Thursday, 19 June 2008.
The Committee met at two o'clock.
[The Deputy Chairman of Committees (Baroness Gould of Potternewton) in the Chair.]
Clause 34 [Power of Secretary of State etc to transfer functions]:
16: Clause 34, page 18, line 8, leave out “another person” and insert “a public body”
The noble Lord said: I will speak also to Amendments Nos. 17 to 25 and 77, all of which are government amendments. I hope that I can be brief.
I will begin with a brief word about Clause 34, to which the first group of amendments applies. It enables the functions of the Secretary of State and Scottish Ministers to be transferred, by order, to another authority, or multiple authorities, once it is decided which authority is best placed to exercise such functions. The power to make orders or regulations, however, cannot be so transferred.
These are technical amendments but they all have a single purpose. Clause 34 currently refers to functions being transferred to a “person”. The Delegated Powers and Regulatory Reform Committee of this House has requested that this be replaced with a reference to a “public body” in order to ensure that only public, rather than private, bodies could be tasked with carrying out the functions on behalf of the Secretary of State or Scottish Ministers. This recommendation is entirely consistent with our intentions in relation to this clause, as any potential transfer has been envisaged only in connection with public bodies, such as the Crown Estate.
We consider, however, that the Delegated Powers and Regulatory Reform Committee’s suggestions will provide additional clarity and may reassure the general public and the potential operators of carbon dioxide stores that, if the Secretary of State or Scottish Ministers decide to transfer their functions under this chapter, the transfer will only be to one or more public bodies. Amendments Nos. 16 to 25 all leave out the word “persons” and insert other suitable words.
I turn to Amendment No. 77, which is in this group. It is a response to another recommendation of the committee; that is, a change in procedure for making regulations under Clauses 13 and 27. Such regulations, if made, would specify the powers and duties of inspectors of offshore gas storage and unloading and carbon dioxide storage facilities, respectively. Amendment No. 77 is proposed in relation to Clause 94, as this clause governs the procedure for making secondary legislation envisaged in this Bill.
Clauses 13 and 27 specify that inspectors’ powers and duties may include powers of any kind specified in Section 108(4) of the Environment Act 1995. The powers contained in the section are extensive and range from the power to take samples and measurements to the powers of entry, investigation and questioning. However, the powers that may be given to inspectors are not limited to those specified in that section, and in that sense the powers in Clauses 13 and 27 are open-ended.
We therefore agree with the committee’s recommendation to subject the making of the regulations to affirmative procedure because, due to their open-ended nature, they would benefit from more detailed parliamentary scrutiny. My department is content that such a power would be used infrequently and that, as such, the change in procedure would not be burdensome. We have chosen that option, rather than the other option recommended by the committee—namely, that of restricting inspectors’ powers to those specified in Section 108(4) of the Environment Act 1995—to ensure that the necessary flexibility in prescribing inspectors’ powers and duties in relation to the new offshore regimes we are creating is retained. That flexibility is important. I beg to move.
I am not objecting to these amendments in any way, but I have a question. In the Bill, the phrase “another person” was used. I had not seen that before. Would it need to be a named person of an organisation? That could cause major problems if the person were then to change. This is only a point of clarification, because I have not come across a “person” being set out in a clause in this way.
The amendments that the Government are seeking to persuade the Committee to adopt leave out in every instance the expression “person”—and, in one instance, “another person”—and insert the expression “body”. This is so that the world knows we are talking about a public body as opposed to a private person.
I am advised, and I should have known this, that the expression “a person” can and does include a body corporate. We have used the word “body” in the amendments, however, in order to make clear that the transfer would be to a public body.
On Question, amendment agreed to.
17: Clause 34, page 18, line 14, leave out “persons” and insert “bodies”
18: Clause 34, page 18, line 15, leave out “person” and insert “body”
19: Clause 34, page 18, line 17, leave out “persons” and insert “bodies”
20: Clause 34, page 18, line 19, leave out “persons” and insert “bodies”
21: Clause 34, page 18, line 21, leave out “person” and insert “body”
22: Clause 34, page 18, line 22, leave out “person’s” and insert “body’s”
23: Clause 34, page 18, line 24, leave out “person” and insert “body”
24: Clause 34, page 18, line 30, leave out “person” and insert “body”
25: Clause 34, page 18, line 38, leave out “person” and insert “body”
On Question, amendments agreed to.
Clause 34, as amended, agreed to.
Clause 35 [Chapter 3: interpretation]:
26: Clause 35, page 19, line 23, leave out paragraph (a)
The noble Lord said: These are minor drafting amendments aimed at clarifying the definitions of Scottish and Welsh territorial waters that are currently contained in one chapter of the Bill and which have been inserted in legislation that the Bill amends. They will remove a very small element of uncertainty in the definitions currently provided, which was uncovered in discussions with interested parties and will therefore remove any possible doubt about what boundaries are the relevant ones and in which circumstances. In one case the definition also applies to certain internal, as well as territorial, waters.
In particular, Amendments Nos. 26 and 27 clarify the definition of the territorial sea adjacent to Scotland for the purposes of Chapter 3 of Part 1 of the Energy Bill, which establishes the regulator regime for carbon dioxide storage.
On the other hand, Amendments Nos. 28, 29 and 30 clarify the definition of the territorial sea adjacent to Wales for the purposes of Part 2 of the Food and Environment Protection Act 1985.
Amendments Nos. 31 and 32 clarify the definition of tidal waters and parts of the sea in or adjacent to Scotland, up to the seaward limits of the territorial sea, for the purposes Part 2 of the Petroleum Act 1998.
I hope that the Committee will support these technical amendments.
On Question, amendment agreed to.
27: Clause 35, page 19, line 24, at end insert “, or
( ) if no provision has been made by virtue of paragraph (b), for the general or residual purposes of that Act.”
On Question, amendment agreed to.
Clause 35, as amended, agreed to.
Clause 36 agreed to.
Schedule 1 [Amendments relating to Chapters 2 and 3 of Part 1]:
28: Schedule 1, page 87, line 5, leave out “Order” and insert “order or Order in Council”
29: Schedule 1, page 87, leave out line 7
30: Schedule 1, page 87, line 9, at end insert “, or
( ) if no provision has been made by virtue of paragraph (b), for the general or residual purposes of that Act.””
31: Schedule 1, page 88, leave out line 38
32: Schedule 1, page 88, line 39, at end insert “, or
( ) if no provision has been made by virtue of paragraph (b), for the general or residual purposes of that Act.””
On Question, amendments agreed to.
Schedule 1, as amended, agreed to.
Clause 37 [The renewables obligation]:
33: Clause 37, page 20, leave out lines 30 to 47
The noble Lord said: The amendment is the first on the rather long Clause 37. We appreciate that the Government’s intention was to consolidate the renewables obligation and to put it into one legislative block. That seems to be an attempt to simplify something of labyrinthine complexity, which, for what it is worth, I suppose must be welcomed.
A lot remains unanswered about ROCs. Only 4 per cent of our electricity production comes from renewable energy. The EU directive that places a 15 per cent target on renewable energy reduction will, I fear, not be met by gentle encouragement. We need a revolution. That will only happen if emerging technologies are given much more support. The renewables obligation has certainly encouraged the development of renewable energy, but this has been preponderantly in only a couple of areas; namely, onshore wind and methane. Photovoltaic and tidal technologies, for example, so far do not seem to have benefited very much.
Banding the RO is a welcome step to addressing some of these discrepancies. The advantage of a banded RO is that it should incentivise various renewable technologies. Encouraging the growth of emerging technologies will be essential to a low-carbon energy industry. Allowing for different levels of funding should ensure that differing technologies receive the appropriate level of support.
The amendment was brought to our attention by Drax Power Limited, which is involved in co-firing biomass as a way of reducing its emissions. The new RO differentiates between energy crop co-firing and non-energy crop co-firing. Yet, with the increase in the price of wheat and the volatility of the markets, it is increasingly difficult to secure a supply of energy crops—crops grown with the express purpose of energy production.
Therefore, interest is turned to non-energy crops; in other words, by-products generally of food production, such as corn husks. Current provisions in the Bill maintain a cap on the amount of non-energy co-firing that will be awarded through the RO. It is the only renewable source that will be capped. Drax has advised us that this could have a serious negative effect on the encouragement of renewable co-firing. Indeed, it has been put to us that it could have the opposite effect from that which we would, I am sure, all agree is desirable. No doubt the Government have received similar intimations.
Essentially, Drax’s position is that if there is a cap on non-energy co-firing, there is always the chance that that cap could be reached, at which point production might become uneconomic. Because of that constraint, such ROCs inevitably trade at a lower price, which discourages companies such as Drax from being more ambitious with their targets.
The Minister in another place maintained that provisions allowed for changes on the bands and further distinctions to be made within any given area of renewables. That is what is now being requested. As is the case with much of this Bill, the amendment concerns big companies, which generally have rather long long-term plans. As I am sure that the Minister will appreciate, leaving a business plan to the ambiguous further distinctions that a Secretary of State might make is risky business. If we are to encourage renewables with vigour, every available opportunity to provide clarity should be seized.
The parallel fear is that without greater clarity, the market will be skewed. We appreciate that the banding of the RO is an attempt to address that, but if we are really out to encourage the uptake of the cheapest and cleanest technologies with a market mechanism, we cannot pick winners. That leads me to my final question on the amendment: is the Minister absolutely satisfied that the market mechanism created with the banded RO will not lead to the picking of winners, with all the risks that human intervention brings? I beg to move.
I considered putting my name to the amendment, and would have done if I had got round to it. It has been admirably moved.
Co-firing has major benefits to be discussed in the Committee. Drax is a coal-fired power station. From the briefing that we get, you would automatically think that we are going to remove all coal-fired power stations and that that will be the end of the problem. There has been a recent case of green groups stopping shipments of coal to Drax power station. The problem with coal is that it is the highest carbon dioxide generator of any form of generation that we have in the country. However, we still generate a great deal of baseload from coal, so removing coal from the mix is unrealistic at present, although there are major problems with coal-fired generation.
Many people have almost stopped talking about coal-fired generation, almost believing that it will be shutting down and disappearing from the mix. Indeed, a large number of coal-fired generators will quite soon not be on the grid because they will not meet the strict environmental controls set down by the Government—and rightly so. However, co-firing needs to be looked at extremely carefully, because it is unlikely that Drax will be leaving the energy mix soon. An enormous amount of money has been spent on Drax to make it more efficient and environmentally friendly. Co-firing can change the nature of the use of coal. We have discussed pre-combustion and post-combustion technology. It has been estimated that the use of biomass in the co-firing process at Drax alone will save 3 million tonnes of carbon dioxide.
I find it difficult to think of many other areas that would save that amount of carbon dioxide. Under the figures given by the Energy Saving Trust, that is the equivalent of changing a vast number of boilers or of insulating almost every house in the country to a high level. Therefore, I very much hope that the Government will look again and give their reasoning on the amendment. We support it and I hope that the Government can explain their thinking about how co-firing is to be considered in future.
I support the amendment. I visited Drax with the All-Party Energy Group a few days ago and we discussed the matter then. The cap and the banding system are very much intertwined. Setting the ROC, the renewables obligation certificate, banding at half a unit is, one assumes, a way of ensuring that this technology is given a modest benefit, but nothing like as substantial as, for example, that for Billingham, which is quite right for the reasons set out in the Bill.
I presume that the ROC is set at half a unit for non-energy biomass co-fired generation because the Government estimate that that degree of incentive is enough to generate the amount that they want to see from that form of renewable energy. If the cap comes into play, it would imply that too much incentive was being given. When the bandings are reviewed from time to time, it would seem sensible to review downwards the incentive to this form of co-fired generation. To achieve that needs not a cap but a stated guideline from the Government to the market as to what would trigger a downward reduction in the banding allowance.
A cap is not needed. If the Government and the regulator stated clearly the guideline amount of generation that they wished to see in setting the ROC, that would come into play if this form of generation became substantial. A 10 per cent cap for this form of generation is equivalent at half a unit to 20 per cent of the renewables’ contribution to electricity generation. It is a substantial amount. If the banding ratios are set to reflect market forces, and the banding system is periodically to be reviewed as the Bill states, why is a cap necessary in addition to a differential band?
The whole system is intended to be market driven, providing market signals through the different values of the ROCs to the different forms of generation. If the cap is used and reached, which of the non-energy co-fired biomass generators will secure the market? Who will be able to sell? Some of the generators will not be able to sell all the energy that they generate, which is why there would be a cap on it.
Drax put the proposition to me and, no doubt, to other noble Lords that it was significantly the most efficient and lowest-cost co-fired generator in the country. That market advantage, through efficiency and investment in plant, also applies to its co-fired non-energy generation. In a sense, Drax should have nothing to concern itself about. If there is a cap, it will be able to sell most or all of its electricity generation because it will be the cheapest.
Drax’s concern is that some generators are a part of integrated generator supply businesses, which will buy, first, from their own plant even if it is not the most efficient and the least cost. If that happens, ultimately, consumers would pay more for their electricity than necessary, because the most efficient generator is not able to sell its output despite it costing the least. If the Government persist in the cap system, how do they intend to ensure that a vigorous and rigorous eye is kept on the competitive nature of the market in this form of co-fired generation?
Is the Minister satisfied that the price at which integrated generator suppliers trade in their renewables electricity generation internally is robustly transparent, so that the marketplace knows whether they are buying from the most efficient supplier at the least cost? If the Government persist in this cap system, which I genuinely believe is misguided, are they willing now, or on reflection at a later stage of this Bill, to consider giving an assurance that, in the event of a cap becoming effective, they would be minded to keep a close eye and, if appropriate, to instigate the necessary competitive investigations should there be evidence of market abuse?
I share many of the concerns about this amendment raised by previous speakers. The amendment is timely in that, almost at the beginning of our consideration of this Bill, we are dealing with the interface between the competitive economics of different kinds of energy at the same time as the environmental worries that we have about some of these forms of generation. Certainly, conventional wisdom has come to the point where we look at coal as being dirty and old-fashioned, but probably still very attractive in so far as it is very flexible. One thing that we must never forget about coal-fired capacity in this country is that if everything else fails, a coal-fired power station can be got going in several hours. Hydro would be even better. I once had the opportunity to press the button in a small hydro complex in the Highlands. Within eight minutes, we could see signs of activity and generation. For practical purposes, it is essential to have large plant, preferably going at baseload. But we are conscious that, if we were to do that, it would make our CO2 emissions even more embarrassing than they are now.
In seeking to fine-tune the ROCs mechanism, the Government should try to make distinctions, but there could be a number of unintended consequences. It is often the case that when a particular form of generation is promoted, people do not realise that there can be a cost. Certainly the former DTI did not understand the consequences of sponsoring and supporting through ROCs a series of wood-burning power stations. The impact was that a large part of the UK timber harvest was taken out using the subsidy, while the timber processing industry, a very important part of a number of local economies, was denied any timber. No one had thought about it.
My worry is that in the quite understandable desire to make us less dependent on coal while ensuring at the same time that a bit of support remains for coal-fired stations, we may penalise the largest single generating capability in the country, which is Drax. It provides something like 7 per cent of the electricity generating capability in the UK. There are around six sets of 660 megawatts of generation, but not all of them operate at the same time, so it could be that a capped system takes account of the fact that coal-firing will not take place all the time. When it does, it is only in the limited percentage of the capacity in operation at any one time. But the fact is that Drax is a substantial freestanding power station—I use that word in the sense that it is not vertically integrated into the power networks. It is ironic that when privatisation and deregulation started up, there was a clear assumption that no individual company would own more than 15 per cent of the country’s generating capability. Today that percentage has been exceeded and set aside so far as I can see, but we still have one of the last independent generators of substantial character.
As has already been said, because of its size and ability to purchase, Drax is an extremely efficient and well-equipped power station which has been well maintained over the years. But the ability of a station such as this to compete with the vertically integrated companies, which have other economies available to them in respect of their operations, means that it will always be at a comparative disadvantage at certain times. I should like to know why the Government are introducing the cap in this way. If Drax is scaremongering—some of us have been at this game long enough to know that effective lobbying will always contain an element of that, and as has been said in the past of paranoia, there is an element of persecution anyway—at this point I am willing to give the company the benefit of the doubt. There could well be a grain of truth here.
I think it is incumbent on the Government to make it clear that if the cap is going to be imposed in the way suggested, there will be scope for further refinement of the cap, or the recognition that it would be both foolish and unwise to penalise the largest independent single-site generator in the country. It would disadvantage the station at a time when we recognise that coal will continue to make a contribution, and that this is as close as you can get to clean coal until many of the blue skies hopes that we discussed last week can be turned into reality.
If the Government will not accept the amendment—I realise that I am not pushing it that hard—we would like assurances that if it is not accepted, while the door might be closed it has not been locked and bolted so far as any future review or reconsideration are concerned. It might only be a couple of winters before Ofgem is required to look at this again.
We have to remember the glacial speed at which Ofgem usually moves when we are considering reviews of anything. It bends over backwards to consult everybody. So we are not going to be satisfied with a promise of a review in five years’ time in the knowledge that it may be seven years before it comes into play. This can be the renewable contribution to and an amelioration of what we all agree is an unacceptably dirty form of power generation at the present moment, but one that is going to be sadly necessary for a long time—and perhaps even more necessary if the much-vaunted generating gap comes along.
This is a very important and useful amendment to get clarity on the Government’s objectives. I am not particularly concerned about some of the unrealistic targets that the EU has set, because at the end of the day very few countries will be able to meet these targets and it was in some respects a rush of blood that resulted in the Commission proposals being accepted in the first place. But that is not for this debate. I would be interested to hear the Ministers’ response to the points that I have raised and which some of my other colleagues have raised, too.
The noble Lord, Lord O’Neill, reminded me of a point which I found interesting while doing the background research and being the subject of lobbying. As a subject, I find co-firing extremely interesting, but of course there are only three power stations in the country that are available for co-firing at present—or which have built the upgrades to deal with it. I believe that it is Drax and two stations owned by British Energy.
A lot of the work done on the banding of co-firing was based on a consultation process. Is the Minister happy with the fact that the majority of respondents to the consultation process are those companies in direct competition with those companies dealing with co-firing and, therefore, their view might be slightly slanted on how they looked at co-firing? The consultation document might read in a different way because most of the companies responding are not involved in co-firing themselves.
I am grateful to all noble Lords who have spoken to the amendment. As the noble Lord, Lord De Mauley, was explicit in saying in moving it, this issue has concerned the Government for some time. There was after all an amendment in the other place for the express purpose of raising this issue, so I respect very much the arguments that the noble Lord put forward in moving his amendment. However, he will have anticipated that the Government have thought deeply about these issues and I hope that in my reply I shall be able to convince him deeply enough for him to withdraw his amendment.
This is quite a significant amendment. It would take away from the Secretary of State the provision that allows a limit to be set on the proportion of certificates generated from a specific technology that a supply can present when complying with the obligation. The debate is largely centred on Drax because of its size and significance. The noble Lord, Lord Redesdale, was helpful in saying that there are others beside Drax involved in that form of generation, but Drax is of the greatest importance. Certainly I want to give the assurance that when the Government receive representations from such sources we have to strike a balance; the noble Lord is absolutely right that in terms of the sheer numerical load of representations that come in, they will not be on the co-firing side. But the Government look at these matters more in terms of the judicious needs of our energy provision for the future and, of course, the question of increasing the use of renewables. The noble Lord in a few moments will be able to appreciate just how balanced our response was to what he indicated might have been unbalanced representations.
I emphasise that the renewables obligation works by setting limits on the financial incentive available in any one year and therefore encourages competition between suppliers and generators for that fixed sum. Co-firing is a renewable technology, one that can quickly take up more or less biomass without significant additional capital investment, investment that we seek to and are obliged to encourage if we are to hit the target for renewables and control of carbon emissions in the periods that we have identified. That requires investors to expect a return on their investment over a much longer period than Drax and those who use co-firing techniques. The use of biomass can be altered in a very short period in a way that just is not possible for onshore and offshore wind investment, for instance. The ROC system has to strike the balance between guaranteeing the supplies that the economy needs in any one year and the range of investment strategies, which vary enormously according to the technology that is likely to be employed. ROCs therefore have a long-term element to them.
Typically, for example, financial plans for onshore wind projects look for payback over a period of 15 years. The potential volatility that exists in co-firing from year to year and over the lifetime of a renewables obligation can have a marked impact on the effectiveness of the obligation as an incentive to bring forward the longer term, high-capital investments that we assuredly need. I have not the slightest doubt that the noble Lord, Lord Redesdale, will be deploying that argument as we proceed through the Bill.
I emphasise that I am not talking about the volatility of biomass as a theoretical concept; we have clear illustrations of how it works. From the statistics that Ofgem has gathered during the past few years, it is clear that some stations have been doubling or trebling the amount of biomass that they co-fire between years. An individual power station recently went from burning about 60,000 tonnes of biomass in one year to nearly 200,000 the next, more than a 300 per cent increase. A single power station therefore increased by weight the total amount of biomass co-fired in 2007 by 13 to 14 per cent. Such changes may be a result of a change in a company business plan or could be driven by changes in the price of biomass—often by-products of agricultural processes. We all recognise the significance in the past 18 months to two years of the change in agricultural processes. Those have nothing to do with planning for the energy market; they are an offshoot of changes in world prices for agricultural products. But, anyway, it does not matter what the reasons for the volatility might be; what is clear is that this type of volatility raises very real issues with regard to long-term planning and its impact on investment certainty for renewables projects which are crucial to the successful operation of the RO.
In our consultation last year—and I assure the Committee that of course we carried out a full consultation on these issues—we proposed that, in view of the low fuel costs associated with regular biomass, co-firing of non-energy crops should be banded down to 0.25 ROCs per MWh. We moved from 0.25 to 0.5. I know that my noble friend Lord Woolmer would have tested the company that he visited, as would his colleagues on the committee, as well as listening to their representation. I have no doubt that they were forthright enough to indicate that the Government had moved from 0.25 to 0.5 with regard to the value of the ROC on biomass, as a result of consultation. I assure the noble Lord, Lord De Mauley, in that respect at least, that while I am not going to accept his amendment—and I am not sure that he expected me to do so—I am trying to reassure him that in his representations on behalf of Drax, which he concentrated on mainly, for obvious reasons, the Government have already made significant adjustments with regard to ROCs.
On our proposal to reduce the incentive for co-fired non-energy biomass from 1 ROC to 0.25 ROCs per MWh, a number of the power stations responding, including Drax and other co-fired stations, presented compelling evidence that capacity for burning particular cheap fuels is limited. So we made the adjustment. I hope that the Committee will therefore recognise that the Government have been listening to the representations from that section of the industry. Of course, our decision to move to a higher band for co-firing presents us with the obvious point that the potential volatility in the volume of co-firing will have an impact on the stability of the ROC price. Of course, that is crucial to forward investment.
Therefore, based on the responses and evidence we received, and the potentially heightened risk to investment certainty of having a higher incentive for biomass co-firing than originally proposed, the Government said that it would retain the cap on the total amount of non-energy co-fired biomass eligible under the RO. That decision was set out in our response to the consultation in January this year. Despite this decision, and because we will see the renewable obligation level growing year on year, it is estimated that the likely overall capacity for co-fired ROCs in 2009-10 will be nearly three times the level it was in 2006-07. So although I am not going to accept the amendment and seek to resist some of the demands from Members of the Committee, I hope that it will be recognised that the Government took on board with the greatest seriousness the issues that Drax and the others have raised and have proved flexible in our response to them.
We should remember that discussions on the cap on co-firing are nothing new. It already exists under the current scheme; this provision simply allows for the cap to be retained. I hope that the noble Lord, Lord De Mauley, will think that I have given sufficient evidence why it should be. The cap will be set out in secondary legislation and, therefore, will be subject to consultation. We are preserving flexibility but we are not doing this to give arbitrary powers to the Secretary of State—far from it. Parliament will still play a crucial role in its evaluation of any changes in the future, with that necessary flexibility.
The noble Lord, Lord De Mauley, also suggested that the problem with banding is that it might lead the Government into the position of picking winners. Banding decisions will be based on independent advice and will be subject to statutory consultation. They will be introduced through a renewables obligation order subject to parliamentary scrutiny. I do not think that there will be any arbitrariness on the part of the Government in selecting winners against that scenario, one in which judgments will be adequately attested in this House and in the other place.
I want to reassure my noble friend Lord Woolmer, who made the important point that hidden pricing in integrated companies could lead to distortions in the market and might be difficult to discern. While we accept entirely what he says—that the operation of the cap and the ROCs has to be against explicit criteria—if there was any suggestion that anti-competitive practices were being carried out, the Government would regard that as an issue to be challenged urgently. In a typically constructive speech my noble friend also asked why we could not remove the cap and downsize our support. That was our original proposal, but the consultations we carried out made it clear that investors still perceive co-firing to be a risk to the stability of the ROC, so we made the adjustments I have indicated in favour of the co-firers. However, as I said in my opening remarks, we are concerned to encourage necessary investment in the non-renewables which have a somewhat longer timespan than co-firing.
As ever, my noble friend Lord O’Neill also made a constructive contribution, and I welcome what he had to say. He was worried whether the cap was directed at Drax with the intention of penalising it. I have said how we have moved on that issue, and I should add that a month ago Drax announced the signing of a £50 million contract to build a fuel handling plant that will be able to deal with 1.5 million tonnes of biomass a year. That sounds like a vote of confidence in the future of the station’s position in relation to the operation of the ROC. I hope that that will help to allay any concerns.
I was asked whether there is any scope to refine the cap. Within the Bill we have the power both to impose and to remove a cap, and the issue can be reviewed at any time and put into effect through secondary legislation. Of course the Government are concerned to get as much as possible right in primary legislation, and in anticipating what might be said by other Members of the Committee, I know the limitations of scrutiny in secondary legislation. Nevertheless, in circumstances where adjustment might be necessary, secondary legislation plays an important part in our work.
The noble Lord, Lord Redesdale, said that there were three power stations available for co-firing. We think that there are 20, so I shall consult with him after our deliberations on the other 17. There are others apart from Drax, but I do not think that any Member of the Committee can be criticised for using its name rather regularly. We all know how significant Drax is, and those of us who were in the other place years ago will remember how important was the building of that power station and what a great deal of heat rather than light it generated in political debate at the time. I am not at all surprised by how significant Drax is to this debate.
In summary, we believe that we should retain the co-firing cap as it supports our intention in reforming the RO to bring forward technologies which are currently a good deal further from full commercial deployment than we would want and ensures that the RO continues to be a credible and effective mechanism to drive deployment of renewable electricity generation. Drax has its interests. As I have indicated, we have made some response of those very real interests and Drax has made significant investment in biomass. But the renewable obligation has a much wider brief than just co-firing. I know that the noble Lord will recognise that and will feel able to withdraw his amendment.
I am most grateful to the noble Lords, Lord Redesdale, Lord Woolmer and Lord O’Neill, for their support and their important and constructive contributions. I am of course grateful to the Minister for his response and I shall read his words carefully. I hope that he will forgive me, but his response appeared to focus on why co-firing should be made artificially less competitive in order to discourage it relatively against other more expensive forms of environmentally friendly energy production. I did not hear why by-products of non-energy crops, specifically, must be adversely prejudiced against crops grown specifically for energy. It seems to me that we should encourage this and that my key point is being missed.
The Minister will not be surprised to hear that our support from all sides of the Committee will encourage us to return to this matter later in the Bill’s progress. I would ask him to think carefully about this before Report. For today, I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
34: Clause 37, page 25, line 37, at end insert “and research and development costs involved in enabling the industry to make efficiency gains”
The noble Lord said: My noble friend Lady Carnegy has asked me to apologise to the Committee for her that she cannot be here today and that she will return to her amendment on Report. Amendment No. 34 is an examination of the provisions for research and development costs. Research and development is an essential component in the development of this most dynamic of industries. Under this amendment, the Secretary of State, when considering the banding provisions of the renewables obligation, would have one further issue to take into account; namely, research and development.
The other factors set down for his consideration seem sensible. Costs, including capital costs; the income of operators of generations; who is exempted from the climate change levy; and the desirability of security long-term growth are all rightly taken into account. But if we are to meet the ambitious targets that have been set and are to encourage the growth of the renewables industry into a mainstay of our energy mix, one essential element still is lacking.
With the rapid changes happening in the industry, research and development is essential to ensuring long-term growth and economy. Efficiency can be increased through R&D where otherwise, with the boom of a new market, it might not have been the primary focus. Some photovoltaic companies, for example, cannot afford to meet both the demand for their product in the short term and research for maximising their future efficiency. Research and development also allows for opportunities to increase economies of scale; for example, in discovering technologies to enable automation of production, which will help contribute to a much lower price for green energy.
At the moment, especially in the solar market, research in Germany is booming, while it is still a rather fledgling affair here. A specific provision to take into account costs associated with research and development at home would help to encourage home-grown work on streamlining the industry and further innovation. The ROC system has led to an increase in renewables, but it tends to favour cheaper and more mature technologies. If we are to break out of older paradigms of energy production, this has to come with a substantial emphasis on research.
The Minister in another place claimed that the Secretary of State will take into account all costs associated with the generation of renewable energy, but we need more clarity and certainty. As I have already said, the current RO favours the more mature technologies. It is essential for it to be recognised in the Bill that research and development costs will be factored in to make certain that emerging technologies have the support they need to develop properly. What reasons can the Minister give for excluding them from the Bill? Surely it would not pose any further legal problem in terms of a judicial review. The amendment would encourage the technologies that need it the most by providing the assurances that form the bedrock of progress. I beg to move.
Okay. I am grateful to him for informing the Committee that the noble Baroness, Lady Carnegy, unfortunately cannot be here. She was good enough to find me just before she left. There is very good reason for her not being able to be here. However, I am sure that we will see her on Report.
I shall deal with Amendment No. 34 as best I can. It is designed to ensure that the Secretary of State takes account of research and development costs involved in enabling the industry to make efficiency gains when setting the banding regime, which is all to be found in new Section 32D(4) of the Electricity Act 1989 under Clause 37.
Earlier this year, the Government published a response to the consultation on reform of the RO and set out the levels at which the bands will be set when the reformed RO first comes into force. They have been subject to consultation with the sector and have taken account of issues raised. The levels will of course need to be reset periodically. The Bill makes provision for those reviews to take place.
To ensure confidence in the banding process—it seems from what I have heard today and in another place that there is general support for the principle of banding—the Bill sets out the matters to which the Secretary of State “must have regard” in new Section 32D(4). The amendment asks that, when setting the banding regime, the Secretary of State takes account of individual technologies’ R&D costs involved in enabling the industry to make efficiency gains. Few renewable technologies which will be brought forward under the RO are completely mature, and most have more or less scope for technological development and efficiency gains. Driving these gains forward is important.
However, the amendment is unnecessary, as the Secretary of State is bound and needs to take into account—“must have regard to”—under new Section 32D(4)(a) the costs associated with generating electricity from each renewable source and, under Section 32D(4)(d), the desirability of the long-term growth and economic viability of the industries associated with the generation of electricity from renewable sources.
It is commonplace to say that technologies go through several stages in their journey to becoming fully market competitive. The Government have different mechanisms in place for supporting technologies at different stages. For example, R&D funding is available through the Energy Technologies Institute and the research councils, and funding for demonstration projects is available through mechanisms such as the Marine Renewables Deployment Fund and the Environmental Transformation Fund.
Once a new technology is entering a deployment phase, there is a market price for the plant and its installation. Future banding decisions will take this price into account. Manufacturers will set a price for their product which includes their necessary research costs. Therefore, our case is that R&D costs will already be covered in the banding regime because the banding takes into account the market prices for equipment.
Companies have the incentive to invest because they know that innovation will be their source of potential competitive advantage in the future. Deployment over time also drives further efficiencies—or should—through learning by doing and economies of scale, both of which should have the tendency to drive down costs. Continuing R&D costs incurred by industry to achieve efficiency gains may be taken into account by the Secretary of State in setting the banding levels under the provisions that I have already referred to in proposed new Section 32D(4)(a) and (d).
The RO is a pro-competitive mechanism. A project that, for example, generates more electricity in one year than others of a similar specification will gain a greater share of the fixed sum that the RO provides in any one year. It is competition that will drive innovation and future cost reductions once a technology has passed the early stages, and represents better value to the UK’s customers.
I am grateful to my noble friend for the line he is taking. This is very helpful. Had I been a little quicker, I might have been able to ask him about these points. What money has been made available through, as it were, traditional forms of industrial development support for such projects; and is there any evidence of failure to obtain that money? Perhaps he could also let us know whether venture capital or business angels have been willing to support this type of project, which I think we all consider to be laudable.
One gets the impression that a special case is being made on behalf of renewables, whereas in fact they are competing with a lot of other technologies that are in a nascent forum, not necessarily related to energy generation, but which want to get VC, angel or government support. Is there any evidence that renewable technology is being discriminated against? Therefore, the case for additional ROCs—assistance of the kind that has been asked for—is in fact necessary.
I am grateful to my noble friend. I do not think that he will be surprised to hear that the advice I have received is that we will write to him and all Members of the Committee. He has asked big questions, and the Committee will want to make decisions now or later on the basis of information that it does not have at the present time. If he will allow me, we will write to him and all Members of the Committee and put a copy of the correspondence in the Library.
In relation to banding and the issues that arise—that is, capital costs, research and investment needed and so on—will the Committee on Climate Change be asked to give its advice on appropriate bandings and reviews of bandings? I believe that its advice is asked for under the carbon reduction commitment, but I have not noticed anywhere in this Bill that its advice will be sought in this area. On the face of it, that seems a little puzzling. If my noble friend is unable to respond now, it would help if he could respond in writing.
Without trying to escape my responsibilities today, that information is not immediately available. Again, perhaps it could be part of the general letter that I send on these issues, which I shall send as soon as I possibly can—and clearly well before Report.
Obviously, a project that generates more electricity in one year than others of a similar type or specification will gain a greater share of the fixed sum that the RO provides in any one year. Competition is crucial to drive innovation and future cost reductions, once a technology has passed the early stages. The RO, including the changes we are making in this Bill to introduce banding, will support the innovation and competition that we want to see.
It is for those reasons that we do not believe that the amendment is necessary, although I completely understand why the noble Lord wants to find out where research and development fit in with the new banding regime. I have done my best to try to answer him, in saying that he should not be overconcerned in that we would argue that it is clearly covered by the list that is set out in the relevant part of the Bill. In those circumstances—and of course he, too, will be interested in the information that we will pass to Members of the Committee—I invite him to withdraw his amendment.
I had been expecting Amendment No. 35 to be moved. I have a very brief point to make on it.
Amendment No. 35 relates to subsection (8)(b) of new Section 32D. As so often with these provisions, very broad powers are given, to be dealt with no doubt in regulation. What kind of conditions might lead to a review of the whole or part of the banding provision? The measure is extremely broadly drawn, and I appreciate that that is helpful in regulatory terms, but it would be helpful to know what kind of conditions the Minister and the department might have in mind.
Our concern is to retain as best we can the flexibility that we need to change the bands at the appropriate time. In our response to last year’s consultation we said that the timing of banding reviews would be set out in secondary legislation and committed the first of the reviews to coincide with the start of the EU ETS phase 3 in 2013. The timing of the first review received strong support during that consultation process, because in future the support levels required for renewables will be increasingly dependent on the carbon price.
I raise the matter because, if the banding system is to be helpful to the market place, there needs to confidence about what governs reviews. My point is not so much about how often that would be, because I assume that would be indicated. The subsection says that it could trigger a review,
“when the Secretary of State is satisfied that one or more of the specified conditions is satisfied”—
with the specified conditions to be set out in an order. That implies that it is not necessarily at intervals of four or five years or related to the ETS; it implies that it is possible that a review would be carried out in between normal review periods. Is that the intention? Clearly the marketplace is likely to want to know what could trigger a review. If you have all kinds of investment plans and then find that the playing field changes in an unpredictable way, that would clearly not be very good.
The best thing I can do in responding to my noble friend is remind him of the statement at paragraph 4.14 of the Reform of the Renewables Obligation document, which answers his question in the following way:
“The proposed criteria to trigger an early review are:
a. significant change in grid connection/transmission regime;
b. new technology eligible under the RO emerges with potential to deploy on a large scale;
c. other major support scheme with impact on renewables starts, ends or is subject to significant changes;
d. demonstrated significant variation in net costs (for an individual technology) changing the economic case from that assumed in the setting of banding levels;
e. ROCs from co-firing”—
which we have debated today—
“contribute to more than 10% of the obligation …
f. over-compliance of obligation; or
g. other unforeseen event”—
that is the general phrase—
“with significant effect on the operation of the RO”.
Those are examples of where a review will take place, but we are quite firm that to put one in the Bill would reduce flexibility.
Last week we discussed the question of reports. It became clear that in another area of activity the information would be made available. Would we be correct in assuming that the information the Minister has just given us and the trigger mechanisms he has identified will be the subject of an annual report somewhere in the statistical returns of the energy section of BERR? In the past, the industry has been well served by the statistical services of the former DTI and, before that, the Department of Energy. One remembers the old Brown Book and its successors.
It would be helpful if such information was put in the public domain annually. In some respects that meets some of the concerns people will have about the need for regular reviews. The information would be in the public domain, conclusions could be drawn and pressure could then be applied if necessary.
I must be cautious in not answering my noble friend with a short “yes”. I have no doubt that the department will attempt to give as much information as it can, but he is talking about annual reports, and I suspect that some of these criteria for triggering a review may be best looked at over a period of longer than a year. I cannot give him the reassurance he seeks, but in the letter I am to write to him—in fact I am about to take something away from the letter so I can add this without feeling too guilty about it—I will discuss the best way we think we can publish the criteria that he has set out. I hope he will leave to the letter the question of whether that is on an annual basis.
Before I at last sit down, I shall come back to my noble friend Lord Woolmer, who asked whether the climate change committee would be asked for advice on banding. We have consulted on that issue, and the responses suggest that the committee did not have the appropriate expertise in the area of the renewable technologies. We will seek advice from appropriate expert sources in setting the bands. It is not our intention that that committee should provide banding advice.
I think I have spoken enough. Amendment No. 35 has been spoken to, to some extent, but I again invite the noble Lord to withdraw Amendment No. 34.
I am grateful to the noble Lords, Lord Teverson, Lord O’Neill and Lord Woolmer, for their contributions, as I am to the Minister for his. I and, I am sure, others will give his words close consideration. We look forward to the written information that he has promised. On the basis of that, we will decide whether to come back to this issue at a later stage, and how best to do so. For today, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 35 to 36A not moved.]
36B: Clause 37, page 27, leave out lines 29 to 33 and insert “any grant which is payable out of public funds and awarded under or by virtue of an Act of Parliament, except a grant awarded to support or promote research and development.”
The noble Lord said: I regret that my noble friend and colleague Lord Wallace of Tankerness cannot be here, but he will wish to pursue this further on Report. The amendment is a useful simplification of the Bill and I would be interested to hear the Minister’s reaction to the amendment standing in my noble friend’s name. I beg to move.
I will certainly do my best to put the Government’s case, appreciating that the noble Lord, Lord Wallace, is likely to appear on Report and argue the case at somewhat greater length. The amendment specifically addresses research and development grants and would prevent the recipients of R&D grants from benefiting the choice of being able to surrender their grants to receive a higher level of support under the RO. By their very nature, research grants are awarded to projects in the early stages of development to provide an incentive to companies to innovate and to bring ideas to fruition. Irrespective of the differences between research grants and other capital grants, our case is that they both involve significant sums of taxpayers’ money, which can amount to as much as several million pounds for a sizeable project. Of course, Governments have a duty to ensure that that is spent wisely and that there is value for money.
Where a project has been funded by the taxpayer and a separate subsidy regime applies, we have to take measures to ensure that these two schemes do not overlap in a way that undermines that prime responsibility on government. Our goal for the renewables obligation is to promote the deployment of renewables at a reasonable cost to consumers in a way that best supports progress towards our targets.
Equally, as grants are allocated based on income derived from current levels of support, a higher level of subsidy in addition to the grant could, we believe, breach state aid rules on cumulation of aid and additionality. In order to ensure that the introduction of banding presents no perverse incentive to delay the progress of their projects, we have committed to allowing companies to take a commercial decision on whether to surrender their grant and receive the higher level of support or retain the grant and remain on one ROC per megawatt hour.
To ensure compliance with state aid rules, our intention has always been to take a power to enable generators who want to be banded up to repay the relevant proportion of the grant they have received. That has to be done on a case-by-case basis with individual companies at the time when they make that decision. The mechanism for surrendering the grants will be included as part of the statutory consultations on the renewables obligation order, which we hope to publish before the Summer Recess. We are in the process of discussing with the European Commission the proposed changes to the RO to obtain clearance for these proposals.
Removing the provisions would take away our ability to ensure that we are not oversubsidising projects and that the RO continues to operate on a least-cost-to-the-consumer basis. It would also prevent the recipient of a grant making a commercial decision which would allow them to benefit from banding. That is why we cannot support the amendment in the name of the noble Lord, Lord Wallace of Tankerness.
I thank the Minister for that comprehensive reply, which I am sure my noble friend will take fully into account when considering what to submit for Report. I am sure that he will be disappointed to some degree, but it will be useful for him to reflect on that reply. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
37: Clause 37, page 31, line 27, at end insert “and set out acceptable circumstances for the growing of “biomass””
The noble Lord said: The amendment would require the Secretary of State to set out the circumstances which are acceptable for growing biomass. Biomass can play an important role in our energy supply but it is equally important to know that it must not come at too high a price.
The conditions under which biomass is grown have a profound impact on what is good about it; that is, its sustainability. If arable land is being used to produce biomass in such a way that puts pressure on food production, the result would do more harm than good, especially in the developing world—much in the same way as the cultivation of biofuels devastated rainforests.
Yet this technology is developing rapidly and some of the concerns to which I refer might be allayed. For example, cellulosic biomass is already being developed, which distinguishes between the biomass bit and the food bit in the same product.
Additionally, there are signs of promise in the cultivation of biomass in terrain which is unsuitable to food production such as land adjacent to deserts. The technology will develop and the best methods should be encouraged. The Government should have the power to decide which ways of producing biomass are acceptable and which are not. In some ways, this is a rather small change to this section, but it is a change that has the potential to make a large impact.
The Minister in another place said that the Bill contains the powers necessary to designate certain types of production of biomass as unacceptable should their sustainability come into question—this seems reasonable. However, will the Minister be more specific about the mechanisms at the Government’s disposal to do so?
It would also be interesting to know what information the Minister received on the problem of ensuring the sustainability of biomass. Is there a way of monitoring its production? I understand that, under the renewables obligation, generators will be required to report on the nature, quantity and source of biomass. I further understand that it will be Ofgem’s responsibility to publish this information. Will Ofgem have a further responsibility for assessing it? How will the concerns about sustainability be triggered? Does it require a vigilant public or is there a statutory requirement to ensure its sustainability?
I am sure that my concerns about the sustainability of biomass will be shared by noble Lords from all sides. Just how we go about ensuring that the production of biomass is sustainable seems to require further explanation.
We do not yet have a Motion before us.
I am sorry for that breach of our procedures. When considering questions of sustainability in respect of biomass cultivation, is the noble Lord prepared to recognise the contribution that could be made by genetically modified crops, which after all would only be burned in the end? They would not be part of the food chain. Would he be prepared to consider that, given recent announcements?
This whole area is quite complex, and even more so after the contribution of the noble Lord, Lord O’Neill. It is also an issue of great concern given the increasing competition between the growing of biomass for fuel and growing food. Perhaps, and particularly in the United Kingdom, we overexaggerate the problems associated with combining crops so that some are used for food and the rest utilised as biomass. Certainly in the context of the UK, it would be difficult to see a situation where the value of a food crop was greater as biomass than it was as a foodstuff. However, I very much take the point that forms an important part of the argument made by the noble Lord, Lord De Mauley, that this could encompass imports as well as UK-produced biomass. There is at present a considerable underuse of biomass for fuel, but this area is one where there is increasing public concern and where, because of the steep increases in food prices not only in this country but worldwide, we need to make sure that there is no market substitution of energy for food. Given that, I will be interested to hear the Minister’s response to this well thought-through amendment.
It is clear that in our ambition to generate more electricity from renewable sources, we must be careful that we do not inadvertently create more environmental issues for ourselves than we solve with regard to safeguarding our energy supplies. We are of course keen to ensure that the most sustainable forms of renewable electricity generation are incentivised over the long term, and we are particularly aware of the interest in the sustainability of biomass, an issue we take very seriously. That is why I will consider with sympathy both the amendment tabled by the noble Lord and his contribution in introducing it.
While we understand the desire to be able to set out in secondary legislation acceptable circumstances for the growing of biomass, the amendment concerns the information requirements that may be included in a renewable obligations order. Let me put this into context. The support that an RO provides for biomass generation and the safeguards we are putting in place through primary legislation must be seen as the context in which this issue is to be examined. The majority of biomass material used for electricity generation tends to be wastes and residues from various agricultural processes rather than a virgin crop itself. Biomass is therefore not in direct competition with food resources, an anxiety we all share. Food prices are increasing, but those rises are not entirely connected to food scarcity; other factors of which Members of the Committee will be well aware are also involved.
It is important to recognise that, as such, materials which are residues will become available whether they are used for electricity or not, and are therefore less likely to drive unsustainable practice. When we published in 2006 research into the sustainability impact of the major biomass fuels, where they were to be used alongside coal, we saw a study by Themba, an external consultancy specialising in the sustainable use of biomass. We looked at all the major fuels and found that the net carbon balance for the production, transport and use of biomass for co-firing was positive in almost all circumstances; that is, both for imported and domestic biomass. So we have done some work in looking at the question of resources for biomass, but we are aware of the fact that there is due to be significant expansion. As the use of biomass grows, the potential for other fuels to be used and for some of these fuels to raise issues of sustainability will also grow. That is why the Bill contains provisions to include sustainability reporting, of which this amendment is a minor illustration. I would maintain that we have a broader commitment in the Bill for sustainability reporting in relationship to these issues.
Has the Minister further information? Biomass is clearly a very broad generic description. Is it possible to understand what that imported biomass is? Is it wood or straw? I would be grateful to hear about that, because it is important in understanding the nuances of the issue rather than just the very broad generalities.
I am addressing myself to the amendment, which raises a fairly general issue, but if I have information on the question of imported biomass that would help the Committee I shall write to the noble Lord and copy it to all Members of the Committee. What I wanted to establish is the basic proposition that we regard from the research that the net carbon balance for biomass that is imported is positive.
The Bill contains the broad provision, but the detail of sustainability reporting will be set out in the renewables obligation order when, among other matters, generators will be required to report on the nature, quantity and source of the biomass, what the previous land use has been and whether the production meets any of the existing or planned sustainability standards. If I do not have the answer for the noble Lord, Lord Teverson, at this point, I reassure him that we envisage in the Bill the necessary requirements on generators to provide that information, which we will be able to analyse effectively.
Such sustainability standards could cover the circumstances under which biomass is grown. For example, the Assured Combinable Crops scheme includes requirements to avoid unnecessary chemical applications and take account of environmentally sensitive areas on the farm. We believe that the use of such standards, which themselves will develop over time, will provide a better means of dealing with these issues than setting out detailed requirements in legislation. In other words, I return to the noble Lord’s point with his amendment; we respect his objectives and seek to reach them through a different route. I assure him that the information provided by the generators will be published by Ofgem to bring transparency to this issue. I assure the Committee that we will be consulting on the renewables obligation order shortly.
I have a little added point for the noble Lord, Lord Teverson, who pressed me on the question of imported biomass. It includes, for example, residues from wood and forestry and from olive and palm oil production. I know that that is not an exhaustive list for the noble Lord, which is why I shall no doubt have to add a little to it in due course. But I hope that he will appreciate that we have examined this issue with some thoroughness and have provided in the Bill for reports on sustainability, which will give him assurances on that point for the future.
As with many issues the Government deal with, we have to balance the benefits of any regulation of sustainability against the administrative complexity involved and any evidence that such regulation is necessary. When I considered this contribution, I thought that that was one part of it with which the noble Lord, Lord De Mauley, would instinctively sympathise—our concern with whether we want to introduce overregulation. We believe that in this context a transparent reporting requirement is the appropriate approach to monitoring the sustainability of biomass under the RO.
This is a rapidly developing area that we will need to keep under review. As previously mentioned, this provision of the Bill allows the renewables obligation order to require operators of stations generating electricity from biomass to provide certain information to the authority. The amendment would have no effect on that obligation. I reassure the Committee, however, that, if industry practices develop that have a significant negative effect on sustainability, we already have the powers in the Bill to achieve the intention behind the amendment by other means. For example, new Clause 32C(1) will enable a renewables obligation order to provide,
“that no renewables obligation certificates are to be issued in respect of electricity generated in specified cases or circumstances”.
That is the procedure that we have already followed with regard to peat, which I did not mention when I was talking to the Committee earlier on. The noble Lord will know that we have already taken steps to ensure that this is an excluded fuel for all the reasons of sustainability of which the Committee will be aware.
In summary, our proposals to introduce sustainability reporting for biomass now, while gathering evidence and continuing to monitor developments in this area as we move forward, strike the right balance. We have the necessary powers in the Bill and we have already taken some action with regard to these issues. We are fully seized of the necessity of doing so, which is the burden of the noble Lord’s contribution. I hope, therefore, that he will feel that, as we intend to meet the objectives of the amendment through other means, he can safely withdraw it.
I am grateful to those noble Lords who have contributed to this debate. I thank the Minister for his answer and his healthy emphasis on proportionate regulation. Much of the discussion on this amendment has dealt with what is used as biomass today. That is one thing, but if, as we all hope, there is a huge increase in the proportion of energy generated from renewable sources, which will presumably include an increase in biomass, then we need to look to the future. The noble Lord, Lord O’Neill, helpfully focused us upon that. While I am happy to withdraw for today, I do so reserving the right to return to this later. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
38: Clause 37, page 32, line 12, at beginning insert “If the Secretary of State is satisfied that the differences are such that no electricity supplier would be unduly disadvantaged in competition with other electricity suppliers,”
The noble Lord said: This is essentially a probing amendment, designed to allow the Minister to sketch out the provisions that will guarantee fair competition. There seems to be a significant risk that this legislation might, as I referred to earlier, allow the Government to pick winners. I know from what the Minister said earlier that that is not the Government’s intention. Indeed, the Government seem to agree with us that the lowest-cost sustainable energy is best achieved by market forces. My simple question is: is the Minister satisfied with the safeguards in place for preserving true competition?
With the rebanding of the renewables obligation, there seems to be a particular risk that the Government could allow their favoured renewables more support than others. Will the Minister assure me that that will not be the case, and will he explain the mechanisms that will ensure a truly free market?
It is important to remember that the Bill creates the framework for regulation that will allow competition. How the Government actually go about creating this is another matter. The amendment stems from a rather more general and philosophical point about the Government; that is, their tendency to notice something quite bad and ban it, and to see something quite good and make it compulsory. If we are going to trust the market to deliver the most effective forms of renewable energy, we must genuinely trust it. I hope that the Minister can give the Committee an assurance that winners will not be picked in advance and that the market will be allowed to develop without undue interference. I beg to move.
If I thought that every action the Government take is to ban the bad and make compulsory the good, we would be even more radical than we already are and thus gain my even more enthusiastic support, but I know what the noble Lord is driving at. He is worried that we are increasing our powers of regulation. On that I want to set his mind at rest, and I am sure that I will be able to do so because the point being raised here concerns a clear legal technicality, and therefore I shall stay close to the text I have before me.
The proposed amendment would specifically set out in the Bill that the Secretary of State must not unduly disadvantage an electricity supplier in competing against other electricity suppliers. As I am sure Members of the Committee know already, this provision is currently set out in Section 32A(3) of the Electricity Act 1989. In updating this legislation to implement the reforms we are making to the RO, we took the decision to remove unnecessary provisions from the statute book in line with best practice under better regulation principles. So in order to reduce regulation, we have taken this point out.
As those of a legal inclination will know, in using the RO powers in this Bill, the Secretary of State is already bound by administrative law principles not to disadvantage particular suppliers or discriminate against them where they are in comparable positions. It is therefore unnecessary to include such a provision in the Bill; we are governed by more general administrative law principles. This is because consistency or equality of treatment is an important principle of administrative law. It means that like cases must be treated alike, that all persons who are in comparable positions should be treated similarly, and that a discretionary power must not be exercised arbitrarily or with partiality as between individuals or classes potentially affected by it. Similar principles exist in European law, such as the principle of non-discrimination.
If the Secretary of State, in exercising his powers under this legislation, were to discriminate against a particular supplier or class of suppliers, he would have to demonstrate that he had a valid reason for so doing. If he failed to exercise his powers in a proper way then judicial review proceedings could be brought against him. As suppliers will therefore be protected by general principles of administrative law and general principles of European law, we do not consider this amendment to be necessary. The noble Lord will recognise that we believe that competition wherever it is possible should form the basis of the industry and regulation only where appropriate. I hope that I have established for him that regulation is neither appropriate nor necessary, and that the Government have taken the right course in drafting the Bill in this way. As a result, I hope that he will feel able to withdraw the amendment.
38A: Clause 37, page 33, line 28, at end insert—
“( ) about the exploitation of heat from deep geothermal sources for both the direct use of that heat and for the generation of electricity.”
The noble Lord said: Perhaps I may ask the Committee’s indulgence. I should like to de-group Amendment No. 63B. I would like to return to it later as it is a particularly substantial amendment. I really should have asked for it to be de-grouped earlier.
Amendment No. 38A is a probing amendment to bring to the attention of the Minister and the Government the potential for deep geothermal energy in parts of the United Kingdom, and to ensure that it is included in the future ROC regime, even though it is not currently used for heat and electricity generation.
There has been substantial research on deep geothermal energy by the original Department of Energy. Regrettably, this area of research has fallen back in the United Kingdom, but is very strong in Germany, the United States and, particularly, Australia, where conditions are not as good as in parts of the United Kingdom, particularly the south-west where development, in particular exploration, is currently taking place. In Amendment No. 63B, I will be looking for a regime where we might exploit that.
The point of this amendment is to ensure that this important potential source of energy generation, either though heat or particularly through electricity, is not excluded from the renewable obligation regime. Indeed, it should be favourably included within the banding regime, given its distant position from a market technology. In the United States the technology is being looked at very strongly in terms of energy security. In Australia it is being developed on an extensive scale. In terms of surface technology, it already exists very successfully where there is volcanic activity, particularly in areas such as New Zealand and Hawaii where there are volcanic hot springs. This surface-level technology is proven and works. I believe that it is an important technology for the future. I would like to understand where the Government see it potentially fitting into the renewable obligations scheme. I beg to move.
We on these Benches certainly appreciate the fact that deep geothermal energy in the form of heat or ultimately electricity, whether or not technically renewable energy, might well be a necessary and efficient form of production, so we thank the noble Lord, Lord Teverson, for moving the amendment. It gives us the opportunity to ask a couple of questions of the Minister. First, what progress has been made in assessing the capacity for geothermal energy production? Secondly, does he foresee this form of energy playing a significant part in the United Kingdom’s future energy mix?
We, too, are grateful to the noble Lord, Lord Teverson, for bringing this issue before us. We agree that geothermal energy is renewable. It is within the scope of the definition of renewable source in proposed new Section 32M. We are not aware of any geothermal electricity generation in the UK, although I am led to believe that it is comparatively common in other countries—for example, Italy and Iceland where hot geological formations lie closer to the surface.
We recognise that it is important that we are aware of developments that might make this type of technology an attractive option. I would be happy to ensure that any organisations interested in developing this technology on a commercial scale should have the facility to meet officials from my department to discuss the issues further. I make that offer at this stage.
I know that this is a probing amendment, so, on the history of geothermal energy, the Government have previously assessed the potential geothermal resource as part of a broader strategic evaluation of indigenous energy supplies during the late 1970s and throughout the 1980s, ending early in the 1990s. The results of work on geothermal heat from aquifers—one way that this can happen—revealed that the resource was limited because surface temperatures or the permeability of the rocks were lower than expected. The noble Lord will know about Southampton, the one area that was found to be sufficiently promising, where a demonstration scheme was developed. Today, it partially supplies a city centre district heating scheme.
Between 1977 and 1994, we also attempted to develop hot dry rock technology—the second way that this can happen—at a disused Cornish granite quarry. Two wells were drilled to a depth of approximately 2.6 kilometres and water was injected, naturally heated and then recovered from the granite. The development of the technology revealed a number of problems. As a result of these difficulties, it was decided to re-evaluate the costs and performance of hot dry rock systems in combination with collaborative participation in the European programme, and work on that programme is ongoing. Since that project, there have been no further large-scale studies of deep geothermal energy in the UK. The DTI, and now BERR, have not been approached by companies looking to explore the potential of this energy source. However, I want to be clear that the lack of geothermal developments in the UK in no way represents any government antipathy towards the technology, merely a lack of proposals from the market at this stage.
Briefly, the noble Lord’s Amendment No. 38A would give specific provision in primary legislation for the support of heat and electricity generated from geothermal sources, underpinning the RO. There are two reasons not to support this. First, it is unnecessary, as it would duplicate provisions that are already in the renewables obligations. Secondly, we need a fully rounded, co-ordinated approach in developing mechanisms to support renewable heat. The amendment would rather pre-empt our work in this area.
The purpose of the renewables obligations—commonplace now, but introduced in 2002—has been to incentivise the generation of electricity from renewable sources, which is why it already supports the generation of electricity from geothermal. Our banding proposals will double the incentive to develop geothermal electricity generation by awarding two ROCs per MWh. This higher level of support reflects its costs relative to other technologies—the higher costs will be part of the reason that there are currently no such projects in operation. As geothermal electricity is already within the scope of the definition of renewable sources in the Bill, it would be inconsistent with the treatment of all other renewable technologies, as well as unnecessary, to require in the primary legislation that the order may make specific provisions for geothermal electricity. Our approach is to use the Renewables Obligation Order to specify eligible technologies.
The amendment also seeks support for the use of heat from geothermal. The issue of how best to support renewable heat is an important one, but before we can make decisions on the best way to incentivise the deployment of renewable heat technologies, we frankly need more evidence and understanding of how we could ensure that a market for heat develops.
Currently, no such wider market in heat exists. Most consumers, whether domestic or business, purchase fuels such as gas or oil rather than heat. An exception is combined heat and power. The noble Lord will know that we have already published a call for evidence on heat generation; that was announced in January; and we will shortly be building on the useful information provided by publishing a consultation on our renewable energy strategy before the Summer Recess, as I said.
I hope that the Committee is reassured that geothermal is properly supported under the renewables obligation with regard to the generation of electricity from geothermal heat. Although we are sympathetic to seeking methods to support the use of heat from that source, decisions have to be taken in the context of support for all heat technologies in the renewable energy strategy. I think that in the course of my answer to the noble Lord, I have answered the noble Lord, Lord De Mauley, about where we are on progress and the Government's attitude towards it.
I thank the Minister for that positive reply and the noble Lord, Lord De Mauley, for his excellent questions. I am very reassured by the fact that geothermal is included in the Bill under the renewables obligation, so I cannot see myself bringing forward this amendment at Report. I especially welcome the Minister's offer to meet the industry, part of which is in the UK and part of which is abroad but wishing to invest in the United Kingdom, to discuss with his officials how the sector may be able to move forward.
On the very knowledgeable response of the Minister, the original project in Cornwall indeed did not produce the 200 degrees effectively required for electricity generation, but that was because it went down to only about 2.5 kilometres, and you have to go down to about five kilometres to get that sort of heat.
The noble Lord talked about the extensive knowledge in my response. That is extraordinarily kind of him, but I do not want to take him on with regard to knowledge, especially as I know that he comes from—and has represented—the part of England where that trial took place.
I thank the Minister for that comment. I will take him up on that offer to talk to the industry. It should engage in the consultations. I believe that it took part in one since I had a meeting with some officials in his department. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
I beg to move that the Committee do now adjourn during pleasure for 10 minutes, under the new ruling that prevails.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was adjourned between 4.04 and 4.14 pm.]
On Question, Whether Clause 37 shall stand part of the Bill?
A few questions arise under the clause stand part. I apologise to the Committee that I did not table amendments, but I did not expect to be here for most of the afternoon and so I did not think that I would be able to speak to them. However, as I am, I shall just raise a few points. I gave the Bill team late notice of my questions.
On page 21, in Clause 32A(4), reference is made to the ability of the English, Welsh, Scots and Northern Irish to have schemes whereby the renewables obligations will apply only if they are earned in the relevant country and sold on behalf of the customers in that country. They will have to sell electricity in that country and earn the renewables obligation in that country. That raises interesting questions about Scottish oil being for Scotland and Scottish wind generation being for the Scots as well—and the same for the Irish and Welsh. So it is an extremely interesting clause.
First, I should like to ask what lies behind this. Is it currently being implemented or is it expected to be implemented? If not, why is it there? Secondly, would it be within the power of the Scots Parliament to invoke that power in the Bill without requiring the approval of the United Kingdom Parliament at Westminster? That is clearly another important issue. Could Scotland unilaterally declare independence on Scottish wind and renewables? Thirdly, if that system came into operation even in one country, would that not mean that renewables obligation certificates would not be tradable between different parts of the United Kingdom? You would not be able to buy a surplus Scots renewables obligation certificate because it could be used only to offset requirements in Scotland. That raises some very important issues.
I am glad to see my noble friend Lord Puttnam, who spoke eloquently on carry-back and carry-forward, is here. New Section 32A(5) of the Electricity Act 1989, to be inserted under Clause 37 of this Bill, gives the power to carry back and to carry forward. What percentage of obligations are expected to be permitted to be carried forward and carried back? New Section 32G(2)(a) concerns the buyout. Can the Minister throw any light on the expected price of the buy-out? What is the buyout under the current renewables obligation? What are the principles behind that?
I do not think that the Minister will want to address in any detail today the relationship between the buy-out rate for renewables obligation certificates and the buyout rate under the carbon reduction commitment. What is the connection between those and the European ETS carbon price? One of the important problems is that there are different schemes, prices and incentives for reducing carbon. I am sure that it would be helpful for the Committee and for the wider public to understand this and to see whether there is a connection between them.
On renewables obligations, which obviously are slightly different to renewables obligation certificates, what proportion of renewables obligation units are currently traded and what proportion are bought out? It would be helpful to know how significant the buy-out clause is expected to be. Is it really a big let-out for meeting obligations or is at the margin?
The inflation index for the buy out price—the ability of the regulator to adjust the buyout price over time—is clearly very important. In the energy markets, prices have been, to say the least, volatile and surging upwards. The question of the index that would adjust that buyout price is not necessarily self-evident. It certainly is not the retail prices index, as any average household will tell you. What is the thinking about the index that would link the buyout price for the ROCs?
Finally, buy-outs raise revenues. New Section 32H(1) hands back those moneys. I assume that that money goes back to electricity suppliers, or does it go to generators? What are to be the criteria for allocating money under that system? As I understand it, moneys collected, as it were, through penalties for not meeting the obligations are not a source of revenue for the Government: they go back into the sector. Who gets the money? Is it the generators or the electricity suppliers? On what basis will it be allocated? Will those companies that have not met the obligations get some money back, or does the money go back only to the good boys—the people who have met their obligations? I apologise to the Minister for throwing many questions at him. I had given some notice, but if he is not able to answer all of them now, I would be most grateful for a response in the usual way.
I will do my best to answer my noble friend’s legitimate questions on this important clause, which, if carried, will allow the Government to make important changes to the existing renewables obligations based on electricity suppliers in Great Britain. We wish to make some significant changes, and it is on those that my noble friend is pressing me. Where I fail to answer his questions satisfactorily, we will write to him.
I start with the question of whether the Scots, English and Northern Irish ROCs are intertradable. That is the case at the moment, and it is our intention that it should remain so.
My noble friend asked whether the Section 63 order can be made by a Scottish Parliament without UK parliamentary approval. The answer is no. The Section 63 order to transfer functions from the Bill to the Scottish Parliament must be agreed by both the Westminster Parliament and the Scottish Parliament before it can take effect. There is a hold on it, and it is not merely at the whim of the Scottish Parliament. He asked whether carry-back and carry-forward are permitted under the existing RO. The RO order allows suppliers to bank ROCs from one year to next. However, criteria are applied to banking. First, a supplier can bank only 25 per cent of its obligation. Secondly, banked ROCs must be presented the following year or they will no longer be valid, so they can be banked for a maximum of a year.
He invited me to answer what principle will determine the buyout price for the RO. I remind him that the buyout price was set at £30 on introduction of the RO six years ago in 2002, and has been linked to the retail prices index. It is our intention—this is the answer to his question—that the link to the RPI will be maintained.
My noble friend moved on to ask me some questions about the relationship between the buyout price under the RO and the CRC and how these compare with the EU ETS carbon price. I am advised that the answer is quite complicated. With, I hope, his leave and that of the Committee, I will write to him about it and all Members of the Committee will be informed. That also goes for his question about ROCs and CRCs being intertradable and, if not, why not.
What are the criteria for the allocation of money collected under RO buyout payments? The money collected in the buyout fund is redistributed to suppliers who have presented renewable obligation certificates in proportion to the number of ROCs they have presented to Ofgem.
For example, in 2006-07, suppliers received a payment of £16.04 for each ROC. I will write with the specific figure of what percentage of the obligation is currently bought out. A percentage of the obligation will always be met through buyout payments because, as I am sure my noble friend knows better than me, those payments are recycled to suppliers who present ROCs. The level of the RO is deliberately set above the level of actual generation to ensure that the recycling arrangements continue to provide an incentive for suppliers to buy the ROCs.
Finally, I was asked why new Section 32A(4) is in the Bill. It is similar to provisions in Section 32(3) of the Electricity Act as, currently, we intend to have an order that applies to electricity suppliers in England and Wales but envisage that the obligation can be discharged by presenting ROCs in respect of electricity supplied anywhere in United Kingdom.
I am sure that those are not satisfactory answers in full to my noble friend, but I hope that they will suffice for the moment. On anything that has been left out from the questions that we have asked, we will write to him and distribute the letter.
I am most grateful to my noble friend, who has shown great forbearance. His answers are immediately helpful and I look forward to the covering letters on other points.
Clause 37 agreed to.
Clauses 38 to 40 agreed to.
Clause 41 [Offshore electricity transmission]:
39: Clause 41, page 38, leave out lines 5 to 8 and insert “after subsection (1) insert—
“(1A) An electric line is a relevant offshore line for the purposes of the definition in subsection (1) of “high voltage line” if—
(a) it is wholly or partly in an area of GB internal waters, an area of the territorial sea adjacent to the United Kingdom or an area designated under section 1(7) of the Continental Shelf Act 1964, and(b) it is—(i) used to convey electricity to a place in Scotland, or (ii) constructed wholly or mainly for the purpose of conveying, to any other place, electricity generated by a generating station situated in an area mentioned in paragraph (a).”
The noble Lord said: This is a short government amendment of a technical nature. The Government are putting in place a framework to encourage the development of electricity generation from offshore renewable energy sources. The regime we are developing will apply to the conveyance of electricity generated offshore by high voltage lines, regulated as “transmission”. Once the regime comes into force, it will cover offshore lines of a nominal voltage of 132 kV or more. We have been consulting with industry stakeholders and other interested parties on the policy options for the new licensing regime.
This amendment to Clause 41(3) introduces a new Section 64(1A) of the Electricity Act 1989 and ensures that our regulatory regime will apply to the right offshore lines. In particular, the amendment will mean that the 132 kV lines built for the purpose of transmitting electricity from an offshore generating station are “high voltage” and hence transmission, even if only a small proportion of the line is situated offshore. The amendment provides that an electric line built wholly or mainly for the purpose of conveying electricity generated by an offshore generating station is a “relevant offshore line” if it is wholly or partly in an area of Great Britain’s internal waters, an area of the territorial sea adjacent to the UK or an area designated under Section 1(7) of the Continental Shelf Act 1964.
Without such an amendment, the definition of “high voltage line” in the Electricity Act 1989, as amended by the Energy Act 2004, would not cover a line of 132 kV or more connecting an offshore generating station to the onshore grid if the majority of the electric line was onshore, although that is the intended policy.
The amendment will prevent the undesirable and arbitrary situation where the connections for similar offshore projects could be subject to different regulatory regimes depending just on what proportion of the electric line is offshore. I beg to move.
I shall use this occasion to stray slightly broader about the offshore area. The Government a week ago announced a great increase in offshore renewable energy—or their desire to create that. Given the difficulty with the withdrawal of Shell on the London Array wind farm, I am interested to understand from the Government how this, the other amendments and the Bill will ensure, through the banding of the renewables obligations, their offshore targets. From where does their confidence come that this new section will be useful, in that offshore is really going to happen through the passage of this Bill? That is an important point that comes out of the amendment.
The Government decided to extend to offshore the principles that govern the regulation of onshore electricity transmission. We are doing that because we think that it will bring a number of benefits, including consistency with the arrangements onshore and providing assistance to offshore developers by recovering the costs of building offshore grid connections through the National Grid’s charging methodology, in that way spreading costs that they would pay to connect to the grid over a number of years, as happens onshore. Next, it means that the responsibility for development of the offshore transmission network would not fall to generators alone; instead, the risks and costs of developing offshore grid connections would be shared by the system operator and the offshore transmission owners. Also, it would ensure a co-ordinated approach to the development of the offshore network, providing an additional environmental benefit by reducing the unnecessary duplication of transmission assets.
The question has been raised—not in Committee today but generally—of how the Crown Estate announcement fits with the development of the new offshore transmission regime. The Government have been discussing with Crown Estate the interaction between Crown Estate’s proposal for leasing round 3 and the new offshore transmission regime. We think that the two processes fit pretty well together. It will enable the development of the offshore grid to connect with the new development zones that Crown Estate proposes. I do not know whether that is sufficient for the noble Lord’s purpose.
The noble Lord asked whether the Bill will help to ensure that the offshore wind power will actually happen or whether it was just a desire. We think that the new offshore transmission regime, combined with the banding-up of support for offshore wind, will help to enable the offshore renewables sector to grow over the coming years. It is on that basis that we have adopted the new regime that we hope to see offshore.
We welcome the Government’s great wish to increase renewables and part of that will clearly be offshore. We all have that goal, and I welcome the Minister’s confidence, but just as a person sitting back and looking at what is actually happening, investment seems to be moving from the UK to wind power in the United States, which will now become one of the largest generators. In this global market of investment, there are two constraints: one is the amount of money being invested and the second is the equipment available. Are the Government really confident that, as well as the targets, the provision will meet the changed circumstance? That is important to all of us, on all sides of the Chamber, but I am not convinced that the Bill or the Government’s statements actually fulfil that. That is what I was trying to get at here.
Let me make one more attempt at allaying the noble Lord’s fears. He may well know that the UK is second only to Denmark in the amount of offshore wind we have. It is a natural resource that we should take account of, and next year we hope to overtake Denmark. On the question about putting it in place, the answer is yes. We recognise that much more needs to be done, and here I go back to the renewable energy strategy, which we were debating before the break. We will launch a consultation document over the summer, and all of this is aimed at the 2020 EU renewables target. I do not want to be overly optimistic or pessimistic, but wind is an abundant natural source in this country and is one that we obviously have to take great note of. I am glad to have his support, and he is right to ask the questions he has put to me. If he seeks a more detailed understanding of why we think this will succeed, of course we will write to him.
On Question, amendment agreed to.
Clause 41, as amended, agreed to.
40: After Clause 41, insert the following new Clause—
“Tariffs for renewable energyRenewable energy tariff
(1) The Secretary of State shall make regulations within one year of this Act receiving Royal Assent for the purpose of requiring specified energy suppliers to introduce a renewable energy tariff for a specified fixed period to specified producers of renewable energy.
(2) In this section—
“renewable energy tariff” means the specified payment level for each kilowatt hour of energy produced by a renewable source;
“renewable source” has the same meaning as in the Utilities Act 2000 (c. 27);
“renewable energy” means energy from a renewable source;
“Renewables Obligation” means the obligation specified in section 32 of the Electricity Act 1989 (c. 29) (procedure for requiring a connection) (as amended);
“specified” means specified in regulations made under this section.
(3) The regulations shall specify a renewable energy tariff and may—
(a) set the tariff at different levels, taking into account the type of renewable sources;(b) apply the tariff to different sizes or classes of renewable sources;(c) make different provision for different classes of energy, such as electricity, heat or gas; and(d) provide for a tariff level to be varied as specified in the regulations.(4) The descriptions of energy supplier upon which the regulations may impose the payment of a renewable energy tariff are those supplying electricity or gas—
(a) in Great Britain;(b) in England and Wales;(c) in Scotland; or(d) in Northern Ireland,excluding such categories of supplier (if any) as are specified.
(5) The regulations shall specify—
(a) each renewable source in respect of which a renewable energy tariff shall apply;(b) a renewable energy tariff applicable to each renewable source, or to any type, size or class thereof;(c) the maximum level of energy production capacity in respect of which a renewable energy tariff shall apply;(d) the descriptions of which persons and installations producing energy from renewable sources shall be eligible for the renewable energy tariff and provisions to exclude generating stations accredited under the Renewables Obligation;(e) the contract period for which a renewable energy tariff is payable and the payment level is fixed;(f) how the amount of energy produced for which the renewable energy tariff is payable shall be measured, determined or deemed;(g) the energy supplier required to pay the renewable energy tariff and how energy suppliers shall recover the additional costs thereof, dividing such costs, where the Secretary of State deems it appropriate, equitably between such suppliers; (h) how any costs of connecting to, and of any reinforcement or extension of, the distribution system necessary for the purposes of conveying renewable energy production hereunder are to be borne;(i) provisions for the regulation of renewable energy tariff arrangements by a specified body;(j) provision for the Secretary of State to report periodically on the effectiveness of the regulations made hereunder;(k) any necessary amendment to distribution licences or supply licences held by any person; and(l) such other provisions as may be required for the efficient, cost-effective, environmentally sustainable and transparent operation of the renewable energy tariff.(6) Before making regulations, the Secretary of State must consult—
(a) the Authority;(b) the energy suppliers to whom the proposed regulations may apply;(c) representatives of renewable energy producers to whom the proposed regulations would apply;(d) representatives of suppliers subject to the Renewables Obligation; and(e) such other persons, if any, as he considers appropriate.(7) Regulations under this section shall not be made unless a draft of the instrument containing them has been laid before, and approved by a resolution of, each House of Parliament.”
The noble Baroness said: This amendment represents one of the most hotly debated energy topics in Parliament. When a similar amendment went through another place, 35 Labour MPs supported it; indeed, it was proposed by one. That amendment was lost by a very slim margin. Although this issue has generated a split in parliamentary politics, the world outside Westminster seems to be in relative agreement: this country needs a renewable energy tariff. There are some concerns, of course, which I will address. Still, out of all the briefing I have received and the meetings I have had on the Bill, this issue is the one that most people seem keen to press. It does not surprise me. The potential benefits of a renewable energy tariff are enormous. Indeed, it might not even be appropriate to speak in the vocabulary of “benefits”. We on this side feel that it is not just beneficial but necessary. If we expect to proceed into a century where the dual jeopardies of energy security and climate change threaten the future of our country and our planet, a renewable energy tariff must be the first step. The amendment allows for the energy revolution to begin.
A renewable energy tariff is about the empowerment of citizens to abate climate change and to establish the crucial shift to renewable energy production. Although it may sound hackneyed, I believe that the amendment would bring power to the people. I want to make myself absolutely clear. The amendment is designed to encourage small-scale renewables. It is not a back-door attempt to abolish the RO and is not intended for tremendous sources of power generation. It would allow households, farmers, commercial companies and public buildings to receive a fixed amount for every unit of renewable energy they generate.
This is the same mechanism that has revolutionised the German energy industry and has had similar success across the Continent. It is necessary if we are to meet our emissions targets. Currently, only 2 per cent of UK energy comes from renewable sources. A boost in small-scale renewables will go a long way to meeting the EU target, which states that 20 per cent of Britain’s energy should come from renewable sources by 2020. Energywatch has advised us that the Government’s Renewables Advisory Board estimates that microgeneration has the potential to contribute at least 22 per cent towards Britain’s target.
With a tariff, and hence proper support, the contribution of small-scale generation could be much higher. Indeed, a study by the Energy Savings Trust for DBERR indicates that 30 to 40 per cent of the UK’s total electricity could come from renewables by 2050. We must agree that the potential here is great.
A renewable energy tariff would also shore up our energy security. Empowering people to produce their own energy reduces our dependence on imported fuel and provides a substantial financial buffer against the volatility of oil and gas markets. A tariff could have an economic benefit. The UK renewables sector currently employs an estimated 7,000 people and in 2006 turned over £290 million. Compare that to Germany, where turnover rose by 10 per cent last year alone to an enormous €24.6 billion. Last year the employment created in this sector topped 249,000.
Feed-in tariffs that empower people to take control of their energy needs will be a great benefit to the economy and play a crucial role in revolutionising how we heat our homes and power our lights. There are also potential benefits for fuel poverty. Supporting localised and individual generation drives down costs of bills. Indeed, the Government's ambitious fuel poverty targets might not be achieved unless there is some form of support for microgeneration. Feed-in tariffs provide such support.
The international community has shown that renewable energy tariffs can work. Industry and green lobbies are unified behind the idea of a tariff. The Liberal Democrats support it. The group of supporters even extends to pop stars, as Alan Simpson told us in another place. The only opposition comes from the Government.
I now turn to the detail of the amendment. It does not place a threshold for what counts as small-scale generation and would allow the Secretary of State flexibility to set a limit after consultation. However, we admit that that might not be the right approach. It might encroach on investor confidence, which could prevent the progress that the amendment intends to encourage. At this stage, through the amendment we are pursuing a mechanism which rewards people, communities, commercial businesses, farms, warehouses and hospitals—the list goes on—for producing renewable energy on a small scale. This is about decentralising energy and giving power to the people.
The amendment would include provisions to allow support for the encouragement of renewable heat, which is an improvement on the previous version tabled in another place by a Member of the Labour Party's Back Bench. This is an improved version, because that is what this process is about—honing our amendments to perfection so that the Bill might benefit from their inclusion.
I will speak frankly. I do not offer this amendment as a way of generating debate generally. We tabled the amendment with the hope that the Government will accept at some stage a mechanism which could provide for such prodigious advantages for this country and its citizens. I beg to move.
I enthusiastically put my name down in support of the amendment for a number of reasons. First, I see it as all of a piece with the work we did in passing the Climate Change Bill through the House over the past few months. It is hard to imagine a successful Climate Change Bill without this type of movement by the Government. Secondly, the dog that did not bark sufficiently during the passage of the Climate Change Bill was behaviour change. This amendment will have the effect of driving behaviour change in exactly the right direction and in exactly the right way and, hopefully, at the right pace.
I support the significant number of my party’s Back-Benchers in another place who put the amendment down in the first place, and I very enthusiastically support it. I come at it from the communitarian aspect because the opportunity exists here to enthuse and encourage communities to feel less like victims and more like masters of their own energy fate, and I cannot see that as anything other than a very good thing. It allows ordinary citizens to feel that they are not simply at the mercy of this or that massive energy producer.
It is sometimes possible in your Lordships’ House to feel as if you live in a parallel universe. In some respects, a lot of the responses to the concept of tariffs feel a little like that. Fortunately, I was encouraged on Monday by a press release put out by my right honourable friend Ed Balls, Secretary of State at the Department for Children, Schools and Families. Some of your Lordships will have seen it, but I want to use it as an example—and on Report I will offer the Government many other examples—of where it is a no-brainer to start looking at what we are doing and feeding this concept into what we are doing, what we are committed to and paying for. Ed Balls said:
“The Government is taking the first steps to making every new school building zero carbon from 2016, Children’s Secretary Ed Balls announced today”.
He said, in passing:
“I don’t have time for critics who will carp that this is impossible. I know that current technology makes zero-carbon schools expensive and challenging”—
“to install on many existing school sites. The fact is that we have a clear moral responsibility to future generations to make it happen. We can no longer sit back and wait for the science to catch up with us—it would be a dereliction of duty if we did”.
I could not agree more.
He went on to make the point that Ministers are already taking significant steps in announcing £110 million specifically to install cutting-edge carbon reduction and renewable energy technology in more than 200 secondary schools that are already undergoing major refurbishment over the next three years, mostly as part of the Building Schools for the Future programme—BSF. That is on top of the £21.9 billion capital investment in schools between 2008 and 2011, including £9.3 billion earmarked for BSF. That is money committed and being spent.
I suspect that we might hear from the Government that this is an interesting area, that they would like it to go out to consultation and that maybe in a couple of years’ time they will come around to doing something. By that time we will have spent at least one-third of the money committed to Building Schools for the Future. Not to use the money and the opportunity to turn local schools into, effectively, energy-generating plants, not just for themselves but for their communities, would be close to madness. In what better way could you engage young people in understanding the energy needs of the future? What better way could there be to get this science-starved nation to understand the science of energy than every schoolchild in the country knowing that they were sitting on the energy-generating capacity of their community? I regard allowing this to pass while we sat around consulting and thinking about it as precisely the kind of dereliction of duty that the Secretary of State was referring to. I enthusiastically support this. It would be a major stain on the Government’s reputation were they not to accelerate to make it happen.
I shall quote that on many occasions in the future. As the noble Baroness says, this is one of the key elements that we will be discussing in Committee and on Report. The reason for that is simple. We know that in Germany, although it can be dangerous to use individual examples, there is a track record that shows that simplicity, combined with individual citizens, decision-making and financial reward, works amazingly well in terms of meeting objectives. Does that surprise us? Of course not. That is how life, economies and the free market actually work. If you align personal objectives and beliefs with rewards, you get action and change. It works, and you meet objectives. We have a particular example in Germany where this system has moved forward.
To return to the points made by the noble Lord, Lord Puttnam, as the economy gets more difficult, there will be a further disconnect between individuals and the whole issue of climate change, which people understand and realise is important. They will not feel a part of that great project. The amendment is an opportunity to reconnect, not at a state level, a diktat or even an energy supply level; in some ways, it is the antidote to the big energy suppliers, where individual citizens can join in the fight against climate change and participate themselves.
That is why the amendment is so important. Does the system work at the moment? I live in one of the windiest places in the United Kingdom, in the south-west. I live on a hill, within sight of the sea. If generation should work anywhere, it should work where I live. I am lucky enough to have a place where I could site a sensible wind generator. We looked into that two years ago but, even with grants, at a capital cost of about £21,000, I could not make it make sense, even though I would get ROCs back. It was impossible for me to make that investment, even though I wanted to. So I stick to my two wood-burning stoves and biomass. It is intuitively wrong that in places such as where I and many others live, where renewable energy makes sense, we are unable to make it make sense at the moment because—leaving ROCs aside—of the lack of carbon pricing and all the other things.
One of the most important things that the Government could do in the Bill is to approve the amendment or something very much like it, so that we can bring the fight for climate change and renewable energy that works, rather than all the bitchiness and nimbysm we have at the moment. This is the way forward, and I hope from the feeling in the other place and from all sides of this House that the Government will find a way to make the Bill’s objectives work.
I add my voice in support for the objectives of the amendment. I very much support what the noble Baroness said in both her earlier rhetoric and her recognition that the amendment may not be 100 per cent precisely what the Government should adopt. I support her strong urging of the Government. Frankly, very late in the game, it is time for them to take that on board. I want them to take the amendment away to look at it seriously between now and the next stage. I know that they are considering heat and the renewable energy strategy. They should consider the experience of Germany and other continental countries in using forms of feed-in tariff to achieve much higher levels of renewable energy than we have.
I serve on Sub-Committee B, which is considering the renewable energy target set by Europe, which is giving the UK a 15 per cent target, which in generation terms means pretty much 40 per cent. We are nowhere near achieving that target on the basis of existing policy alone. That does not mean that we should scrap the ROC system and start again—I might have thought that if we could go backwards, but ROCs are at last beginning to deliver, so the feed-in tariff should not be considered as an alternative to ROCs. In parts of the spectrum, it could coexist with ROCs. There are many potential users, from households to community and public sector users, to which my noble friend Lord Puttnam referred—and I hope that the commitment shown by Ed Balls is spread to other departments engaged in public investment in new facilities—as well as commercial users, who may not want to play in the ROCs market in general, but have an on-site use for decentralised energy based on renewables or waste heat.
Unless we mobilise all that potential, there is no way in which we will meet the European renewables energy target or the targets that we set ourselves with such enthusiasm, with great leadership from my noble friend Lord Puttnam, in getting the Climate Change Bill through this House and almost on the statute book. The amendment appears a little technical in some respects. Many people who support various aspects of renewable energy argue about the minutiae of it. But the central issue is whether the Government will take on board the need to mobilise all that small, medium and micro generation capacity, which has not been mobilised by ROCs, by government commitments or by the Government seeing it as a priority on their own estate.
This is a very important amendment and a strategic moment for the Government. I ask the Minister to take away the amendment and seriously attempt to convince his friends not only in BERR but in other parts of Whitehall that this must be a central plank of our meeting our climate change objectives. I know that there is government interest in this area; I just hope that it is turned into something solid before the next stage of the Bill. I offer my support to Members of the Committee who have spoken in favour of this principle.
The noble Lord, Lord Teverson, referred to the project he considered introducing on the property where he lives. I was asked by a colleague to look at photovoltaic roof installations. I spoke to a number of suppliers in the market and found huge differences between the cost of photovoltaic roof applications in the United Kingdom and those in the United States of America. We need to pump-prime the renewables market at a microgeneration level, so that larger operators which are capable of supplying the equipment at far lower prices are somehow induced to come into the market and supply it. The educational project to which my noble friend Lord Puttnam referred may be a means of attracting many of them.
When I was the MP for a constituency in Cumbria, I often wondered why British Nuclear Fuels, which had a major problem in fostering a reputation for environmental friendliness, did not, with all the technological support systems it had at its disposal, pursue the development of wind farms and wind generation equipment on the same scale as the Danes—through the Vesta equipment—and the Japanese. I am not sure that we have any large-scale wind turbine manufacturers in the United Kingdom capable of competing with those coming in from other parts of the world, although I stand to be corrected.
The Government should somehow pump-prime those areas of technology with large-scale procurement projects on the basis that my noble friend suggested. Photovoltaics and wind turbines are just two areas in which they might do so. I hope that we can grasp the nettle. My noble friend said what a waste of money it would be if we spent two years consulting and did not get on with the job and take the big decision. I hope that my noble friend will reflect that in his reply.
I am grateful to the noble Baroness for proposing this amendment. Perhaps I may adapt the old adage: I can look after the Opposition, but heaven protect me from my friends. Some very powerful speeches were made from this side of the Committee as well as from the other side. I am well aware that this issue was debated substantially at Second Reading. This has been an excellent debate and, as the noble Baroness said, there was quite a significant debate in the other place, which led to some interesting voting figures. I am conscious of the fact that for many Members of the Committee, as well as for a large number of Members of the other place and the wider community whom they represent, this is a significant issue.
However, we need to look at these issues with hard realism. I am persuaded of the importance of microgeneration and its virtues, and I will seek to demonstrate the work that we are doing in this area. I shall of course ask the noble Baroness to withdraw her amendment. I have no doubt that she will do so and go on to say that she will be returning to it on Report. No doubt, on Report there will be greater participation and these arguments will be scrutinised very carefully. I shall deploy some arguments which, although they accept the virtues of microgeneration, we all need to take very seriously. What would be the most effective series of policies that could be pursued in order for us to reach what we all recognise are enormously challenging targets for renewable energy and reducing carbon generation? The Government have to make choices about the resources at their disposal.
The first proposition has figured in a number of today’s contributions, including those from the noble Baroness and the noble Lord, Lord Teverson, who spoke on behalf of his Front Bench. The German example was commended to the Committee and greatly lauded. If one looks at the numbers involved in microgeneration in Germany, it is a successful strategy. However, let me emphasise that it uses a very generous feed-in tariff to encourage the uptake of micro-photovoltaic installations. That is put forward to us as a model to follow. But Germany’s policy of providing government-backed soft loans to accompany those tariffs has been a major factor in the rapid take-up of these installations. As soon as the soft loans were withdrawn, there was a very significant drop in the rate of installations. While the overall policy has been very successful in promoting domestic PV, it has not been able to encourage the full range of microgeneration technologies, nor has it led to the growth of renewable heat.
Moreover, this generous subsidy carries a very heavy price tag. The International Energy Agency estimates that the German feed-in tariff between 2000 and 2012 will result in payments of €68 billion and that by 2012 the annual cost would be between €8 billion and €9.5 billion, which would add around 15 per cent annually to all domestic and industrial electricity bills.
Against the background of the power bills that people are facing at present, I counsel the Committee to recognise that putting forward proposals with such a potentially significant impact on electricity bills carries considerable risks. Of course, I can appreciate the desire to ensure that we in the UK seize the opportunities to promote and encourage householders and community-sized groups to generate their own energy. However, the role that microgeneration of both heat and electricity can play must be part of a wider energy strategy. People need to know not only that they are doing their bit but that their bit contributes to the best strategy. As part of this, in this period of very high energy prices, we cannot ignore the costs to consumers.
The noble Lord, Lord Teverson, illustrated part of that cost; there he was, describing to everyone in the Committee the most favourable circumstances which he enjoyed, but then he said that of course it was just not economic with the support he gets at present. If he lived not in the south-west of England but in similar circumstances in Germany, he would have had his costs met—but I am also indicating what the costs would be to wider society with extensive take-up.
We are of course concerned to increase the take-up of microgeneration in the UK. We have made £86 million available in capital grants under the low-carbon buildings programme to reduce the cost of buying and installing equipment. We have removed the need for planning permission in England and Wales for domestic installations which have little or no impact beyond the host property, and have proposed a doubling of support for all microgeneration electricity technologies under the renewables obligation once banding is introduced. We also know that we need to do more for the deployment of other forms of renewable technology.
When we published the microgeneration strategy in 2006, we indicated that we were of course aware of its potential benefits. We have supported it financially. I mentioned the low-carbon building programme. We supported it by making it easier for planning permission to be given and by setting up the microgeneration certification scheme to provide consumers with independent certificates of products and services. We supported microgeneration through the expanded Act, with the carbon dioxide advice service from the Energy Saving Trust. So of course we recognise the broad thrust of the arguments for the role that microgeneration can play, but we have a big target to hit.
The EU target of producing 20 per cent of energy from renewable sources will be challenging. Our renewable energy strategy, which we will publish once the renewables directive has been agreed—we expect it to be next spring—will set out our proposals for meeting the UK’s share of the EU target. To inform the strategy, we will consult on a raft of options, including how best to support the small-scale generation of electricity and design a financial instrument to promote uptake of renewable heat. Under our renewable energy strategy, which we will publish once the renewables directive has been agreed, and which we expect in the spring of next year, we will set out our proposals for meeting the UK’s share of the EU target. To inform the strategy we will consult on a raft of options, including how most effectively to support the small-scale generation of electricity and how we could best design a financial instrument to promote the uptake of renewable heat. However, I counsel against the easy transfer of the extremely expensive model that the Germans have pursued as being translatable into the British context without it either being enormously costly to the consumer or putting such a demand on Government resources that it pre-empts other strategies which may enable us to reach the target more readily and effectively.
The Minister for Energy has publicly stated that he will be looking at feed-in tariffs for small-scale electricity as part of the work to inform our thinking. The Government have given a clear commitment that they want to keep an open mind on this issue, but I ask for the recognition that of course we will look at all these issues—we will be obliged to do so—when we develop our strategy from the spring of next year. However, I want to avoid a situation where we insert into this Bill not just a proposal but a very severe time constraint. After all, the opening line of the proposed new clause states:
“The Secretary of State shall make regulations within one year”.
That ties us to a timetable in the Bill and would severely pre-empt the strategy that the Government need to follow in the light of the renewables directive next year and the work that needs to be done.
I want also to emphasise that the proposed new clause does not provide an enabling power for the Secretary of State to introduce a feed-in tariff. If the Government determine that that is the right thing to do following consultation, it is a requirement to do so within one year of the passing of the Bill. All noble Lords, and particularly my noble friends—my noble friend Lord Whitty spoke with great persuasive power to this amendment; he also piloted the last energy Bill through the House with great success—will recognise the Government’s severe reservations, particularly on issues related to energy policy, about being tied to a commitment that must be delivered within one year. If there is one thing we all acknowledge in energy strategy, it is that a time constraint of 12 months scarcely makes sense when we are putting in place mechanisms that must last for decades to come. I am happy to give way to my noble friend.
I should like to clarify something for my own mind and probably for the benefit of the Committee. I do not expect an answer now, but I would be grateful if my noble friend could write to me. What mechanism has been used by his noble friend the Minister for Energy, his colleagues at DCSF and the Department of Health to advance the use of new build—£30 billion-worth overall—in terms of new energy requirements? As my noble friend rightly says, a year is a tough task, but there is a problem. We are spending billions every year, and what concerns me is that during the time we wait for a decision to be made, another £4 billion or £5 billion will have been spent on new builds without this resource even being considered.
I have two questions. The first is: could the Minister let me know what mechanism exists between the departments to look at these issues? Secondly, if it is decided not to turn new build schools, hospitals and so on into what are in effect small-scale generating stations, what are the reasons for that decision and what would be the comparative costs should the decision be taken to use these new builds in that way?
My noble friend has answered his middle question by summing up the comparative costs. That is the issue we are addressing with regard to microgeneration. I respect entirely what he says about new build. We all recognise that, as with all these strategies regarding the demanding target that we have to hit by 2020, every year is valuable. I do not underestimate the necessity for intelligent strategic action by the Government, and I will seek to give my noble friend a reply to his most interesting question about the relationship between departments on new build. I will have to write to him as I certainly do not have the figures to hand.
My noble friend will appreciate my great anxiety about building into the Bill a timescale of one year for this strategy against a background, for reasons I have already identified—and I have not quite finished yet—of comparative costs and the best strategic way we can hit the target, which is the overall issue we are all concerned about. I do not detract from the noble Baroness’s intention that this is an approach towards the achievement of the target, and of course it has the virtue of engaging the public. I certainly recognise that there is an enormous difference between producing a ROC strategy which changes the terms for biomass consumed by Drax and microgeneration which involves the whole of the community.
In my community a number of houses have been changed to use photovoltaic cells, which reflects that some people feel the investment will produce proper rewards. What is alerting the whole community to an awareness of climate change is refuse collection. That immediately triggers off questions about what action needs to be taken and what sacrifices people need to make for greater deliberation on how rubbish is collected. I do not suggest for one moment that that matter is on the same scale as electricity generation in terms of the issues we are concerned with in the Bill, but if the additional argument is that microgeneration has the great advantage of helping people to become more aware of the issues of climate change, and they are doing their bit, I merely suggest that the public’s awareness is being occasioned by strategies other than the energy strategy. I think that that is almost bound to be the case.
Does my noble friend recognise that public procurement is a huge spur to industry to provide and build more efficiently? For example, Britain used to pay a lot of money for its buses. We had a few plants around the United Kingdom until the Government in the 1970s—a Labour Government if I remember rightly—decided to build a Leyland National plant in Workington. Transport undertakings throughout the United Kingdom placed huge orders with that plant. The effect was to reduce the cost of single-decker buses, which were available nationally, and, because the price was so reduced, we exported them all over the world. That is an example of where public procurement can actually lead to a reduction in costs with export potential for those who provide domestically lower priced products.
If we have all this money going into education and public buildings, why can we not somehow grasp the opportunity of using that procurement to secure greater efficiencies on production costs?
I have a great deal of sympathy with what my noble friend has to say. The department is very concerned to discuss strategies with other departments that relate to the targets. To take the most obvious point, the Government intend to ensure that their buildings should be carbon neutral in the very near future, a reflection of the fact that contrary to many impressions, government departments can relate to each other over the question of the establishment of targets.
My noble friend is also right that certain aspects of government procurement lend themselves well to good practice. Whether that could lead to export opportunities in this area is an interesting question, but I should say that the number of industries that feel they have increased their export potential through government procurement strategies—there is one very significant exception and I leave the Ministry of Defence out of this contribution—is limited. I do not say that it does not have its part to play, but I do not have a briefing to show whether it would meet the particular area identified by my noble friend.
When I was researching the photovoltaics market, all the equipment came from Germany, Japan and the United States of America. Whole industries have been developed to produce the equipment, and it is now exported to countries like this one, which simply does not seem to manufacture it. Therefore, for someone like the noble Lord, Lord Teverson, if he had ordered photovoltaic equipment, he would have found that it was simply uneconomic to fit it.
I hear what my noble friend has said for the second time. I do not disavow the argument, but merely suggest that one has to look at this not just industry by industry, but process by process in terms of the effect that government procurement may have with regard to exports. However, I shall write to him if I have anything constructive to contribute to the important point he has made.
Perhaps I may return to the amendment. The other issue it leaves open is the question of what size insulation would benefit from the feed-in tariff. That is a critical factor when we consider the question of investor confidence. Any move now that suggests replacing the renewables obligation with a feed-in tariff for large-scale renewable generation would occasion great uncertainty and would be likely to result in unrecoverable delays to new renewable projects coming on stream. We would have to draw a line on the definition of microgeneration in order to establish exactly how large “micro” actually is, lest we interfere with other aspects of government policy, which we expect to work well in reaching our targets. We have been told by business again and again that what it wants from the Government is a clear commitment that decisions taken will be implemented as quickly as possible, and through this commitment, investors can rely on a stable and consistent policy framework. We have made a commitment and that is why we would have great difficulty in accepting any significant departure from the renewable obligation strategy that we are pursuing.
We have been given a clear steer by business that financial support for large-scale generation is not the main barrier to delivering more renewable energy. Its main concerns are related to the planning process and grid access. The Committee will appreciate how much work the Government are doing both in the Planning Bill and in the Transmission Access Review in order to deal with those problems. The proposed new clause seeks to compel designated energy suppliers to offer a regulated tariff. Even if this were to turn out to be the right approach, although the Government have some reservations, making it work in practice in the context of the UK electricity market would be a complex challenge.
Perhaps I may illustrate the difference once again. Germany is held up as a model in this regard, but in that country the network operators, who can be obliged to pay, have geographical monopolies. It is easy to identify who should pay. In the United Kingdom’s market, we have no fixed geographical location for suppliers. If a householder wants a feed-in tariff, which supplier are they meant to approach? Would we need to give suppliers an incentive to make it easy for householders to receive the tariff? Could we effectively prevent suppliers discriminating against microgenerators through some form of additional regulation? If so, how? Or would it be better to place the obligation on someone other than suppliers? I pose those questions merely to indicate that the relationship between microgeneration and electricity supply is not an easy one, particularly against a background where the Government have a strategy to protect the broader issues. If even the greatest advocates of microgeneration look at the German illustration, they would recognise just how limited the contribution could be.
One German Member of Parliament said that in 2007 consumers paid €1.4 billion for electricity from solar energy in Germany. However, solar photovoltaic contributes only 3 per cent—I repeat, 3 per cent—of all renewable energy. There is no reason why in introducing microgeneration we necessarily would fall into the German position and how they have paid for it. But it shows the danger of the cost-benefit analysis that the Committee needs to take seriously. He also said that one must not justify these high jobs because of the 35,000 jobs in the solar industry, which is an important consideration. It means a subsidy of around €153,000 per job. That is even higher than the German subsidy for coalmining, which is also notoriously high.
I am merely emphasising to the Committee that this amendment raises some very serious and major issues for the Government. Serious and difficult technical questions need answering. To rush into legislation, which this amendment would require us to do, with a provision that must be implemented within a year, is obviously fraught with problems. In particular, having done more detailed analysis, the proposed amendment does not provide the full scope of provision that we would need to develop a working mechanism that addresses the concerns I have mentioned.
I am not implying that we will take more than a year to reach our conclusions, but if we conclude that something is required then the legal basis on which we could implement a financial mechanism that works needs to be considered in a proper fashion. The development of a coherent renewables energy strategy with due consultation, surely, is the right way to do this. At this stage, my plea is to ask the Committee to let us look at all the options as part of the renewable energy strategy, which we will be obliged to deliver next year. Give us time to consider what needs to be done, and allow us to bring forward proposals against a background where, otherwise, all these reservations and difficulties that we have about this proposal would be pushed to one side and the Government would be obliged to act, as the amendment suggests, in one year.
I apologise for not being here at the beginning of the debate. The Minister said that consultation would allow us to consider all the facts. I have been through some of the figures. Since 2001, there have been 17 consultations on this issue. Perhaps another 17 consultations will lead us to some further conclusion, but every group to which I have spoken has spent vast amounts of time writing in to inform consultations. Surely the information exists already. If that is not the case, perhaps the whole process needs to go out to consultation.
Does the Minister not accept that the cautious, steady approach of which he has tried to convince us today would be more credible if the Government had not in the mean time committed themselves to a European deadline of 2020? To delay another year or more in mobilising this sector of the market would greatly diminish our chances of meeting what is already an almost impossible target. It is clear that the Government’s previous target of generating 10 per cent of energy from renewables by 2010 will not be met. Our fuel poverty target will not be met.
If we reject the noble Baroness’s amendment on the grounds that we need more time, the Government should not commit themselves to objectives which are coming ever closer. Without pre-empting the outcome of the Select Committee’s report, I say that it is clear that this will be a problem. The longer we delay in enhancing our policy in relation to mobilising renewables, the more difficult, if not impossible, will those targets become.
I think that I know what is meant by consultation. It tends to be a desk exercise. Can the Minister imagine any situation in which a consultation would not be better informed and more conclusive if it included the creation in different parts of the country of, let us say, three schools or a hospital which used quite different forms of energy generation, thereby creating some kind of evidence base? I would not mind if it did not work, because we would at least know something. In its present form, consultation will be an essentially negative process.
Perhaps the answer to why after all that consultation nothing has happened on microgeneration is that it is simply far too expensive and wildly uneconomic. If those who favour it want a decision immediately, I say that that decision may be no. To presume that it would be yes after all that discussion would be wrong. I agree with my noble friend that experimental schemes involving major building would make great sense, but they would take time. They would not result in decisions within 12 months, but would be a positive and constructive way forward. I hope that the Minister will continue to emphasise that we must review and get right the whole range of renewable energy policies, and that to go down one route at considerable expense, particularly if it was at the expense of other, more promising renewables, would be a great shame. I know that all of us in this Committee, given what we have said on climate change legislation elsewhere, want the same result, but we must carry with us the electorate and electricity bill-paying customers at the same time.
I have just received advice to respond in the exactly same way as my noble friend just has, rendering therefore my initial contribution quite otiose. We have got to get the strategy right. I recognise and have freely acknowledged in my contribution the virtues of this form of electricity generation, but I have also outlined some of the obvious difficulties. They are sufficient for us to want to continue to look at them seriously against a background of significant developments when the new directive comes into force next spring. That is a better strategy than being tied to delivering within one year, which is what the amendment seeks.
My noble friend Lord Puttnam asks why efforts are not made to look at effectiveness. There is no reason why that cannot be encouraged with regard to public buildings. There is the question of the additional cost involved; that is the issue the householder faces. We will certainly look at that. The difficulty is that isolated buildings of this kind may not prove, in a very substantial way, the more general case that relates to the much wider factors of how we tackle the strategy for 2020 and what the relative cost-benefit analysis is. I assure my noble friend that across all departments the Government are concerned to respond to the climate change agenda. That is taken as an absolute given, hence the point I made earlier about government buildings being carbon neutral in the near future.
On the more general issue raised by the noble Lord, Lord Redesdale, that we are using consultation merely for delay, the trouble with consultation is that we are certainly damned if we don’t, but today we are damned if we do. The scene is rapidly evolving. Of course time is of the essence. My noble friend Lord Whitty is right that, with the 2020 targets established, we know the constraints that they impose on the necessity of effective action. That puts all the emphasis on “effective”, not just on “action”, which might be misguided.
I hope the noble Baroness will think that I have made a sufficient case for her to withdraw her amendment today, although I guess I will see it at some future date.
I thank the Minister for his efforts in putting an “unputable” case. It must be extremely difficult for a man like him, with his experience, to have to stand up and spout such a load of rubbish in the face of what it is patently obvious we should be doing. Of course at this stage I am going to withdraw the amendment; we are in the Moses Room and I have no choice. And of course the amendment I put down was not appropriate; I said that at the beginning and at the end.
I know that the Government are worried sick about costs; of course they are. We are all worried about the costs of our energy. How did we ever get ourselves into a position where we have to buy so much of our energy from everywhere else in the world? But we are where we are, and we have to think of as many ways as we can to get ourselves going again. The Minister says we cannot ignore the cost to consumers, but the cost to consumers for our energy today is huge. It is not an easy time for any of us.
I am grateful to the noble Lords, Lord Puttnam, Lord Teverson, Lord Whitty and Lord Campbell-Savours, who have had to stand up and support a Conservative amendment. But it is not a Conservative amendment as such because a similar amendment was proposed by a Labour MP in the other place, and attracted huge support from all around that House. The Minister must know that when we come back with this, as we most surely will on Report, a great many other Peers will rally to the cause. We are looking for advantages for this country and for its citizens.
We have heard some wonderful things today, such as “masters of their own energy fate”. That is a wonderful statement. “Mobilise the little platoons”, said the noble Lord, Lord Whitty. The noble Lord, Lord Campbell-Savours, talked about pump-priming at microgeneration level. These are wonderful things; there is great excitement in this and great feeling that people can take part and do something for themselves and not just feel victims. Old people, going towards the winter, sitting there in the dark and not turning the fire on—we need something that will give people courage and confidence. I should like to give our Government courage and confidence, I really would.
At this moment I can say only two things: first, we would like to send once again our sympathy to the noble Lord, Lord Jones. Yet again our Minister of State is not here and I understand will not be here with us again next week, for our two days of debate. I know that he is not well; it is fortunate that he is not here today, or he would be putting his head under the covers while listening to this debate. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2 agreed to.
The Committee stands adjourned until Tuesday 24 June at 3.30 pm.
The Committee adjourned at 5.41 pm.