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Energy Policy

Volume 792: debated on Monday 25 June 2018


My Lords, with the leave of the House, I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. The Statement is as follows:

“Mr Speaker, I would like to make a Statement about the proposed Swansea Bay tidal lagoon. Britain’s energy policy towards electricity generation is based on meeting three needs: ensuring that we can count on secure and dependable supplies of electricity at all times, minimising the cost of supplies to consumers and taxpayers, and meeting our greenhouse gas emission reduction obligations. To these three requirements we have added, through our industrial strategy, a further ambition to secure long-term economic benefits in terms of jobs and prosperity from the decisions we make.

Our policy has been successful. Britain has one of the most secure and reliable electricity supply sectors in the world. Last winter, one of the coldest in recent years, the margin of capacity in our electricity generating system was more than 10%, around twice what it was in 2016-17. We have the strongest record in the G7 of reducing our greenhouse gas emissions. Between 1990 and 2016, the UK reduced its emissions by more than 40%. We have massively increased our deployment of renewable generation. Renewable electricity now makes up almost 30% of our generation. Our renewable capacity has quadrupled since 2010 and the auction prices of offshore wind have fallen from £114 per megawatt hour to £57.50 per megawatt hour within two years.

Coal, the most polluting fuel, last year contributed less to generation in Britain than in any year since the Industrial Revolution. This has been achieved while the UK has maintained a position in the overall cost to households of electricity well below the average for major European countries. But the cost of electricity is nevertheless a significant one for households and for businesses, and the policy-related costs have been growing. We have made a clear commitment to bear down on these costs. It is in this context that the Government have assessed whether they should commit consumer or taxpayer funds to the programme of six tidal lagoons proposed by Tidal Lagoon Power Ltd, the first being the proposed project at Swansea. We believe in renewable energy and we believe in the benefits of innovation. The conclusion of this analysis, which has been shared with the Welsh Government, is that the project and proposed programme of lagoons do not meet the requirements for value for money and so it would not be appropriate to lead the company to believe that public funds can be justified.

The proposal for the Swansea tidal lagoon would cost £1.3 billion to build. If successful to its maximum ambition, it would provide around 0.15% of the electricity we use each year. The same power, generated by the lagoon over 60 years for £1.3 billion, would cost around £400 million for offshore wind even at today’s prices, which have fallen rapidly and we expect to be cheaper still in the future. At £1.3 billion, the capital cost per unit of electricity generated each year would be three times that of the Hinkley Point C nuclear power station. If a full programme of six lagoons were constructed, the Hendry review found that the cost would be more than £50 billion and would be two and a half times the cost of Hinkley to generate a similar output of electricity. Enough offshore wind to provide the same generation as a programme of lagoons is estimated to cost at least £31.5 billion less to build.

Taking all the costs together, I have been advised by analysts that by 2050, the proposal that has been made, which would generate around 30 terawatt hours per year of electricity, could cost up to £20 billion more to produce compared with generating that same electricity through a mix of offshore wind and nuclear once financing, operating and system costs have been taken into account. That could cost the average British household consumer up to an additional £700 between 2031 and 2050 or the equivalent of £15,000 for every household in Wales.

However, in recognition of the potential local economic benefits that might result from a lagoon in Swansea, I asked officials to go back and consider what additional benefit could be ascribed to a number of other factors, including a beneficial impact on the local economy. For £1.3 billion, a Swansea lagoon would support, according to the Hendry review, only 28 jobs directly associated with operating and maintaining the lagoon over the long term. Officials were also asked to make an assessment of the potential for valuable innovation and cost reductions for later lagoons that might come from embarking on a programme of construction. Independent advice concluded that the civil engineering used in Swansea Bay offers limited scope for innovation and capital cost reduction, estimated at 5%, in the construction of subsequent facilities. I asked for an assessment of the export potential of embarking on a programme of implementing the technology, but the Hendry review concluded that it would take a,

‘leap of faith to believe that the UK would be the main industrial beneficiary’,

of any such programme.

In terms of energy reliability, the generation of electricity would be variable rather than constant with a load factor of 19% compared with around 50% for offshore wind and 90% for nuclear. The inescapable conclusion of an extensive analysis is that however novel and appealing the proposal that has been made is, even with these factors taken into account, the costs that would be incurred by consumers and taxpayers would be so much higher than alternative sources of low carbon power that it would be irresponsible to enter into a contract with the promoter. Securing our energy needs into the future has to be done seriously and, when much cheaper alternatives exist, no individual project and no particular technology can proceed at any price. That is true for all technologies. The fact that this proposal has not demonstrated that it could be value for money does not mean that its potential is not recognised. My department is also in receipt of proposals from other promoters of tidal energy schemes which are said to have lower costs than the Swansea proposal, although these are at an earlier stage of development. Any proposals must be able credibly to demonstrate value for money for consumers and public funds, but I am sure that many people in the House and beyond would wish that we were in a position to say yes to the Swansea proposals.

I appreciate the contribution of Charles Hendry, whose constructive report led to this further analysis being made, and to the engagement of the Secretary of State for Wales and Members of the Welsh Assembly, including the First Minister, and the leader of the Welsh Conservatives, Andrew RT Davies. But all of us have a requirement to be responsible stewards of taxpayers’ and consumers’ money and to act at all times in their interests. It is in discharging that responsibility rigorously that I make this Statement today, and I commend it to the House”.

My Lords, that concludes the Statement.

My Lords, the Hendry report comes out with headline figures that it is important to bear in mind as we think about and discuss what was said in the Statement. The report states:

“Across the National Audit Office’s three Value for Money tests, Tidal Lagoon Swansea Bay can match or outperform the Contract for Difference awarded to new nuclear power station Hinkley Point C with relevant support from Welsh Government …Tidal lagoon capacity can reduce UK system carbon emissions by 36% in 2035 … Lifetime CfD subsidy cost of £302-£390m achieves net positive social NPV benefits of £787-875m”.

That is a factor of more than 2:1, which is a lot better than the return HS2 and some other projects that I can think of will get.

Of course, that is not the whole story. Although the Statement was very strong on direct costs and the problems that the Government would have in justifying them, there are other benefits that would come from a project such as this. This is a first in its class—a first attempt to do something new in alternative energy production—so there is a difference there that cannot be measured in terms of the direct costs of well-tested wind or solar arrangements. There is an amenity, because clearing up Swansea Bay and costing a very small amount to provide something that is visually attractive and also rather beautiful cannot be costed. In order to give confidence to the overall task that we as a country have to make sure we have a diversity of supply, starting things that are new and different would add something that is not easily costable.

In the past two years, the Government have repeatedly kicked a decision about Swansea into the long grass, and the handling of this must surely be agreed by everyone to have been absolutely atrocious. Not only have the Government taken an inordinate amount of time to come to the House today, they have kept Tidal Lagoon Power, the Welsh Government, the trade unions and other stakeholders completely in the dark about what was happening. Indeed, they had to learn about it through leaks in the press. Indeed, it emerged in a Select Committee hearing last month that the Minister had not spoken to Tidal Lagoon Power in more than 16 months. In the last few days there have been conflicting reports indicating that a Statement was coming last week, then that it was coming this week, and then that there would not be a Statement—and now here we are. This is no way for the Government to conduct themselves on an issue that is so important for Swansea, the UK economy, the climate and therefore the world.

The key point here is that tidal lagoon power is a new, world-first technology, and yet it has been judged as if it were just one of a number of things that could be done in order to get us on the path to a carbon-reduced energy supply. The Government’s decision on Swansea tidal lagoon is of public policy importance not only because of its impact but because of the potential it offers the UK economy to meet our global climate change targets.

The project is estimated to generate and support more than 2,000 high-skilled construction and manufacturing jobs. It could engage more than 1,000 businesses in its supply chain—from figures in the Hendry report we know that the supply chain reaches right across the UK—and it could power directly more than 150,000 homes once it is constructed.

I go back to the point about being a pathfinder. The technology that is tried out successfully in Swansea could be rolled around the UK. It is not surprising that we might have problems exporting it since it is a very geography-specific solution. However, given our tides, our climate and our particular style of landscape, it seems to be something that would work in the UK.

Finally, tidal technology could make a valuable contribution to the UK’s transition to renewable energy, which is becoming ever more urgent. The UK is currently on track to miss its globally agreed climate change targets, so the Government’s plans in relation to Swansea Bay and renewable energy generation as a whole are of greater significance than they would otherwise be.

If we are going to have a diverse energy mix, tidal lagoon technology has an important part to play in our transition. The Government say that the costs are too high, but that seems to be a very narrow description of the costs involved. I understand that, even though that is the main reason why they are not going forward, they have not even met Tidal Lagoon Power to work out what additional funding could be supplied by the market. Perhaps when he responds the Minister could tell us what the acceptable cost is that would allow the project to go ahead.

My Lords, we on these Benches believe very much that this is the wrong decision. I will very quickly give the reasons why. First, in order to meet our climate targets, we need all technologies to contribute. We believe very strongly—as was shown in a number of studies—that there would be a reducing price in terms of scale as the technology rolled out. We have seen this very strongly with other renewable technologies.

There are other elements to the project. It is also partly an energy-storage project—an area that is particularly needed in terms of the variability of other renewables. And of course, perhaps not in Swansea but in other lagoons where something similar could have happened if this had gone ahead, there is the whole area of flood management that would also save considerable costs in terms of a holistic management approach to the coast.

Of course, the irony is that 2018, the year we are in at the moment, is 10 years after the Climate Change Act, yet between 2016 and 2017 we saw a 56% reduction in renewables investment. So the curve the Minister talked about in terms of our improved performance will go down because of lack of investment. In fact, renewables investment last year was at its lowest since 2008, when the Climate Change Act came in. We are not heading to meet our fourth or fifth carbon budget and we need to reduce our carbon emissions by 3% per annum to get to our target in 2050. So we have an investment crisis at the moment.

The noble Lord, Lord Stevenson, mentioned the time taken over this. The Hendry report came out 18 months ago. I remember that the original discussions were during the coalition Government period. What message is this to investors in renewable technologies? The way that it has been dealt with, the timescales and the opaqueness of the decision taking are difficult to understand, particularly when it was obvious that the Government were going to say no several months ago and have only just got round to giving that reaction and decision.

I come back for a moment to costs and refer to the Hendry review. Charles Hendry was a Conservative politician and Minister of State. He was highly respected across the whole of Parliament when he was an MP. He said about the project:

“I believe that the evidence is clear that tidal lagoons can play a cost effective role in the UK’s energy mix and there is considerable value in a small … pathfinder project … Most importantly, it is clear that tidal lagoons at scale could deliver low carbon power in a way that is very competitive with other low carbon sources”.

That is something that cannot be written off in the way the Minister did.

I have the following questions. Why has it taken so long to take the decision, which was clearly going to be taken some time ago? How are we going to meet the fourth and fifth carbon budgets? Given the regular quote in that Statement about the costs of technologies, when are the Government going to bring back onshore wind, which is the cheapest of those technologies and the one that would help to bring down energy bills tomorrow and in the years to come?

My Lords, I thank both noble Lords for their contributions and for their questions. I hope that I can deal with the points they made.

I will start with the point made by both noble Lords about the delay in getting the decision right. I have to say that the noble Lord, Lord Stevenson, in a sense answered that point. The important thing was that we wanted to get the decision right and wanted to look at it as a whole, not just in relation to the cost of energy but also taking into account all the other factors that the noble Lord mentioned, including, for example, the amenity advantages and—this was raised in another place—the use of steel and the effect that that might have on the Port Talbot steelworks. Of course we did. We looked at those issues, which made the sums much more complicated. At the same time, we were also seeing quite a reduction in the cost of offshore wind, as the Statement made clear. I quoted those figures; the reduction complicates matters further. It also makes clearer the case put forward by my right honourable friend about making this decision. That is why—at the right point, I would say—my right honourable friend came to another place and made decisions. It is my privilege to repeat them today.

The noble Lord, Lord Stevenson, asked about other potential benefits. There are some, which we looked at. In the end, one has to come back to them, whether they are amenity advantages or jobs in the construction phase, as mentioned by the noble Lord, Lord Teverson —or perhaps it was the noble Lord, Lord Stevenson. The benefits are necessarily limited and the jobs are limited to the construction phase. Though great, the amenity benefits are not enough to deal with the fact that, over the period of this project’s existence, we will still pay three times as much for electricity as for electricity that could be obtained from offshore wind, because the cost of that wind has reduced so much.

The noble Lord, Lord Stevenson, also talked about the need for diversity of supply. Again, I have discussed that at some length in this House a number of times. Occasionally, I put to noble Lords on the Liberal Benches the need to look at the advantages that might come from the extraction of shale gas. I know that the noble Lord, Lord Teverson, does not like to comment on that, but his noble friend Lord Bruce offered praise for shale gas, whereas his noble friend Lady Featherstone is not so keen. The noble Lord, Lord Teverson, looked as though he did not want to comment on this when we discussed it last week. We want diversity of supply because, as made clear by the noble Lord, Lord Stevenson, it brings us security. We want security, but not at excessive cost. I will not rehearse the figures in the Statement about the potential cost, but it is too great on this occasion.

The noble Lord, Lord Stevenson, also talked about new technology and the possibility of costs coming down. On this occasion, I do not think that the technology is particularly new. We are talking about boring earth, concrete and other things with steel into the ground or the sea to make barriers. That is the major cost. I do not think there is the scope for cost reduction that came with the development of offshore wind, where we saw installations getting bigger and blades getting more efficient. As a result, we saw the great advantages of technology moving forward. Here, we are dealing with what one might call relatively old technology that will not come down in cost.

The noble Lord, Lord Stevenson, asked what the acceptable cost was. As my right honourable friend the Secretary of State made clear in another place, he was not prepared to put a figure on the cost because other factors would be taken into account for each project, which we would look at in the context of other possible benefits and the cost of the electricity. We are not ruling out the prospect of tidal lagoons in the future but this particular one looked expensive. Other tidal lagoons might be cheaper if they are bigger. There are economies of scale in electricity costs. Each project would have to be looked at individually.

Both noble Lords talked about the reduction of carbon emissions. We accept that there would be such a reduction in this case. We want to go on doing what we can to reduce our emissions as much as possible. But again, as I want to make clear, we can do that only when taking costs into account.

I want to comment briefly on the alleged reduction in investment. There has been a reduction but a great deal of investment was made. We have seen rapid growth in renewables since 2010. We have seen the use of renewables go up from 6.9% in 2010, at the beginning of the coalition, to around 30% today.

I think I have dealt with most of the points made by noble Lords. I hope they will accept that, in the end, the case is pretty clear. The scheme was imaginative and good, and it was right that we looked at it in some detail, but the cost of the electricity is just too great.

My Lords, I respectfully remind noble Lords that this is an opportunity to question the Minister. Therefore, short questions rather than long comments would be much appreciated.

My Lords, I am deeply disappointed by the Government’s decision. It is short-sighted and a huge missed opportunity. The Government rightly insist that the Swansea Bay tidal lagoon should represent value for money, but the Government have consistently failed to name the price. Therefore, will the Minister agree to publish the Treasury Green Book business case, including all the supporting value-for-money calculations and evidence that were used to arrive at today’s decision?

My Lords, as I made clear, this electricity was going to come in at some three times the price of electricity produced by Hinkley Point. I think that many noble Lords would feel that Hinkley Point is expensive enough as it is. I will certainly make whatever documents are appropriate available to my noble friend, and to the House more generally, with the obvious caveat that any commercially sensitive information cannot be released. However, considerable information can be released.

My Lords, the rejection of the Swansea tidal lagoon is a bitter pill to swallow. It feels like yet another betrayal of the people and economy of Wales. The Government have cancelled rail electrification to Swansea and now reject the Swansea tidal lagoon, in contrast to their seeming ability to find money for projects in south-east England. As other noble Lords have said, the lagoon would have acted as a pathfinder project, particularly for other lagoons across Wales, including Newport, Cardiff and Colwyn Bay. It would have been a vital first step in making Wales a world leader in green energy, bringing untold environmental and economic benefits to the community, Wales and the UK. More in sorrow than in anger, I ask the Minister this: how is today’s news any more than another slap in the face for the people of Wales?

My Lords, I totally reject what the noble Baroness, Lady Humphreys, says. It would be a slap in the face to go ahead with this project and impose costs on the Welsh consumer, in terms of the extra amount that they would have to pay for their electricity, and Welsh business. I think in particular of the Port Talbot steelworks and how much more it would have to pay for the vast amount of electricity that it uses. Having looked at the figures in front of them, it would be irresponsible of a Government to go ahead with this project.

My Lords, I congratulate the Government on increasing the generating margin from 5% to 10% for cold winters. That genuinely makes us feel a lot safer. My noble friend the Minister mentioned Hinkley Point several times. It is interesting that, with the remarkable fall, the price of offshore wind is now 5.75p per kilowatt hour—a figure quoted by the Minister—compared with the strike price of nuclear energy from Hinkley Point, which is 9.4p per kilowatt hour, index linked for 35 years. Does he agree that it is very difficult to justify that 63% extra cost for nuclear power? Can I ask—I declare my interest because I live near it—when the Government are expecting to announce whether Sizewell C is going ahead?

My Lords, I cannot assist my noble friend with announcements about Sizewell C—but, as always, I shall say “in due course”. My noble friend is right to point out the costs of nuclear; that decision has been made. What we are talking about here is a potential decision to generate electricity at three times that price at a time when the cost of, for example, offshore wind had come down so dramatically. That is why we had to make that decision, and why we have made it. It is possible that for other nuclear power, in due course, if more work is done in the world of modular nuclear power stations, the cost could come down. But we have made the decision on Hinkley, and have now made the decision not to go ahead with Swansea—but we will continue to look at all possible sources of energy to make sure that we have green energy and secure energy.

My Lords, like others, I find this decision depressing. On the other hand, I recognise the Minister’s dilemma. The figures that he quotes at us appear irrefutable, even though they are somewhat at odds with those from Charles Hendry’s report and any long-term view. This seems a similar decision to the closure of the carbon and capture elements in Peterhead. In effect, we are not looking over a long enough timescale.

I have two quick technical questions and two strategic ones. First, were the costs clearly incorporating the benefit of having attached to this not only tidal power but some offshore wind power, which was part of the project, and—as the noble Lord, Lord Teverson, said—a significant amount of storage of electricity, which would be of great benefit to future lagoon technology, were this to be proven?

Secondly, can the Minister really envisage a situation whereby, in 50 years’ time, these islands will not in part be powered by wave and tidal energy? We have a huge natural advantage and a huge relative benefit around our shores of having power that is predictable, not intermittent, as other technologies are not. We would be a world leader in this, and abandoning this project makes it more difficult. However, I take some comfort from the Minister’s reference to other projects. Which other projects does he have in mind and how soon, given the delay on this decision, can we get a decision on some of those? Are the Government still committed to looking at wave and tidal technology as part of our long-term future?

I correct the noble Lord on just one thing. He said that tidal power was predictable—and I agree with him that it is predictable—but it is also intermittent because, as he knows, tides go up and down and there are slack periods as well. The intermittency is variable, so it is predictably intermittent, which makes for complications—but it also leads on to the noble Lord’s point about storage.

Obviously, with all these sorts of renewables, storage becomes very important, and developments on that front will change over the coming years. The noble Lord asked us all to look 50 years in the future. First, most of us will not be around in 50 years—but we can all remember 50 years back, and we all know just how much things have changed over those past 50 years. The point that I am making is that it would be wrong for me to predict what might happen over the next 50 years.

I want to make it clear that we have not ruled out tidal power. As the noble Lord says, we have some of the best tides in the world. I am reminded of those lines that noble Lords will remember from “Lochinvar”:

“Love swells like the Solway, but ebbs like its tide”.

It comes in very fast in those areas and goes out very fast. The variation in the Bristol channel is as good as anything that you will get anywhere else in the world, except I think in the St Lawrence estuary.

Much can be done, and we should certainly look at those in future. I cannot say which might then turn out to be suitable. Some of the other tidal power projects being looked at here could offer electricity somewhat cheaper—but only somewhat—than the Swansea bay, because the Swansea bay one is relatively small. We should look at any project on its merits. But I think that the noble Lord, who is as diligent as I am about the view that we must preserve taxpayers’ and consumers’ money, would not want to go ahead with a project that was going to cost three times as much as electricity from, say, Hinkley Point.

My Lords, the ministerial Statement makes a compelling economic case—at its heart, the notion that the unit cost of electricity from the Swansea barrage would be three times as expensive as not only Hinkley C but the current price of offshore wind. In the circumstances, would it not have made sense to publish the supporting financial analysis at the same time as this obviously controversial and difficult decision?

My Lords, as I think I made clear to my noble friend Lady Finn, we are going to publish as much as possible of the financial detail to make it clear just how strong the case is.

I thought the strike price was 8.9p per kilowatt hour, as opposed to Hinkley’s 9.3p or 9.4p per kilowatt hour. Am I wrong in that? That is what my study of the proposals said.

The Minister refers to the production of energy as being intermittent. As I understood the scheme, the tide coming in moved the turbines in one direction, so there was electricity generated and, as the lagoon emptied, the emptying caused the turbines to go the other way. What is intermittent about that?

There is more to it than that. It is the lack of vision in this Government that is so distressing. “The Life Scientific” last week mentioned the fact that in Wrexham, where I come from, back in the mid-18th century, John Wilkinson invented precision engineering by boring cylinders which Watt took over. That led to steam engines and the pumping of mines, so that coal could be produced, and eventually to locomotives. As was said last week, it was the start of the Industrial Revolution in Wrexham. Of course, Wilkinson went to other places—he went to Swansea, among other places. He had vision and could see the future. This Government simply cannot grasp that, and it is highly disappointing that this decision has been made.

My Lords, I do not think that I can take the noble Lord much further in his accusations of lack of vision. I think that he would be one of the first to say that it would show a lack of straightforward common sense and financial honesty to go ahead with a scheme that was going to cost quite so much, and quite so much to the Welsh consumer and Welsh businesses in terms of their costs for electricity.

My Lords, I declare an interest as the Energy Minister at the time when the Hendry report was under way. The truth is that this is the most attractive of projects. However, sadly, it is dreadful value for money—so I agree reluctantly with the Government’s conclusion. What progress are the Government making with nuclear renewal, not only at Hinkley Point C—which has been mentioned and which is creating jobs and apprenticeships and helping us to fill the decline in the nuclear baseload—but with the new nuclear fleet, notably in Wales and Cumbria?

My Lords, my noble friend will be aware of the announcement that my right honourable friend made about Wylfa the other day and of the work that is being done in Anglesey on the prospect of having a nuclear power station there. She will also be aware that work has started at Hinkley. We therefore hope in due course—in about 2025, I think—to see further nuclear energy coming on as baseload to assist with our energy security. I also hope that in due course we will see more nuclear energy at Moorside in Cumbria, which my noble friend is well aware of. As a Cumbrian, I too am aware of it. As I said earlier, I hope that we will hear more about the prospects of other work in due course.