily blight what is a special landscape.

Thirdly, it is important that we ensure that people in Suffolk and Norfolk have the necessary skills to take up the many jobs that will be created. At a recent seminar on supporting young people in Waveney, which I held jointly with Jobcentre Plus, Mark Jones, the managing director of Lowestoft-based AKD Engineering, spoke graphically about the importance of doing this and the fact that, if we do not, a once-in-a-lifetime opportunity to bring prosperity back to the Lowestoft and Yarmouth area will be lost, with work going elsewhere. The further education and apprenticeship policies that have been enthusiastically promoted by the Minister for Further Education, Skills and Lifelong Learning provide an ideal basis on which to build, but we also need to promote the teaching of science, technology, engineering and maths in our schools.

The technology and innovation centre for renewable energy needs to be up and running as soon as possible, and I hope that organisations such as OrbisEnergy and CEFAS in my constituency will play an important role in that project. The private sector and the East of England Energy Group, through its skills for energy programme, also have a key role to play, and it is important that national and local government work with them.

Fourthly, it is important that the supply chain is reinforced. The enterprise zone and CORE designations will help do that. We should promote manufacturing processes, whether they involve turbine manufacturing, foundation manufacturing or the provision of sleeves for turbines. If we can encourage those to take place in East Anglian ports, it will help to support supply chain businesses. That will lead to costs being driven down, which will make offshore wind more affordable and, in turn, will consolidate the UK’s position as a world leader in this sector.

A problem that supply chain companies often face is that they need three types of contract to come together at the same time: the contract with the wind farm developer for the provision of a piece of equipment, the contracts with sub-contractors for component parts, and, finally, a financing agreement with their bank. At present, securing any one of those three types of contract requires certainty on at least one of the other two. That leads to an unenviable chicken and egg problem. A means of addressing that dilemma would be for the green investment bank to offer loan guarantees to offshore wind projects entering the construction phase. I would be grateful if the Minister could look into that.

Finally, I come to infrastructure. Good infrastructure is vital. In previous debates, I have emphasised the importance of improving road, rail and broadband links to the East Anglian coast, which is very much at the end of a line. I will not restate that case here, other than to repeat the need for investment in the road network in and around Lowestoft, which is currently gridlocked as a result of sewer repairs taking place in Station square.

Instead, I want to emphasise the importance of two other types of infrastructure investment—first, ports and, secondly, the grid. The enterprise zone and the CORE initiatives will help Lowestoft and Great Yarmouth ports, but they are at a disadvantage both when compared with other British ports that are in assisted areas and that benefit from capital allowances and the £60 million UK ports competition, and when compared with European ports that are in public ownership. I wholeheartedly support the tradition of private sector investment in UK ports and the advantages of innovation and dynamism brought to the industry by a market-based approach. However, East Anglian ports need to be able to compete on a level playing field. I therefore urge the Government to consider the provision of a three-year replacement fund that would act as the equivalent of the capital allowances and port infrastructure funding that is available elsewhere.

With regard to the grid, there is the need not only for upgrading with additional transmission and distribution capacity, as I have mentioned, but for a smart grid and a European supergrid. That would allow peaks and troughs in electricity generation to be smoothed out while enhancing security of supply and, in due course, enabling Britain to export electricity, thereby helping the balance of payments.

In conclusion, this is not a plea for a blank cheque, although the coastal communities fund should recognise the contribution of offshore wind farms to the UK economy. The Government have already made a significant investment and are pursuing the right policies. However, we need to ensure that such policies come to fruition and that they hit their two targets: first, to achieve a secure low-carbon energy supply with less price volatility and, secondly, to build a new industry in which Britain is a world leader and to create new jobs.

East Anglian people and businesses want to be at the forefront of this drive. On their behalf, I conclude by saying this to the Minister: work with us and together we can not only hit these targets, but achieve the economic growth that this country so urgently needs at the current time.

It is a pleasure to serve under your chairmanship, Mr Leigh. I am delighted to congratulate my hon. Friend the Member for Waveney (Peter Aldous) on securing the debate. He has shown a long-term interest in the scope for East Anglia to become a leader in renewable technologies and, within the Department of Energy and Climate Change, we are very grateful indeed for his constant support. I am delighted that he is supported today by some of my hon. Friends who represent Suffolk constituencies. They share his ambitions for East Anglia and how it can take advantage of the opportunities that are clearly there.

My hon. Friend is absolutely right to say that there are bright prospects for East Anglia and that this is an area where international opportunities could develop for the businesses setting up and operating within Norfolk and Suffolk. The expertise they can gather is something they can certainly take overseas as well. Earlier on in this Government, the Prime Minister said that we would be the greenest Government ever. The actions that we in DECC have since taken have shown how seriously we take that commitment.

I well remember my visit to my hon. Friend’s constituency a year ago, when I had the chance to go with him to the OrbisEnergy centre to meet some local business leaders to try to understand the commitment, enthusiasm and excellence that they can bring to this area. On that visit, I was also pleased to have a chance to go to Great Yarmouth, Sizewell and Norwich to see for myself how well poised East Anglia is to take forward opportunities in the low-carbon sector. I have also had opportunities since then to talk to the New Anglia local enterprise partnership. I am very encouraged by its enthusiasm and commitment to make the best case for businesses in East Anglia and to address the skills issue, which my hon. Friend rightly mentioned.

As my hon. Friend said, since my visit, both Lowestoft and Great Yarmouth have been designated centres for offshore renewable engineering, or COREs. That is a great achievement and a tribute to the skills that are already based in those areas. Both towns are home to an impressive energy sector supply chain, with some 500 businesses employing more than 10,000 staff directly within the two port areas, and many times more people in the wider supply chain spread across East Anglia more generally.

My hon. Friend raised the issue about supply chain opportunities. I want to reassure him that the Government are not neutral about that. We are sending a clear message to those who are developing the offshore facilities that we would like them to give British companies every opportunity to pitch for their business. My concern is that sometimes they are not even on the tender list. We are going to great lengths to ensure that they get the chance to pitch. At the end of the day, it is a commercial decision, but we are very happy to call up the chairman and the chief executives of those companies investing here to highlight to them the strengths of British companies and those companies operating out of the United Kingdom in this area.

My hon. Friend also raised the issue of the UK ports funding scheme. As he will be aware, that shifted from being a ports project across the whole of the United Kingdom to an economic development scheme, because we felt it was important to link the development of the port to a specific economic activity. As a result, under EU state aid rules, the funding can go only to assisted areas. However, it is encouraging to note the extent to which companies are willing to look outside the assisted areas for where they see the right port facilities and the rights skills base. We are seeing some good, encouraging interest from companies looking at the United Kingdom more generally.

Great Yarmouth and Lowestoft are home to some of the leading offshore wind companies, including ScottishPower Renewables, Vattenfall, SSE, Seajacks, ODE, Gardline, SLP Smulders, CLS, Petrofac and AMEC, among others. Lowestoft is already the operations base for the Greater Gabbard wind farm and is well positioned to take advantage of future developments. Later this year, we expect the first offshore wind project from the East Anglia zone—East Anglia ONE—to submit its application for development consent to the Infrastructure Planning Commission. East Anglia is well positioned to take advantage of future wind farm developments.

My hon. Friend understandably picked up the issue of planning. During this year, those decision-making powers will be transferred from the Infrastructure Planning Commission, where such decisions are currently taken, directly to Ministers. The one thing we have been absolutely clear to enshrine in that is the time scale. The final decision will be taken by Ministers, which means there will be no extra delays as a result of the process. Somebody can be sure that, within just over a year of submitting their application, they will have a determination. What frustrates people most is not being turned down; it is the absence of a decision at all. People want to know whether their investment is likely to go ahead and therefore we are keen to ensure that they have that clarity.

I am sure that my hon. Friend agrees that the future of the UK’s energy supply has to be secure, flexible and low carbon. We envisage a mix of low-carbon generation made up of new nuclear, carbon capture and storage, and renewable sources. We must also combine that with energy efficiency, as the cheapest energy of all is the energy not used. In all those areas—nuclear, carbon capture and storage and renewable sources—East Anglia has an extremely important role to play. The skills base and expertise that are already there are very encouraging and the ambitions of the companies involved to take this forward is something we can truly celebrate.

Renewable energy, and offshore renewables in particular, are set to be a major part of our future energy supply. Some technologies, such as onshore and offshore wind, are already established and some, such as wave and tidal, are still emerging, which is why we have given the higher level of ROC support to them. It is absolutely clear that offshore wind will play an important part in the UK’s energy future. It is a low-carbon energy source. It is also a domestic energy source, which means that it will play a role in securing our long-term energy security.

The UK is already the world’s biggest offshore wind market. We are working hard to maintain that position, and are determined to do so. We already have the most installed capacity and this is only the beginning. We also have the biggest pipeline of projects to 2020 of any country. Deployment of offshore wind will require an investment of tens of billions of pounds. For that huge sum to be invested by industry, we need to do all we can to ensure that developers, investors and manufacturers have confidence in the market and see the UK as the No.1 destination for their money.

Electricity market reform, as my hon. Friend rightly says, will give confidence and long-term visibility to investors, and will encourage the investment we need to renew our generating infrastructure. We have seen great progress in just a year-and-a-half, since the Government were elected. It was not even on the agenda before the election. In the course of just more than a year-and-a-half, we have established the structure of an entirely new electricity market—massive progress that we will shortly enshrine in legislation, but with ongoing discussions with developers to ensure that, if they need to make earlier decisions, they will understand how the funding will work to secure their investments.

Our reforms to the planning system will ensure faster, more efficient consenting, while retaining democratic accountability. We are currently considering the responses to the consultation on the bands for the renewables obligation to ensure appropriate levels of support for renewable technologies and value for the taxpayer and consumers. We are creating the green investment bank, to which my hon. Friend referred, to deliver financial interventions that address market failures specific to green investment needs, thereby supporting growth and environmental objectives. One of the priority areas for the green investment bank will be offshore wind.

We are working with Ofgem to ensure cheaper and timelier offshore grid connections, to encourage innovation through competition, and to enable new entrants to compete in the market. Ofgem has already run one successful tender round for offshore transmission and is in the process of running a second.

My hon. Friend rightly raised the issue of onshore grid issues. This week, the Institute of Engineering and Technology publishes a very authoritative report, which goes into more detail than anything I have ever seen before, about the comparative costs of undergrounding and overgrounding. Where it is possible to use existing infrastructure, that should of course be part of the process, because significant concerns have been raised.

I congratulate my hon. Friend the Member for Waveney (Peter Aldous) on all his work in pushing Suffolk to be the greenest county and for Waveney to develop a national leading hub, and I acknowledge the support given by the Minister.

The issue of where cabling goes is very important. Suffolk wants to be the greenest county, just as the Government want to be the greenest Government, but it would be a contradiction in terms if developing the green hub means putting pylons all over the countryside. I ask for the Minister’s support in pushing those energy companies hard to ensure that pylons are not installed in a way that will destroy the beautiful Suffolk countryside.

I am grateful to my hon. Friend for his interest and for the recent event he hosted for businesses in East Anglia to talk about that matter. He raises an issue that is current and important. We face the absolute fact that when electricity is generated we need to find ways of getting it to market, and that requires a massive upgrading of our grid infrastructure. We have made changes to how that is dealt with. In a national policy statement on grid, we talked about the need to explore alternatives to overgrounding. The report published this week by the IET is a further example of our determination to get a clear understanding of the facts. The companies involved—National Grid, in particular—are in no doubt whatever about the public anxiety that this can create, and they are looking at ways of ameliorating that. I am encouraged from my discussions with them that they are keen to explore how best to ensure that a new generation comes through in a way that is harmonious with the communities through which that electricity will pass.

Offshore wind is quickly making the jump from an emerging technology to a major part of the UK’s electricity supply. Through the industry-led Offshore Wind Cost Reduction Task Force, we are working to create an action plan to bring down the costs of offshore wind to make it cost-competitive with other forms of low-carbon generation. The task force will report to Ministers in spring. It is clear that industry and investors recognise our commitment to offshore wind. Many companies, including those in East Anglia, are gaining access to that new market. I want the UK to benefit from the jobs associated with offshore wind, not just from the low-carbon electricity. I want UK companies not just to supply UK wind farms, but to start supplying other countries, too.

The supply chain is already building up to support the wind sector, and it is doing good business. As this debate is focused upon East Anglia, let me just pick a few recent examples since April 2011. Gaoh Energy, in the constituency of my hon. Friend the Member for Waveney, has secured a met mast order for the Moray Firth offshore wind development. In the constituency of my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), there is a new energy skills centre, where courses will be offered to support the UK offshore wind industry from early 2012. It will eventually be able to accommodate more than 200 young people a year on engineering and welding courses. Wells Harbour, in the constituency of the hon. Member for North Norfolk (Norman Lamb), has secured contracts for work at Sheringham Shoal offshore wind farm.

We are therefore already seeing some key investments coming forward, and not just in the domestic market. Seajacks, which is based in the constituency of my hon. Friend the Member for Great Yarmouth (Brandon Lewis), has won a £100 million order to supply the Meerwind offshore wind farm in Germany. There is no doubt that the levels of deployment we are likely to see in the UK and in Europe are far in excess of current production capacity—rapid scaling up will be needed. That offers the potential for significant employment and economic benefit for the UK, with the opportunity to create a broad manufacturing base in a high-value-added sector that, partly as a result of the sheer size of the turbines, really needs to be somewhere close by. I intend it to be here in the UK.

The industry is at an early stage of development, but is set for huge growth. The UK is well placed to make the most of it, and the Government intend to do so. We have a strong research and development capability, and some excellent engineering, technology and manufacturing opportunities. In East Anglia, I have seen for myself some of the outstanding examples of businesses that are ready and able to take advantage of those opportunities. I have met the people in the local authorities who are determined to ensure that the educational provision is there to bring forward the skill set. I have met with the local enterprise partnership, too. That, combined with the immense commitment and enthusiasm of my hon. Friend the Member for Waveney, and my hon. Friends from other parts of the county, shows that this is an area with immense potential and we look forward to it being realised.

Question put and agreed to.

Sitting adjourned.