House of Lords
Wednesday, 22 October 2008.
The House met at three o'clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Rochester): the LORD SPEAKER on the Woolsack.
My Lords, before we proceed to the first Question I should like to say a few words about procedure at Question Time. We rightly take pride in being a self-regulating House, but it is helpful for us to be reminded of our normal customs from time to time. Self-regulation can only work if noble Lords in all parts of the House co-operate to make it work. The Companion makes clear that Ministers’ initial Answers to Questions should not exceed 75 words.
My Lords, they are on notice. The Companion also says that supplementary questions should be short, designed to elicit information rather than incorporating statements of opinion, and confined to the subject of the original Question. I am sure that the House will be delighted to know that I have reminded my colleagues on the Front Bench that answers to supplementary questions should also be concise. It is to the benefit of all Members of the House to keep questions and answers short. This will maximise the number of supplementary questions that can be taken in the 30 minutes available. I am sure that the House will find agreement with that.
My Lords, does the Minister realise what pleasure that statement has given? Everyone has thought that questions and answers are too long; and some Ministers courteously thank everyone for having asked a question, which of course is quite unnecessary. The fact that he has reminded noble Lords to be brief is of great benefit.
Energy: Winter Supplies
My Lords, the Government look to National Grid to provide a view on winter energy supply which sets out forecasts based on consultation with industry. The National Grid Winter Consultation Report was published by Ofgem on 2 October. The outlook is that if supply and demand conditions are as expected, supply should meet demand. The Government do not forecast energy prices. That was 60 words, my Lords.
My Lords, I thank the Minister for that brief Answer, and I shall be as brief as possible in my supplementary question. This is the fifth year in succession that I have asked a Question about winter energy supplies. Does he not agree that as each year goes by the situation becomes more difficult as our import dependence increases? On gas supplies, is it not regrettable that we are far behind the continent on gas storage capacity and that on 12 October so much gas was coming in that it could not be stored and the price of wholesale gas fell to zero—gas which we will surely need in the winter? On electricity—
My Lords, I am sure that the House is grateful to the noble Lord for raising this issue in successive years; it is a vital matter. As the UK moves from self-sufficiency it relies on more imports and we have to ensure that there is appropriate diversity of supply, and we will do that. I believe that the decision to encourage new nuclear stations will be a great asset. As regards the margins, we believe that we have ample gas supply capacity. There are plans to build more storage; some is being built at the moment and there is more in the pipeline. Electricity capacity is 25 per cent over expected demand.
My Lords, that is a very good question. Perhaps I can answer it in a slightly different way. I have the list of plants that have opted out of the large combustion plants directive; I could read it out but I shall put it in the Library of the House. Overall, however, 15 per cent of our present total capacity will have to close by the end of 2015. That is clearly a challenge but the Government are up for that challenge. It is one of the reasons why we are looking at diversity of supply, encouraging renewables and looking at new nuclear generation.
My Lords, Ofgem has recently pointed out that if you are not able to get dual supply—if, for example, you are not supplied with gas—then you pay considerably more for your fuel. A study has also shown that if you live in south Wales rather than in the north-west, you pay another extra £100. Perhaps most iniquitous of all, if you are in poverty and have to pay by a prepayment meter, you pay an extra £110 a year. What will the Government do to ensure that those inequalities are reduced and got rid of?
My Lords, the noble Lord has raised some very important points about the current pricing regime. These matters are being earnestly looked at to ensure that consumers get value for money and to ensure that there is fairness in the system. His point about prepayment meters is very well taken. He will know of the Ofgem probe in this area and that my right honourable friend very recently met the industry to ask it to put this right.
My Lords, can the Minister kindly confirm whether it is true that, as I have read, because we do not have the facilities to store surplus gas which we have produced, we have been selling gas to the French in the summer season and then buying it back at a higher price in the winter? If it is true, what plans do the Government have for remedying the situation?
My Lords, as I think our debate yesterday showed, there is a real advantage in liberalisation of the European internal market. It is therefore important that there are unfettered flows between countries. If there is a question of storage, the proposals for more storage which are now in the pipeline will deal with it.
My Lords, did the noble Lord hear the broadcast the other day by Mr Asher, the former director of Energywatch, in which he seemed to think that a probe by the Office of Fair Trading would somehow find some undesirable behaviour by the industry which the eight-month study by Ofgem failed to find? What is the Minister’s reaction to Mr Asher’s claims?
Bosnia and Herzegovina
My Lords, the Government remain concerned at the slow rate of progress in Bosnia and Herzegovina on key reforms and at ongoing ethnic nationalist rhetoric from political leaders. The Government continue strongly to support High Representative/EU Special Representative Lajcák in upholding the Dayton peace agreement and in ensuring Bosnia and Herzegovina's progress towards the EU is sustained.
My Lords, I am grateful to the Minister for that Answer, but is it not the case that Bosnia is now going backwards rather than forwards and that there is a severe danger that we will sleepwalk ourselves back into a Bosnian crisis? Is not one reason for that the fact that Milorad Dodik, the prime minister of the Serb-dominated entity, has in the past two years reversed the progress made in Bosnia in the past 13? He has weakened the institutions of the state and strengthened those of his own entity with a view to preparing for secession if the opportunity arises. Will the Minister confirm that there are strict conditions before the Office of the High Representative is closed and that Her Majesty's Government will stick by them, not weaken them, and will not join those who see this as the appropriate moment to call for the withdrawal of the European force in Bosnia?
Yes, my Lords, I can confirm every part of the noble Lord’s question. It is the case that Premier Dodik of the Srpska Republic has proved an altogether malign influence in his demand for greater powers for it. I fear that at the centre he has, in a sense, found his equal in the federal structure demanding that it gets enhanced powers as well. The only way through this is to insist that the original provisions of the Dayton accords are met. Britain will take every step it can in the EU to make sure that the conditions are met, that the EU is strongly committed and that the Office of the High Representative remains until that time.
My Lords, does the Minister agree that the noble Lord, Lord Ashdown, did a remarkable and successful job as high representative, that when he left at the end of 2005, it was on an upturn and that there has been much slippage since in terms of political corruption, ethnic nationalism and a standstill on the constitution? What in his judgment are the prospects of movement on drafting and agreeing a constitution by the date that the Council of Europe and others want of 2010?
My Lords, I agree with my noble friend that the contribution of the noble Lord, Lord Ashdown, was remarkable. When we see an article in today’s Guardian co-authored by the noble Lord and Richard Holbrooke, the American diplomat who negotiated the Dayton accords, warning that there is slippage and that we are forgetting Bosnia, we should take note and thank the noble Lord for raising this issue.
My Lords, does the Minister accept that we on this side completely agree with the concern and the analysis given by the noble Lord, Lord Ashdown? Will he reassure us that there is no question of closing the Office of the High Representative at this stage or, indeed, for some time ahead until some improvement occurs, which is clearly not happening now? Can he assure us that, as far as we have influence on it, there will be no rundown in EUFOR? There is a lot of work to do to bring these two warring parts of the federation together again; at the moment, they seem to be pulling apart.
My Lords, I assure the noble Lord that we will continue to press hard for the continuation of EUFOR at its current level. We have postponed the closure of the OHR until the fulfilment of five reform objectives and two conditions, of which the most important is that peace and security are in place. The review will occur in November at the GAERC meeting. There is absolutely no doubt that there is no meeting of those conditions and that the office needs to stay open.
My Lords, we are also in discussions, as part of the EU as well as bilaterally, with Bosnia’s neighbours, Croatia and Serbia, which, 15 years ago, were doing their best to divide Bosnia between them. Will the Minister reassure us that in the current negotiations on accession with Croatia and in our conversations on closer relations with Serbia, the continuing integrity of Bosnia is being fully pressed?
My Lords, I can certainly assure the noble Lord of that. He will also be aware that Bosnia signed its own stabilisation and association agreement with the EU this June, which demonstrates our commitment and that of Europe to bringing Bosnia, as an independent nation, into the EU at the appropriate time.
Agriculture: Combine Harvesters
None, my Lords. Breaching cross-compliance would result not in a prosecution but normally in a reduction in payment. As part of the EU’s direct payment to farmers, member states must set cross-compliance conditions aimed at preventing soil damage through the inappropriate use of agricultural machinery. No farmers have been found in breach of the relevant English standard. To enable farmers to complete their harvest, my department granted a derogation.
My Lords, I am delighted to hear that there have been no prosecutions, but does not the Minister hold the view that British farmers are the best judges of whether to use heavy machinery on their wet fields? Surely they know better than Brussels bureaucrats how to protect their soil quality for future harvests. When can we expect this ludicrous EU rule to be abandoned so that British farmers can use their common sense?
My Lords, I have every confidence in British farmers using their common sense. We are bound by the rules that have been set down in the EU. This is about the protection of the soil and minimising damage to it. I assure the noble Baroness that given the conditions this summer, in which farmers had difficulties completing the harvest, we showed the flexibility that was desired.
My Lords, given that farmers have no vested interest in damaging the soil and given that there has been no fine since 2005, as the Minister said, does he not agree that this is one of the most stupid laws that ever came out of Brussels? As he said, the regulation is for a good reason, but how many staff are used to implement this scheme, what is its cost and why does the derogation for 2008 cover only combinable crops? If we are talking about damaging soil, why not consider the problem area in Glastonbury, and why not make the derogation permanent?
My Lords, since no breaches have come to the attention of the Rural Payments Agency, which is responsible for overseeing this, I can only assume that the bureaucratic burden has not proved to be very heavy. I accept the noble Lord’s point about the need for flexibility. We will review this, particularly in the light of current experience with our summers. I assure noble Lords that we will look for flexibility, but within the constraints that are set down.
My Lords, will the Minister confirm that other member states have negotiated a more complete and comprehensive derogation? What steps could our Government take to make this a much less rigorous and much more flexible system than the one that it seems is being imposed on British farmers at the moment?
My Lords, that is the purpose of the review that is taking place in the next few weeks and months. I hope that we will know the outcome in the new year in time for next year’s harvest. Clearly there could be a more flexible approach that does not apply to harvests, in view of the wet summer weather that unfortunately we now seem to be enjoying.
My Lords, would the noble Lord be awfully kind and answer the question put by the noble Lord, Lord Plumb? How much does it cost Defra to administer this wretched derogation scheme? Will he also explain why horticultural crops were exempted from this derogation?
My Lords, as I have told the House, my department has attempted to be as flexible as possible, which is why the derogation was given both this year and last year. We will look to reviewing the system to see whether more flexibility can be provided in the future. It is not possible simply to produce a cost for this scheme, but because there have been no breaches I do not think that it has proved to be a heavy bureaucratic burden.
My Lords, may I ask my noble friend to agree that, if so many things are wrong with this regulation and there are as many derogations as the noble Lord, Lord Tyler, says, and if it does not really apply to us, is this not a case for the deregulation task force? Can the results be sent to the former Leader of the House, my noble friend Lady Ashton, saying that getting this deregulated is one of the things that she could pursue on our behalf?
My Lords, that is an interesting suggestion, which no doubt will be given earnest consideration. As we have seen in the UK a better approach to regulation, so we wish to see better regulation in Europe as well, and of course we will pursue that. In the mean time, we will use the discretion that we have to see whether this rule can be used more flexibly in the light of experience.
My Lords, will the Government in their review consider ways in which the administrators and inspectors who are utilised to enforce cross-compliance might be used more effectively to give much needed support to farmers and growers in technical and other matters?
My Lords, we should always look at those involved in administering regulations to ensure that they do their job effectively and that, where we can make value-for-money changes, we do so. It is important that an effective regulatory system is in place for the whole range of cross-compliance, but it should be proportionate. I fully accept the point.
My Lords, I see the logic of what the noble Lord says, but I say to him that the conditions of this year’s harvest put farmers under a great deal of pressure. They were faced with the problem of wet conditions and crops being left in the field, then the difficulty of bringing them in and drying them. It must be recognised that the farmers were under considerable pressure, which is why my department tried to respond as flexibly as possible to the situation.
My Lords, is it not a fact that the people who draw up these regulations are not the Council of Ministers or the European Parliament, but a whole lot of bureaucrats who probably do not have the slightest idea about combine harvesters and certainly do not know anything about soil composition? Why do not the Government do something to ensure that these stupid regulations do not feed through?
My Lords, as ever, the noble Earl has a point. This Government have been extremely earnest in arguing in Europe for a more proportionate approach to regulation, as we have taken internally, in farming and other sectors. I assure him that we will continue to argue for sensible and proportionate regulation to be used as flexibly as possible. Surely that must be the right way forward.
My Lords, is my noble friend aware that the last question he responded to was absolute and utter rubbish? No one who has had any experience of the workings of the Commission, particularly the agriculture directorate, would have any doubt whatever about the extraordinary competence of the people involved and, indeed, their deep knowledge. The noble Earl should withdraw his comments.
My Lords, as ever I am happy to be corrected by my noble friend. One has to distinguish between what might be regarded as unnecessary bureaucracy and the worthy work of the European Commission in seeking to ensure that environmental and other standards in farming are protected. To that extent, these overall standards are to be supported. I believe that it is essential that they are operated as flexibly as possible.
My Lords, I do not know the answer with regard to other countries but I can certainly find out. Scotland has a different, more flexible system. That, of course, relates to the traditional, perhaps rather wetter, summers that Scotland has. Alas, we seem to be following it down that route.
asked Her Majesty’s Government:
What is their assessment of the allocation by Robert Mugabe of portfolios in the proposed Government of Zimbabwe.
My Lords, along with other EU states, we have condemned Robert Mugabe's unilateral allocation of ministerial portfolios. The allocation of portfolios needs to be agreed by all parties and reflect the will of the Zimbabwean people as expressed in the 29 March elections, which gave Morgan Tsvangirai and the MDC a clear majority.
My Lords, noble Lords will agree that the proposed allocation is wrong, unfair and leading to deadlock. Is not Botswana, as a neighbour, one of the countries which has suffered most from Mugabe’s rule? Has not the President of Botswana recently suggested that there should be a rerun of the presidential election under international supervision? Might not this suggestion be of interest to other neighbouring countries such as the members of SADC and of the African Union?
My Lords, the noble Lord is right that the President of Botswana has several times made this suggestion. It is for the neighbours to determine first whether this is the way ahead. I remind the noble Lord that there was extraordinary violence during the second round and we do not want to recreate a circumstance where Mugabe and his butchers again start to slaughter the civilian volunteers of the MDC.
My Lords, in view of the controversial and highly unpopular decision by Mr Mbeki to approve the allocation of ministries and the protests which are taking place now in South Africa against that decision, does not the Minister agree that it is time for Mr Mbeki to step down and to be replaced as mediator by Mr Jacob Zuma, as has been suggested? How will this get on to the agenda of the next SADC meeting?
My Lords, as the noble Lord is aware, there was an attempted troika meeting yesterday which, in an indication of Mugabe’s lack of trustworthiness, Morgan Tsvangirai was unable to attend because the Prime Minister-designate could not be given a passport. There is to be another SADC meeting next week and there is talk that it might be of the whole membership. It is incumbent on that meeting, whether it is of the troika or of the whole membership, to address the fact that the current mediation effort has clearly run out of steam and not arrived at a resolution of this problem.
My Lords, that is a question which SADC will have to answer. Invidious comparisons are increasingly being made between the efforts made in Kenya, where two parties were brought into a relationship of trust and co-operation, and those in Zimbabwe, where the distrust grows every day.
My Lords, it is an astonishing story. Zimbabwe was a country of 12 million people: 3 million have gone into exile; of the remaining 9 million, some 5 million will be dependent on food aid by the end of the year. We have just made an allocation to the World Food Programme of £9 million. Ours and other contributions will make sure that appropriate food is available in this manmade tragedy.
My Lords, my noble friend’s frustration with the situation in Zimbabwe is evident in the way that he is answering the questions. Does he see any solution in the near future to this appalling situation and the lack of real response from Zimbabwe’s neighbours? Does he see any breakthrough possible in the near future over this or will we repeat these endless exchanges where we all agree it is terrible and nobody knows what to do?
My Lords, my noble friend is correct to note my frustration, which I think the whole House shares. There is a clock ticking: Zimbabwe has 230 million per cent inflation, some 5 million people—more than half of those living there—will shortly be on food aid and the regime is coming under a lot of pressure as its support begins to disintegrate. On the outside, as has already been said, neighbours such as Botswana are being ever more forceful in their public condemnation of what is happening. At some point this will end, and the sooner the better for everybody in Zimbabwe.
My Lords, as Mugabe and his gang are obviously determined not to surrender power quietly or wisely, can we be assured that the hard currency money the UK is providing to the Reserve Bank of Zimbabwe and through our UN and EU agencies is going towards the purposes for which it is intended and is not being siphoned off and manipulated for the benefit of the ZANU-PF gangsters?
My Lords, the noble Lord draws attention to an appropriate issue. The central bank is making every effort to find any source of foreign currency to keep its patronage operations for the top leadership ticking over. The noble Lord should be assured that we are making absolutely certain that our moneys in no way fall into the hands of Government and go directly to UN and non-governmental partners, mainly for purchases made outside the country.
My Lords, in light of the announcement this week that former President Mogae of Botswana won the prize for good governance on the African continent, what is my noble friend’s assessment of improvements in governance on that continent, despite the deadlock in Zimbabwe?
My Lords, former President Mogae, whom we should all congratulate on winning this award, is one of those who signed the letter from African leaders that was published in the Financial Times and other places condemning the actions of President Mugabe. The fact that Botswana has had three admirably honest Presidents and now has a fourth in President Khama shows that the issue of honesty and quality of leadership in Africa is a vital individual determinant of the success of different African countries.
My Lords, it has not escaped my attention that there is a strong desire from all sides of the House for a debate on the present economic difficulties. It may be helpful to know that I agree that there is a need for such a debate and that I am, in consultation with other representatives of the usual channels, looking to find time for it before Prorogation.
With the leave of the House, my noble friend Lord Mandelson will today make a Statement entitled “Measures to Help Small Businesses” at a convenient point after 4.15 pm. This is the Secretary of State’s first opportunity to make the Statement to the House. This opportunity happens to be later than I am sure we would all agree is desirable. As noble Lords will be aware, the House of Commons sits at 11.30 am on Wednesdays and because of this it has not been possible to deliver this Statement simultaneously with the Statement delivered earlier today in the House of Commons. Simultaneous delivery of the Statement would of course have been the preferred option. We will endeavour to achieve this with future Statements made by my noble friend Lord Mandelson.
Clause 20 [Terms and conditions]:
1: Clause 20, page 11, line 13, after “authority” insert “, after consulting the licence holder,”
The noble Lord said: My Lords, the amendment is in the name of my noble friend Lord Hunt of Kings Heath. It concerns the terms and conditions of carbon dioxide storage licences. I hope that noble Lords will find it helpful if I briefly outline Clause 20 and explain why and how we propose to amend it.
This clause allows licences to be granted on such terms and conditions as the licensing authority sees fit. One such potential licence condition is specified in subsection (3)(d), which states that the licence may include a provision,
“enabling the licensing authority to modify the licence in specified circumstances (with or without the consent of the licence holder)”.
In Committee, the noble Baroness, Lady Wilcox, proposed an amendment to this provision which would require the licensing authority to consult the licence holder prior to making any such modifications to a licence. She pointed out that such an express duty would provide certainty to commercial operators, and we agree with that broad objective. Therefore, while it has always been our intention to consult the licence holder in such circumstances, I agree with the noble Baroness that it is desirable for a duty to consult to be stated expressly in the Bill, which is why the amendment is proposed. I am therefore grateful to the noble Baroness for tabling her helpful amendment in Committee and ask the House to support this amendment. I beg to move.
My Lords, I thank the Minister for tabling the amendment in response to our debate on consultation in Committee. As he said then, putting in the Bill the explicit intention to consult properly before modifying the licence would add regulatory certainty and wider confidence in the regime. I am very pleased to accept the amendment as a result.
On Question, amendment agreed to.
2: Before Clause 32, insert the following new Clause—
“Capture of carbon dioxide competition
In any competitive process relating to the capture of carbon dioxide initiated by the Secretary of State, equal status should be given to all technologies relating to the capture of carbon dioxide.”
The noble Lord said: My Lords, the amendment relates to an important part of government strategy, which is the continued use of coal as an energy source in a low-carbon economy. The only way that we can do this is to take out carbon dioxide from the generation of electricity through coal. This is very important technology. It is interesting that, although we sometimes say that we lead in this area, Germany last month launched the first power station in Europe with carbon capture and storage technology, and the United States and Norway are on a similar path. Yet in the UK, competitions have been based solely around post-combustion technology. The Americans have gone down a different route. There is always an inherent danger in Governments trying to choose or restrict the technologies with which industry experiments to try to bring forward this important technology. The amendment would make sure that the criteria are broadened and that, in future competitions, both pre-combustion and post-combustion technologies are allowed to be tendered for. The European Parliament has recently debated in the context of the energy packages there being some dozen experimental sites for carbon capture and storage within the European Union, to be functioning by 2014. I hope that we will have a number more of those in the United Kingdom, but it would be very dangerous if we restricted it to a particular type as has happened so far.
Carbon capture and storage is absolutely key to medium and long-term energy needs within the United Kingdom, and towards our climate change objectives. It is, therefore, undesirable to restrict the technologies that the private sector is able to move forward, to experiment with, or to prove at this stage. I beg to move.
My Lords, we have a great deal of sympathy with this amendment. I am in complete agreement with the noble Lord, Lord Teverson, about the inadequacy of government policy in this area. In Committee, the Minister said that:
“The Government’s commitment to all carbon capture technologies is clear”.—[Official Report, 12/6/08; col. GC 298.]
Yet he signally failed to demonstrate the effectiveness of that commitment. The Government’s competition was notable for its exclusion of promising technology, the delay that one has come to expect from the Government—not just in this area—and the eventual disappointment of many companies, which optimistically believed that the level of promised government support would be meaningful.
I would have more sympathy for the Government’s concern for the cost in supporting technological development in this area if they were not so keen to promise the world in statements to the press and to stakeholders. They claim to understand the importance of carbon capture and storage technology, but then talk of various bodies having CCS “as a possible theme”. As the private sector continually has to pay for the Government’s half-baked commitments that lead nowhere, it is becoming apparent that government policy towards CCS technology is not saving money, merely wasting it.
I feel that I am repeating myself. The Conservative Party policy is clear on this. We have learned how counterproductive it is when Governments try to pick the winner, and we would support both pre- and post-production technology.
My Lords, if there is to be a competition and the noble Baroness is saying that there should be a wider range of competitors, then if we are to take advantage of both technologies, or maybe even a third, should there not be three winners—one from each section? If they are going to have that, would she favour increases in expenditure or a reduction in the prize so that it could be divided into three?
My Lords, my noble friend’s question was very interesting because it related to the resources that should be deployed on this issue. As we had extensive debate in Committee, I understand the positions of the noble Baroness and the noble Lord, Lord Teverson, and I appreciate that in an ideal world the Government could conjure up resources from any quarter and invest in developing strategies and competitions for every conceivable solution to the enormous challenges that we face on the question of carbon capture and storage. However, government is about choice and the effective and accurate deployment of scarce resources.
I understand when the noble Lord, Lord Teverson, says that others are busy in this field. Of course they are: when this issue is crucial to how we tackle climate change and meet our carbon targets worldwide, does anybody think that the United States is likely to stand idly by, when it is all too well aware of the potential marketability and advantages of producing an effective carbon capture and storage system? Norway is, of course, also interested since it has extensive gas and oil areas, parts of which can now be used for carbon storage as they are exploited, provided the technology can be established. Those countries will play their part and, of course, Germany and other countries in the European Union are looking at this issue. What I want to emphasise is, contrary to the two contributions from the opposition Front Benches today, how much progress the Government are making in this area. We are significantly in the lead. The Bill is an enabling framework that will allow the safe storage of carbon dioxide offshore. It does not address the capture or transportation elements of the carbon capture and storage change and, as such, does not provide for government competitions for carbon dioxide storage demonstrations, or regulate the type of technologies that may be deployed via such competitions. In other words, the provisions are technology neutral.
The Government already support a range of technologies through a variety of different initiatives, including the Environmental Transformation Fund, which was set up in April to encourage and fund industry-led demonstration of carbon abatement technology projects, including CCS. To date, more than £2.2 million has been granted via the fund, £8.8 million for various research projects supported by the research councils and the Technology Strategy Board. We have championed the inclusion of CCS into the EU-ETS directive and pushed for a European-wide financing mechanism for CCS, because it is clear that we will solve these problems not on a national basis alone but on a much wider basis, in which the European Union plays its part. We are also hosting the Carbon Sequestration Leadership Forum ministerial conference in London in autumn 2009. The meeting will provide a forum for the examination of key carbon capture and storage issues among the political and industry leaders.
All the initiatives that I have outlined give equal status to all carbon capture technologies, which is consistent with the Bill and the amendment. I hope therefore that the noble Lord will feel reassured that the Government see CCS as a priority. We are showing global leadership in facilitating its demonstration and deployment, irrespective of the type of carbon capture technology. The only area in which the Government have had to make a deliberate choice regarding a capture technology is in relation to our competition for a commercial-scale demonstration project with power generation. There are sound reasons why we have made this choice. The potential contribution of CCS technologies in mitigating global climate change cannot be underestimated. I know that the amendment was inspired by exactly that consideration.
The Stern report envisages that CCS would need to contribute up to 28 per cent of global carbon dioxide reductions needed by 2050. That is a massive contribution to the overall challenge that faces the whole world. This clearly indicates the importance of remaining focused on CCS as a global solution. For it to be deployed on such an extensive scale, the technology first needs to be demonstrated on a commercial scale. That is why we announced that we will support one of the world’s first projects demonstrating the full chain of CCS technology on a commercial-scale power station.
The key objective of our project is to demonstrate a technology that is relevant and transferable to global markets. It is of fundamental importance that actions we take in the United Kingdom can also assist other countries in taking steps towards tackling their own emissions. Climate change is a global problem that requires multilateral and multinational solutions. The House will appreciate that coal consumption in power stations in Europe is dwarfed by the amount of coal used elsewhere in the world, particularly India, and of course with the enormous growth of China. One extraordinary fact is that China builds one coal-fired 1-gigawatt power station every four days. That translates to the equivalent of two new Drax 4-gigawatt power stations every month. That is the scale on which China is expanding its power production. That is why we have to look at this issue in terms of the contribution which the United Kingdom can make. I hope that I have already reassured the House that we are very much in the lead on this issue. There are also immense implications and, indeed, opportunities if we get the technology right.
There are also clear advantages of focusing on post-combustion coal technologies. Depending on the type of power station built and the rate of construction, it is estimated that the new-build coal-fired power stations in China alone could emit around 260 million tonnes of carbon dioxide each year. That is almost double the carbon dioxide emissions from the whole of the United Kingdom economy, not just power, but transport and heat as well as electricity. The fact that post-combustion technology can be retrofitted to existing power plants ensures that carbon dioxide emissions that are otherwise locked in through existing and planned new-build power stations can be tackled by installing post-combustion carbon capture technology in the future.
Noble Lords should contrast that with the issue that we are being invited to consider in the amendment. The deployment of pre-combustion technologies is not yet widespread, and it may take years for this to become the case. Because pre-combustion technologies cannot be easily retrofitted, they will have, however successful they are, less relevance over the medium term, when the focus must be on controlling emissions from key developing countries such as India and China.
I hope therefore that I have explained why early demonstration of post-combustion capture, which can be readily retrofitted, is fundamental to combating carbon dioxide emissions on a global scale. I am confident that we have made the right decision in focusing the competition on post-combustion and stand wholeheartedly behind this decision.
The noble Lord has deployed his case with his usual skill. I know that we are criticised for supporting one commercial-scale demonstration project, yet supporting one project alone represents a significant public commitment that only two other countries in the world are matching. To suggest that the Government should be supporting two or three demonstrations is simply not realistic. We are doing more than any country in the world in this area. That is something in which the House should take pride, rather than being overly critical.
In summary, while—
My Lords, before the noble Lord sits down—bearing in mind that we are on Report—the noble Lord, Lord Teverson, asked about the German plant. It is small, but they claim to have a working CCS plant. Can the Minister tell us anything of what the Government know about that?
My Lords, we of course follow such developments with the keenest interest. The noble Lord will recognise that we are concerned; as I mentioned, we are taking the lead at a conference next year. We are interested in the European response to these issues; there is no doubt that Europe can play a significant part. However, the noble Lord will appreciate that my case is that we could not afford, nor could we be expected to afford, the possible backing of a range of technologies at the enormous cost involved without any guarantee that they would prove successful. We have set up a competition for one which is promising and in which there is a great deal of activity. It potentially produces, as I have demonstrated, benefits that are more widely spread than the pre-combustion technology that the noble Lord, Lord Teverson, brought to the House’s attention.
I am in no way in conflict with the noble Lord’s intentions. I know how well he appreciates carbon capture and storage as a solution in this area. We are as one on that. The issue is whether the Government have the decisions right in backing one technology in circumstances where resources are inevitably limited. I hope that the House will recognise that the Government have strong reasons for pursuing its strategy, and that we are hopeful that it will produce benefits not only for the carbon emissions level and economy of the UK, but for the whole world.
My Lords, before the noble Lord sits down, I declare an interest as president of the Carbon Capture and Storage Association. I am sympathetic with the amendment. However, given the financial circumstances in which the Government find themselves, I am clear that they really made the only decision that they could if they could support only one technology. No one believes that carbon capture and storage is in itself a complete answer to the world’s problems. Equally, it is clear to anyone who looks at the numbers, as the Minister pointed out, that there cannot be a complete solution without some carbon capture and storage.
I am personally of the view that we will ultimately end up with the present technology. There is a great deal to be done. On the other hand, it would be encouraging if the Minister could give an assurance that, at the research level, the essence of the amendment would be respected. That is the important element.
My Lords, I am grateful for the noble Lord’s intervention, which has extended and advanced my argument in response to the amendment. The House will recognise his great authority in this area. I reassure him that, in my description of the Government’s support for various strategies, continuing research is important and we are indicating the resources that we are prepared to extend on that.
More generally, I know that no one in the House does not share the Government’s—in fact, our whole society’s—objectives on the successful combating of climate change and the issues that the world faces. While I ask the noble Lord, Lord Teverson, to withdraw his amendment, he has occasioned the opportunity for the Government to deploy our full case. I hope that I have been able to reassure him that he is quite safe in withdrawing the amendment.
My Lords, the Minister eloquently described the size of the problem. That is why the amendment is drafted in the way that it is. As regards the point made by the noble Lord, Lord Oxburgh, there is a lot of uncertainty about these technologies, which is why the schemes we are discussing are demonstration projects. We know that the technologies probably work, but we do not know what efficiencies will be lost in electricity generation through their application. That will have a major effect on the efficiency of power generation from coal in the future. We also know that the nuclear technology the Government are pursuing is characterised by base-load non-variability. That is why coal, or a predictable variable source of energy generation, will be even more important in the future. I say to the noble Lord, Lord O’Neill, that the developed world cannot afford not to pursue urgently a number of these technologies. There is a solution, of which the noble Lord is no doubt aware, and which perhaps ties in with the Minister’s reply in that at a European level the—
My Lords, does the noble Lord recognise that the cost involved in carbon capture and storage is not just that of the technology at the power station but of pipeline technology, transport technology and the whole technology of deep-sea or underground storage? It would be misleading to suggest to the wider public that the technology costs are overwhelming as regards this particular matter, important though it is. The other expenditures, for example on research, are very much larger than that on technology not at the coal face but at the power station.
My Lords, I absolutely agree. That is why it is so important that these demonstration projects determine what that cost is and how viable coal is as a future technology and what contribution it can make to the energy mix within a low-carbon economy. That is the entire point. I was going on to say that it is suggested that the 12 demonstration projects debated as part of the energy package within the European Parliament should be financed by the European trading system, which is perhaps the way to do this. However, it will be some time yet before any real revenue will come from those sources.
My Lords, on the question of time, does the noble Lord also agree that the most optimistic estimate of commercially viable equipment being available on the market, which has been made by Doosan Babcock, one of the leading British players in this, is that at the very earliest it will be 2020 before any kit of any size can be bolted on to a power station anywhere in the world? The German scheme of which he spoke I think produces something of the order of 30 megawatts. That is a very small output; it has a long way to go.
My Lords, I again completely agree with the noble Lord. The German installation is not seen as a commercial venture, but provides evidence on the type of issues that we have been talking about. But because the timescales are long, it is important to understand as soon as possible how viable and how economic this technology is. However, having heard what the Minister says, I accept that in general the Government are technologically neutral. But I hope that in any future competition a broader view is taken in this area. The European Union as a whole has to ensure that a broad range of demonstration projects are brought forward quickly that really show how much we can depend on coal in a low-carbon economy. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
3: Clause 37, page 27, leave out lines 29 to 33 and insert “any grant which is payable out of public funds and awarded under or by virtue of an Act of Parliament, except a grant awarded to support or promote research and development.”
The noble Lord said: My Lords, I have interests in relation to renewable energy declared in the Register of Interests, although I have no financial interest in the Beatrice offshore wind project which I shall refer to not in relation to the companies involved but as a customer of Scottish and Southern Energy, although Talisman has an association with the MREDS project whose steering committee I chair unremunerated for Heriot-Watt University.
I hope that there would be a shared, common objective between myself and the Government—it might be too much to presume that this involves all Members present—to wish to see major expansion of our country’s offshore renewable capacity. The announcement yesterday of a 194-megawatt offshore wind project off Lincolnshire has been claimed as putting the United Kingdom at the top of the league as far as offshore wind generation is concerned. I am sure that even the Minister would agree that there is still some considerable way to go to meet the target set by the previous Secretary of State, John Hutton, last December.
I have mentioned the Beatrice development, the significance of which is that it is in deep water. Most Members would agree that to achieve the very ambitious targets that have been set, there is considerable importance attached to research and development. That project received research funding from the European Union’s sixth framework research and technological development programme. It received support for its research work from the then Department of Trade and Industry’s new and renewable energy programme and from the previous Administration in the Scottish Executive. It has already delivered a number of significant engineering achievements: the installation of the first turbine in international waters 25 kilometres from shore in water depths of more than 45 metres; the offshore installation of the next generation of a 5 megawatt turbine; the use of jacket substructures in the offshore wind industry; the onshore assembly of the complete turbine—tower turbine and blades—and the transportation of that to shore installation as a complete unit and the offshore installation using a floating vessel and a soft landing system. Each one in itself is a significant engineering achievement and cumulatively they mark out the significance of the project.
The concern that my amendment seeks to address is that, under the Bill, that project would not be eligible for both an upbanded ROC and for the research grants that it has already received, and it gets the option of returning the research grants if it wishes to receive an upbanded ROC. I am grateful to the noble Baroness, Lady Carnegy of Lour, for indicating her support for the amendment, the purpose of which is that grants paid as part of support or promotion of research and development would not fall within the general definition of grants that might have to be handed back.
I have been in extensive correspondence with the Minister’s predecessor, and I thank members of the Bill team who agreed to meet me to discuss these matters. I was certainly encouraged, as were people who made representations to me on this issue, by the letter that I received from the former Minister, Malcolm Wicks, dated 12 September, in which he said:
“We would like to reassure you that it is not our intention to discourage investment and hamper technology development. As you point out, our consultation document made clear that we do not believe that in future a banded Renewables Obligation alone will be sufficient to bring forward technologies which are further from commercial development. It is our intention that such future research and development projects will receive banded ROCs and a grant”.
That is very welcome, and anything that the Minister can say from the Dispatch Box—and on the record—would be very welcome indeed.
Although there appears to have been some reassurance on the position with regard to future projects, I shall address the question of historic projects. I understand the point that the grants were given and accepted, that the companies concerned made a commercial decision at the time and that in some respects we should not be revisiting it. There are a number of points to make in response to those arguments. First, it was understood during the consultation process leading up to the energy White Paper that there is a distinction between grants related to research and development and post-demonstration projects that were in receipt of a capital grant—for example, some of the round one wind projects such as Scroby Sands.
However, the clause as drafted covers all grants—at least potentially, because it would be applied by order. Secondly, by taking head-on the expectation that only a single ROC, not an upbanded ROC, would apply, the clause does not take account of the fact that since the grants were given and accepted, there has been a significant increase in the costs associated with the DOWNVInD project in particular. At that time, estimated costs were £28.6 million, but have reached an estimated £45.3 million. A number of important technical challenges have had to be addressed which have led to that increase. As a consequence of some of the changes that had to be made in terms of technology, the European Commission, in turn, required further tendering. Because of the time lapses, including the costs of shipping and the tugs that were required, costs grew considerably. Many of those increases were beyond the responsibility and ability of the developers to control them and were imposed upon them. Nevertheless, the costs were very real and were not foreseen when the initial R&D grants were given.
I wish also to make a comparison regarding the position previously taken by the Department for Business, Enterprise and Regulatory Reform on the availability of assistance for new stations for using biomass or mixed waste. It is my understanding that existing stations were to be exempt from grandfathering, and were rewarded upbanded ROCs, in line with new-build stations—a position that I would support. It would appear that a position has been taken with regard to new biomass or mixed waste stations, but that has not been carried through into the limited number of examples of marine offshore development. Certainly the number of ROCs concerned have been calculated to be only a very small fraction compared with those agreed for biomass or mixed waste stations.
Furthermore, under the terms of the grant assistance, the Government get their money back if the developments bear fruit. Some of the revenue has to be returned to the Government in proportion to the value of the grant for the overall project; and when the period of the grant expires, future revenue streams are looked at, a capitalisation is made and money is handed back to the Government up to the full value of the original grant. If a higher banded ROC is available, the Government might well get their money back sooner rather than later. We would all want that to happen. The Government not only get their money back but, thereafter, if we do not do anything about this, the company may get only the value of a single ROC and will possibly have to compete commercially against others that are getting a higher-value ROC. So there are good reasons why marine offshore developments should benefit from the R&D grant assistance and the upbanded ROCs.
This issue has been raised in some of the correspondence about state aids. Sometimes it is frustrating that state aids are used at every turn to try to block developments or initiatives that seem very much to go with the grain of other projects and policies that the European Union is trying to promote. The EU is very positively trying to promote the development of renewable energy and recognises the importance in connection with that. The project to which I have referred was in receipt of framework 6 assistance. Therefore, given the recognition of the importance of the development, I hope that that would not be an insuperable problem.
The projects do not necessarily offer a return to the developers but, rather, have represented some of the costs already incurred. Offering multiple ROCs would not be an offer of excess support, but would allow the developers additional and much-valued support to continue with an important technological development—one which we would all wish to come to fruition and make its contribution to the amount of renewable energy that we can generate offshore. On that basis, I beg to move.
My Lords, I have no financial interest to declare on this matter, but I have added my name to the amendment because I feel strongly about the issue discussed by the noble Lord. I tabled an amendment in Committee to make the same point, my own Member of Parliament, the MP for Angus, having raised the matter in another place and having received a not very satisfactory answer from the Minister. In the event, I could not be present when my amendment was called, so the Minister here has agreed that I can pursue the matter on Report.
What the noble Lord has said is of the greatest importance to certain firms, particularly those involved in the research and development of deep-sea wind and wave generation projects off the north-east coast of Scotland, in the Pentland Firth and elsewhere around our shores. Should the Bill stand as drafted, a number of vital, innovative projects may never happen at all.
What the Government are trying to do in the Bill may be logical for many renewable energy projects: the availability of various grants from various sources has been added to by the new system of banded ROCs in the Bill. It could be argued that, in some cases, a firm should not benefit from both and that they should not be paid twice over. As the noble Lord, Lord Wallace, has just said, it is possible to invoke European rules on that.
However, there are notable exceptions to that argument. Research and development when the sea is deep and the weather wild are exceptionally and unpredictably expensive. Such programmes are often attractive to firms only if they have some initial capital grant help to construct and deploy equipment and subsequent income support for the operation itself and for learning from it. Both grants and banded ROCs may well be needed in some cases. It must also be noted that research grants are not necessarily retained in their entirety, as the noble Lord, Lord Wallace, explained. Whoever awards a grant can claw back a considerable proportion of the money generated during the grant period and subsequently. Europe’s rule does not apply or, at most, only sometimes applies in these cases.
The Government constantly talk of investing when they really mean spending. The Minister who is to respond to this debate is among those who do that most of all, I think. The money put into research and development is surely proper investment in the strict sense of the word. The problems of achieving sufficient land-based wind and river generation in these crowded, environment-aware islands are daily more apparent. Offshore shallow-water generation has its limits too. We must now encourage the move further out to sea. There is plenty of deep water out there where waves, currents and winds abound, but research and development are central to that and are mightily expensive. To limit incentives as the Bill does is short-sighted, to say the least. I hope that the letter from the Minister that the noble Lord quoted indicates that the Government will accept the amendment, or something like it, because it sounded as though both ROCs and grants will be permissible in these circumstances. I support the amendment.
My Lords, in supporting this amendment, I do not intend to detain the House for long. I wonder how many other noble Lords noticed the irony that the Minister who was chiefly responsible for promoting wind energy over the past year has now become the Minister most responsible for opposing it, as he is in charge of the Ministry of Defence. It will be interesting to see his first Question Time, if the issue is raised. I am sure that he will not mind me drawing attention to the fact that often in government you have to argue black on one occasion and white on the next.
If we are to accept that wind energy is to play a part in the future generation of power in this country, not even going for the rosy prospects that some people argue are possible, it is clear that it will not be done by the low-hanging fruit of sites conveniently close to shore. We will have to move more deeply offshore, which means moving to areas where predicting costs is a chancy business. That is why this amendment is so important. The Government must recognise that while the principle of banded ROCs is sound, and one that we would all support, there are occasions when it may be necessary to look more favourably at development projects, such as the Beatrice project, that involve not only a great deal of expense but uncertainty about how much expense. I hope that my noble friend will look favourably on the amendment.
My Lords, the whole House is indebted to the noble Lord, Lord Wallace, for raising this important question. He will have noted that, as he spoke, the House filled up, which is a measure of the interest in this subject. We were pleased at the prospect of overtaking Denmark in offshore renewables. He is right to point out that we cannot be complacent and that we have a long way to go, but it is a mark of progress. He is also right to raise the importance of research and development. I assure noble Lords that there is no question but that, in relation to the new ROC system and the banding, R&D grants will be available. We are debating the transitional arrangements and how they impact on organisations that have already received an R&D grant under the existing scheme. I am also indebted to the noble Lord because, as I will explain, as a result of his amendment and the work that we have now done in discussion with him, we found a defect in the drafting of Bill. I shall table an amendment at Third Reading to deal with that.
Noble Lords will know that the transitional provision ensures that current renewables projects in receipt of a grant have the option to surrender that grant and take advantage of the new banding proposals or can choose to retain the grant and continue to receive one renewables obligation certificate per megawatt hour. We think that the arrangement gets the system right by allowing a transition, by respecting the original investment decisions of the companies involved, by ensuring value for money and by complying with the state aid rules. I shall come to the point made by the noble Lord about whether we are hiding behind the state aid rules.
Two issues come from that: first, whether we should require projects that have already received grants to repay the grant if they wish to benefit from additional support under banding; and, secondly, whether projects in receipt of grants awarded at some future date should be allowed to benefit from higher levels of support under a banded RO.
With regard to the first point, where a project is awarded a grant, the amount awarded is determined on a calculation of how much money is needed, taking account of the expected future income at the time of award. In cases where a grant has been awarded prior to our announcement of banding, that would have been on the basis of the project receiving one ROC per megawatt hour. A higher level of support under the new banded RO, in addition to the full grant, would not be good value for money either for the taxpayer, who ultimately funds the grant, or for the consumer, who ultimately bears the costs of the RO.
When we announced the banding proposals, there was a risk that we might create a perverse incentive for projects that were due to become operational during the transitional period to delay their operation until the new banding regime came into force. To avoid this, we decided to provide companies with the option either to surrender their grant and receive the higher level of support or to retain the full grant and remain on one ROC per megawatt hour.
The noble Lord’s amendment specifically addresses research and development grants and seeks to exempt generators benefiting from such grants from having to repay the grants in order to be banded up. I accept that research and development grants are often awarded to projects in the early stages of technology development to test the workability of the technology. However, the decision to accept a grant and proceed with a project is still fundamentally a commercial decision by which the company should be expected to stand. The sums of taxpayers’ money involved may be significant and we must ensure value for money.
An amendment such as this would remove the opportunity for companies to choose whether to surrender their grants and benefit from banding. To preserve value for money to the public, we would be forced to limit those projects to one ROC per megawatt hour for the lifetime of the RO and no longer offer the owners a choice of giving up the grant for a higher level of banded support. The noble Lord referred to a particular project. One never knows whether it is right to debate the details of one project, but I accept that he used it to illustrate a more general point, which I understand, that the costs in practice were larger than expected when the application for a grant was made. The issue is about balance and who accepts the risk. The Government’s view is that the company must accept the risk.
I understand that the treatment of biomass stations takes account of the competition for biomass fuels and of the ongoing costs for the station, which is not the case for wind projects, where wind is free. That is why they have been treated differently. The example used in the consultation document is wave and tidal energy, which is being supported under the renewable development fund, an R&D programme. We do not propose a different treatment for those projects.
I assure the noble Lord and the noble Baroness, Lady Carnegy of Lour, who also made an important contribution to this debate, that we are not hiding behind state aid rules to justify our position, although we must take account of them. We are currently discussing with the European Commission the proposed changes to the RO to obtain clearance for our banding proposals under state aid rules. The Commission has indicated that processes to prevent projects from being oversubsidised, whether they receive research and development grants or capital grants, will be an important consideration. That is why we oppose his amendment.
The noble Lord wants me to clarify the position on future projects, and I will do so again. We have looked again at whether the powers in the Bill and the forthcoming renewables obligation order, which sets out the detail of this policy, allow us to deliver our stated policy. Our intention has always been to allow projects that become operational after our banding proposals are introduced to benefit from increased support under the RO where appropriate, without ruling out in a blanket manner the possibility of also receiving a grant. We are grateful to the noble Lord because, on reflection, we find that new Section 32E would not allow projects awarded a grant after 1 April 2009 to receive more than one ROC per megawatt hour. I want to assure noble Lords that that is not our intention and that I will bring forward an amendment at Third Reading to deal with it.
At Third Reading, I will also be dealing with an issue in relation to the transfer of the relevant powers to Scottish Ministers. The operation of the renewables obligation in Scotland is already devolved. In the past, transferring RO powers to Scotland has typically been achieved by way of an Order in Council made under Section 63 of the Scotland Act. That was our original intention. An order would have needed to be laid and debated in both the UK and Scottish Parliaments and then be considered and made by the Privy Council before the RO order in Scotland could be introduced. However, we want to implement these changes, including banding, by April 2009 and the timetable to achieve this will be made even more difficult by the need to debate any RO-related amendments. Our solution is to expedite the process by transferring the functions to Scottish Ministers on the face of the Bill rather than waiting until it is finalised and then going through the process of putting the Section 63 order in place. I will bring forward an amendment on this at Third Reading, which I hope will find favour with noble Lords.
Again, I thank the noble Lord and the noble Baroness. They have raised a relevant matter because in the future, as in the past, R&D grants will be very important. However, we have a particular issue in relation to the transitional provisions.
My Lords, I am grateful to the Minister. I shall not detain the House because I rather suspect that it has filled up for reasons other than the discussion of R&D grants. I also thank the noble Baroness, Lady Carnegy of Lour, for her support and, indeed, the noble Lord, Lord Moonie, who as a former Defence Minister now probably finds himself arguing the opposite case on the side of the angels, which he seemed to be more comfortable with.
I welcome the Minister’s full response, particularly his final comments about bringing forward amendments to clarify the situation on future projects and to ensure that the position north of the border is regularised. Obviously I am disappointed that he is not willing at this stage to accept the arguments put forward with regard to historic projects. I cannot believe that all that many have been caught out in this way. I want also to consider what he said about biomass and mixed waste plants, because there is a precedent where the position was allowed to continue for existing plants. I am grateful for his constructive reply and for his specific proposal to bring forward amendments. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
My Lords, with your Lordships’ permission, I should like to make the following Statement.
This Government understand the real difficulties of many small firms as a result of the credit crunch and world-wide economic slowdown. These companies are critical to our long-term economic success. Over 99 per cent of UK businesses are small or medium-sized enterprises. They contribute as much as large businesses to UK output and nearly 60 per cent of private sector jobs. We have always made getting the business environment right for SMEs a priority, and since 1997 1 million more small businesses have been created. UK SMEs employ 1.5 million more people; they are more productive, more innovative and survive longer.
Most recently, our enterprise strategy set out our renewed vision to make the UK the world’s most enterprising economy and the best place to grow and start a business. We increased the Small Firms Loan Guarantee lending allocations by 20 per cent for 2008, boosted enterprise programmes and committed to a new approach that avoids placing unnecessary regulatory burdens on small firms. These tough times have only made us more determined to help SMEs.
We need to be practical, we need to be innovative, and above all we need to ensure that what we do makes a real difference. We are meeting with business organisations and businesses across the country to discuss the problems they are facing such as cash flow, access to finance, higher bank charges and costs, and to ensure that their views are reflected in government action.
Our first priority has been restoring financial stability. Without a strong financial system, small businesses cannot access the credit they need, homeowners struggle with their mortgages, and trade in the high street slows down. But as the impact of the global financial squeeze hits small businesses further, the Government believe that it is not enough for us to focus only on financial stability. So, building on the measures we have already brought forward, yesterday the Government announced further action to help SMEs through these tougher times, with immediate effect.
For SMEs, cash dominates: cash in—that is, prompt payment—and cash out, to their workforce, payment for inputs and to the Revenue. Over the last year, the time organisations take to pay their bills to suppliers has increased, intensifying the cash flow pressures of many businesses. The Government are determined to do everything they can to help. Central government will aim to pay its suppliers as soon as possible, and within 10 days at the latest. This will bring forward billions of pounds worth of payments, on top of the majority of payments already made within 10 days. The regional development agencies, which spend around £750 million annually with suppliers, have also committed to this timetable. And yesterday, my right honourable friend the Secretary of State for Communities and Local Government wrote to the Local Government Association, and the chief executive of the NHS wrote to NHS Trusts, asking these public bodies to review their payment performance and follow central government’s lead.
I recognise the essential role that Her Majesty’s Revenue and Customs’ approach to business tax compliance can play in managing an economic downturn. HMRC already has a policy of flexibility in dealing with struggling businesses, and I know the Treasury will continue to impress upon it the importance of implementing and publicising this policy in the current climate. We are also working with the Institute of Credit Management and all leading finance and business organisations to promote prompt payment and to ensure that businesses have the best advice and guidance on managing cash flow.
The Government’s measures of financial support to the banking industry are designed to stabilise UK banks and support the long-term strength of the economy, which helps small businesses. As part of the recapitalisation package, RBS, HBOS and Lloyds TSB committed to,
“maintain the availability and active marketing of competitively priced lending to SMEs at a level at least equivalent to that of 2007”.
Small businesses must know that the banks are open for business. RBS, HBOS and Lloyds TSB make up 50 per cent of small business lending; but given that they operate in a competitive environment, we can expect other banks to follow suit.
The Government will monitor how recapitalised banks are delivering their commitment on SME lending. We will ask the banks how they will achieve this, including the availability of capital and liquidity allocated for small businesses, their marketing plans, and their principles for SME lending, from head office to the branch level. We want to see banks taking appropriate risk assessments on SME lending, being responsible but not being unduly risk averse, and not passing on unreasonable costs. The Chancellor and I will be meeting all the banks and building societies tomorrow to discuss these issues and what small businesses can expect from them.
The Government have also been brokering contact between UK banks and the European Investment Bank. The four largest UK banks have now signalled their initial interest in negotiating loans totalling about £1 billion from the EIB to lend to UK SMEs. I hope we will be able to make rapid progress on this for small businesses.
It is critical at this difficult time that businesses have access to support and advice that help them survive now and succeed in the future. Business Link advisers will provide a free health check for every small business, whatever its size, sector or location, and other advice on how to adapt to changing economic conditions and to be ready for the economic upturn.
My right honourable friend the Secretary of State for Innovation, Universities and Skills yesterday announced that small businesses are the focus of £350 million of government funds to help them get through the tougher economic climate by building the skills and enterprise of their workers. The Government are making improvements to Train to Gain that will deliver advice and funding for training, with the minimum of bureaucracy or delay.
For the first time, training at Level 2 will be free for all SME employees, regardless of whether they already have qualifications at that level, and there will be free bite-size courses in business-critical areas, including business improvement techniques and customer service, in order to raise productivity. Management and leadership training will also be opened up to the smallest employers so that it is now available to employers with between five and 250 employees.
Small businesses drive our economy forward. During this global economic downturn, the Government are determined to give the millions of people who run and work for SMEs the chance to maintain their livelihood and prepare for better times in the future. That is why we have brought forward these measures. We will continue to do all we can, through the National Economic Council, to look for and implement solutions that help SMEs.
My Lords, that concludes the Statement.
My Lords, first I declare the interests that are shown against my name in the register. I welcome the Minister to his first Statement. I shall go no further than that: apparently my previous remarks in welcoming him caused three well known journalists to be sick because I went a little too far. But I do welcome him, and thank him for the advance sight of his Statement. Perhaps such thanks are unnecessary in this respect, for I heard the Statement being made in another place by his junior Minister, Mr Ian Pearson, several hours ago. The Chief Whip kindly acknowledged this earlier, but we must find a better way to organise these things in this place. I am well aware that we have different sitting hours, but there must be a way through.
My main question is why this Statement was made today and not yesterday. The current edition of the ministerial code states clearly:
“When Parliament is in session … the most important announcements of Government policy should be made, in the first instance, in Parliament”.
This announcement saw the light of day first when I heard it on the “Today” programme early yesterday. It was then the subject of one of the Minister’s departmental press releases. It then provided, I understand, the principal theme of a public appearance by the Minister, together with his new best friend the Prime Minister, recorded as it is on the No. 10 website. He also managed to ventilate these announcements before the Select Committee in another place. The willingness of the Prime Minister to find a slot in his diary, given his busy schedule, might be taken to indicate that this announcement was considered important. That being the case, why was the announcement not made in this House yesterday? If measures to help ensure the survival of small and medium-sized enterprises are not important, then what on earth is?
The Minister said in this House:
“I am very well aware that I am here to toil, not to spin … I will take very seriously the accountability that I have to Parliament through this House … At this Dispatch Box, I know where my duty lies”.—[Official Report, 16 October 2008; col. 861.]
Does he remember saying that? This House is not a convenient place into which prospective Ministers can be parachuted, to give them a parliamentary platform that they can use when they deem it convenient. It is part of a bicameral system, and the rules are clear that a Statement by the responsible Minister must be made here.
I draw your Lordships’ attention to paragraphs 5.04 and 5.31 of the Companion, designed to protect this House against the Executive. All I ask is that the Minister will now give the firmest possible undertaking that this apparent relegation of your Lordships' House to second-class status will not arise again on his watch.
Anyway, we are where we are: we are in some sort of time loop because many of the issues we are going to debate have already been debated in the other place. Fortunately, the internet has provided me with some much needed help and support. I am indebted to the whoniverse.org website for invaluable guidance. Apparently,
“a Time Loop is a distortion in the Fourth Dimension where time folds back on itself”.
That sounds familiar.
Let us go through the measures already announced. There appears to be some confusion on a number of the points. We have heard of about £350 million for training. Will the Minister confirm that this is entirely new money? I am also interested in the commitment for the public sector to pay firms within 10 days. Is that an aspirational and notional target, or will it be enforceable? If so, by whom, and in what way?
I was also intrigued by what the Minister said about the banks. I hope that he will recognise that it sounded somewhat complacent, because Her Majesty’s Government are now a major stakeholder in the banking sector—in effect, its owner of last resort. Does he agree that, on the basis of the recapitalisation agreement to which he referred, we should expect to see some of the larger institutions making greater efforts to ensure that an affordable supply of funds is available for the small and medium-sized enterprise sector? By the way, how anyone can judge whether they are genuinely seeking to do so at 2007 levels is beyond me, so perhaps the Minister could explain.
Furthermore, much of the concern about banking practices—so superbly exposed by my parliamentary colleagues, led by Alan Duncan in the other place; by the Daily Mail in its small business charter campaign; by the Daily Mirror, and by a number of other leading newspapers—is not about the availability of new funds but about the behaviour of banks towards smaller customers with regard to existing loans. In particular, what are the Government going to do, not about the Bank of England base rate, but about real-life borrowing costs to which the base rate appears to bear no relation whatever? Those real-life borrowing costs are now approaching something close to penal rates, so something has to be done.
The Government’s assertion that they will do everything they can to help would be risible if the matter were not so serious. An economic typhoon is coming. To all but Ministers, our paltry defences appear inadequate. So say many outside observers, led by the Governor of the Bank of England. Like the Minister, I believe that our job is to maintain confidence at this critical time, but the current situation demands action, not spin. I list, for example, the prompt payment from central and local government; the deferral of VAT; a cut to national insurance; a reduction in corporation tax for small businesses; and a concerted promotion of the small business rate relief to which many are entitled but for which not all apply.
What about the £1 billion that the European Investment Bank is discussing with larger banks, which Mr Pearson said is not yet sorted out? When will it be sorted out? I believe that the Minister has just attended a meeting of the National Economic Council, where other solutions will have been considered. Will he share those solutions with the House?
This belated Statement serves to reassure no one, exposing the hollow pretensions of an Administration who increasingly appear bankrupt, intellectually as well as fiscally.
My Lords, of course I welcome any Statement that offers hope to the hard-pressed business community in the UK; but what we have heard today is too little and too late. In parliamentary terms, this Statement came a day later than it should, but, for our economy, it has come a decade too late.
My Lords, I thank the Minister for his welcome Statement—although I agree that it would have been better if it had been presented yesterday—and I welcome him to his new role. We look forward with great expectation and anticipation to the Government’s actions. We have had Statements on the financial crisis but it is important to have this Statement focusing on SMEs. I am not sure that I can claim any responsibility for the Government’s springing to action, but I sent a letter to the Minister’s department just last week in which I raised a number of the points alluded to today. However, I still ask for some clarification.
It is good that the Government have made this commitment on payment within 10 days. However, that still needs to be monitored. Will we receive a report, and receive it soon, on how this is being achieved in practice and whether all departments are taking part rather than just some? Does the commitment definitely extend to all government agencies and not only to the government departments themselves? Will it extend to local authorities? I appreciate that that is a little more difficult because local authorities have their own problems, some of which might be considered self-initiated. However, many small businesses do work for local authorities and the authorities’ record on payment is variable.
Reference was made to health checks through the Business Link service. Surveys have shown that many SMEs—very often those which need assistance—do not even know about the Business Link service. There are also concerns about the Business Link service itself. It is very variable throughout the country: in some parts, it operates quite well; in others, not so well. Will extra money and resources be provided to the Business Link service to enable it to carry out the new work that it is expected to do?
Skills and training are most important. It is therefore welcome that the Government are putting emphasis on apprenticeships. But even before this crisis small firms were going to find it extremely difficult to provide apprenticeship places; now they will find it more difficult than ever. Will the Minister consider what can be done to help the small business sector, which is so important to apprenticeships and skills, to be able financially to take on those who need skills and whom we need to be skilled?
I understand that Ministers will meet the banks tomorrow. Will they agree a memorandum of understanding to ensure availability of finance, competitive interest rates and no increase in fees? I look forward to the Minister’s response.
One of the many problems that all businesses have to deal with is bureaucracy and over-burdensome regulation. It is easy to make general statements about this sort of thing but I hope that the Government have it very much in mind. As I learnt in a seminar just last weekend, there is a curve showing that without some sort of regulation, there is chaos; with minor regulation, the chaos is reduced or disappears; but with excessive regulation, the chaos returns. Regulation is very important.
My Lords, first I say to the noble Lord, Lord Hunt, that I would not have wanted to cause any offence to him or to this House by making the Statement when I have. As I have a particular interest in the survival of small and medium-sized Secretaries of State, I do not want to fall foul of your Lordships so early on in my career. I realise that the importance of the issue concerns the whole House and it is important that I should report personally to your Lordships. I am doing so as soon as the Business of the House allows. However, he was right to point out that it is not always easy to synchronise the timetables of business in this House and in the other House. He is right, too, in pointing out that yesterday was a day of government activity concerning small and medium-sized enterprises. I plead guilty to all the charges except the one regarding the “Today” programme. Out of respect to the Select Committee before which I was appearing I skipped that so that I could toil instead of spin.
On the noble Lord’s individual questions, I think that the £350 million that we have announced for training indicates that SMEs have risen up the Government’s priority list and agenda and of our training agencies. They are now the top priority. He asked specifically about the availability of lending to SMEs. We need to be clear: availability is not a requirement to lend at 2007 volume levels. We cannot and should not, first of all, pre-empt the banks’ judgment. We cannot anticipate what demand there will be. All we are saying is that, as a condition for our stake in the recapitalisation, we are asking the banks to make available the resources at 2007 levels and to offer a wide range of products at competitive rates to be made available to the customers they judge to be creditworthy. We are not pre-empting or second-guessing the banks but asking them to maintain the availability of funds for lending to SMEs and to publicise this availability to SMEs.
I am grateful for what I think was the noble Lord’s support for the Government’s action on prompt payment. I refer to the remarks of the noble Lord, Lord Cotter, on this as well. We were very quick to give a lead. I hope that it is not only the rest of the public sector that follows the lead of central government departments in adopting a 10-day payment period. Obviously we have to be mindful of our responsibility to taxpayers—invoices have to be properly prepared; we are not skipping stages—but we think that it is very important that, as far as possible, this 10-day payment period is respected not only by central government departments but across the public sector. On the noble Lord’s questions on tax changes, I think that any answer by me concerning VAT, national insurance or corporation tax would be a career-shortening move; so I shall leave any matters to do with taxation to my right honourable friend the Chancellor of the Exchequer.
In response to the noble Lord’s question on the EIB, we have now received an indication that the EIB is prepared to commit to that additional funding. I look forward to further discussions taking place in the coming weeks so that that can be nailed down.
I have two last points to make, in response to the remarks of the noble Lord, Lord Cotter. Business Link, and the services that it provides, is very important. It is well resourced by central government—and I shall satisfy myself that it is receiving all the resources that it needs in the coming economic climate to discharge its functions.
On apprenticeships and skills, when I was on my away-day yesterday, in Sittingbourne in Kent, with the Prime Minister, I was very struck by the SME employers and managers who said that they wanted flexibility in training modules. They did not want the whole works; they wanted bite-sized chunks of training that relate specifically to their needs in the businesses in which they are active. Our job is to ensure that we have sufficient flexibility and responsiveness to make those bite-sized chunks available to those who want to take them up.
My Lords, I declare an interest, which is on the register, as an investor and a chairman of an SME AIM-listed company. My noble friend is absolutely right to talk about cash flow and payments by all kinds of people that are due to SMEs. He talked, too, of the flexibility that will be used by organisations such as HMRC, and I was very glad to hear it. Is he saying, for example, that on the large VAT payments that are frequently due by SMEs, HMRC would not be too offended if those payments were delayed somewhat?
My noble friend also spoke of the 10-day effective rule. I do not know how far that goes down the line, but can he confirm that it will go well down the line to other government-controlled organisations? Very often, I can tell him, it does not apply.
Can my noble friend give us some clarification on the banking situation in relation to loans in 2007, as it is still not totally clear? If the banks are to be as commercial as the Chancellor has suggested, whether part-owned by the public or not, and if banks are to continue with their normal method of business—although I am bound to say that they are not always marvellous at that—I take it that we are not asking banks to continue lending at 2007 levels to SMEs that clearly should not be lent any more money, even though it might mean them going into administration. That is right—and they should.
May I also ask the Minister—
My Lords, I cannot speak on behalf of HMRC in indicating that large back payments could be delayed, let alone waived. However, I made the statement that I did about the sensitivity that the Revenue is displaying towards businesses. Obviously, there will be all the greater need for that sensitivity in the economic climate that we are moving into.
On the noble Lord’s second question—if I may, I shall come back to him subsequently on his last question concerning replacement staff, because I do not have the information—as part of the recapitalisation, RBS, HBOS and Lloyds TSB committed to,
“maintain the availability and active marketing of competitively priced lending to SMEs at a level at least equivalent to that of 2007”.
That is not to say that the volume of lending will be the same because, as I said, that depends as much on the quality and quantity of demand as it does on the supply of lending. We expect that banks accessing the scheme will need to review their business strategies in order to take account of the recapitalisations and the commitments that they have made. We look forward to the outcomes of this work.
My Lords, I welcome the Minister’s Statement, in that the Government are seen to be trying to do something to help small business, but I do not accept his statement that taxation is the Chancellor’s responsibility—because I think that he can speak up for small business. How can small businesses accept that corporation tax for large companies has been reduced while it has been increased for them? It just does not sound fair.
I started a business from scratch at the beginning of the last recession and, having been both a small business and a medium business, I know that the most important thing for small business is the ability to raise finance. What extension to the Small Firms Loan Guarantee scheme is being given? How much do the Government lend under the scheme? Let us put that into the context of the United States Government’s Small Business Administration, which has lent more than $50 billion supporting millions of American businesses. Why do we not learn from them and really support our small businesses? The Government have been bold in supporting banks, to the tune of £500 billion. If they put even £50 billion into supporting SMEs, they would get real results. The Prime Minister said that we are better when we are bold. May I request that the Government be bold in relation to small businesses?
My Lords, I think that the Prime Minister is being bold. He is certainly quick off the mark in making help to SMEs, as well as to home owners, a major priority for the Government. I do not think that he has been backward in coming forward.
On the noble Lord’s specific question on the Small Firms Loan Guarantee, earlier this year the Government strengthened the scheme by increasing the amount of lending available by 20 per cent, up to £60 million. That means that a £360 million pot is available for small firms to access. We have also extended the scheme so that businesses that are more than five years old can apply for funding. I believe that that reform is very welcome among small businesses. We have signed a joint statement with six major banks committing them to promote the Small Firms Loan Guarantee to their customers. My department will be looking closely at the use of the scheme. It has met with all six lenders to review how the scheme is working. I have heard that there is some criticism among some about the administration of the Small Firms Loan Guarantee; I heard that only yesterday from small firm representatives and I intend to look into it. However, I can confirm that up to £800 million is currently out on loan to small and medium-sized businesses under this scheme. We have guaranteed more than 100,000 loans valued at £5 billion since its inception in 1981. I think that that is a very good record.
The noble Lord’s second question was on corporation tax and the small company rate. I must insist that this is a matter for the Treasury and my right honourable friend the Chancellor. However, I would say that we see a number of potential issues—not least the unintended consequence of businesses incorporating solely for tax reasons—were we to reduce further the small companies rate. That would make the tax system unfair for those not incorporating for tax reasons. One always has to look round the corner when making these changes to see whether there are unintended consequences which it would be better to avoid. However, I am not about to anticipate the conclusions reached by my right honourable friend the Chancellor.
My Lords, will Her Majesty’s Government support at ECOFIN in a few days’ time the proposal of the European Commission—which, for all I know, the Minister may have initiated in his previous existence—to reduce VAT on repairs to buildings, particularly homes and listed properties? That would be an immense advantage to small businesses. If it is duly passed at ECOFIN, will the Minister encourage his right honourable friend the Chancellor of the Exchequer to implement it?
My Lords, I take my noble friend back to the intervention of the noble Lord, Lord Hunt, who referred to “real-life costs of credit”, which is an extremely important issue. My noble friend referred to “competitively priced” credit as part of this agreement. What happens if the banks simply do not deliver? Do we have some influence over what will happen in this area, given that it is so important to small businesses?
My Lords, this issue is not simply the availability but the pricing of the lending available, as well as the additional costs that banks introduce to the lending facility and any rearrangement of a previous lending facility. I met 25 or 30 SME organisation representatives last Thursday. The point they made to me again and again was that banks are calling in loans, reorganising and rearranging lending facilities, imposing outcomes which are more expensive, and then adding administrative charges into the bargain for the privilege of having your lending facility reorganised on your behalf.
I shall raise this issue with my right honourable friend the Chancellor when we meet the banks’ chief executives tomorrow. They must understand that while we welcome the sensitive and generous statements that are made oftentimes at board level, or from CEOs, when you get down to branch level there is rather a different pattern of behaviour emerging on SMEs. We want to capture the behaviour at branch level and put it more in line with the sentiments expressed at board level.
My Lords, I remind the Minister of the first question that my noble friend asked him. It has obviously slipped his mind, so I know that he will be pleased for me to do so. Is the £350 million he was talking about for training new money? Where is it coming from? What is the position? I am sorry to have to press him, but he did forget to answer.
Well, a reasonable but disappointing answer, my Lords. The Government’s commitment demonstrates that SMEs are rising up the priorities. Train to Gain, as noble Lords will know, is a service for employers, giving them better access to a wider range of opportunities for improving the skills of their employees. Noble Lords will therefore be interested to know that funding for Train to Gain will rise to over £1 billion by 2010-11 which, by any measure, is new money.
My Lords, I hope that I may come back to prompt payment. We have heard warm words. I have no doubt that the Government, and those public bodies which can most easily be influenced by the Government, will do as suggested and pay up by 10 days at the latest. But what about all the other organisations? Some private organisations pride themselves on the dilatoriness with which they pay their debts to suppliers. My noble friend may well recall, as I do, that in 1997-98, right at the beginning of the Labour Government’s term, legislation was introduced into this House to impose statutory interest on late payments. That went through this House but got caught up in some difficulties that I do not fully remember in the other place. I wonder whether that sort of thing, although not necessarily the same type of legislation, might have some useful legs in ensuring prompt payment, which is a matter of such concern to small businesses.
My Lords, my noble friend has put forward an interesting idea, which it would be appropriate for us to examine further. However, we should recognise that the Government are not underperforming in this area, even though they and the public sector as a whole could perform better and deliver more. Of the 10 government departments we investigated, 88 per cent of payments, totalling £58 billion, are now made within 10 days. I think that is a good record and a good performance. However, we want to do better because we recognise how important cash flow is to business survival. We want this performance to be reflected not only right across the public sector but among large firms as well, many of which have supply chains consisting of thousands of small firms, all of whose payments are dependent on the hub, the main company at the lead of that supply chain.
My Lords, I declare an interest as chairman of a venture capital fund, Rising Stars Growth Fund Ltd, which was started specifically for early-stage technology companies. Does the noble Lord agree with me that venture capital fund companies generally throughout the country are a very good source for getting money into companies, particularly early stage and follow-on funding? I was surprised that the Statement did not include any reference to the role of venture capital companies. Will the noble Lord look into how more use might be made of venture capital companies throughout the country to get money into the right companies at the right stage?
My Lords, I accept that suggestion; it is a good idea. Indeed, one aspect of access to EIB funding was whether the EIB would be able to extend funding not just to the main lenders, the main banks, but to smaller financial institutions, in which I include venture capital companies. Obviously, I cannot commit them; it is not my job to do that, but I think we can have a discussion with them because I am aware from time back of the important role of venture capital companies. If they can be used as vehicles for lending more extensively to SMEs, we should certainly look at that.
My Lords, I congratulate my noble friend on the Statement. I declare an interest as president of the Specialist Engineering Contractors Group, which represents the high-tech, high-quality end of the construction industry. We welcome what has been said about prompt payment, but I think there is another aspect of it which the Government should look at, and that is the policy of retentions whereby major contractors hold on to a proportion of the funds until the whole of a job is completed, regardless of the relevance of a sub-contractor’s role. As a major customer of the construction industry, the Government could do a lot to help that industry if they ended the policy of retentions, certainly for public sector contracts, and put it on the same footing as the prompt-payment promise of 10 days. That would facilitate the construction industry’s supply-chain cash flow in a way that few other things could at this time.
My Lords, I declare an interest as a Deputy Speaker. Does the noble Lord accept that the sensitivity of this House about the timing of Statements relates not to the dignity of this House but to the role of Parliament? As long as statements of government policy are made for the first time outside Parliament, that is where the reporters will be and that is where the news will come from, and the public will know nothing about what is going on in Parliament. If a Government were always to make their Statements in Parliament, the country would very soon become aware of what Parliament was about and what its views were, which would be very welcome indeed.
My Lords, I appreciate the sentiment expressed by the noble Lord, but in this case no statement was made outside Parliament. By my choice, the Statement was not made on the “Today” programme, as some others have been. It was made in the other House, not outside Parliament, and that is the point that I was making.
My Lords, I reassure my noble friend that many on this side warmly welcome the Statement and all the measures in it and the prompt action by the Government to help small and medium-sized enterprises. I ask him to ignore the churlishness from Members opposite. In relation to prompt payment, will my noble friend ensure that the devolved Executives in Scotland, Wales and Northern Ireland follow suit? What action will he take to make sure that they, particularly the First Minister of Scotland, who is pretty long on rhetoric and short on action, take action in the way that the UK Government are doing?
My Lords, I can only join my noble friend in hoping that the lead that we have given down here is followed up there, and I will be communicating that.
It is not a question of ignoring anyone’s churlishness. If I went through my political life ignoring people’s churlishness, I would be left with very little to say. I shall end on a constructive and friendly note. I say to the House, the noble Lord, Lord Hunt, and the noble Baroness that they will be pleased to learn that the £350 million for training is additional training money for small businesses. It is existing money, but it was not previously available to small companies. In that spirit, I acknowledge that we were both right.
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 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, 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.
asked Her Majesty’s Government what proposals they have to ensure that the New Approach to Appraisal for major highway projects is in line with other aspects of government policy.
The noble Lord said: My Lords, I welcome the noble Lord, Lord Adonis, to, I think, his first transport debate in your Lordships’ House and I hope that the great successes that he enjoyed in education will now be deployed in this field.
The new approach to transport appraisal and the proposed refresh are based on an uncertain process, which is barely understood by professionals, let alone the public at large. It is almost academic arrogance that allows taxpayers’ money to be spent through a process that few in public life, let alone the general public, understand.
On Monday, in a Statement to Parliament, the Prime Minister said: