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Energy Bill

Volume 704: debated on Wednesday 22 October 2008

Consideration of amendments on Report resumed.

4: After Clause 37, insert the following new Clause—

“Heat from deep geothermal sources

(1) The Secretary of State may make regulations putting into place for the United Kingdom a licensing system for the exploitation of heat from deep geothermal sources for both the direct use of that heat and for the generation of electricity.

(2) The licensing regime shall be determined after a period of consultation by the Secretary of State with industry, geological experts, local authorities, energy producers and other interested parties.

(3) The licences shall relate to—

(a) those areas of the United Kingdom deemed by the Secretary of State to have potential for the exploitation of deep geothermal heat, and(b) individual geographically delineated areas of land, to be known as “tenements”.”

The noble Lord said: My Lords, I should like to make it clear, following the amendment proposed by my noble friend Lord Wallace of Tankerness, which was about ROCs, that when I mention rocks they are hot dry rocks, spelt in the normal way in which people in the street would understand it.

I was grateful to the Government for their interest in Committee in hot rocks technology and geothermal power. The noble Lord, Lord Bach, enabled a number of representatives from the industry and other people who were interested in this area to meet the department to discuss a number of the issues so that the department could understand this area more and we could start to put it on an active agenda. Those meetings were constructive and, since then, the Government have concluded their renewable energy strategic review consultation period. A number of businesses and interested parties from the geothermal energy sector have contributed to that. If nothing else, we have already started to achieve things there. I thank the noble Lord, Lord Oxburgh, for his support and for being at those meetings.

I do not want to go on at great length about the geothermal industry, because I went through that in Committee. However, I will point out that this is a genuine low-carbon or zero-carbon technology. Its unique aspect is that it provides a steady power source, unlike many other renewables. It is unobtrusive because its workings are underground, but the clever bits on the surface also tend to be low profile and hardly noticed by local residents. That is always good in terms of planning permission and the feelings of local people, which are always issues for renewable energy projects.

There has been extensive use of geothermal energy where there are near-to-surface sources of hot water. Those are mainly in volcanic areas, such as Iceland, New Zealand and Japan, where these technologies are proven to work and provide a large amount of electricity. That is not of much use in non-volcanic areas, where the possibility of drilling down five or 10 kilometres is increasingly being looked at, so that water can be pumped down to hot rocks and hot water can be pumped back up. Although such technologies exist as a result of the oil prospecting industry and the present geothermal industry, they have not been put together in a commercial way. A demonstration project has just started in the Alsatian region of France at Soultz. A study by the Massachusetts Institute of Technology in the United States, which is spending a lot on research in this area, estimated that some 10 per cent of US electricity generation could be supplied by hot rocks geothermal energy within 50 years—although that is quite a long timeframe—at competitive prices, provided that there is reasonable investment in research and development.

This amendment tries to address that area of research and development. My equivalent amendment in Committee was, I agree, prescriptive. It tried to move this issue forward by stating that the Secretary of State “should” consult and set up a system for producing a framework within which exploration and demonstration projects could take place. After listening to the Government and recognising their interest in the area and their positive response, in this amendment I want to give the Secretary of State powers to establish that system, although not to insist on it or give a timeframe. I am aware that it is unusual that someone from the Liberal Democrat Benches should push Secretaries of State to take powers to make regulations. However, given the urgent pace necessary in renewable energy, because of our timetables and targets, that sort of response is entirely necessary.

The amendment would empower the Secretary of State to set up a licensing system for what I have called “tenements”. That is a term used by the Australian industry, which is very much into research, development and technology exploration in this area and hopes to move forward to actual generation. The delineated areas of land are called tenements, for which there are licences, a little like those for North Sea oil and gas and, in renewable energy, wave hub areas. This is a standard model of permitting a monopoly to explore a particular area, after a tendering process.

Why is that necessary? It is for the same reason that applies anywhere else. Although geologists are fairly sure where these areas are—at the moment the best areas are known to be in the south-west granite peninsular—a company has to invest many millions of pounds in test bores. If it is to make that investment, a company has to be sure that another contractor, after the source has been proven, does not come along, drill a hole 500 yards nearby and undermine the original investment. Certainly, two of the Australian companies that have met with DBERR, which looks after energy, made it very clear that for them to start investing in the United Kingdom in this important energy source some security for their investment in exploration was needed.

The amendment would put into the Bill an important future renewables technology, one that is proven in most aspects of its operation but which still requires to be proven in terms of the specific technology. It would enable that exploration to take place within the legal framework and it would avoid putting unreasonable timescales on the Government as regards performance. On that basis and given the importance for the future, not just within the United Kingdom but beyond, for this technology and the way in which other economies are already developing in this area, I hope that the Government will be positive towards this approach. I beg to move.

My Lords, I do not think for one moment that the Government will be able to allow this amendment, but I must speak in support of it on a personal basis. I live in the south-west granite peninsula, as does my noble friend. I am a governor of Imperial College, the noble Lord, Lord Oxburgh, is the previous rector of Imperial College and I think that the noble Lord, Lord Hunt, has a new interest in Imperial College. We all know the exciting work that is being done in all these areas. No one can suggest for one moment that everyone will throw money at this. Setting up a licensing system, like Australia’s tenement system, is possibly the only way to go forward at the moment, as far as we can see. It has been an education just to listen to this geothermal discussion. I am delighted to be able to support the amendment.

My Lords, I welcome the intent of the amendment. Whether it is precisely right, I do not know, but we should do something along these lines. In the whole renewable energy area, there are no silver bullets. Although 10 years ago geothermal energy would not have been at the top of one’s priority list for exploitation in this country, technology moves on and commercial firms are now seriously interested in looking at and investing in it.

I regard this kind of enabling legislation effectively as good housekeeping. We do not know what will come but, certainly, as the noble Lord, Lord Teverson, pointed out, geothermal exploration is expensive; it involves drilling deep holes and it almost certainly involves conditioning the rocks underground with hydrofracturing techniques so that cool water from the surface can be pumped down, circulated through the warm rocks and brought back to the surface. That is very expensive. As the noble Lord, Lord Teverson, pointed out, we do not want people to feel that, after they have made this investment, it can effectively be hijacked by someone else. We need some way of encouraging these people and protecting their investments, probably using the same kind of legislative framework that has been used in other countries.

My Lords, this is not an area in which I have any particular knowledge or expertise, but recently I was fascinated to find that in the north-east of England, where I live, the newly refurbished Grace Darling Museum in Bamburgh is now being heated totally by geothermal means. We were so interested in that development that, in exploring the possibility of changing the heating system in a house belonging to my family, we found that two firms in the north-east of England are now embarking on geothermal heating in a number of domestic premises. Of course, the required borehole and other costs would, in certain domestic circumstances, make it prohibitively expensive. However, as my noble friend Lord Oxburgh said, the technology is moving on. This seems an attractively permissive amendment, putting forward something that ought, in principle, to be supported.

I was somewhat puzzled by the use of the word “tenements”. When I was a young medical officer just after the war and was stationed temporarily in Glasgow, I sometimes used to be called out to see patients in what they called “single ends” in huge, decrepit, tall buildings called tenements. It struck me that it is a rather odd term to be included in an amendment referring to areas of land. Subject to that caveat, this amendment, in principle, well deserves support.

My Lords, I am married to an Icelander, so the House will recognise that I have enjoyed the heating system in Iceland extensively over the years and I have had the opportunity of looking at a lot of the plant involving geothermal sources. The noble Baroness, Lady Wilcox, said that she thinks it unlikely that the Government will accept the amendment. I cannot see why they would not want to accept it, if only because it will cost them nothing. They will charge out the cost of licences to organisations that seek them and by doing so they will facilitate developments in this area at no cost to the taxpayer. I hope that my noble friend will accept the amendment.

My Lords, I strongly support this amendment and echo everything that has been said. I agree with the noble Lord, Lord Campbell-Savours: I see no reason why the Government cannot accept this amendment. Recently, I was extremely tempted to install a geothermal system at home, but it was prohibitively expensive. Along with this amendment, the Government must channel a little more money into research and development, because this is an exciting and important long-term aspect of renewable energy. It is my pleasure thoroughly to support this amendment.

My Lords, this has been a short but fascinating debate. I am sure that we are eager for the answer to the question raised by the noble Lord, Lord Walton, about the definition of “tenements” in the amendment.

I am sorry to have to disappoint the noble Lord. It might be regarded as churlish for me to stand at this Dispatch Box and suggest that your Lordships do not proceed to give the Secretary of State extensive powers and discretion in the way in which the noble Lord suggests. Seeing the noble Lord, Lord Thomas of Gresford, in his place, I recall debates in which he has argued, sometimes successfully, that the Secretary of State should not be given such wide discretion.

I do not want noble Lords to misunderstand. I must confess that two weeks ago I did not know much about geothermal energy, but since then I have met the noble Lord, Lord Teverson, on a couple of occasions and now feel that I know quite a lot about the issue. I understand why noble Lords feel that this technology has potential and that we ought to legislate in advance of that potential being turned into practice. Without underestimating the potential, one has to point out, as the noble Lord, Lord Oxburgh, did, albeit in supporting the amendment, that cost remains a significant barrier to geothermal energy. My understanding is that, notwithstanding the example given by the noble Lord, Lord Walton, the sources of hot rocks at a suitable depth in the UK are limited and that hot dry rock technology must overcome many technical barriers. Noble Lords have made the point that technology is advancing at a fast pace, but we do not think that it has moved far enough to justify legislating at this stage.

I do, however, have some words of comfort. Noble Lords will know that we have had the renewable energy strategy consultation. Indeed, the noble Lord, Lord Teverson, and a number of companies interested in geothermals have submitted comments to the consultation about this technology, which we will consider when we publish the strategy next spring.

The amendment would allow the Secretary of State to make regulations to create a licensing system for companies exploiting the heat from deep geothermal sources for the direct use of heat and for the use of that heat to generate electricity. I understand the issue that the noble Lord raises; my officials, who have had the opportunity to discuss it with him, are much more aware of the problems with exploration and land ownership. It is a substantive point. However, given the current state of technology, it would be premature to create a regime of the sort that he has suggested. Geothermal projects could be given consent under the existing legal framework, although I understand why a licensing regime might be appropriate in due course, particularly if the technology develops and looks promising. I understand the noble Lord’s enthusiasm for wanting to drive this forward, but there are risks in trying to create an enabling framework in primary legislation at a very early stage. In general, your Lordships’ House does not favour such an approach. I also wonder what the Delegated Powers and Regulatory Reform Committee might have to say about it.

My Lords, will my noble friend explain what defence there is for an organisation that bores a hole in the ground and finds that it can exploit it, when 100 yards away it sees someone else take advantage of the work that it has done and loses its investment? If officials are aware of that, as he says they are, what is their solution to that problem?

My Lords, my noble friend is quite right to raise that matter. I have already said that I understand why a licensing system might be an option in that direction. All I am saying is that, given the current state of the industry and the technology, we are not there yet.

My Lords, I apologise for interrupting the Minister, but it is important to draw attention to a point made by the noble Lord, Lord Teverson, in his introduction. Both he and I have attended meetings with overseas investors who are willing at this moment to invest this way. What the Government are doing is quite serious; they are putting their own technological judgment ahead of that of the industry.

It is also worth mentioning that a little confusion may have come into the debate, because we are talking about two quite different sets of geothermal activity in the same breath. My noble friend Lord Walton was referring to ground-source heat pumps, which involve shallow holes. It is currently just about economical to put them into new-build domestic houses. The technology for that exists and is improving. The noble Lord, Lord Teverson, was referring to a much deeper geothermal resource, which offers the possibility of bringing up hot water either for district heating systems or, ideally, for power generation. There are two quite distinct elements here.

My Lords, I am grateful for the intervention because the noble Lord has explained eloquently and expertly a point that I was going to come to. I realise that I am going to disappoint the House, but the fact remains that we do not think that we are in a position as of today to commit ourselves to the kind of licensing regime put forward by the noble Lord. I will ensure that the sentiments of noble Lords are considered as part of the renewable energy strategy and I would not rule out action by the Government in the future if we think that this is a realistic option. However, we do not think that we have enough knowledge from the work that has been done to accept the kind of licensing regime proposed here.

My Lords, I have thanked the Government many times for their interest in this area. The point about the amendment is that it would be in place precisely because the Government may not feel that they are in the right position to act now, even though a number of British companies of some size as well as international companies are looking at investment in this area. The amendment would ensure that, when the Government concluded that they needed to use it, they would be able to move ahead. One of the most important lessons that we have learnt about energy generation and a low-carbon economy is that we need fingers in many pies and to have a number of options open to us. This amendment would allow the door to be opened in due time.

I thank the noble Lord, Lord Oxburgh, for explaining the difference between heat pumps and deep geothermal sources. I believe that this is a technology waiting to be realised, even if we do not know the precise timing. Through this reasonable amendment, the Secretary of State would be able to choose to act. On that basis, I would like to test the opinion of the House.

5: After Clause 41, insert the following new Clause—

“Renewable energy tariff

(1) The Secretary of State shall make regulations within one year of the day on which this Act is passed for the purpose of introducing 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 from 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);

“specified” means specified in regulations made under this section;

“specified non-renewable combined heat and power systems” means such systems as—

(a) are used wholly or mainly for the generation of electricity and the production of heat from sources other than renewable sources;(b) have a capacity not exceeding that mentioned in section 82(8) of the Energy Act 2004 (c. 20); and(c) are specified in the regulations.(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 source;(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 persons upon which the regulations may impose the payment of a renewable energy tariff are those in—

(a) Great Britain;(b) England and Wales;(c) Scotland; or(d) Northern Ireland,excluding such categories of persons (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, having regard to the benefits of increasing future, and not damaging existing, investments in renewable energy production;(d) whether a renewable energy tariff is payable in respect of energy production or only in respect of that proportion conveyed, or to be conveyed, into a distribution system;(e) 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;(f) the contract period for which a renewable energy tariff is payable and the payment level is fixed;(g) how the amount of energy in respect of which the renewable energy tariff is payable shall be measured, determined or deemed;(h) the right of specified producers of renewable energy to have their production conveyed into a distribution system as a priority;(i) the description of persons, such as energy suppliers, required to pay the renewable energy tariff and how such persons shall recover the additional costs thereof, dividing such costs, where the Secretary of State deems it appropriate, equitably between such persons;(j) 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;(k) provisions for the regulation of renewable energy tariff arrangements by a specified body;(l) provision for the Secretary of State to review and report periodically on the effectiveness of the regulations made hereunder, and to consider such amendments as he considers appropriate; (m) any necessary amendment to distribution licences or supply licences held by any person; and(n) 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 subsection (1) above may extend to introducing a tariff for a specified fixed period for electricity and heat generated from specified non-renewable combined heat and power systems, in which case the other provisions of this section shall apply to that tariff as they apply to a renewable energy tariff.

(8) 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: My Lords, we come now to possibly the most important amendment that we will discuss on Report. Not only does it have strong support from a remarkably diverse group of outside stakeholders, but Members from all sides of this House, including from the Labour Benches, have signed up to it. Even in another place, an EDM has been tabled with an impressive number of Labour MPs’ signatures attached.

In Committee, a slightly different version of this amendment received an extremely cool reception from the then Minister for BERR, but I am pleased to note that the Government have moved from their position in June. We are fortunate to be facing a new Minister, from a new department, with a new Secretary of State. The Statement we heard last week gives us hope that the situation has changed—indeed, a Damascan road conversion seems to have taken place somewhere along the line. From that Statement, it appeared that our arguments on the important role that a guaranteed price for small-scale electricity generation should play in our energy policy were finally being listened to, and we were promised a government amendment to the Bill that would ensure a renewable energy tariff.

In meetings with officials following that Statement, we have been informed that the Government intend to bring forward this amendment on Third Reading. That is certainly not ideal timing—such important provisions should ideally be laid in time to undergo proper scrutiny by both Houses. Nor am I overly optimistic about just how far the Government are willing to go voluntarily on this issue. But I think that the Government, through the Minister, have given us enough hope that I am prepared to withdraw the amendment today. I make it clear that I reserve the right to reintroduce it at Third Reading and press it to a vote in the event of the government amendments being found to be inadequate.

Even if those amendments are significant, I imagine that the House might wish to lay several further amendments in order to ensure that this issue is dealt with satisfactorily. I wish, therefore, to concentrate on certain aspects of my amendment that I think are critical to the success of a renewable energy tariff, and which I hope the Minister will take careful note of when drafting his Third Reading concession.

First, one of the most contentious aspects of this amendment is the level at which eligible energy sources should be capped. Too high a cap and there is an unwelcome clash with the renewable obligation contribution scheme; too low a cap and potential microgeneration schemes are frozen out. The final decision about where the cap is set is therefore critical to eventual success or failure. We chose, after much deliberation, to allow for complete flexibility in order to accommodate such concerns. Our amendment would allow the Secretary of State to adjust the cap in response to the more precise information that will become available as the tariff is rolled out. It is also possible that different energy sources will require different caps, and provision must be made for that too.

Secondly, any concession should make provision for the inclusion of heat. The Minister said in the Statement last week that he recognised the importance of renewable heat, and followed that up with a coy hint of future announcements in this area. Rather than yet another vague initiative, policy aim or broad strategy thrust, heat needs to be specifically included in the government amendment. To do otherwise would continue the Government’s policy of marginalising that critical area. The Government themselves have identified combined heat and power as one of the most cost-effective carbon abatement technologies available. To exclude it would be incomprehensible. With system losses of up to 70 per cent with centralised power generation, we do not need any more legislative barriers to the development of micro-combined heat and power.

Finally, there is the question of implementation. Your Lordships will already have noted a later amendment to the Bill on the question of the implementation of smart meters. There are similar concerns here. Any government concession must contain a clear indication of how soon the tariff will become operational. Without that, there is simply no guarantee that it will ever happen. I am sure that other Peers will mention other points in this amendment that they hope to see supported by the Government at the next stage; my list is certainly not exhaustive.

I end with a request that we are given sight of the government amendments as soon as possible. It is unfortunate that the Government have started to move only now, when there is no chance for those in another place to scrutinise any amendments carefully. In this place, we in this House need to give any new provisions as much careful consideration as possible. I beg to move.

My Lords, my name is also attached to this amendment and I strongly support what the noble Baroness has said. I was pleased to hear, in last Thursday’s announcement by the Secretary of State, that the Government are minded to move substantially in this direction, which requires that the noble Baroness withdraw the amendment today. Nevertheless, part of the Secretary of State’s indication was that he wanted to hear what the balance of opinion was in the debate, and therefore, without going on for too long, I shall underline a few points.

First, it is important to recognise that this is about a lot of technologies, not one specific technology. Certain uses have not been brought on as quickly as we at one stage anticipated. They range from relatively small-scale wind through to biogas and solar power of various sorts.

Secondly, this is not an attack on the ROC system. There are arguments about that system but it is clear that it is now working. There is a lot more in the pipeline that has been stimulated by the ROC operation, and most of the delays in that are due to the planning system rather than to the ROC system itself. Also, the gradation and banding of ROCs will help some of these technologies.

It is therefore not intended that the system covered by the amendment would in any way undermine the ROC system for those who are in the market for ROC certificates, such as multiple-site operators, and who understand and can run with the ROC trading system. The issue here is a whole range of different potential users. There are an enormous number who are not attracted at all by the ROC system, either because of the uncertainty in the trading dimension of it or because of the bureaucracy of it. These range from single-site operators, maybe quite large operators, who are interested in only one installation, possibly quite a major installation, to farmers who are looking for sites for biogas facilities or for anaerobic digestion on their farms or in a collection of local farms, through to quite significant district heating schemes with possible uses in individual buildings, schools, potentially university campuses and small industrial estates—all of whom are one-off arrangements who do not wish to enter into the ROC situation but would be attracted by the certainty of a renewable energy tariff along the lines of the feed-in tariffs on the Continent.

There has been quite a lot of congratulation that we have now surpassed Denmark in volume of wind power, but in Denmark, in terms of this market, 60 per cent of wind power users are actually small-scale firms, small businesses, local community projects, district heating and co-operatives. Those are exactly the people who are not attracted by the ROC market but are attracted by developing green energy and could be incentivised so to do by the certainty of a tariff system.

The noble Baroness is correct that there is a lot of argument about whether we put a cap on it. The original proposition, if the Government were to move at all in this area, was for a very low cap—50 kilowatts was proposed at one stage, which was a very tight definition of microgeneration. That is not what I am talking about; clearly single household stuff could be covered, but we are talking about significantly more. Some of the instances I have mentioned would be much bigger than that. We therefore have to allow for a pretty high threshold, if there is a threshold at all. I would argue that, since the argument is about not the size but the nature of the user, it is not logical to have any cap. If the Government are insistent that anything without a cap would undermine the market, then the cap needs to be pretty high.

I also go along with the noble Baroness in saying that much of the benefit of this would relate to heating systems. Here I must declare an interest as the honorary president of the Combined Heat and Power Association. It is clear that, although the Government have now promised but not delivered a whole range of other support for heating systems, unless there were a much higher threshold for renewable CHP systems and heating systems that relied on renewable feedstock, that development would be greatly inhibited and some of the applications to which I have referred would therefore not benefit from this amendment.

I hope that the Secretary of State, in coming forward with his amendment, and the Minister, in arguing for it next week, will take these considerations into account. The amendment as it stands gives pretty broad scope to the Minister in drafting the detailed regulations, but it is important that in the Bill we do not inhibit any of these applications. I repeat that it is important that we do not fall into the trap of arguing that this is in contrast to the ROC system; it is in addition, it is congruent and it could run in parallel to that system for an entirely different range of potential users who, in aggregate, would make a huge contribution towards the achievement of our renewable energy targets. I see in the Chamber the noble Lord, Lord Freeman, who is chairing the Select Committee which is looking at the achievement of that target. We have all recognised that it will be difficult enough, but if we exclude the market and the potential that a feed-in tariff, or something of that nature, would provide, we will not hit the 20 per cent target for 2020. If we do include them, we will have a good chance of achieving it. I therefore support the amendment and hope that the Minister will take these points into account when coming forward next week.

My Lords, perhaps I may make a brief contribution directly following the noble Lord, Lord Whitty, and as a courtesy to the Minister and to my noble friend Lady Wilcox on our Front Bench. As chairman of your Lordships’ Select Committee looking at the renewable energy targets for 2020 for the United Kingdom and the European Union, I can tell the Minister that we intend to publish our report this Friday. We spell out in some detail why we believe in feed-in tariffs for renewable energy sources and spell out our reasons. As the noble Lord, Lord Whitty, a distinguished member of your Lordships’ Select Committee, explained, that is compatible with the existing renewable obligations certificate programme.

I also want to take this opportunity to thank the noble Lord, Lord Oxburgh, for his significant and substantial contributions to our deliberations. I hope that our report will be of value to the Government and to the Minister’s department.

My Lords, the tariff is, in many respects, welcome, but I want to strike a note of caution. It will have to be paid for by consumers, many of whom cannot afford to pay the existing charges. Ultimately, it will be reflected in people’s bills, as are renewable tariffs already. That point must be borne in mind.

As with the pay-through tariff for the smaller scale generating capability, we must make sure that we can have available to the companies, the individuals and the co-operatives the kind of kit which is capable of benefiting them. We have seen in Germany, where there have been attractive programmes for such work, that already there are difficulties supplying the kit to individuals. There has been a stickiness in the market because there is an overdemand and the supply is not great enough. It is therefore incumbent on Government not just to give the nod to this welcome step, but also to ensure that even as we approach a recession we create some means of assisting the establishment and development of supply chains for that kit. They must also ensure that we are able to protect our most vulnerable and least-well-off consumers, who will ultimately be paying exactly the same part of the bill as everyone else. They may not be the people most likely to benefit from the scheme. I know that in certain circumstances, it could be attractive in rural areas which are off the gas mains and where such renewable facilities could be established—certainly in hamlets, small groups of houses and small rural villages that could be done. However, the kit must be available—and it must be available much more quickly. We hear that the technology is not ripe. It is ripe in a number of northern European countries which are benefiting from the scheme, and there is no reason why the UK cannot get into those supply chains and perhaps produce under licence in the United Kingdom. If we get the kit we want and a greater degree of protection for the fuel poor, we will be going some way to being in a real win-win situation of helping consumers while at the same time reducing our CO2 and meeting our European commitments.

My Lords, I want to follow one or two of the points that have been made and say at once to my noble friend Lord Freeman, who is chairing the Select Committee, that it is a pity we are having this debate before we have his report. It would have been a valuable addition to our armoury of arguments, but there we are: these things do not always come in the right sequence.

My noble friend made a point about a cap, and I listened with great care to what the noble Lord, Lord Whitty, said. We have had a lot of evidence about it from a variety of organisations, but I have been impressed by the desire of many people to say, “Look, we are not dealing with a system that is competitive with the ROCs. It should be complementary”. At the right level of cap, the system will be complementary. If, on the other hand, the cap were placed too high or if, as the noble Lord, Lord Whitty, appeared to argue, there should be no cap, I fear that it would be seen as competitive with the ROCs and would undermine the confidence of the substantial number of investors who are contemplating investment in various renewable technologies and who are going to rely on the ROCs. The Government have recognised that and have given commitments to continue the ROCs system for many years ahead. However, like my noble friend Lady Wilcox, I believe that there must be a cap on the renewable tariffs in order to avoid the creation of a competitive system.

Secondly, I want to endorse what has been said about the importance of heat. Subsection (7) of Amendment No. 5 makes it perfectly clear that renewable heat must be part of the system. The noble Lord, Lord Hunt of Kings Heath, was kind enough to meet us to discuss some of the amendments to the Bill. He said that today he would be listening to the views expressed in different parts of the House to ensure that when the Government frame their amendment they take account of these things. I say to him firmly that if the scheme does not take account of heat, there will be a great deal of disappointment. It should be able to do so because the technology exists. To try to limit it solely to electricity generation would be to narrow its scope too much: it should be capable also of dealing with gas. The noble Lord, Lord Whitty, mentioned digestion plants and so on. He is right in saying that the methane which comes off them is a renewable source. The cows go on for ever and that, too, should be encompassed within the scheme.

However, I am not entirely clear about how far the amendment goes. There has been confusion in my mind and I would like to believe that I am not the only one. We are talking about renewable tariffs, but there is the quite separate argument for other forms of microgeneration. As I have indicated in a number of debates over the years, I have always supported the view that in its right place and with the right framework, the encouragement of microgeneration must be an important part of the whole energy mix. We always talk about the energy mix, but microgeneration might not necessarily be renewable. I have received a letter from a manufacturer of plant that would clearly qualify for microgeneration. It is in a sense a combined heat and power and therefore might come within subsection (7) of the amendment.

However, there are other forms of microgeneration; for instance, the ordinary air heat pump. I am sure that I am not alone in that my swimming pool, in the days when I could afford one, was warmed by a heat pump and it was very economical. It used electricity so it was not a renewable source, but I have always believed that if one is going to try to encourage that sort of thing, particularly in rural areas where people are not connected to a gas supply, they should be able to use air compression pumps for both heating and hot water, and then feed surplus capacity into the grid. This is where we are continually talking about the need for feed-in tariffs.

I see this whole area as covering not just the wind pump and other renewable sources but a system that can provide for microgeneration, which will be an increasing part of the total mix. At the other end must of course be the major plants producing the base load—nuclear plants, combined cycle gas power and, as we have said earlier, perhaps coal, with carbon capture and storage—but a whole range of technologies is now available. I hope that the Government’s amendment will be wide enough to take account of these other technologies, which would require a proper feed-in tariff if they are to become economical. Their capital costs are often the major obstacle. If one can be assured that there will be a return for the surplus power or heat used, it is some recompense. The amendment must take in the whole of this. I support the view expressed around the House that heat must be an integral part of it. We look forward with great interest not only to hearing what the Minister says today but also, and perhaps more importantly, the amendment that he will bring forward at Third Reading.

I echo what my noble friend said from the Front Bench: please could we have it in time to be able to study it effectively, take advice and, if necessary, table amendments. It cannot just come in a day beforehand. We have had one or two instances of that in other cases, and it is rather embarrassing: you simply have to say to people, “Well, I’m sorry. You’re too late with your advice. We’ve debated this; it’s gone”. We must have enough time.

My Lords, I declare an interest as a non-executive director of Blue-NG and Falck Renewables. Perhaps I may give the Minister some information that he might not have: today could be a very important milestone in the evolution of the development of wind energy in this country, because, unless some technological gremlin has intervened, it will mark the becoming-operational of the 3,000th megawatt of wind-generated electricity. It will happen on Millennium Hill, which is a snow-capped hill in the southern highlands. I tried to get telephonic confirmation that that was okay, but I could not.

I agree with much of what the noble Baroness, Lady Wilcox, said in her introductory and eloquent speech on this matter. She made many of the important points, as did the noble Lords, Lord Whitty and Lord Jenkin. There has been serious neglect of heat, CHP and microgeneration in our policy so far and I am delighted that the new Secretary of State has recognised this. There are potentially significant savings of CO2 and energy to be had, and a potentially significant contribution to energy security, about which we really have to do something.

I shall make only two points in elaboration. We have to recognise that devising a fair, efficacious and cost-effective scheme for bringing in heat is a bit more difficult than the other aspects covered in the amendment. The Government will need time to reflect on it and get it right. It is terribly important that it be done, but it is even more important that it be done right. We have to recognise that it is a slightly more complex problem.

The point that I wish to make more emphatically relates to the relationship between the feed-in tariffs and ROCs. I have spoken in this House in support of feed-in tariffs and indeed supported them before the committee of the noble Lord, Lord Freeman. They are important, and a number of our neighbours have used them to support small-scale renewables on a scale that we have not seen in this country. However, we have to introduce them very carefully, for reasons which have been touched on, particularly by the noble Lord, Lord Jenkin.

Be they large-scale or small-scale, these new developments need investment. The amendment runs the risk, unless the Government are very careful, of shaking confidence in investment in medium-sized projects. I do not need to tell Members of this House how difficult is the investment environment at the moment, how difficult it is to raise money for new projects. People are looking for reasons for deferring. If the proposal went forward without a cap, it would introduce a significant element of uncertainty in so far as those who were contemplating lending to or investing in medium-sized projects in the feed-in tariff or ROC regime would find a good reason for deferring investment, which, above all, we do not want.

Industry will look for certainty. Certainty at an inappropriate level is almost better than nothing at all. It is important that, simply to maintain business confidence and the flow of investment for renewable energy projects on all scales, there be clear caps, whatever they may be, because business will tend to live with them. We must have certainty.

My Lords, it must be nearly 10 years since the noble Lord, Lord Whitty, answered many questions that I asked on combined heat and power, because the hospital of which I was chair was looking at introducing it. It was going to provide quite a saving to the hospital as well as greater efficiency. As I am no longer involved, I do not know what has happened, but there is a place in many of the country’s National Health Service establishments for schemes of this type.

My Lords, perhaps I may support the amendment from a particular perspective, community microgeneration, which is one of the areas where we are not seeing any movement with the ROC system. I am rather less sanguine about the ROC system than the noble Lord, Lord Whitty: it remains to be seen whether it will deliver a great increase in renewable generation and have a real impact on smaller-scale generation. The ROC system appears extremely complicated and unattractive to community generation schemes, and has signally failed to be accessible to them. There is great capacity for community generation and, for that reason, I press the Minister to make sure that if there is a cap, as I think there should be, it will not set at a low level and will not cut out of the mix those middle-range schemes that are simply not being driven by the ROC system. They include a wide range of technologies: wind, biogas and even water. We need to make sure that whatever scheme the Government come forward with promotes the ability to set up community generation schemes.

My other point relates to the scale of our ambition for microgeneration. A study conducted for BERR showed that by 2050 30 to 40 per cent of the UK’s total electricity production could be achieved by microgeneration. Even with the best will in the world, the current proposals will not get us even a micromillimetre off the ground. I welcome the Government’s commitment to introducing the feed-in tariff amendment, but ask them not to put too tight a cap on it.

My Lords, I am glad that I waited for the noble Baroness, Lady Young of Old Scone, because she has put her finger on the issue about caps. We should perhaps not talk about caps as if they were anything but an artificial limit, because on renewables we are talking about 50 kilowatts. That was put in place as an arbitrary scale when renewables were pumping out very small amounts and 50 kilowatts was seen as unachievable. Now that we have microgeneration technologies that can achieve 50 kilowatts, that limit is seen as a problem because systems have been built around it. It seems ridiculous that regulation rather than what is actually achievable is leading to the design of renewable kit.

The noble Lord, Lord Oxburgh, made the interesting point that, if we were to threaten ROCs in the present climate, the whole big wind argument would be built on shaky ground. As we have seen, large companies can pull out: I found it disappointing when Shell pulled out of the London Array. The company made that decision for financial reasons, but it then shifted the investment to wind farms in America. It was still investing in renewables but, unfortunately, it seems that we have no system that makes that financially attractive here. We could go into the ROCs argument, but that is irrelevant to this amendment. The relevant point is that 50 kilowatts is a mandatory cap with no meaning, although if we are not to affect ROCs we have to work out what the top limit of such a cap could be. I know from the British Wind Energy Association that no big wind is being put in at less than 2.2 megawatts, so having the cap slightly below that would not affect ROCs in the slightest. There is no problem there.

This is where I find the issue interesting, because when we talk about this cap we have to start thinking about the technologies. On microgeneration, the Co-op tower that is covered in solar voltaics does not produce anything near a megawatt. We are thus being slightly aspirational if we have a high target, but there is no reason not to have one. If it is going to affect neither wind nor any investment decision, why should we not be talking about a high limit—a megawatt, a megawatt and a half, or two megawatts—on the caps? That is an issue for the Minister to think about, but it would be wrong of us not to be aspirational for microgeneration, because it needs every help that we can give. All of us who have spoken on microgeneration over a long period want it to take off. I am proud that in a house I am converting I have just put solar panels on my roof. It means that my utility room looks like the engine room of the Starship “Enterprise”, which is fantastic.

My Lords, I apologise for interrupting the noble Lord when we were hearing interesting facts about his own development, but there is one problem that one should perhaps note. One has, again, heard the argument that, if the cap is set too high, so that it takes in not just the micro-range but the medium-range, as it were, of renewable or other generating technologies that would use the feed-in tariff, there could be considerable difficulties not so much within the major transmission networks but on the local distribution networks. There would be the problem of trying to maintain a balance, as they have to maintain the required output minute by minute. Has the noble Lord had the same information on that? Perhaps the Minister could deal with that when he replies.

My Lords, the noble Lord, Lord Jenkin, makes an interesting and useful point, but it is irrelevant here. I say that not facetiously; I mean that it is irrelevant because no schemes can be put in place that would in any way affect the ROCs. We cannot create an industry over the next short period that will suddenly, within five to 10 years, flood the marketplace with technology that does not exist at the moment and is not ready to be built, although if such things did happen, I would think it fantastic. The other point is that the amendment talks about the Minister setting the cap by being technology specific, but I doubt that we will see another energy Bill come forward in the next few years to change that. We are talking about the situation on the ground in the next few years, so bringing forward a much higher cap as an incentive to develop these technologies has to be a good thing.

My Lords, this is my first intervention on the Bill, although I have been involved in the Planning Bill, which deals with some overlapping issues. I declare a landowning interest in the south-west and north-west of the country. Taking up the point on cost raised by the noble Lord, Lord O’Neill, I wonder whether the Minister could say something when he introduces his amendment later on—if not tonight—about what the Government consider the cost might be and who will pay it. On government figures, the renewable energy obligation currently costs the electricity consumer £1.1 billion per annum. That figure will rise exponentially if the Government make rapid progress on reaching their renewable targets. Do the Government expect that the cost of the feed-in tariff could be of the same order of magnitude? Will the electricity consumer pay it and all associated costs exclusively? Will the costs include all those, for example, of the bureaucracy required to run the scheme and all those of providing the low-voltage grid, wherever that is required? What would that be expected to add to consumers’ electricity bills? I would be grateful if the noble Lord could consider those questions and reply to them at some stage.

My Lords, I have put my name to this amendment and I thank the noble Baroness for having pursued this subject so strongly. I believe that this has been shown to work practically, particularly in other parts of Europe. I was pleased by the change in government policy in the Statement last week but I, too, believe where we put the cap to be important. To my mind, that clearly involves all microgeneration projects, but the cap should also enable and encourage communities to come together to provide solutions that are less effectively produced or applied by individual houses or households. That is one key area. I absolutely agree with the point, which my noble friend Lord Redesdale put well, that there is a level below which commercial projects do not take place. Therefore, what is there to lose below that level?

I come back to the point about cost made by the noble Lord, Lord O’Neill. The extra cost to consumers is clearly significant, but it has taken considerable time to build up to that level. It is not unimportant, but in the first years of this scheme it will not be hugely significant.

There is a more important point here. One of the key motivations for having feed-in tariffs is to encourage people to invest and take part in this technology. Including many more people in renewable energy is not only good but, as has been shown in Germany—I looked at the figures some months ago—when you increase the volumes of these technologies, their cost comes down quite significantly. That has certainly been the case in the solar photovoltaic area. One of my hopes and aspirations for feed-in tariffs is that the cost will come down because of the much more widespread use of the technology. I recognise that, because of the present supply chain problems, the opposite could happen in the short term, but we have to look beyond that.

Certainly, heat needs to be included—the noble Lord, Lord Oxburgh, made an important contribution on the greater difficulty of that. But, again, heat is a good example of when this new form of tariff needs to be able to encourage community applications rather than just individual ones. That is more true of heat, which as we know accounts for a large proportion of total carbon emissions—some 47 per cent for the whole economy, although not all of that is available for the micro-sector, by a long way. But if we get this tariff right, we will be able to have community systems, which are particularly important with new-build and social housing.

My Lords, a number of the problems that people find in paying their bills is in operating the existing meters—unsmart as they are—and recognising what the charges are. If they were to have the added responsibility of running a power station in their kitchen, it would probably be even more difficult. Therefore, the case for communal small estate enterprises is strong. We should give greater incentivisation to that than to individual households, or it will just be another case of the middle class and others being subsidised by people who probably need this more and can afford it less.

My Lords, I agree with the noble Lord completely. The other matter, which we discussed earlier, is that through all these provisions, including smart meters, we will take away the need for pre-payment and the current discrimination against low-income families. I look forward to seeing the Government’s revised amendment for Third Reading as early as possible, as other noble Lords have said.

My Lords, it may be of interest to noble Lords to hear that just this afternoon we had a visiting delegation of three senators from Texas. When asked about feed-in tariffs—to put it in simple language, how far the clock goes backwards—they said that the clock on an individual farm or house producing electricity could go back only to zero. In other words, they can reduce their bill by producing electricity but cannot actually feed significant power in. The noble Lord, Lord Oxburgh, referred to having a simple rule, and that is a simple Texas rule—and, as we have just commented, Shell has moved from London to Texas. I am not advocating this necessarily, but that is a simple rule and surely we can find such a rule with incentives.

The role of community power is vital. We have already moved a long way in the UK in thinking about devolved and smaller-scale energy systems, and this should be part of it. But we need to ensure that there are still proper investments for people putting in small and medium-sized power systems, such as those in rivers, which are penalised at the moment by the 50-kilowatt rule. We need to have clear rules and I support the amendment.

My Lords, it has been an interesting debate. I assure noble Lords that careful note is being taken of their comments, although they are not entirely uniform, which reflects some of the difficult decisions that will have to be made in a short period of time. It is good that we will have the benefit of the Select Committee, which will I am sure be very helpful to us.

It was a great pleasure to repeat the Statement last Thursday when the Government’s view on feed-in tariffs was made clear, as well as our commitment to renewables and, of course, to the 80 per cent target by 2050. Those set an important context in which to discuss these amendments. Clearly the Government have listened to the debate in your Lordships’ House and the other place and listened to the many Members in both Houses who have argued so persuasively for a feed-in tariff mechanism for small carbon electricity generation. That is why we intend to bring forward at Third Reading an amendment to this Bill to support small-scale renewable generation.

The opposition amendments and today’s debate have given the Government much food for thought. I very much welcome the principles outlined in the amendment proposed by the noble Baroness, Lady Wilcox. There has also been considerable debate about heat. When we look at both those issues in detail, it is clear that we cannot incorporate both small-scale electricity and heat into one single mechanism, primarily because the heat market is very different from the electricity market. For those reasons, I shall address those areas separately in my wind-up speech tonight, although I assure the noble Lord, Lord Jenkin, that we understand the need for the amendment that we table at Third Reading to cover the heat sector.

On electricity, we are convinced of the need to introduce a feed-in tariff mechanism to reward the smaller producers of low-carbon electricity. Such a mechanism must incentivise the individual householder. More than that, however, schools, hospitals, community projects and businesses will play a role in our fight to reduce carbon emissions. It was a delight that the noble Baroness, Lady Gardner of Parkes, intervened on that important point. I assume that she was talking about the Royal Free when she mentioned her hospital. Of course, we also need a significant amount of investment in larger-scale renewables projects to meet the challenging targets that we have set and, clearly, to provide a substantial degree of energy.

Forecasts of modelling available to my department suggest that large-scale renewables will have to account for a significant part of the renewable electricity that we will need by 2020 to meet our targets. That is a generally accepted view in your Lordships’ House. So we have to maintain investor confidence in large-scale investment. The last thing we want to do is to take any action that might inhibit investment decisions at the moment and in the foreseeable future. That is why we want to retain the existing renewables obligation for large-scale renewable projects.

As the noble Lord, Lord Oxburgh, persuasively said, maintaining confidence is absolutely crucial, which is why we believe that clarity is best delivered by specifying an upper limit for feed-in tariffs in the Bill. I know that my noble friend Lord Whitty has reservations on that matter, although he has also accepted the general point about needing to maintain confidence in a renewables obligation. The question then is how we devise an effective scheme that is, as the noble Lord, Lord Oxburgh, says, fair and meets the need in maintaining confidence in the current system, albeit with the amendments that this Bill brings in, and in relation to the small-scale microgeneration projects that we so much wish to encourage.

I very much agree with the noble Baroness, Lady Wilcox, that we may need a different approach for different technologies. It is different for heat, but the implication is that any upper limit or cap in the Bill will have to be a maximum level, giving sufficient flexibility to set different tariff levels for different technologies, following consultation.

I accept the points raised by the noble Baroness, Lady Young, the noble Lord, Lord Teverson, and my noble friend Lord O’Neill about community generation, suggesting that the cap should not be set at too low a level. The noble Lord, Lord Redesdale, tentatively put forward 2.2 megawatts as where one might start the discussion. We will consider that. There is a danger of a kind of auction here, but next week we will have a discussion with noble Lords about where this level should be set. I suspect that we will not get utter uniformity on that view.

I have noted the concerns of the noble Lord, Lord Jenkin, about the implication for the local distribution network. This matter has not been reported to me, but I will look into it and will be able to respond to him in due course.

My Lords, I am grateful for that. It is a very important matter which the noble Lord should discuss with those who operate these local distribution networks. It has been represented to me very strongly.

My Lords, I have no hesitation in saying that we will do that.

The interesting issue of non-renewable microgenerators was also raised, and the noble Lord, Lord Jenkin, mentioned the capital-cost problem of such schemes. We will of course look at that. Amendment No. 41 suggests that the feed-in tariff should also cover small non-renewable combined heat and power systems and that non-renewable CHP systems should be restricted to limits not exceeding those in Section 82 of the Energy Act 2004. That is a sensible approach which we would hope to incorporate within the government amendments that we will produce at Third Reading.

My Lords, what role in this process does my noble friend envisage for Ofgem? One of the means by which moving targets can be addressed over time is through use of the statutory instrument mechanism for the setting of caps. As has already been made clear this evening, the technology is likely to change very quickly. If we were to chisel into legislative stone a figure that would require fresh legislation to change, it would put us in a very difficult position. Will he therefore consider use of the statutory instrument? With prior consultation and agreement, we can often get the kind of new consensus required to address changing circumstances even two or three years from now.

My Lords, I readily agree that the statutory instrument is always an attractive option for Ministers standing at the Dispatch Box. It gives the Government a great deal of discretion in making changes and adaptations. There is always a debate in your Lordships’ House about the extent to which we use statutory instruments as opposed to primary legislation. It is certainly true that, as the noble Lord, Lord Redesdale, suggested, there may be further energy Bills down the road—though, as he knows, I could not possibly comment. I have discussed this matter with my officials and the issue comes back to investor confidence. The point that has been put to us is that we need a limit in the Bill in order to maintain investor confidence. That goes to the heart of the dilemma in our wanting sufficient flexibility to take account of developments that may take place in the future. We are very concerned not to do anything to undermine investor confidence in the ROC system.

My Lords, does my noble friend accept that investor confidence applies both ways? The kind of user that I was talking about also needs investor confidence, but the ROC system is not attractive to them because it is too bureaucratic and does not give them certainty. Investor confidence is therefore lacking. If in aggregate they add up to a large investor whose confidence is undermined, as a number of noble Lords are concerned, then that dimension of confidence, as well as the bigger project, needs to be addressed in whatever the noble Lord comes up with.

My Lords, I cannot disagree with my noble friend on that point either. However, it suggests the challenge that the Government face in coming up with proposals that fit the bill and meet all the different viewpoints. We will have to work very hard in a short time in order to produce proposals that work and are encouraging to the microgeneration schemes that we want to encourage while ensuring continued investment. I do not pretend that this will be a particularly easy task.

When it comes to heat, we are looking very seriously at the options open to us. I very much take noble Lords’ point about ensuring that we embrace heat within any amendment that we bring forward. The complex and diffuse nature of the heat market makes a feed-in tariff for heat a much looser concept than it is for electricity. There are also fundamental differences between heat and electricity that will present challenges to delivering an effective and practical financial support mechanism for renewable heat alongside electricity. The Government will have to give further consideration to how to do it. I assure noble Lords that we wish to address the heat issue, but I think that we will have to do it in a way that gives us sufficient flexibility to formulate policy over the coming months. Given that noble Lords have been keen to give the Government flexibility on other issues, I hope it will be accepted that a lot more work needs to be undertaken on the heat issue.

My noble friend Lord O’Neill raised a very important consideration about the supply chain. We want every encouragement to be given to the supply chain. Part of providing that encouragement is the need to get absolutely right the issue of investor confidence regardless of whether it is large-scale or smaller-scale investment.

The noble Lord, Lord Reay, asked some pertinent questions on costs. We have to address those issues but, as I think he rather expected, I cannot give him any firm figures now. We will make those figures available as soon as we have them.

My noble friend Lord O’Neill made some important points about where the costs lie. There will be a knock-on impact on consumer bills, as the noble Lord, Lord Reay, and my noble friend suggested. However, my noble friend’s point was really about equity and a concern that poorer people should not be subsiding middle-class people in this area. He will know that there has been concern about prepayment meters. He will probably also know that, only a few days ago, as a result of the Ofgem probe, my right honourable friend met with the companies concerned to make it plain to them that we expect movement on the issue. The principle that he raises is very important indeed.

My Lords, the noble Lord was talking about the value of the feed-in tariff. Is there no hope that the feed-in tariff will be fixed at the same level as current electricity tariffs or slightly below them? Is it a matter of principle that the feed-in tariff will cost more than the current electricity tariff?

My Lords, the point being raised here is that the feed-in tariff will provide both certainty and likely additional income to those who are able to feed in. There will be a knock-on impact on costs and, therefore, on prices. As we know in relation to renewables generally, there is a knock-on impact. I think that that is part of the balance and the price which has to be paid to meet our renewables target. However, we need to do more work on the actual costings, and we will try to do it as quickly as possible. The point that I was trying to make to my noble friend Lord O’Neill was that there is also a question of equity here. I think that it presents a real challenge to the companies—a challenge to which we will continually return.

My Lords, following the point raised by my noble friend the Duke of Montrose, will the Minister take notice of what Ofgem said in its response to the renewable consultation? It said:

“In terms of the mechanism, we see merit in seeking to rationalise the many different policy interventions, or at a minimum to achieve more consistency (for example between renewable heat and micro-generation electricity as each MWh of either has the same value towards the renewables target)”.

That seems to me to be pretty wise advice. Ofgem has obviously given a great deal of thought to it. Perhaps the Government should adopt that approach.

My Lords, before the Minister leaves the equity point raised by my noble friend Lord O’Neill, and putting on my hat as chair of Consumer Focus, perhaps I may say that there are two aspects of this. The first is the one that we have been talking about: the cost to the generality of consumers of going down this road. However, in so far as some of the beneficiaries of a feed-in tariff pass on the use of that electricity to others, particularly in district heating schemes, does the Minister recognise that this is a lacuna in current regulation? Ofgem regulations do not protect the consumers of district heating schemes. Therefore, if such operators are to benefit from a feed-in tariff, a concomitant may well be an extension of regulation to establish equity for that group of consumers.

My Lords, I am grateful to my noble friend. This has proven to be quite an education. These are all matters that fall to be considered.

I well recognise that there is a lot to be done and that noble Lords are anxious to see an amendment as soon as possible. We also have the benefit of a Select Committee report on Friday; I think that that was what the noble Lord, Lord Freeman, said. I will seek to ensure that early contact is made with all noble Lords who have an interest in this matter. I also accept that the earlier an amendment is laid, the easier it is for noble Lords to have it fully tested and to table their own amendments. I will not be so foolish as to guarantee when that will be, but I very much take the point that noble Lords want to see our proposals as soon as possible.

My Lords, the whole purpose of examining the issue before the Summer Recess was to ensure that we had something in front of us for deliberation at this stage. I realise that it is a complicated matter and that views had to be sought. I also realise that the Minister has moved into the job since the Bill’s Committee stage. However, we believed that we would have something by this stage. I take on board what the Minister said about an early stage, but it is unfortunate that it has not happened yet.

My Lords, I understand that. On the other hand, we are here because the Government came to a view on this matter, as reflected in the Statement, only last Thursday. We have to make the best of it. Noble Lords have generally very warmly welcomed the view that the Government now take. I simply re-emphasise that we want to work hard with all noble Lords to see the extent to which we can reach a satisfactory consensus.

My Lords, I understand that the Bill’s Third Reading is currently scheduled for Wednesday, 5 November. One has been given to understand that there is a little flexibility between now and the date of the start of the next Session. If it would help, I should have thought that there could be discussions about perhaps giving the Minister a few more days to do the work that he has so eloquently said has to be done.

My Lords, that is not the impression that I have been given by the usual channels. I shall for the moment work to 5 November, and work very hard to see what we can do to achieve a successful outcome.

My Lords, the Minster has had a master class for the past hour in all the departments of the Bill. I learn something new every time I stand up to say anything about an amendment to this Bill. We obviously look forward to my noble friend Lord Freeman’s report on Friday. The Minister has assured us that he will come back with amendments in such good time as we can talk with our colleagues, particularly those in another place where they will not have an opportunity to discuss this at all.

I thank all noble Lords who supported the amendment and spoke today. Yesterday the noble Lord, Lord Puttnam, telephoned me from Ireland—I am not quite sure why he was there—to say that he supports the amendment and would be looking carefully to see what the Minister came back with. For the moment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6: After Clause 41, insert the following new Clause—

“Permitted development for renewable energy

(1) The Secretary of State must make regulations within three months of the day on which this Act is passed for the purpose of granting permitted development status to specified microgeneration installations.

(2) In this section—

“specified microgeneration installations” means small wind turbines and air source heat pumps, and any such further technologies the Secretary of State may consider appropriate,

“permitted development status” means development for which planning permission is not required in the circumstances stated herein, and

“fixed specified period” means one year from the date on which the regulations made under subsection (1) came into force.

(3) The regulations shall specify that small wind turbines and air source heat pumps shall be permitted development in the circumstances and on the conditions stated in subsection (4).

(4) The circumstances and conditions referred to in subsection (3) and to be specified in the regulations are—

(a) that the design and installation of a specified microgeneration installation should not cause an external noise level, due to the specified microgeneration installation alone, in any mode of operation or wind speed that will not be exceeded more than 10% of the time on the given site, above 45db at the façade of the neighbouring building, and in the case of small wind turbines, measured in accordance with BWEA small wind turbine performance and safety standard,(b) that permitted development status only applies to certified products,(c) that permitted development status only applies to detached houses,(d) that permitted development status only applies where a certified installer is used to install the equipment, (e) that a certified installer should be under a duty to ensure compliance with paragraphs (a) to (c) above in any installation carried out by him,(f) penalties or sanctions that may be incurred by a certified installer who fails to discharge the duty specified in paragraph (e) above.(5) The Secretary of State shall have the power to review, amend or suspend regulations made under subsection (1) for the fixed specified period specified in subsection (2) for the circumstances and conditions contained in subsection (6).

(6) The circumstances and conditions referred to in subsection (5) are—

(a) that there is evidence that a significant number of statutory noise nuisance complaints have been upheld for any technologies installed as permitted development in accordance with the regulations made under subsection (1),(b) that the Secretary of State has consulted relevant parties on the evidence used to inform any decision he proposes to take to amend or suspend regulations in accordance with subsection (5).(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 Lord said: My Lords, this relatively small amendment looks rather more complicated than it actually is. It deals with an apparent anomaly that the Government have on several occasions said that they were going to make right but have yet to do so. This is a nudge to try to get them to. It is arguably on the interface between the Planning Bill and the Energy Bill, but I have refrained from participating in the Planning Bill, so I am afraid that it is here.

The amendment relates to renewable energy and the fact that, while other forms of microenergy get permitted development status, small-scale wind turbines and air source heat pumps do not. This is not particularly logical. The then DCLG Minister, Yvette Cooper, said two years ago that this would be addressed. That was repeated by Iain Wright this year and, again, as I understand it—I am not sure that he was strictly the Minister’s predecessor—Jonathan Shaw at Defra indicated that he was prepared to do it provided that there was a limit to the noise effect of turbines.

Air source heat pumps are particularly important on this, because they are available, as somebody—probably the noble Lord, Lord Teverson—said earlier. They can play a major part in helping the fuel bills and the contributions to cutting carbon by those who are off the gas network. Other forms of so doing are much more expensive and difficult. On turbines, we are not talking about massive ones, but those roughly the size of a television aerial. We accept that there should be a limit to their noise impact, and that that should be set at the WHO-recommended level of 45 decibels.

In objecting to these various points, officials have told those who are advocating these changes that the noise was a real problem. However, as a result of a Freedom of Information Act investigation with local authorities, we discovered that, out of 4,500 such applications, there was only one complaint on the grounds of noise, and that was not upheld. Therefore, provided the decibel limit is within the regulations, there is no reason why these two extremely valuable bits of microgeneration should not receive permitted development status in planning policy. As the Government have said on several occasions that they will do this, I hope that it will be done and that it will be reflected in the Bill. If the Minister has an alternative, I hope that he will tell us what it is. I beg to move.

My Lords, if I understand it correctly, the amendment of the noble Lord, Lord Whitty, seeks to place microgeneration installations outside the planning system. If this was to be accompanied by no cap or a high cap on the size of qualifying installations, I hate to think what the effect might be on certain landscapes. Under the amendment, if I understand it correctly, no planning permission would be required for small wind turbines on, or I suppose beside, or on the same ground as detached houses. Of course, one cannot tell how successful the feed-in tariff will be in securing take-up, but it is possible to envisage rural and suburban areas subjected to a rash of such development. The noble Lord no doubt wants this. The more successful the feed-in scheme, the more such installations there will be.

The amendment does not specify how large is “small”. Is this to be measured by height or generating capacity? As the noble Lord explained, installations would be restricted by the amount of noise they produce at the point of the façade of the neighbouring building, but not, apparently, on any other grounds, except for some technical requirements. Is he not concerned about the visual effect of this kind of wind turbine on the landscape? In some rural positions, neighbouring houses may be very long distances apart. It seems to me that in such cases a person could put up a windmill of more or less any size he wanted. I shall be interested to hear the Minister’s reply. I hope it will give a clue about what the government amendment on the feed-in tariff will provide on this aspect of the subject when it comes before us at Third Reading. After all, as I understand it, the Government are considering tabling an amendment to the Planning Bill which will record their commitment to respect landscape.

My Lords, I read the amendment with astonishment. I have been debating the Planning Bill for some time. If, as my noble friend Lord Reay said, this amendment constitutes an extension to the existing permitted development regime in the Planning Bill, that is where the proposed new clause should be situated. The noble Lord, Lord Whitty, may have been otherwise engaged when we dealt with the Planning Bill. However, we have one more Committee day and then Report. On reading the amendment I could not understand how he could say that it is not complicated, given all the circumstances and conditions spelt out in proposed new subsection (4). It is extremely specific and goes into considerable detail. I have a question that no doubt he will be able to answer: what consultation has there been with bodies representing local planning authorities? Has he discussed this with the Local Government Association? Local authorities would certainly have views on this. Have they been consulted? Do they agree with the measure? Do they consider it reasonable? The noble Lord presented it on the footing that it was clearing up an anomaly which the Government have always recognised. With the greatest respect, it is a lot more than that.

My Lords, we on these Benches look forward very much to hearing the Minister’s reply. Although we agree with the motivation behind the amendment of driving forward microgeneration and enabling households to take more control over their energy production as well as their consumption, this strikes me as an area where there might be all sorts of unintended consequences. However, as I say, we shall be interested to hear the Government’s response to the amendment.

My Lords, this has been a very interesting debate. However, I detected a lack of consensus on this matter, which indicates why the Government are still considering this undoubtedly important matter. I do not know whether my noble friend Lord Whitty will accept the suggestion of the noble Lord, Lord Jenkin, that he should enthusiastically embrace the Planning Bill, but he will no doubt want to give that suggestion earnest consideration.

One cannot underestimate the importance of the matter and, indeed, the balance of arguments in relation to it. The Government have already introduced householder-permitted development rights for a range of microgeneration technologies such as solar thermal, ground source heat pumps and biomass. We are committed to doing so for microwind and air source heat pumps but, as the noble Lord, Lord Teverson, seemed to imply, we are still carefully considering how this ought to be introduced.

Currently, we are considering permitted development only for microwind turbines on detached properties or turbines that are free-mounted, subject, of course, to agreement on noise levels. Permitted development is not being extended to building-mounted microwind turbines on attached premises on the basis that vibration and structure-borne noise could adversely affect neighbours. Further work needs to be done in this area before progress can be made.

The principle underlying permitted development is that individual applications for planning permission are not required on the basis that the development will not adversely affect the amenity of others. This is not an easy issue to resolve, and as the noble Lord, Lord Reay, suggested, the stakes are high in terms of finding the right balance between protecting people’s lives from the interference of others on the one hand and removing barriers to the deployment of these renewable technologies on the other. I think that my noble friend mentioned giving me a nudge on this matter, but I think the measure is a bit more vigorous than that. However, I am sure he accepts that we have to strike such a balance. We have been able to resolve some of these tensions for some renewable technologies and we need to try to resolve them for the remaining renewable technologies, where practicable.

Certainly, it is recognised that permitted development for small-scale, on-site technologies can help to increase take-up. We would like to see consumers engaged in tackling climate change and helping us to meet our renewable targets. I hope that my earlier agreement to bring forward an amendment enabling the Secretary of State to introduce a system to feed in tariffs for small-scale electricity installations is a sign of our commitment to that.

My noble friend may be relieved to hear me say that I do not think he needs to take part in the Planning Bill as the proposed amendment is not necessary in a legislative sense. I am advised that we do not need primary legislation to introduce permitted development for microwind and air source heat pumps, as we already have the power to do this through secondary legislation; hence my noble friend seeks to give me a nudge in this area. We are aware of the need to make progress. My officials have been working very closely with key stakeholders, including industry, to try to resolve the issues. I shall take a close personal interest in that. Although we understand the importance of the matter, I cannot give a commitment in relation to time as a lot of matters need to be considered.

My Lords, the amendment met with slightly more opposition than I expected. Clearly, the stakes are high, but they are not quite as high as the noble Lord, Lord Reay, implied. We are talking about very small installations, the precise dimensions of which can be prescribed in the secondary legislation which my noble friend says is already in place.

My point is that this is an anomaly. Other microgenerating techniques are already subject to this. It does not undermine the whole planning system and nor does it cause the kind of visual intrusion to which the noble Lord, Lord Reay, referred. Personally, I rather like wind turbines. I know that a lot of people do not like them, but these are not the sort that cause a major visual problem for anyone, whatever their aesthetic judgment on the machines.

There is no problem regarding air source heat pumps. There is hardly a problem with noise. They are a major contribution to rural households, particularly those off the gas network, and others. The noble Lord, Lord Palmer, who had to leave, was going to support the amendment, because he has just installed one. He would welcome his neighbours having similar access through the permitted development certificate.

If the Minister says that he can already address the issue under statutory instruments, whether under planning law or energy law, I do not mind. I have refrained from intervening in the Planning Bill hitherto; partly it is a matter of time and partly it is because the sharp end of this is a renewable energy matter. However, if it is better to do it under planning legislation, no doubt the Minister will find scope to do it. For two years, Ministers have said that they are going to do it. It is an anomaly that needs to be addressed. Therefore, if we do not pursue it in primary legislation in the Bill, I encourage Ministers to rapidly get around to producing the appropriate secondary legislation, the terms of which will allay most of the doubts that have been expressed tonight.

My Lords, the noble Lord has not answered my question, which may well be for the Minister. Have the local authority associations been consulted on this? When we have been dealing with the Planning Bill—I well understand that the noble Lord, Lord Whitty, may have been reluctant to do it this week, as we have Planning, Energy, Planning, which makes life quite difficult for those who do not have large numbers of staff to prepare things for us—there has been a great deal about consultation with local authorities. If they know all about this and are perfectly happy, I am probably content. I would have hoped that there would be a thorough consultation with the local planning authorities, because they are the ones whose discretion is being overridden.

My Lords, I cannot directly answer the noble Lord’s question on whether there has been formal consultation. The original decision to allow permitted development status to microtechnology was brought forward by those Ministers appropriate for planning, the CLG Ministers, who will have consulted the local authorities in some form or another. I am reasonably confident that local authorities are aware of that and may have raised issues that led the Government to delay the extension to all forms of microgeneration technology. Clearly, a statutory instrument brought forward by the Government, as I encourage the Minister to do, would be subject to objection by local authorities and others, and therefore we would go through that process. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 45 [Modification of approved programme]:

7: Clause 45, page 41, line 12, at end insert—

“( ) Modifications of a funded decommissioning programme may be made by a person mentioned in subsection (2) only—

(a) if there are significant operational or technical changes which have a material impact on waste or decommissioning costs, and(b) after taking advice from the Nuclear Liabilities Financing Assurance Board.”

The noble Lord said: My Lords, we now move to the opposite end of the scale. As noble Lords will have recognised, the amendment relates to the decommissioning of nuclear power stations. I shall pause for a moment, so that everyone can adjust to the fact that we are now talking about very large power stations indeed. In a couple of sentences, the Government are establishing in the Bill a process whereby we avoid what we have found with all the existing power stations; that where there was only relatively limited money set aside for decommissioning and waste, very large sums of money fall on the taxpayer. They are trying to avoid that by having funded decommissioning schemes for nuclear power stations whereby, hopefully, the whole cost will be borne over the lifetime of the power station, so that when it comes to be decommissioned and the waste has to be dealt with, funds are there to do that.

A consultation on that was published in February last year, to which there was a large number of responses. It was followed last month by the Government’s response to the consultation on funded decommissioning programmes. The amendment is directed only to one aspect of that. Clause 45, which comes right in the middle of the part of the Bill that deals with this, is headed, “Modification of approved programme”. The funding programme must be approved by the Secretary of State, and there is quite an elaborate process for that. Clause 45 gives the Secretary of State power to modify the funding programme in certain circumstances. It is left entirely to subordinate legislation as to how that will be handled.

The Government have made clear in their response what they envisage. They are not looking to be able to modify a funded plan on relatively minor matters, but they said in their response that they are looking for where there have been,

“significant operational and technical changes which have a material impact on waste or decommissioning costs, and not minor changes”.

It goes on:

“The Government will lay regulations on this material amount in 2009 and this will be preceded by a consultation on the draft regulations”.

There is some anxiety that that will give the Government power to make what would be quite expensive changes imposed on those who have invested in nuclear power for what may be relatively minor changes. With very large infrastructure projects, there are bound to be changes from time to time, both during the construction period and the operational period. It seems to me that it would be desirable to have clearly in the statute, and not just in regulations, that there should be what the Government have said their intention is, for,

“significant operational and technical changes which have a material impact on waste or decommissioning costs”.

Those are the words that I have put in Amendment No. 7.

The Government said in paragraph 3.18 that they would take the advice of the Nuclear Liabilities Financing Assurance Board. That, too, is in my amendment. It translates into legislative power for the purposes of the Bill exactly what the Government have set out as their intention in paragraphs 3.17 and 3.18 of their response. I would rather see that in the Bill than have it left to consultation and regulations. It is what they have said they want, and it is what the industry would understand and welcome. Let us put it in the Bill. I beg to move.

My Lords, I very much hope that the Minister will respond constructively to my noble friend’s sensible amendment. As my noble friend said, in Committee the Government specified the Nuclear Liabilities Financing Assurance Board as the appropriate body to pronounce on the accuracy and necessity of modifications on a technical level, and the legislation should reflect that.

My Lords, the noble Lord, Lord Jenkin, presented his amendment in his usual persuasive way, but I shall not meet him very constructively on this amendment. Against that background, however, and after dinner—but not because of it—I will be much more positive on his subsequent amendments, in which I see merit. I shall indicate to him how we intend to respond constructively on them; however I must resist this amendment, despite the noble Lord’s persuasive powers.

It is critical that the Secretary of State’s power to make modifications or impose obligations is not fettered by a materiality threshold. This is because his power to propose a modification is integral to the enforcement and sanction regime and for ensuring that operators pay for the full costs of decommissioning and their full share of waste management and disposal costs. The noble Lord will appreciate how central that is to the whole concept of the Bill, in so far as it affects nuclear energy.

In the event of a breach of the programme, the Secretary of State might choose to modify the programme prior to, or instead of, taking formal enforcement action. For example, rather than prosecute, he might decide to impose an obligation on the operator to put in place a procedure to ensure that the breach did not occur again. If the Secretary of State could only propose a modification where it met the conditions proposed by the amendment, the integrity of his sanction and enforcement regime might be undermined. We regard that as a serious problem with regard to the amendment.

For instance, it might preclude persons with responsibility for managing the fund to propose an increase in the level of the operator’s contributions to the fund. This is because the proposal might not have a material impact on the amount of waste and decommissioning costs, but would instead affect the ability of the fund to accrue the necessary money to meet those costs. Clearly, we would want those managing the fund to have the option to propose a modification to the programme.

I accept, as the noble Lord indicated, that we are talking about an industry decades ahead. These programmes will run over a considerable period. While the changes of the kind that I have described might not impact on the actual costs of the decommissioning and waste liabilities, the power to modify the programme in these circumstances will be critical in ensuring that the right level of security is in place to ensure that those costs are met. The amendment would not allow these modifications to be proposed, which would undermine the robustness of the regime.

I am concerned about one or two other points. The amendment brings into question the role of the Nuclear Liabilities Financing Assurance Board, which I will refer to as NLFAB. It is important that we strike the balance between ensuring that the operators of new nuclear power stations notify and seek prior approval from the Secretary of State for those modifications that have a significant impact on the waste and decommissioning liability, without imposing too great an administrative burden on operators. It was said in the other place that the operator would be expected to propose modifications and seek approval where a change to the programme had a significant impact on decommissioning or waste cost estimates. That remains our policy.

I am sure that the noble Lord will see the strength of the point that I wish to make about NLFAB. The amendment would make it a requirement for the relevant persons to take the advice of NLFAB prior to proposing a modification. However, the role of this body is to advise the Secretary of State on any proposal to make a modification. In particular, its role is to provide assurance that appropriate financial arrangements will be put in place by operators to meet the costs of decommissioning and waste management arising from the stations. That is central to the Bill. NLFAB will provide independent advice to Ministers as it considers proposals from operators who wish to build new nuclear power stations. It is not NLFAB's job to provide advice to the site operator or any body corporate associated with the operator. It will be for the operator and persons responsible for managing the fund to have the relevant information within their programme verified before it is submitted to the Secretary of State. If NLFAB were to provide advice to any person who could submit a proposal, as the amendment indicates, the impartiality and independence of the very advice that NLFAB is expected to give to the Secretary of State would be compromised.

I am trying to meet the noble Lord on the obvious point that we do not want to place unnecessary administrative burdens on the operator, against a background in which we all recognise that when one is making provision for an industry over decades, one must have clear principles, but must take on board the necessity for modifications. I hope that I have indicated that the Government believe that there are sufficient negative aspects to the noble Lord’s amendment which render it unacceptable. I hope that, having pressed the Government with it, he will feel that he can safely withdraw it.

My Lords, I feel as if I have had a very large book thrown at me. The noble Lord produced a battery of arguments with which I could not possibly argue. He has given a very helpful explanation. NLFAB’s function has not previously been made clear; it is not a statutory body, but the Government are recruiting for it—I have seen the invitations for people to put forward their names to be recommended. However, the Minister has made it clear that NLFAB’s role will be to advise the Secretary of State, not anyone else. If any purpose has been served by the amendment, it has been helpful to have that on the record. In the mean time, I am cheered up by what the Minister said he will do about my later amendments, and I am sure that I will enjoy my dinner. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

My Lords, I beg to move that further consideration on Report be now adjourned. In moving the Motion, I suggest that the Report stage begin again not before 8.38 pm.

Moved accordingly, and, on Question, Motion agreed to.