Published in the Yorkshire Post
In 1973 the combination of an oil crisis in the Middle East and industrial action from British coalminers saw widespread blackouts plague homes and businesses across the UK.
The political disaster that ensued has ensured that ‘keeping the lights on’ soon become a byword for the most fundamental responsibilities of government. But, with energy bills having crept up almost 25% since 1997, it is increasingly clear that keeping the lights on is only half the job. If our economy is going to work effectively, keeping the lights affordable is becoming just as crucial.
Last year the average Yorkshire household spent over £700 every year on its electricity bills alone, a figure which – particularly for low income households – represents a very real burden on family finances.
There are two crucial steps that government can take to attempt to lighten the load borne by Britain’s bill-payers. The first is simple; the international price of oil has plummeted over the last 18 months from $110 a barrel in 2014 to under $30 today and that change needs to be passed on to customers.
Energy businesses are complex operations and many buy their electricity years in advance to guard against sudden changes in the price. This needs to be taken into account, but as an excuse it only goes so far.
Thankfully, following pressure from both the Prime Minister and the energy regulator Ofgem, it looks like the market is starting to edge in the right direction. E.On (the UK’s third largest energy supplier) recently announced a 5.1% reduction in its standard gas price for residential customers, a cut that could shave as much as £32 off the average annual bill.
What many people don’t realise, however, is that only around 45% of household energy bills are determined by the wholesale price of energy. The remainder of your bill is made up of costs like transmitting energy through the national grid and subsidies to green energy.
This brings me to the second area where government can take action to make a real difference to bringing down the cost of bills; reducing the cost of renewable energy.
Britain was something of a slow starter when it comes to renewables. Despite the fact that Europe’s most powerful wind current blows across the Atlantic, North and Baltic Seas – making us ideally placed for the generation of wind power – in 2006 we had less than half the wind farm capacity of Denmark and only 10% that of Germany.
That trend has been reversed over the past decade with the UK’s wind energy output increasing 600%, making us the world’s 6th biggest producer.
That’s good news for the environment, but it’s important to realise that the huge gains we’ve made in renewable energy haven’t come for free.
Renewable technologies are currently less cost effective than fossil fuels, this means that green energy generators require a subsidy to be commercially viable. That is paid by the energy companies and passed on to the bills of their customers.
The sums in question are far from small and last year our energy bills subsidised green energy to the tune of over £3 billion.
With the money of millions of hardworking Britons on the line, it’s crucial that government never starts to see these subsidies as a permanent fix to financing cleaner energy. In the long term the only realistic solution to moving away from fossil fuels is to develop renewable technology that can generate energy just as cheaply.
That means subsidies need to act as a bridge towards greater efficiency, not as a blank cheque, and once technologies have matured we should consider whether our money could be better spent on those which are less developed.
That’s exactly the situation we have now reached with onshore wind farms. As one of the biggest beneficiaries of bill-payer subsidies, onshore wind now boasts a pipeline of projects that, by 2020, will be pumping out enough electricity to power 8.5 million homes.
But, with the cost efficiency of onshore wind now having stayed flat around a decade, it seems increasingly clear that the time has come to shift investment to less developed technologies such as offshore wind (which is still considerably more expensive).
Fortunately, that’s exactly what the Government’s new Energy Bill (currently making its way through Parliament) is seeking to do. If successful, the Bill will close subsidies to new onshore wind projects one year earlier than planned and, in the process, save bill-payers up to £270 million a year.
In addition, the proposed legislation takes away the responsibility for approving new wind projects from Whitehall and makes all decision making the responsibility of local communities – an attempt to ensure wind farms aren’t built in areas where they are not welcome.
So far these proposals have faced considerable opposition from Labour, the Liberal Democrats, and the SNP meaning that there is still some distance to travel before the proposals become law.
The Bill will have my support, but – whatever the eventual outcome – it is clear that controlling the cost imposed on households by the drive towards more sustainable forms of energy is becoming an increasingly crucial policy issue.
It’s easy to characterise reticence about green subsidies as being somehow anti-renewables. The truth is that those of us who urge caution over subsidies simply believe that – when it comes to our constituent’s money – there’s no such thing as a special case. Every penny needs to be justified and if it isn’t it should stay in the pockets of the people who earned it.
So, while we are right to celebrate the fact that we have exceeded all our interim targets in moving towards generating 15% of our energy from renewables by 2020, we should never lose sight of the fact that that achievement has cost bill-payers a 285% increase in subsidies for onshore wind farms.
It’s for exactly that reason that the government is currently seeking to bring forward a series of changes to
It is a privilege to follow so many well-informed contributions in a debate that I am sure everybody would agree has been characterised by good humour and moderation on both sides.
Too often we hear that the interests of British business are somehow at odds with those of working people and strong public services, but that sentiment flies in the face of the facts. In 2012, Britain’s oil and gas industry paid enough into our public coffers to fund every GP surgery and every accident and emergency unit in the UK. Even in today’s depressed oil market, the industry pays enough tax to bankroll MI5, with change to spare. Meanwhile, across our country, the oil and gas industry employs 375,000 people—equivalent, almost, to the entire population of Teesside. For 30 years, this great industry has supported jobs and our public services, but today it is suffering and needs our help. When Sir Ian Wood first published his report on the future of the UK continental shelf, Brent crude was trading at $110 a barrel. Last year, when the bill was first read in the other place, the price had halved to $60. Today, it is under $30 a barrel —a 70% drop. As Unite’s regional industrial officer said:
“Approximately 65,000 jobs have been lost…this is affecting workers, their families and the economy as a whole”.
By creating a new regulatory body and giving it enhanced powers and strong industry funding, the House can ensure that we realise the potential of a great national asset. We have harvested 42 billion barrels of oil equivalent from the North sea, but the further prize is the 24 billion more that lie undiscovered. Yet, in the last two years, we have only discovered 150 million barrels—just 0.6% of this vast, untapped opportunity. The new Oil and Gas Authority can help to reverse this decline. Today, there are more than 300 operators in the North sea, often small, often interdependent. Sir Ian Wood’s review found more than 20 instances, in the last three years alone, where operators’ inability to collaborate on shared access to infrastructure, such as shipping and pipelines, had led to higher costs, delays and stranded assets.
The many new powers the Bill gives the OGA will help it bring parties together to resolve disputes quickly, ensure assets are used more efficiently and increase transparency. Our goal must be to send a clear and unequivocal message to the world that, far from declining, the North sea is an industry poised for growth and innovation. In order to do that, however, the OGA must have a single driving focus: to maximise economic recovery. To dilute this clear, simple mandate, however well intentioned, would put at risk the jobs, investment and tax revenues that Britain needs. For an industry already in deep crisis, this is a risk we cannot afford to take.
Vital as it is to safeguard the livelihoods of our energy workers, however, it is equally important that we protect those who heat their homes with that energy. In closing the renewables obligation to onshore wind projects one year early, we can save bill payers hundreds of millions of pounds while still meeting our renewables targets. In the last Parliament, the then Secretary of State announced that between 11 and 13 GW of onshore wind power would be required for the UK to meet its 2020 renewables commitments. It is clear that we now have enough capacity in the pipeline to deliver that, so the fact that the renewables obligation will close early is not a change of direction, but simply reaching our destination earlier than planned.
Furthermore, one of the most basic principles of sound public finance is that subsidies should not become a permanent feature of an industry’s financing. That is the road to corporate welfare. Subsidies cost money—bill payers’ and taxpayers’ money—and should be limited specifically to immature technologies to help them to become competitive in the market. Onshore wind is clearly now a mature industry, and according to the UK Energy Research Centre, levelised costs for wind have been reasonably flat for more than a decade. By ending the renewables obligation for onshore wind, we can divert our scarce resources for subsidies to less mature technologies, help them to realise their promise and deliver our renewables commitments.
In conclusion, what a good energy policy demands above all is balance between affordability for Britain’s households, security for the future of British industry and sustainability for the next generation. In its original form, the Bill does all three, and I commend that vision to the House.