What does the Tory majority mean for the energy industry?

In April 2006, the leader of the opposition was speeding across Svalbard in Norway on the back of a sled, pulled through the Arctic wilderness by a team of huskies.

Stage-managed photographs emerged showing David Cameron travelling to a glacier, with his hair swept back and his cheeks flushed, in a very different light to previous Tory leaders.

The photo-op was no holiday, with the trip forming a key part of his attempt to rebrand the party away from a reputation for nastiness.

He even replaced the party’s logo with a picture of a tree.

RELATED CONTENT

Government under fire for wind farm subsidy move

Fracking could be done safely, finds report

Communities receive record wind investment

Speaking afterwards, he said: “Some of the green lobby and a lot of the media tend to look at the environment and climate change as, look, you’ve got a binary choice, you can either have economic growth or you can have a sustainable environment, and the truth is we’ve got to have both.

“We’ve got to have green growth.”

The ‘vote blue, go green’ message was repeated and though it is debatable whether or not it had a defining effect on the campaign – given the effect of the 2008 financial crisis on UK politics – Cameron went on to form a government with the help of the Lib Dems.

And for a time the message continued. Speaking in 2010, the new PM said: “We’ve got a big, big opportunity, here. I want us to be the greenest government ever – a very simple ambition and one that I’m absolutely committed to achieving.

“Now, the agenda you’ve got is obviously enormous and pressing. The three things that I would pick out are, first of all, the green economy. We’ve got a real opportunity to drive the green economy – to have green jobs, green growth, and make sure that we have our share of the industries of the future.

“Clearly there’s the climate change agenda, where we’ve got to get back on track, both nationally and internationally. And third, there is the issue of energy security, which I think is vitally important, which we need to do a huge amount of work on.”

Fast forward to 2015, and things seem to have changed.

As Dale Vince, founder of Ecotricity put it in the run-up to the general election: “Over the last few years we’ve watched as David Cameron’s pre-election pledge to run ‘the greenest government ever’ has slowly but surely unravelled.

“Mr Cameron has morphed from hugging huskies to claiming we had to ‘cut the green crap’ and finally saying he’ll end onshore wind energy if re-elected, something one of his own senior MPs described as ‘blind unreasoning hostility’. I think that sums it up well.

“There used to be a cross-party consensus on renewable energy and climate change. David Cameron has broken that consensus along with his promise.”

And with the Tories winning a slim majority last month, the party has now set about introducing the manifesto pledges that had Dale Vince so worried.

Onshore wind subsidies have been a source of irritation to the Tories for some time.

As Scottish Conservative energy spokesman Murdo Fraser put it: “Rural Scotland has had enough, and so have businesses and consumers. The Scottish Government has rolled out the red carpet for wind farms for too long.

“We can see the visual damage that has caused, and it makes no financial sense for so much money to be ploughed into a form of energy that is unreliable and intermittent.”

But while Fraser may have been painfully clear on his view of onshore wind, the plans set out in the Queen’s Speech itself were somewhat less specific.

The key part of the speech, where the industry is concerned, is the Energy Bill, which will empower the new Oil and Gas Authority (OGA) to determine how to best maximise the recovery of oil and gas in UK waters.

The bill will transfer the Secretary of State’s existing regulatory power to the OGA, (though the secretary’s regulatory functions in relation to the environment will not change). It will also provide the OGA with additional power to access company meetings, data acquisition, retention and transfer, dispute resolution and sanctions.

Given this was a key recommendation of the Wood Review, it came as little surprise.

Of more interest to the industry was the parts relating to renewables. And, perhaps in an attempt to reassure those looking for action on climate change, Amber Rudd, the new Secretary of State for Energy and Climate Change, has been careful in her use of language.

In a commentary to the Queen’s Speech, she said: “Man-made climate change is one of the most serious threats this country and the world faces. The summit in Paris in December is the best opportunity for years to get comprehensive, rules based agreement that keeps the objective of limiting global warming to 2 degrees in reach. The three biggest carbon emitters, the EU, US and China are all determined to get a deal done.”

And yet concerns remained among both environmentalists and renewables developers. In fact the closest that Rudd came to referencing the Tory approach to green energy was in relation to planning.

She said: “It’s right that local people should have the power to decide whether they want a wind farm in their area, so we’re devolving powers out of Whitehall. My existing consenting powers in relation to onshore wind will transfer to local planning authorities, making decisions on energy more democratic and giving our communities a direct say on these planning decisions.”

But, planning is a devolved issue. Control of the Renewable Obligation is not, and it is here that the Government has the industry so worried, with Rudd announcing the scheme will end a year early.

She said: “We want to help technologies stand on their own two feet, not encourage a reliance on public subsidies.

“So we are driving forward our commitment to end new onshore wind subsidies and give local communities the final say over any new windfarms. Onshore wind is an important part of our energy mix and we now have enough subsidised projects in the pipeline to meet our renewable energy commitments”.

The reaction was near instant, with Fergus Ewing warning the decision “which appears to be irrational” could be subject to a Judicial Review.

He said: “The decision by the UK Government to end the Renewables Obligation next year is deeply regrettable and will have a disproportionate impact on Scotland as around 70 per cent of onshore wind projects in the UK planning system are here.

“This announcement goes further than what had been previously indicated. It is not the scrapping of a ‘new’ subsidy that was promised but a reduction of an existing regime - and one under which companies and communities have already planned investment.

He added: “The UK Government has ignored the concerns of businesses and organisations who are integral to the future energy security of both Scotland and the UK, as well as to environmental organisations who recognise the importance of renewable energy in helping reduce emissions.

“The UK Government have chosen to place at risk a huge investment pipeline, conceived in good faith by developers based on statements from the UK Government.”

Industry too is obviously concerned, with Scottish Renewables warning that the cut could mean Scotland losing up to £3bn in investment.

Niall Stuart, chief executive of the industry body, described the move as: “bad for jobs, bad for investment and can only hinder Scotland and the UK’s efforts to meet binding climate change targets”.

He said: “Scottish Renewables completely rejects the UK Government’s rationale for cutting support for onshore wind.

“A recent report by the UK Government estimated that there are 5,400 jobs in the onshore wind sector in Scotland, and many of these could now be at risk. Early closure of the Renewables Obligation will also serve to damage investor confidence, not only in the onshore wind industry, but in the wider UK energy sector.”

Speaking to Holyrood before the onshore announcement, Stuart said the body had not received any communication from the new Government over its plans - instead relying on news coverage for information.

He said: “The challenge is that companies have already invested, in some cases, tens of millions of pounds to get the projects to where they are today and they can’t just reschedule their decisions, or say ‘that’s fine, we’ll just go onto the new mechanism’ because there is no guarantee they will be successful with the new mechanism. For example, lots of these projects have entered into contracts for the grid connection in a certain state and that contract places a liability on them should they not go ahead with their projects. That can run into tens of millions of pounds, so you can’t just change things day-to-day.”

And uncertainty is not limited to developers working in onshore wind.

“I think it really depends on which bit of the sector you speak to but I think there is a general sense of uncertainty and a lack of clarity about the future and the things that have been put in place to support investment in the future of renewables.

“So I think we would expect a strong commitment to climate change targets and staging posts along the way to 2050 targets including a 2030 target. I think it is important we get an early indication of what that target is and an early sense of what part government wants renewables to play in meeting that target, because then our industry can start to make some informed decisions about where it invests time, energy and money in the future.” 

And with renewables seemingly at a crossroads, the future of the Scottish oil and gas sector too remains in doubt.

In the same reaction to the Queen’s Speech, Rudd wrote: “Even as we cut our carbon emissions over the coming decades we will need oil and gas as part of our energy mix. That includes maximising home-grown energy sources rather than relying on imports – and benefitting working people in Britain.

“The new Energy Bill will boost the UK oil and gas industry by creating an independent regulator for exploration and production from the territorial sea and UK continental shelf.

“As well as helping maintain secure supplies, prolonging the life of this mature oil and gas-producing basin will sustain its contribution to our economy, bringing revenue to our nation and contributing to growth and employment; the industry in the UK already supports around 375,000 jobs.”

Clearly the industry is in need of support, yet there is little the government will be able to do to revive an oil price which remains stubbornly low. For those in renewables, this too is an area of disappointment.

Stuart says: “This is clearly an incredibly challenging time for the North Sea oil and gas industry and there has always been an assumption that when the oil and gas sector hit difficulty, the renewables sector would be growing and that the expertise and manpower in the North Sea industry would migrate over time into renewables.

“I guess that one of the big disappointments here is that we have not created the foundations to build the growth in the renewables sector to allow that to happen.”

But while the UK Government has frustrated developers and environmental campaigners in Scotland, Stuart says there is space for the Scottish Government to help.

He says: “It is about making sure these projects are as competitive as possible. So do we have the physical infrastructure in place for the supply chain to gear up – because that takes costs out. We need to keep pushing on transmission charges because that has always been a differential between the north of Britain and the south of Britain. That has effectively meant that Scottish projects have begun behind the starting line in the bidding process, because it is an additional cost.

“I think it is worth asking whether, if, or when, Scotland gets powers over the Crown Estate, is there a way they can use those powers to make projects more competitive? It is going to come down to cost and the key message from me is that this is going to come down to the tiniest of margins.”

Beyond that, the future looks uncertain for an industry that, above all, craves a stable environment in which to operate.

An ideal situation, for developers, would be a clear idea of what the future holds, not just for the next five years but beyond.

And yet there remains a sense that the mind set of party politics, with politicians working and thinking in five-year cycles, is not particularly amenable to creating the sort of grand planning that would suit the UK’s energy sector.

Back in 2006 critics had claimed Cameron’s Arctic trip was simply a PR exercise, aimed at repositioning the party in the minds of voters.

Whatever the rationale for the trip, it is starting to feel like it happened a very long time ago.