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Energy Infrastructure (UK Supply Chain)

Volume 560: debated on Tuesday 26 March 2013

Motion made, and Question proposed, That this House do now adjourn.—(Nicky Morgan.)

I am pleased to have secured this debate. Its purpose is to highlight the job-creating opportunities associated with renewing the UK’s energy infrastructure, the considerable potential that that offers to generate economic growth, the concern that we may not be making the most of the opportunity, and what can be done to ensure that we do.

At the outset, I should draw attention to the Register of Members’ Financial Interests because I have an interest in family farms where renewable energy projects are being pursued. However, this evening I shall largely concentrate not on land but on the offshore oil and gas and wind sectors, with some references to nuclear.

At times during this debate, I might be accused of being parochial and focusing on the opportunities in East Anglia and my Waveney constituency. However, I should emphasise that there are opportunities not only for areas that adjoin the North sea but for areas across the UK. That is because the energy supply chain stretches right across the country and is not confined to Lowestoft and Yarmouth, Humberside or Tyneside. If we get the supply chain working to its full potential, the whole of Britain will benefit. That will have a significant positive impact on GDP, help to rebalance the economy, and provide significant exporting opportunities.

Not only has Lady Luck looked favourably on me in securing this debate, but the timing is particularly opportune, coming just before the Energy Bill returns to this House on Report after the Easter recess and just before the Department for Business, Innovation and Skills publishes its industrial strategy for oil and gas and offshore wind. At present, there is much focus on the energy sector.

The country faces a significant challenge: to replace its ageing capacity, provide power to the nation’s homes and businesses and ensure that the nation’s lights do not go out. In rising to that challenge, three criteria need to be addressed: energy must be affordable, secure in supply and low carbon in content. There is a fourth goal, however, that we should strive to achieve. I refer to the opportunity to create economic growth, to rebalance the economy towards the regions and in favour of engineering and manufacturing and to attract inward investment. Nowhere is there a greater opportunity to do that than in East Anglia, which is already a significant player in the energy sector, with 35% to 45% of the nation’s gas supply coming through the Bacton terminal, where the Sizewell C nuclear power station will be built and with Lowestoft, in my constituency, lying closest to the East Anglia Array, potentially the world’s largest wind farm.

The region will see significant investment in the energy sector over the next 20 years, with an estimated £80 billion to £85 billion in the oil and gas, decommissioning, gas storage, nuclear and offshore wind sectors. The challenge is to ensure that this investment provides the maximum benefit, not only to East Anglians but to people and businesses across the UK

I thank the hon. Gentleman for giving me permission before the debate to intervene and for bringing this important subject to the Floor of the House. He referred to the benefit to the whole of the United Kingdom of Great Britain and Northern Ireland. He will be aware that the Belfast shipyard builds wind turbines for land and sea. Will that shipyard be able to get some of this work?

Although I am concentrating on the North sea, the supply chain for the offshore work extends right the way around the country, both in the oil and gas sector and the offshore wind sector. I am also extremely conscious of the work that DONG Energy and ScottishPower have done and the investment they have made in Belfast.

In short, we need to strive to maximise the British content of UK energy infrastructure projects. At present, there are concerns that we are not meeting this challenge. Some two years ago, the Thanet wind farm was completed, with less than 20% of the £900 million of investment going to UK firms. Although companies such as ScottishPower and DONG Energy are aware of the need to maximise the UK content of contracts, we are some distance from achieving the Offshore Wind Developers Forum’s target of 50% UK content for UK offshore wind farms.

The problem is more serious in the oil and gas sector. In last year’s Budget, the Chancellor announced significant incentives for opening up marginal North sea fields and decommissioning. These initiatives are to be applauded, and North sea investment this year is now at its highest and most extensive for 30 years, but the problem is that contracts worth more than £10 billion are being placed overseas, while in the past two years only 7% of North sea platforms have been made in the UK. In other words, British taxpayers’ money is being used to create jobs in other countries.

The Nexen Golden Eagle project was awarded to Lamprell of Dubai, the BP Clair Ridge project to Hyundai Heavy Industries of Korea, and Statoil’s Mariner project to Daewoo of Korea and Dragados of Spain. I name just three contracts, but there are more. If some of these contracts had been awarded to British yards, they would have helped secure thousands of jobs and strengthened the UK’s supply chain, which as I have said extends across much of the UK. In the past two years, contracts for a total of 200,000 tonnes of fabrication structures have been awarded outside the UK, representing a loss to the country of 18,600 direct man years of jobs.

Some people may say, “Tough luck. Why should we pursue protectionist policies propping up uncompetitive UK firms?” But that is not the case: these businesses are competitive and innovative and have highly skilled and dedicated work forces. If we do not allow them to compete on a level playing field with companies from other countries, there is a danger that the yards will simply disappear. That will not only hit hard those areas of the country with above average levels of unemployment, but it will have a serious knock-on effect on the offshore wind sector, as those businesses are well placed to help build offshore wind farms.

There is, therefore, a need for the UK to have a local content policy when granting such contracts. The reason given for not having such a policy is that it would contravene EU competition regulations, but if that is the case, why is the UK the only oil and gas province in the world that does not have a local content policy? Why should licences granted on the UK continental shelf not contain a clause requiring free and fair provision for British companies in the procurement process?

The UK Government should apply pressure at national and EU level to ensure that UK companies are not disadvantaged when competing for overseas contracts. Sembmarine SLP, based in Lowestoft in my constituency, advises that in its experience, when it competes for projects in Norwegian, Dutch, German and French waters it has practically no chance of winning owing to blatant protectionism. In the offshore wind sector, Seajacks, based in the constituency of my hon. Friend the Member for Great Yarmouth (Brandon Lewis), points out that the French Government have explicitly stated that they intend to award licences for offshore wind sites to bidders favouring the French supply chain. British companies are not looking for favouritism or trade barriers; they are seeking a level playing field. I urge the Minister, together with his colleagues in the Department for Business, Innovation and Skills and the Treasury, to do all he can to help achieve that.

The Government could take other long-term measures to strengthen the UK supply chain. Indeed, they have put in place a number of initiatives, for which I thank and commend them. In the time left I shall briefly run through what else needs to be done to ensure that UK-based businesses are in the best possible place to secure contracts.

First is electricity market reform. At present, the Energy Bill is the most important game in town, and if we get it right it will provide the stable long-term policy environment that is required to attract supply chain investment. I believe that we are moving in the right direction. A £7.6 billion package has been provided for investment in renewable energy, and although the Bill’s provisions are complicated, it should provide the certainty, confidence and credibility that investors are looking for in UK energy policy. Timeliness is vital. It is important to investors that draft strike prices are published in the second quarter of this year and that the Bill receives Royal Assent by the end of the year.

I commend the Minister on being receptive to amendments to improve the Bill, and I am grateful to him for considering my proposals, which are designed to strengthen the supply chain. The elephant in the room is, of course, the 2030 decarbonisation target. I shall not dwell on that as I know it will be debated in the Chamber in much detail and with much passion in the coming weeks; indeed, it could be the subject of an Adjournment debate. I will say, however, that it is unfortunate that the issue has become a bit of a political football, and when the matter is considered I ask the Government to look behind any political positioning and decide what is best for Britain, and particularly the development of the UK energy supply chain. My views on the matter are determined by what industry and investors tell me, and it is important that we listen to them.

Secondly, the Government have put in place a number of measures to strengthen the supply chain. In Lowestoft and Great Yarmouth there is an enterprise zone, and the two ports have centre of renewable engineering—CORE—status. Those measures are proving helpful in promoting the area, but as the Minister heard from the Norfolk and Suffolk delegation he met last month, more could be done to ensure that we fully realise the potential of the great opportunity in front of us.

The problem that Yarmouth and Lowestoft face as a CORE is that of six COREs in England, only it and Sheerness do not have assisted area status. I believe that if all six COREs enjoyed the benefit of assisted area status, it would be particularly advantageous, both nationally and internationally, in seeking to promote the UK. It would help Lowestoft and Yarmouth to compete against our fiercest competitors from the low countries on the other side of the North sea.

I am also mindful that the UK ports fund, which is designed to help the establishment of offshore wind manufacturing, is only available in assisted areas. I am advised that at present this fund is largely unspent. If Lowestoft and Yarmouth were given assisted area status, the two ports could access the fund to carry out work that would stimulate jobs and investment in renewable offshore engineering.

The advanced manufacturing supply chain initiative is proving beneficial in stimulating investment in manufacturing-related jobs and growth. However, the current minimum threshold of £1 million for investment from the fund appears to be holding businesses back from making applications. It would thus be helpful if the Department of Energy and Climate Change could liaise with the Department for Business, Innovation and Skills to see whether the threshold could be lowered either for individual businesses or for smaller scale projects. This would be helpful to businesses from across the manufacturing sector and to those looking to support energy projects.

I apologise if it appears that I have a shopping list, as I am mindful that the Minister may tell me that the shelves are bare. I would emphasise, however, that a thriving supply chain can be a key driver in reducing costs in the offshore wind sector, which is vital to establishing the industry on a sustainable, long-term footing.

Thirdly, investing in skills and people is of paramount importance. The UK needs to improve its skills base to serve the large demand that will come from the North sea in the next few years with regard to the oil and gas and wind sectors. If we do not do that, businesses will source that expertise from other countries.

I commend the Government for promoting apprenticeships. Indeed, the Minister himself played an important role in that work in a previous life. I also pay special tribute to Lowestoft college which, although not a large further education college, has realised the huge potential in the energy sector and invested a considerable amount of resources in providing facilities and putting on courses with the energy industry’s needs in mind.

There are a number of different ways and proposals as to how best to invest in skills for the offshore industry. I do not propose to go through these or, indeed, to pick a winner. Suffice to say that it is important that the necessary skills centres should be located near offshore engineering ports. This way we can create the world’s leading pool of offshore engineering skills here in the UK.

The Offshore Renewable Energy Catapult centre proposed by the Technology Strategy Board will be located in Glasgow, and the north-east and will have an important role to play. I was concerned that it would not be a truly national centre of excellence, but those worries have been allayed and I know that organisations in Lowestoft such as OrbisEnergy and the Centre for Environment, Fisheries and Aquaculture Science look forward to working with the centre in the coming months.

Fourthly, improving our outdated infrastructure is important if we are to make the most of these opportunities. The Government’s broadband initiative is welcome, though it is vital that the procurement process proceed smoothly and quickly.

In Lowestoft, conscious of the opportunities that will arise for funding through the single pot, which will be administered by the New Anglia local enterprise partnership, a prospectus of the transport infrastructure we need, both in the town and serving it, was published last week. Working together with the LEP, the councils and businesses, the town will strive to put in place the infrastructure needed to attract businesses to the area.

In conclusion, renewing the country’s energy infrastructure over the next 20 years provides a great opportunity to create a world-class industry that will provide the growth for which the country is so desperately searching. Much good work has been done, but I am concerned that as matters stand we are in danger of not making the best of the opportunity and we could, in effect, be exporting its benefits to other countries.

There is a need to provide businesses with both long-term certainty and a level playing field. This is a once in a lifetime opportunity and, in the words of Lord Heseltine, we must

“leave no stone unturned in pursuit of growth.”

It was T. S. Eliot who said that we know too much and are convinced of too little, but that cannot be said of my hon. Friend the Member for Waveney (Peter Aldous), who is gaining a reputation as both a powerful and an elegant orator—if I may say so—in the interest of his constituents. Few Members of this House are more determined to advance the employment opportunities, the skills opportunities and the wider economic opportunities of the people they serve than my hon. Friend. I pay tribute to him for bringing this matter to the consideration of the House. He served with some distinction on the Energy Bill Committee, which he mentioned in his speech. I enjoyed working with him, and look forward to working with him further in future on that and other matters.

My hon. Friend rightly emphasised that the investment in our energy infrastructure is vital. The UK must be able to compete to stay ahead of others in what is increasingly a competitive world order. This is, to the use the Prime Minister’s phrase, a global race. We must ensure not just that we keep up, but that we win that race.

It is estimated that replacing and upgrading our electricity infrastructure and closing power stations over the next decade will require no less than £110 billion of capital investment. The Government’s electricity market reform programme, which my hon. Friend mentioned in his remarks, is designed to drive investment that will support as many as 250,000 jobs in the energy sector.

As part of the Energy Bill, we will of course engage in the process of enjoying with the people who will bring about that investment a full and proper debate on jobs and skills in the UK. We are working with communities to maximise benefits and working with the industry to ensure that this is an opportunity to drive growth.

I assume the Minister understands that, with such huge spending, he needs to take the people of Britain on that journey with him. Will he tell the House something about the call for evidence on community engagement on the benefits—supposed benefits—of onshore wind, which his Department finished in the middle of November 2012? We eagerly anticipate the results.

Some say I am the people’s voice. I would not want to claim that myself, but it is certainly true that the people’s interests are always close to my heart. I can tell my hon. Friend that we will respond to that call for evidence. Perhaps I should say more about it. I have asked my officials to look at pre-application consultation, benchmarking good practice, and ensuring that communities have the resources to evaluate and consider wind applications. Many representations have been made on cumulative impact and topography. It is vital—to use not my words, but those of the Secretary of State—that no community feels bullied into having wind turbines in the wrong places, and that the Department of Energy and Climate Change and indeed Government policy should not be used as an excuse for putting them in the wrong places. I cannot be clearer than that, but my hon. Friend will look forward to that publication with excitement and enthusiasm. He knows where I stand on these matters: I stand on the people’s side.

To return to the main thrust of my argument, the scale of the investment that I described a moment or two ago is big even compared with some of the other major infrastructure investment that the economy is likely to enjoy. It makes up nearly half the total investment in the pipeline—it is up to six times the investment expected in water or communications, and more than 30% greater than expected investment in transport. Perhaps sometimes in energy, we punch below our weight in making the case on infrastructure investment and the effect it can have on the wider economy, and on skills and jobs, as my hon. Friend the Member for Waveney has made clear.

As I have said, it is critical in that process that we work with businesses, not only to attract greater levels of investment to rebuild our energy infrastructure, stimulate our economy and bolster the jobs market, but to do so in a way that builds a sustainable supply chain.

In September last year, the Government launched an industrial strategy that will drive forward our approach to creating a new partnership with the business sectors that will give us the greatest potential for development and exports. My Department and my former Department, the Department for Business, Innovation and Skills, which my hon. Friend also mentioned, are working closely together and in partnership with UK industry to produce three energy sector strategies as part of the industrial strategy, identifying ways that we can build up the UK supply chain in order to maximise the economic benefits of the investment we have attracted to communities and constituencies across the country.

These strategies cover oil and gas, nuclear and offshore wind, all of which my hon. Friend mentioned in his speech, and are among the first to be launched as part of the Government’s industrial strategy. Indeed, the nuclear strategy was launched today. It sets out how we can achieve our ambitions in nuclear power, bringing a new generation of nuclear power to deliver light and heat to lives across the nation. It also sets out how we can achieve a massive increase in opportunities for those who work in that industry. It is fair to say that some of those skills have been eroded over time as the last nuclear power station we built was in 1985. There will be jobs in building those stations, in running them and in the regulatory system—the context in which they sit, because of course all we do will be safe and secure.

The oil and gas strategy will be launched in Aberdeen on Thursday. The offshore wind strategy will be published later this spring. An abundance of virtues is emanating from the partnership between my Department and BIS. The strategies set out where we are now, where we want to get to, and how we will get there. This work will bring forward important analysis of supply chains, focusing on barriers, skills and technology.

There is good news. For example, Hitachi, which is a partner organisation that wants to develop a new generation of nuclear power in this country, has suggested that 60% of the jobs created will be local. The Hinkley Point development, which has been debated in the House several times and is of critical importance, estimates that potentially 57% of the jobs will be from the UK. These are real and tangible benefits to our nation as the result of a policy that is not protectionist—although Joseph Chamberlain is one of my heroes—but planned, on the basis that if we get the economic effect for which my hon. Friend calls, we will build unparalleled resilience, flexibility and responsiveness. It is right that all should benefit from the plans that I have outlined today.

I make no apologies for being a patriot—no one in this House should—so of course the measure has to be quality. I know that, by and large, British is best. As we move forward with our nuclear supply chain action plan, which was delivered in December 2012, and work on the community benefits for sites that host new nuclear power stations and new technology in other areas—mentioned by my hon. Friend the Member for Daventry (Chris Heaton-Harris)—we must put the people’s interests first. That is also true in the oil and gas sector.

As I said, the oil and gas sector strategy will be published on Thursday in Aberdeen. It will focus on how we can develop further opportunities in the North sea to the benefit of communities and of the supply chain. My hon. Friend the Member for Waveney will know that our gas generation strategy, published last December and of course on everyone’s bedside table, is designed to provide certainty for investors about the Government’s view of gas generation to ensure that sufficient investment comes forward within the context of the Government’s wider energy policies. Gas currently forms an integral part of the UK’s energy generation mix because it is reliable and flexible. It provides around 40% of our electricity. Shale gas is another exciting opportunity and our new office of unconventional gas and oil will be the pivot of our thinking and developments in that area.

We have enjoyed an exciting Easter Adjournment debate, and, at the end of that, another exciting debate thanks to my hon. Friend the Member for Waveney. It remains for me to wish you personally, Mr Speaker, a joyous Easter, and to do so in the knowledge that this Minister and this Government are determined to do right by the British supply chain.

Question put and agreed to.

House adjourned.