6 January 2015
Peter Aldous (Waveney) (Con): It is a pleasure to serve under your chairmanship, Mr Gray. I thank the Backbench Business Committee for granting this debate, and I give special thanks to the hon. Member for Angus (Mr Weir) for playing a key role in securing it.
The offshore wind industry is an interest to me mainly due to the key role it can play in bringing jobs and prosperity to costal communities such as Lowestoft and Waveney, which I represent. With deference to my Scottish colleagues, the southern North sea is, in many respects, the best location for developing large-scale offshore wind farms. It has relatively shallow waters, the weather is more appropriate and it has the right environmental and geological conditions, so it is well suited for such developments. East Anglian companies have already played a key role in delivering the rounds 1 and 2 wind farms, such as Scroby Sands, Greater Gabbard, Thanet and Sheringham Shoal. Local businesses will be able to do even more if we fully realise the opportunities in round 3.
Mr Weir: I do not dispute the fact that the southern North sea is excellent for wind, but I hope the hon. Gentleman is not going to set it against other development locations. There is huge potential in Scotland, which has a rather windy climate, although there are great challenges in some of the surrounding deep water. We must look at all potential locations and not just concentrate on one.
Peter Aldous: I fully agree, but we East Anglians tend to hide our light under a bushel. The full potential of the southern North sea has not been fully realised, so we need to raise our heads above the parapet. I do not want to be divisive as I compare different areas and energy technologies. I believe in a mixed economy.
There is the potential to do even more in round 3. Offshore wind can play a vital role in providing a low-carbon, secure energy supply. It can also create jobs regionally, as we regenerate coastal communities such as the one I represent, nationally—as the hon. Gentleman said, there is the potential to increase significantly the number of jobs from the current 13,000 to more than 44,000 by 2023—and internationally by boosting exports. People working in the oil and gas sector anywhere in the world will hear Suffolk and Norfolk accents, as well as Scottish accents. That is something we must repeat with the offshore wind industry.
A lot has been done since 2010 to deliver that success. The Government put in place a framework to give the industry a long-term, sustainable future. Siemens will be manufacturing turbines at Humberside, the green investment bank is playing an important role in leveraging in private sector capital and the Catapult in Glasgow is doing important work with the industry to drive down costs. The Government have placed the right emphasis on maximising the UK content in contracts to ensure that jobs are not exported. A planning regime for offshore wind has been put in place, which works efficiently and fairly, provided that developers are proactive and engage with local communities. Finally, the Government are pursuing local supply chain initiatives that will help local communities, such as the one I represent, to get the most from these opportunities. Lowestoft and Yarmouth now has an enterprise zone and assisted area status, and the two ports have been designated centres for offshore renewable engineering. That designation is applied around the country; it is a national strategy.
As a result of those initiatives, the UK remains on track to being the most important market in the global offshore wind sector, with more capacity installed than any other country and with the largest volumes projected by 2020. We are moving in the right direction.
Electricity market reform and the contracts for difference regime are at the centre of the framework. The Government are right to apply a budget to ensure that policy and energy costs are affordable. The CfD regime has three benefits. First, it de-risks investment in asset ownership. Secondly, the competitive allocation will drive cost reduction. Thirdly, it recognises the need to cap costs through the levy control framework.
The transition to contracts for difference has not been straightforward. With the benefit of hindsight, we can see that things should have been handled differently. First, too large a budget was given to the Final Investment Decision Enabling for Renewables contracts without ensuring competition or price reduction. Too many of the FIDER contracts were placed with the same developer, which created risk for the entire sector. Secondly, the budget for the first competitive CfD allocation was too low, although I welcome the increase in round 2 from £155 million to £235 million. That low budget surprised investors and supply chain companies and led to projects becoming less competitive. Unfortunately, it sent out the wrong signal to the market. Thirdly, the three-month delay in the 2014 allocation round was unhelpful in achieving the stable, predictable regulatory environment that we all seek. Fourthly, money appears to have been held back for future allocation rounds, which has caused the worry that the levy control framework budget may not be fully utilised. Finally, I am concerned that by not giving indications of the less established 2015 budget, further uncertainty has been created.
Those are the problems we face, but I make those comments with the benefit of hindsight. However, we must move on, and the Government must have regard to two issues. First, they must have consistent policies so investors, industrialists and developers know where they stand. Secondly, they must articulate a long-term vision for the industry beyond 2020. As the hon. Member for Angus said, the industry currently views 2020 as a budgetary cliff edge.
I have four suggestions on how we can provide certainty and a long-term vision. First, the current allocation round should be concluded as soon as possible. Secondly, details of the timing and budget for the 2015 and 2016 allocation rounds should be published as soon as possible. Thirdly, details of the levy control framework in the second delivery period post 2020 should likewise be published as soon as possible. Finally, the industry must be provided with a clearer picture of its potential long-term size and where the Government see it going. That could be achieved by setting a clear-cut tariff reduction trajectory for offshore wind post-2020 and moving to a narrower carbon intensity range.
Since 2010 a great deal has been achieved in laying down a framework that gives offshore wind a long-term future. The move to CfDs is the most challenging part of the framework. Things have gone wrong in the past, but if we get it right now the industry can realise its full potential and play a full role in bringing jobs and prosperity to coastal communities such as the ones that I represent.