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Feed-in Tariffs

Volume 540: debated on Thursday 9 February 2012

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

I am sorry that the Secretary of State cannot be here today. He is in Cumbria opening the world’s largest industrial offshore wind farm—another big step forward in the deployment of renewables under this coalition Government.

The Government have today announced ambitious plans to ensure the future of the feed-in tariffs scheme and make it more predictable. The reforms will lead to a bigger scheme, providing better value. The feed-in tariffs scheme provides a subsidy, paid for by all consumers through their energy bills, to enable small-scale renewable and low-carbon technologies to compete against higher-carbon forms of electricity generation. The unprecedented surge in solar photovoltaic installations in the latter part of last year, owing to a 45% reduction in estimated installation costs since 2009, has placed a huge strain on the feed-in tariffs budget. That threatened the Government’s ability to roll out small-scale low-carbon technologies over the next few years in the numbers that we had wanted. We therefore acted as swiftly as possible to respond to the threat, through the changes we are now making to the tariffs for solar PV. Today is a turning point for the feed-in tariffs scheme.

The right hon. Lady might care to listen, because she clearly knows nothing about it. Rather than cackling, perhaps she will just listen for a change. The Opposition asked for a statement and I am giving it.

We have looked at the feed-in tariffs budget and made the most of the flexibility available under the levy control framework to ensure that we can keep the scheme going, but we want to do much more. The reforms I am announcing today are designed to make that budget go as far as possible to maximise the number of people able to benefit from feed-in tariffs. With the new reform package, we aim to give plenty of TLC—transparency, longevity and certainty, which were absent from the old scheme that we inherited from Labour. The reforms will provide greater confidence to consumers and industry investing in exciting renewable technologies, such as solar power, anaerobic digestion, micro-CHP, and wind and hydro power.

Instead of a scheme for the few, the new, improved scheme will deliver for far more people. Our plans will see almost two and a half times more installations than was planned by the Labour Administration, and that is just by 2015. That is good news for consumers and good news for the sustainable growth of the industry. We are proposing a more predictable and transparent scheme, as the costs of technologies fall. That will ensure a long-term, predictable rate of return, which will closely track changes in prices and deployment. Make no mistake: this will be a challenging package. The tariff degression mechanism that we will propose will not allow for fat profits or excessive rents, but it will show a serious ambition. Under our new plans, we believe that by 2020 we could see up to 20 GW of solar installed in the UK. That is a huge increase in our ambition for decentralised energy. This coalition wants to see a bright and vibrant future for small-scale renewables in the UK, in which each of the technologies is able to reach its potential and get to a point where it can stand on its own two feet without the need for subsidy, sooner rather than later.

In opposition, we promised a decentralised energy revolution, bringing power to the people. Today we take a huge stride forward to making that dream a reality.

I understand that the Minister was due to give a press conference at his Department at 11 am to announce his plans for feed-in tariffs. I hope that Her Majesty’s Opposition have not inconvenienced him too much by forcing him to come to this House to defend his plans. Nor will it have escaped the House’s notice that, faced with the first opportunity to deal with this chaotic policy, the new Secretary of State has ducked the challenge and gone AWOL. I do not think that is a particularly encouraging start. I received a copy of the Government’s statement only 20 minutes ago, so we shall have to look closely at the details of the announcement.

Last night, the Minister tweeted that he had an ambition for 22 GW of solar capacity to be installed by 2020. That is all very well, but not if his policies do not get us anywhere near the figure. Will he confirm that he is today proposing a further cut in the tariff level for solar power to 13.6p from July of this year? That would be a 70% cut in six months, which would be out of all proportion to the falling costs in the industry.

The Minister mentioned the analysis that his Department had commissioned, but will he confirm that the study was commissioned on 10 January and asked to report back just three days later? In those three days, how many businesses were consulted? Will he also tell us whether his plans will result in a contraction in the solar industry in the next four years and cause people to lose their jobs? The Minister tried to claim that his original plans would create an additional 1,000 to 10,000 jobs in the solar industry, but we have found out that that was the total number of jobs that the industry would support, not the additional number of jobs, which would in fact mean 15,000 to 20,000 job losses. I suppose that he will try to tell us that even deeper cuts will create even more jobs.

For months, I have warned that the Government’s plans to change the eligibility criteria would exclude nearly nine out of 10 families from having solar power. Moving the energy efficiency requirement from band C to band D is a welcome retreat, but will the Minister tell me how many people will still be excluded from having solar power, and how much they will need to spend on improving their property before they meet the revised eligibility criteria?

Finally, one of our deepest concerns with the Government’s proposals is that they will exclude everyone in social housing and community groups from having solar power. What have the Government done to enable people in social housing and community organisations to access solar power? More than 80% of the people who responded to the first consultation told the Government that they had got it wrong. The appointment of a new Secretary of State was an opportunity for them to change course. Today, we can see that they have failed to take that opportunity.

I am sorry that the right hon. Lady constantly sees the glass as being half empty, and carps at a very ambitious scheme that will be very good news for the industry. She clearly wants to invest her political capital in failure. If she looks at the consultation, she will see that we are proposing a further cut in the tariff for solar power. She mentioned one of the options, but there are actually three. The proposals for smaller schemes, which typically involve installations on the roofs of average homes, include the options for 16.5p, 15.7p and 13.6p. We will consult on those options. She clearly does not understand the big dynamic that is driving down costs. We welcome the fact that costs are coming down, and we are determined to ensure that tariffs come down with them. If she wants to stick to, and defend, the old scheme, she is welcome to do so.

I welcome the right hon. Lady’s acknowledgement that we listened to the consultation—that rarely happened under her Government—and that we are going for band D. More than 50% of homes in Britain already meet the band D criteria, and, when the green deal is launched in the last quarter of this year, everyone in the country will be able to access measures to improve their home at no up-front cost. We have also announced today that we are going to consult on a community scheme, which the Labour Government failed to introduce when they launched this programme. For us, communities are at the heart of the renewable energy revolution, and we want to do far more to encourage and enable communities to come together to generate low-carbon and renewable energy. We expect to be able to achieve exactly that under this scheme, which will be bigger and deployed to give better value for consumers and householders.

The Minister’s statement is welcome in that it restores a degree of order to a situation that had become increasingly chaotic. I am afraid that the chaos was aggravated by the nature of the consultation process on solar feed-in tariffs before Christmas. Does he agree that the new package will be judged on whether it offers more predictability for investors, thus bringing down the capital costs, and on whether it will give value for money to the consumers who are required to contribute to the development of the renewables industry?

My hon. Friend is absolutely right. Those two things are right at the heart of this new scheme: better value for money and greater predictability, with a regular, predictable degression, particularly for solar PV, allowing us to anticipate, and take advantage of, the falling costs of this exciting technology. I think he will see that industry broadly welcomes these measures.

I agree with the Chair of the Energy and Climate Change Committee that the previous FITs debacle has tarnished the industry, but we have not had an opportunity to discuss this new scheme; had it not been for today’s urgent question, we would not have known about it. Will the Minister print two schedules—one on the FITs that are currently available and another on those that are likely to be introduced in the future—so that business, individuals and community groups can have certainty about what they are entering into?

Earlier this morning, I placed a written statement in the Library, and I encourage the hon. Gentleman to download the full consultation document. If he does so, he will find all the proposed tariffs, with the various options, set out very clearly. We would welcome his, and all other, contributions to this discussion.

Will my hon. Friend confirm that the subsidies are paid not by the Treasury but by consumers as a whole—by other electricity users—and that we must therefore strike a fair balance between the consumers who are benefiting from the subsidy and every other electricity consumer?

That is absolutely right; my hon. Friend is spot on. Under the scheme we inherited from Labour, a very small number of people were enjoying bumper returns. Our improved scheme is much fairer. Under it, there will be far more deployment and at a fairer rate, which will be better news for consumers—who, as my hon. Friend rightly points out, pay for this through their bills.

Given the shattered consumer and business confidence following the fiasco before Christmas, has the Minister conducted any analysis of how many people will take up the FITs on a 13.6p return? I am also concerned that this new scheme might exclude a lot of people who are not in a position to have loans out for a very long time and who need to get the money back more quickly.

We expect to see two and a half times more installations by 2015 than under the original scheme introduced by the Leader of the Opposition when he was Energy Secretary, and we also expect that that higher level of deployment will be delivered for far less money. We therefore believe we have struck the right balance between consumers and having a higher level of ambition. Our scheme will be predictable: it will offer greater transparency, and it will offer certainty to the industry.

I welcome the move on the eligibility of domestic properties, widening the scheme to a wider group of potential consumers, and the move to widen it to community groups. What will the Government do to ensure that community groups, and especially housing estates, are made aware of this great opportunity, and what reassurance will the Minister give to organisations that might be approaching this sector for the first time?

A couple of weeks ago, the Department launched a new project to help communities build local energy schemes and programmes, and many communities across the country have responded very positively to it. They will be ideally placed to help inform, encourage and drive forward local programmes. We take the issue of communities very seriously, which is why we are consulting on a new community tariff. We are also considering introducing a community tariff guarantee to make it easier for communities to plan ahead, recognising that it sometimes takes them a little longer to get their plans in place.

Does the Minister intend to increase the proportion of the levy cap that is provided for FITs up to the end of the spending round in 2015? If so, how much will he increase it to—and why could he not do this before the recent fiasco?

We will substantially increase the DECC resources that are made available for this scheme. We are happy to do that now because this new scheme offers much better value for money than the scheme we inherited. We expect that about £1.3 billion will be made available for this scheme over the spending period, but there will not be any increase in the cost to consumers, and the total sums will still be within the overall levy control framework. This will be achieved through better budgetary management by DECC, and our conviction that the new scheme offers better value for money than the one we inherited from Labour.

As the Minister knows, I am a patron of ONCORE—Oxford North Community Renewables Limited—a community group in my constituency that has built a photovoltaic array on a local school in partnership with community investors, a local climate group, and the school itself. I am sure he agrees that ONCORE is exactly the kind of group that we want FITs to encourage, but unfortunately under Labour’s scheme it was impossible to distinguish between community groups and businesses, and as a result it has been impossible to treat community groups differently under the review. What action is he taking to deal with that?

My hon. Friend is absolutely spot on. Labour failed to discriminate in favour of community groups, as we propose. We are consulting on proposals for a special community band to ensure that we give communities the preference we believe they deserve.

The owners of Trusted Solar, a company in my constituency, contacted me this morning to say that they were appalled by the way in which the statement had been sneaked out. They told me that they had had to lay off staff, and would not be able to go ahead with their plans for jobs and growth. How will any firm be able to trust this Government—or to plan for jobs and growth—if this is the kind of action that we are going to see from them?

Issuing a written ministerial statement and a full consultation document hardly constitutes sneaking something out. Later this morning I shall meet dozens of members of the industry and all the major trade groups at a stakeholder round table at DECC, which will be extremely open and very inclusive.

The message I am receiving from those in the industry is that they welcome the predictability we are providing. They will find the tariff reductions challenging, but there is a great deal that they will be able to bank on, and invest in, as a result of the improvements we are making to Labour’s failed scheme.

I welcome the Minister’s statement, and in particular his announcement that band D properties will be eligible for solar panels. A number of older properties on Exmoor and in the Blackdown hills in my constituency have solid walls and are very expensive to insulate. Can the Minister provide any extra help for those owners of those properties?

Under the green deal and its supporting energy company obligation, a significant subsidy will be available for homes that are hard to treat, and I imagine that those cottages on Exmoor are exactly the sort of homes that would benefit from additional subsidy for solid-wall insulation.

Businesses and consumers in my constituency will assume that the Minister’s “TLC” stands for “turbulence, losses and chaos”. The Government have already spent £66,400 on fighting this case in the courts. How much more public money will they waste before they put solar energy on a sustainable footing?

The proposal we have presented today means that we are indeed putting solar energy on a sustainable footing. What we are not going to do is give up trying to save the consumer £1.5 billion, which is what it would cost if our appeal to the Supreme Court did not succeed. We think that it is right to stand up for hard-pressed consumers, and we do not think it is right to over-inflate rewards for the few people who receive unnecessarily high rewards of 43p.

Green technology leaders such as Worcester Bosch in my constituency will welcome the increased transparency and certainty and the increase in eligibility, but they will particularly welcome the increase in support for combined heat and power. Does the Minister agree that given the continuing prevalence of gas central heating in this country, CHP is a key technology in encouraging microgeneration, and will he do everything in his power to support it?

Absolutely. We are very pleased that as a result of our reforms we shall be able to increase the tariff for micro CHP. So far there has been relatively little deployment of such exciting technologies, but I hope that the industry will now grasp the opportunity with both hands and that we shall see a greatly increased uptake.

The Minister will recall that in December he met my hon. Friend the Member for Gateshead (Ian Mearns) and me to discuss the terrible impact of his changes on my constituents who work for Carillion, which has announced 4,500 redundancies. I hope that the measures announced today will safeguard jobs. I shall study them in more detail, but what measures will the Minister take to ensure that the uncertainty created by his actions does not spread to the green deal?

I think that people will take confidence from the fact that we are managing the budget responsibly, and introducing budgetary mechanisms that allow the available subsidy to be spread over the whole budget period. We shall no longer see the boom and bust in feed-in tariffs, and indeed in the green deal, that we saw under Labour’s scheme.

What advice can the Minister give the thousands of householders throughout the country who, as we speak, are receiving direct mail shots from the solar industry offering them the opportunity to benefit from the 43p per kWh tariff? I am not sure that that is an entirely honest way of doing business, but will the Minister advise people on how they should respond?

I think that people should be very cautious about making a decision based on a rate of 43p. What they can do is plan with certainty on the basis of a 21p rate until July, and a stable rate of return after that.

May I ask the Minister to answer the question put by my right hon. Friend the Member for Don Valley (Caroline Flint), and tell us how many people will lose their jobs if the Government proceed with a further cut in the solar tariff to 13p in July?

I am afraid that the hon. Gentleman has misunderstood the statement. We are talking about growing the solar industry, and we expect a steady growth in the number of people who will be employed in the industry until 2015 and beyond.

As one who approves of local production for local consumption, I welcome the statement, but can my hon. Friend tell us what is the recommendation for the small-scale wind FIT and why any change has been made in it?

There is to be a dramatic reduction in the tariff for small-scale wind. We had to take a hard look at it on a value-for-money basis, and as a result we are having to reduce it substantially to 21p. We must make it clear that we can justify paying a significant subsidy to individual technologies only if there is a real chance that they will reach a point at which they are cost-competitive with other mainstream renewables, and indeed fossil fuels, in the relatively near future. Unfortunately, that case has not been made so far in relation to small-scale wind, but I hope that the industry will respond with proposals for innovation and plans to make its technologies more cost-competitive.

Is the Minister aware that following his chaotic stewardship in DECC, the biggest barrier to the success of the solar industry in this country is him?

I am afraid that the hon. Gentleman is talking absolute rubbish. We in DECC have really good engagement with the industry. The stakeholders will be in my office in about an hour and a half, and I look forward to a sensible, grown-up, constructive discussion with them.

I was grateful to the Minister for arranging a meeting just before Christmas to discuss the Harlow community scheme, which was to benefit 1,500 houses by providing them with solar panels. Will he explain how his new, revised proposals will help to ensure that the scheme continues?

I hope that my hon. Friend will contribute to our consultation on how we should define a community scheme. We obviously want to make the scheme as inclusive as possible, but the more narrowly it is defined, the greater the differentiation from other large-scale schemes we shall be able to offer. There is a balance to be struck. We are genuinely interested in receiving feedback, and I think that, as a real community champion himself, my hon. Friend will be well placed to help us.

Why do the Government move with the speed of a striking cobra when they are slashing support for essential renewable energy, but with the speed of an arthritic sloth when it comes to recognising the subsidies that will be essential for nuclear power in future?

First, we are not subsidising nuclear power. Secondly, we are introducing a very dynamic system of tariffs that I think other countries will now try to copy. I think that rather than being the slow man in Europe in renewable deployment, we shall be in the fast lane.

The Minister will be aware that in the last year of the previous Government, we were 25th out of 27 European countries in the use of renewables. I note his target of 20 GW, which seems quite heroic. Can he confirm that meeting it would put us at the top of the league and not in the relegation zone position he inherited?

The Secretary of State is in Cumbria today to open the world’s largest offshore wind farm, which will help to push us up the table, and I certainly believe that solar has the potential to push us higher still. Whether that will take us to the top—given the progress being made in Europe, and the severe disadvantage we inherited owing to Labour’s record in government—I do not know, but all I can say is that things are going to get better.

My hon. Friend knows, given the representations I have made to him, among others, about the desperate need for stability on the question of solar installations. Will he assure me that the outcome of the consultation process will represent the Government’s settled policy on this matter for the years ahead?

Absolutely. The good thing about this scheme is that, unlike the one we inherited from Labour, it will not depend on arbitrary decisions or interventions from politicians. Rather, it will clearly set out the mechanics of how we will degress tariffs not just this year or next, but for years to come, and will provide the stability and longevity that investors are crying out for.

We are very lucky today in having an urgent question answered by the greenest Member of this House; nobody here is more committed to renewable energy. The Opposition attacking the Government for not leaking in advance a written statement is also novel. However, will the Minister look into the problem with the Nene valley hydro scheme? It is an excellent scheme that I know his Department supports, but the Department for Environment, Food and Rural Affairs is dragging its feet.

This package of measures is good news for hydro. We are very ambitious for the hydro sector, and I should be delighted to meet my hon. Friend to see whether we can iron out any small difficulties.