Skip to main content

Feed-in Tariffs

Volume 534: debated on Monday 31 October 2011

(Urgent Question): To ask the Secretary of State for Energy and Climate Change if he will make a statement on the Government’s proposals to reform feed-in tariffs.

Since the feed-in tariffs scheme started, it has been successful in encouraging people up and down the country to get involved in local, clean green energy generation. Solar photovoltaic has led the way, and more than 100,000 homes now generate their own electricity. It is a very attractive technology to install, driving forward the coalition’s ambitious, decentralised energy agenda, but let us be clear: the current returns now available on solar PV investments, funded by energy consumers through our energy bills, are unsustainable. Falling PV costs mean that returns are at least double those originally envisaged for the scheme. This does not provide value for money to consumers. If we do not act now, the entire £867 million budget for the current spending review period would be fully committed within the next few months. That would limit the number of people able to benefit from feed-in tariffs.

We are therefore consulting on new tariffs for solar PV installations. Owing to the urgency involved, we propose that the new tariffs would apply to all new installations that become eligible for FITs on or after a “reference date”, which we propose should be 12 December. We are also seeking views on other proposals, including one to strengthen the link between feed-in tariffs and energy efficiency. It cannot be right, and it is a fault of the system that we inherited, that we subsidise renewable energy generation on energy-inefficient buildings.

We are determined to secure the continued success of feed-in tariffs through sustainable growth, not boom and bust. We are consulting on new tariffs for solar PV to secure the FITs budget in the interests of all eligible technologies and to bring greater coherence to the Government’s ambitious policies to green Britain’s homes.

Thank you, Mr Speaker, for forcing the Government to come to the Commons today. With thousands of jobs and businesses at risk, it was rather a surprise that the Government wanted only to issue a written statement. It is a shame that the Secretary of State for Energy and Climate Change could not spare the time to be here.

Today’s announcement is yet another example of a Government who are out of touch, are cutting too far and too fast, and have no plan for jobs and growth. Last year, the solar industry employed 3,000 people in 450 businesses. Today, it employs 25,000 people in 3,000 businesses. With growth flatlining everywhere else, today’s announcement threatens to strangle at birth the solar industry. It is a kick in the teeth for families who want to do the right thing by investing in solar. The new proposals guarantee that lower-income households will lose out, as fewer firms offer the lifetime deals that are currently available, and that solar will be available only to the well-off.

The Minister claims that installation costs have fallen by 30%. That is partly, I would argue, because of the mass, bulk investment in this new industry. If that is so, why have the Government reduced the tariffs by more than 50%? With a new rate of 21p per kWh, how many jobs and businesses have been put at risk? The UK has installed only 3% of the solar energy installed in Germany in the past two years. Is that the level of the Government’s ambition—3% of German productivity?

The Minister claims that the current scheme could add £26 to domestic electricity bills. The fact is that this Government’s failure to stand up to the powerful vested interests in the energy industry has led to £175 being added to bills in the past six months alone.

Will the Minister tell us why, when the consultation is not due to finish until 23 December, the cut-off point for eligibility under the existing scheme is 12 December? What does he say to people who have already commissioned domestic solar power systems and paid a deposit, but who, through no fault of their own, will not manage to install, certify and officially register them by 12 December?

Labour started the process of feed-in tariffs and we remain proud of it. It may have needed adjustment as costs fell, but the coalition has messed around with it repeatedly, given out mixed messages and left 25,000 workers in a high-tech industry of the future facing the dole. In opposition, the Conservatives promised a more ambitious scheme; today’s announcement is just another broken promise.

This is rather extraordinary, because there has only ever been one substantive vote on feed-in tariffs in the House of Commons. Everyone on this side of the House voted in favour of feed-in tariffs. The right hon. Lady and all her hon. Friends voted against them. Will she apologise because the last Labour Government had to be dragged, kicking and screaming, into setting up a feed-in tariff system? Not only that, but they so begrudged it that they set up the worst scheme that they could imagine. The amount of detail that was wrong and the scandalous way in which it was set up by the now Leader of the Opposition were disgraceful. The faults that we are rectifying were created by the previous Government.

The right hon. Lady says that we are out of touch. We may be out of touch with the solar lobby, but we are not out of touch with energy bill payers. She says that they are groaning under a £175 increase, but she wants to put that up. If we did not act now, consumers would face massive increases in energy bills. Today, she has come to the House with a different face on and she does not care about the cost that she proposes to add to energy bills. If energy bills go unchecked, it would add around £1 billion a year—that might be small beer to Opposition Members, but Government Members understand just how much strain energy consumers are under.

The right hon. Lady talks about the level of ambition. We know that had the previous Government had their way, there would be no ambition, because there would be no feed-in tariff scheme. The only reason we have a feed-in tariff scheme is that the Labour Government were defeated in the House of Lords by Liberal Democrats and Conservatives united.

The new tariff that we are proposing to pay is on a par with the tariff paid in Germany. Across Europe, the cost of solar subsidy has been falling. It is a real shame that the right hon. Lady is rushing to make partisan points rather than engaging in a sensible discussion on how we get the best value for money out of the feed-in tariff scheme. We have £867 million. We want it to be spread as widely as possible; she wants it to be enjoyed by the lucky few. Bumper double-digit returns of 10% or 15% for those lucky enough to install panels is disgraceful when people are lucky to get 1%, 2% or 3% at the building society. The Government are recalibrating the return on feed-in tariffs to the level—similar to 5%—that was originally intended. I am afraid that the right hon. Lady is the one who is out of touch.

Finally, the right hon. Lady asks why eligibility will start from 12 December. It is very simple. Were we not to do that, and were we to announce a change now and leave the current arrangements in place until next April, there would be a massive gold-rush, and the entire budget for feed-in tariffs—the entire £867 million—would be gone by then. The last people from whom we should take lessons on how to manage a budget are Labour Members.

As someone who thinks it is very important that we get lower energy bills, I welcome any move in the right direction. Will the Minister tell us how much his proposals might knock off the bill, and will there be other measures to get the price down further?

This is saving money rather than knocking money off the bill, but I can assure my right hon. Friend that we are absolutely determined to ensure that green policies deliver real value for money. Unlike the Opposition, we are engaged not in some sort of illusion of green never-never land, but in the realities of what will deliver savings to consumers now, and real green jobs and growth. It is that rather than wishful thinking that informs our policy making.

What are the implications for housing associations, such as Peabody, which by providing solar energy in my constituency is helping the very poorest in the country to cut their energy bills?

That will depend on the assumptions that the housing association has made of the rate of return that it will get. If it worked on the basis of the rate of return that was originally intended for the scheme when the right hon. Lady was in the Department—that is, around 5%—it will have absolutely no problem in going forward. If it has based the rate of return on the inflated rate that we have seen this year as a result of the dramatic fall in prices—conservative estimates are that the fall in costs is 30%, but others, such as Bloomberg, say that it is up to 70%—and if it is assuming a double-digit rate of return, it will struggle to finance the scheme.

However, I would say to the right hon. Lady, who I know is committed to this agenda, that we must see this stage of feed-in tariffs as building the foundations of a decentralised system that includes a large element of solar. However, even given the high costs of solar, at 21p it will attract the highest level of any subsidy of mainstream technologies. At that level, we cannot simply give an open cheque for unfettered deployment.

I listened with the very closest and most intense interest to the answer by the Minister, but if we could have slightly pithier answers from now on, it would aid us all greatly.

The requirement for participants in the scheme to achieve a certain energy efficiency will work against people in rural houses with solid walls, who will find that difficult to achieve. Will the Minister say something about those people, who are often in fuel poverty?

Yes, we want much greater integration in the Government’s various policies, certainly the ones that we inherited. We think that before anybody does anything they should improve the energy efficiency of their home. That obviously presents particular problems for people in rural areas, which is why the green deal will include a substantial element of annual subsidy through the energy company obligation, which will particularly help those with solid walls and in off-grid and rural areas.

Given that the installation and registration deadline for the existing tariff is 11 days prior to the close of consultation, will the Minister confirm whether it is a new Government policy to consult on things despite having already fixed a deadline? If, on the other hand, the consultation finds that the deadline is inappropriate and the Government reach that conclusion after listening to the public, what will they do about those who fall into the gap in the meantime?

This is a difficult issue. The hon. Gentleman will appreciate that we are trying to save the budget. If we were to leave this scheme open until next April, as we had originally intended—although we said that we would act if there was an urgent need, and there is—there would be a run on the fund. The cut-off date will be 12 December, but people will not get a reduction in tariffs until April. It is complex. It is driven by the fact that there is a run on the budget, and we are acting responsibly to preserve the budget for lots of other consumers and to ensure that it does not just disappear in the next few months.

Will the Government explain how our policies compare to those in Europe where feed-in tariffs have also become unaffordable?

Of course, in socialist Spain we have seen boom and bust writ large, with the entire solar tariff scheme collapsing, causing a complete run in confidence. Elsewhere across Europe, we have also seen massive falls in solar prices. The more nimble, smarter tariff schemes have adjusted down their tariffs. We aim to get ours on a par with something similar to that in Germany.

Proven Energy, a firm in my constituency, went bust because of the inadequacies of the planning regulations for small wind energy. For that reason, the 55 people now on the dole do not accept the Government’s proposition that they are the greenest Government ever. What evidence can the Minister give me that today’s announcement will be any different from previous commitments and that this is not just empty rhetoric with no substance?

It will not be a surprise that I disagree strongly with the hon. Gentleman. We are the greenest Government ever. This is the Government who have put £3 billion into a green investment bank; who have cut their emissions by 13.5%, despite Opposition Members saying that it was not possible; and who are backing green energy and have an ambitious plan for a whole range of technologies, and who are not one-club golfing.

Order. May I remind the House that Members who were not here at the start of this exchange should not expect to be called?

I understand the necessity of ensuring a sustainable scheme, but will the Minister assure me that the voices of small companies such as C. Gascoigne, a family-based electrical installation company in my constituency, will be heard as part of the consultation and that it will not be left just to the big companies to set the policy?

Absolutely. It is because we value the work of small and medium-sized enterprises and smaller companies that we do not want many of the larger companies simply to gobble up the whole budget within months. We will be listening carefully to SMEs and trying to provide a sustainable pathway that they can build on.

I believe that the Minister is aware of Brighton energy co-op in my constituency, which uses investment for local people for community-owned solar panels. The project’s director is deeply concerned about the impact of these new proposals. Will he offer a stay of execution for community projects with planning permission so that they can get up and running and not be bound by the December deadline?

One of the faults of the scheme that we inherited from the Labour Government was that there was no way of recognising within the tariffs any sort of community scheme. One way in which we will reform the scheme will be to consider creating a special tariff for community schemes, which were totally ignored in the system set up by Labour Members.

The hon. Gentleman knows that I have been campaigning for those off the gas grid. Many people who do not have mains gas pay the highest winter fuel costs; is there a possibility that those who have moved over to PV will be looked at specially? Is there a special discount for people who do not have mains gas?

There is no special discount for those off mains gas, but obviously the counter-factual makes the offer even more attractive for them. I would encourage those such as the hon. Gentleman’s constituents who are off-gas not only to look at solar PV, but to look at the renewable heat incentive and the renewable heat premium payments, which are already out there, and to see whether they can apply for some of the vouchers for the range of technologies that will help them with their heating, which will form a much larger proportion of their annual energy bills than electricity.

I very much welcome the Minister’s comments to the hon. Member for Brighton, Pavilion (Caroline Lucas) about community schemes. May I urge him to look closely at this issue? In my constituency, Wadebridge renewable energy network—which I believe he is aware of—is looking hard at the scheme, which could have huge benefits as the money is reinvested to deliver more carbon reduction schemes across our communities.

We are keen to encourage community schemes wherever we can, but we have a budget to manage and it is clear that demand far, far outstrips supply, particularly with the current, inflated subsidies. We are therefore trying to recalibrate the scheme and put it on a sound footing, to ensure that the money will be available for years to come to support exactly the sorts of schemes to which my hon. Friend refers.

Given that cost is the main criterion, why have the Government not reconsidered the costs of nuclear power, which are ballooning? Is it not true that the coalition has been taken over by the bad science loonies of global warming denial?

I share people’s concerns about the suddenness of the change and the effect on individuals and organisations that were already planning solar installations between December and April and had budgeted appropriately. One example is Ridgefield, a new primary school in my constituency. Will the Minister consider carefully whether exemptions could be made for deserving cases such as that?

I am afraid it is just not possible to make exemptions in such a system. We need to drive down the cost of solar. We will achieve that by ensuring that people do not price to the tariff but are incentivised to bring down costs. We need to ensure that the fall in costs internationally is passed on to consumers and that the industry does not continue to price to the tariff.

As we see this Government’s credentials as “the greenest ever” crumbling before our eyes, where is the Secretary of State?

This may come as a surprise, but we have a team on this side of the House. I have been leading on this issue, and the Secretary of State is very happy for me to do so. [Interruption.]

Order. This is not said pejoratively, but I have noticed that whenever the Minister is in the Chamber, Opposition Members seem to get very wound up and excited. I do not know whether it is his fault that he winds them up or their fault that they allow themselves to be wound up, but the House needs to calm down a little.

I appreciate that something had to be done about the overly large tariff subsidies, but Electrical and Testing Services in my constituency is worried about the speed of change. What advice and guidance will my hon. Friend give to small businesses so that they can get through the transition period without having to lose any staff?

My hon. Friend is absolutely right to look to the interests of small businesses, many of which were feeling slightly excluded, because of the speed with which larger firms were gobbling up the budget. It is because we want to preserve the budget over the longer term that it will be more sustainable for smaller businesses. However, I would recommend such businesses to look not just at solar PV, but at integrating a range of technologies into their offer—in particular, energy efficiency—and at how they might offer services for the green deal.

Feed-in tariffs should be about more than just solar. What is the Minister doing to help small businesses that are working on innovation and other technologies to compete and to provide a wide range of technologies for people to chose from, particularly when we get into the green deal?

The hon. Lady is absolutely right. The danger was that solar, which was already taking more than 90% of the feed-in tariff budget, would take the whole lot. There are a lot of other micro-technologies out there that I want to see supported, such as micro-hydro, micro-combined heat and power, small-scale wind and small-scale biomass technologies. There are lots of different technologies that we need to come into the system and that also need fair funding. There are, of course, opportunities in the comprehensive reviews to look at the support for other tariffs, and we may even consider raising them where they act as an insufficient incentive to bring on those other technologies.

The Minister may be aware of a recent research paper produced by the Parliamentary Office of Science and Technology, which estimates that solar produces three times as much carbon per kWh as other renewable technologies such as wind and nuclear. Why are we subsidising solar more than the others?

I am not aware of that particular paper, but I have to say that I remain a fan of solar. The issue is about the cost of solar. The fact is that it currently attracts four times as much subsidy as any other form of renewable generation. It is not viable to have a mass roll-out of that technology when costs are still that high. We need to bring the costs down. When we get to that point, we will see a mass roll-out in the UK—but not before costs have been brought down further.

The Minister has not answered one important point made by my right hon. Friend the Member for Don Valley (Caroline Flint)—that he has buckled under pressure from the big six energy producers. Is it not the truth that they make money out of selling electricity and they do not want competition?

That is why, unlike the previous Government, we are bringing forward transformational proposals as part of our electricity market reform. We have already had one Energy Bill in this Parliament; another will be along shortly.

I fully appreciate that the previous Government intended to reduce feed-in tariffs at some stage. However, what assessment does the Minister make of the effect of this announcement on small and medium-sized enterprises that have flourished in installing solar PV over the past couple of years?

They have flourished only really in the last few months. The rate of deployment doubled between September and June. We are seeing an extraordinary bubble that has grown over the past few months. Of course, these enterprises will see their order books reduced relative to the past few months, but we need to put them on a sustainable footing. A lot of people in the industry have raised such concerns privately with me. Anyone who talks to solar producers knows that they realise that there needs to be responsible and sustainable growth, not a quick burst.

What about the 100 jobs lost and the effect on 4,000 households in Stoke-on-Trent as a result of what seems to be retrospective legislation through consultation? Surely the Government should do the right thing and allow at least those applications that are in the pipeline not to be affected so severely by any change in tariff.

It is our judgment—it is a matter of judgment; I do not pretend that we have it absolutely right—that the 12 December cut-off date is a fair assessment of how long it will take those currently in the system to get through to deployment. That is why we landed on that 12 December cut-off date, but I appreciate that there might be individual exceptions to that rule. I say to the hon. Lady that this is about creating a sustainable future. The Labour party accused me earlier in the spring of butchering the solar industry, since when deployment has trebled.

Small companies based in and around my constituency are concerned as they feel that they stepped up to the plate as the Government asked them to do, and created growth, businesses and jobs—yet they now face an uncertain business model going forward. Will the Minister agree to meet me and small business owners in this industry in my constituency to discuss the practical impact of these changes?

I am happy to meet my hon. Friend, but he must understand that the one thing that would be absolutely wrong would be to encourage these firms to rush forward in a burst of growth knowing that the money would run out in a matter of months. A sustainable pathway for growth is what they need.

On a day when the Government are saying that they are in favour of jobs and growth, I find it extraordinary that the Minister is standing at the Dispatch Box and criticising Labour Members for arguing for small businesses which have invested on the basis of Government policy. These businesses will be completely shafted in six weeks’ time by his decision not to implement a satisfactory stable investment framework. What impact does he think his decision today will have on future investment in the solar industry in the UK?

I find this scaremongering and doom-mongering from Labour Members to be absolutely reprehensible. We are taking the scheme back to the same rate of return as when it was launched 18 months ago. We are simply trying to reduce the bubble created by the ineffective scheme set up by Labour. We believe in a sustainable path for growth, not in boom and bust like the Labour party.

Will the Minister confirm that the cost of solar installation has fallen by 30% in less than two years? If that is the case, is it not right for feed-in tariffs to be adjusted accordingly?

My hon. Friend is right, and in fact the cost of some systems has fallen by much more than 30%. Bloomberg estimates that the cost of some of them has fallen by more than 50%—indeed, by up to 70%. This is not a United Kingdom phenomenon; prices have tumbled spectacularly throughout Europe. However, because of the ineffective system that we inherited from the Labour party, there was no way in which tariffs could keep pace with that.

The last fast-track of the solar feed-in tariff was derided because nothing—I repeat, nothing—changed as a result of the consultation. This consultation will end after the date of the start of the new scheme. May I ask the Minister, in all seriousness, what impact assessment he has made in relation to the number of community schemes that are currently in progress but will not proceed as a direct result of his proposals and the 12 December deadline?

I am grateful to the hon. Gentleman for his question, because it was he who accused me of butchering the industry after the last review. Since then, deployment has trebled. He was wrong earlier in the year, and he will be spectacularly wrong again. He will know that because of the way in which the system was set up under the—[Interruption.] If hon. Members will calm down slightly, I will answer their question. Perhaps they will allow me to get the words out.

The fact is that the way in which the system was constructed—[Interruption.] I am trying to give the answer. Because of the way in which the system was constructed, there is no way of rewarding community schemes. There is no tariff for communities. There is no way of distinguishing between a City hedge fund manager and a village hall because of the way in which the system was constructed by the last Government. We will try to change that so that we can specifically recognise community schemes, and we will consult on that work.

I must declare an interest. We recently had solar PV installed on our roof. The people next door saw it, and they now have it as well. I understand that the scheme has been a victim of its own success, but how confident is my hon. Friend that the change in tariffs will not cut off the growth of, and interest in, solar PV as a source of renewable energy in other households?

Obviously there is a difficult balance to be struck, and I know that many firms will find it difficult to navigate the system, especially in the short term. I must make it clear, however, that it would have been wrong to do nothing, and to allow the whole budget to be burnt through in a matter of months. Had we done that, the industry would have been looking at oblivion, but now, thanks to timely intervention, it can look at a sustainable pathway to growth.

What would the Minister say to the work force and management of Kingspan, a firm in my constituency that manufactures solar panels and solar cells? A representative of that firm told me on the telephone this very morning that the effect of the Minister’s decision on pre-order contracts will cost it £12 million between January and April next year. Is that the way to improve manufacturing industry in Britain?

What I would say is that we intend to reduce tariffs to levels comparable with those in Germany, which has the highest level of renewables deployment in Europe. We are lowering tariffs to encourage market competitiveness. Kingspan is a great company that manufactures a range of products, not least insulation products, which will benefit from a boom as a result of the roll-out of the green deal between now and 2020.

I note the need to recalibrate and safeguard the budget, but does the Minister agree that it is important to encourage local councils to create the right framework for investment in a package of energy-saving measures?

Absolutely. We must get away from the silo culture that concentrates exclusively on solar PV, on the technological flavour of the month, or on one or two types of intervention. We need an holistic approach to energy measures, the most important of which is energy efficiency and the least important the generation of electricity. The right hierarchy consists of energy efficiency, then heat, then renewable electricity, and local authorities are key partners in that regard.

The Minister said at the solar photovoltaics conference last Friday that he had not come to kill solar PV tariffs. Does he accept that these appalling policy lurches—two in the past three months—are killing the solar industry’s future, as was reflected by all those present at that conference? Will he now review the time scale for the most recent lurch, and at the very least extend it so that those who currently have contracts up to when there was originally going to be a review can carry out that work? Otherwise, no one will ever believe anything that he says about any tariffs in the future.

I am afraid the Labour party’s credibility on this issue is ripped to shreds. It said in the spring that the industry would be butchered, since when deployments per month have trebled.

Has the Minister had the opportunity to examine other countries around the world that have cut the feed-in tariff to see what impact it has had? For example, has he considered the Labour Government in New South Wales, which slashed the cost of the feed-in tariff to a third of its original value and set a cap on it for the very same reasons that he has given today?

Around the world, sensible Governments worried about energy bills are taking similar steps and introducing similar measures. Germany, which has the largest renewable deployment in the European Union, has a similar level of feed-in tariff for solar.

The Minister mentioned a silo culture, yet the Government are cutting feed-in tariffs, which are creating British jobs in companies such as Romag in my constituency. At the same time, they are providing regional growth fund money to companies to import Chinese panels to be assembled here and then sold on as British. Is that a deliberate policy to put at risk British jobs, or it is just sheer incompetence?

We are very supportive of excellent companies such as Romag, and we want to see more advanced manufacturing in this country. However, £867 million is the budget, and we have to ensure that it lasts and is sustainable rather than all being blown in a few months.

I appreciate that the Minister understandably wants to defend his budget, but further to the question asked by the hon. Member for Brent North (Barry Gardiner), and bearing it in mind that the policy will be implemented before the end of the consultation period, may I plead with him to keep the matter under review and come back to the House before 12 December to explain where he has reached at that point? Will he keep the cut-off date under review, with the intention of perhaps extending it?

No, I am afraid that that would deliver the most terrible uncertainty to business. It has to be clear that there is a cut-off date. We mean what we say, I am afraid.

The Minister is right that we cannot consider the matter in isolation. In the light of his Government’s decision to betray the good faith of all those who have invested in the solar panel industry on the basis of feed-in tariffs, how will the Government now convince any potential investors in UK manufacturing that the Government can be trusted to stick to policies that encourage manufacturing, to avoid the immeasurable damage that the lack of that investment would cause?

That sort of hysterical response does very little to help the industry. The fact is that the feed-in tariff scheme was set up to provide a return in the region of 5%. Now, 18 months on, we are recalibrating the scheme to provide a return in the same region. Everything else is a bubble. The hon. Lady’s constituents’ energy bills pay for the scheme, and we cannot simply waste energy bill payers’ money.

Pensioners in nearly 200 council bungalows in the Dearne are set to benefit from new solar panels free of charge. That scheme, which was put together by Barnsley council and Berneslai Homes, is at risk from the Minister’s announcement this afternoon. He has told the House that without these changes, he is worried that solar panels will become available only to the lucky few. Is not the truth that, with the changes, they will become available only to the wealthy few?

Basic maths would inform the right hon. Gentleman that the lower the tariff, the wider the money can be spread. If there is a very high tariff, the finite amount of money that we have can go to only a few people. The lower the tariff, the more people can benefit. It is basic maths.

Order. Members know that I like to accommodate urgent questions very fully, but today’s business faces substantial time pressure so I am afraid that we must now move on.