My honourable friend the Minister of State for Energy and Climate Change (Mike O’Brien) has made the following Written Ministerial Statement.

The new Department of Energy and Climate Change has already signalled strong commitment to meeting the following three long-term challenges facing our country:

ensuring that we have energy that is affordable, secure, and sustainable;

bringing about the transition to a low-carbon Britain; and

achieving an international agreement on climate change at Copenhagen in December 2009.

We have already announced our commitment to achieve an 80 per cent cut in carbon emissions by 2050. We have also tabled amendments to the Energy Bill to introduce feed-in tariffs for small-scale low- carbon electricity generation up to 3MW and financial support for renewable heat at all scales. We will be implementing these measures as quickly as possible.

We want to enable people to move from being passive users to active generators of energy. While the microgeneration definition in the 2006 Climate Change and Sustainable Energy Act, particularly in respect of heat generation, was of a scale more appropriate to households, we also want to see more schools, hospitals, communities and businesses invest in projects that will generate low-carbon electricity and heat for their own use. This will allow more citizens to engage actively in the fight against climate change and increase our energy security.

In the first half of 2009 we will therefore launch our renewable energy strategy, and will bring forward our more detailed proposals on feed-in tariffs for small- scale low-carbon electricity and incentives for renewable heat. In the light of these decisions, we will be in a position to set out in detail the expected contribution of on-site generation alongside other kinds of electricity and heat generation.

Therefore at this stage, rather than designating targets within the narrower terms of the Climate Change and Sustainable Energy Act 2006, we intend to bring forward broader proposals in the context of the renewable energy strategy.

Evidence

We are required under the Act to take account of the following information when making a decision:

the number of microgeneration systems installed in England and Wales;

the number of electricity microgenerating systems installed in Scotland;

the microgeneration strategy; and

results of any research about the effects of setting a target on the number of installations.

In addition to the issues above, we have also considered:

responses to the renewable energy strategy consultation. As the consultation closed recently this is an initial analysis of the responses seen; and

other targets that microgeneration could contribute to and other policy support for microgeneration such as feed-in tariffs and the renewable heat incentive.

Microgeneration Research

To assist consideration of whether or not it would be appropriate to designate a microgeneration target, we commissioned research, jointly with industry and others, which was undertaken by Element Energy and published in June 2008. The research looked at the number of current installations of microgeneration technologies across the UK, consumer behaviour, the effect of designating targets and modelled a number of different policy support mechanisms and the effect that they might have on microgeneration uptake.

According to that research⁽¹⁾, setting targets for the microgeneration sector may bring forward cost reductions, through increasing confidence for suppliers and hence bringing forward investment. It notes that targets without policy backing have no value in bringing forward investment, but that targets backed up by policy could help to support investment. The report also states that a literature review and discussions with economists revealed that there is no clear evidence of price reductions of goods following the announcement of government targets.

The research also states in Section 14.2 that “a legally binding target in respect of numbers of microgeneration units installed does not on its own deliver in a clearly predictable manner government priorities for reducing CO₂ emissions from microgeneration”. It goes on to say that it is not “obvious how cost effective this approach might be, and whether the dominant technologies that emerge will be those with long term potential benefits”.

Number of microgeneration installations

Element Energy produced the following approximate information on microgeneration installations in the UK in its report Numbers of Microgeneration Units Installed in England, Wales, Scotland, and Northern Ireland:

Microgeneration Strategy

The objective of the microgeneration strategy, launched in March 2006, was “to create conditions under which microgeneration becomes a realistic alternative or supplementary energy generation source for the householder, for the community and for small businesses”. As we outlined in the Microgeneration Strategy Progress Report⁽²⁾, the majority of the strategy has now been implemented with many of the barriers removed, particularly planning constraints and technical barriers to connection. This has been achieved without targets, and completion of the remaining actions would not be assisted in any material way by the setting of targets.

The Government have introduced policy measures to promote small scale generation and are bringing forward policies to that end such as the financial incentives being considered in the Energy Bill.

Renewable Energy Strategy Consultation Responses

Although it was not a requirement of the CCSE Act, we took the opportunity through the renewable energy strategy consultation document to seek views on our position that we were not minded to introduce statutory targets for microgeneration at this stage in their development. Initial analysis of the replies to the consultation shows that the responses have been mixed, although the majority of those who expressed an opinion supported this position.

Decision not to set microgeneration targets

The Element Energy research concluded that the targets most likely to stimulate microgeneration investment by suppliers would be those which are about sales volumes. The research also suggested that a technology- specific target is unlikely to be workable at this stage.

Setting a target based on the total number of microgeneration installations has the potential to undermine other government targets which are more flexible and outcome driven, in particular the Government’s CO₂ targets. A target to secure that a particular number of microgeneration systems are installed in England and Wales and electricity microgenerating systems are installed in Scotland could drive the installation of the cheapest forms of microgeneration, rather than the most cost effective or carbon efficient.

Further, a target focused at this scale (namely the generation of electricity below 50kW and the production of heat below 45kW) could divert investment from larger distributed energy technologies which can be more cost-effective and may therefore have a greater potential to assist the UK’s contribution to combating climate change.

Small-scale generation clearly has a role to play in combating climate change, the securing of a diverse and viable long-term energy supply and in alleviating fuel poverty. To play its part in the most effective way, however, broader consideration of its place within the energy mix is required. As a co-ordinated approach is necessary best to tackle the problems of climate change we believe that it would be preferable to consider the position in the light of our overall strategy.

In the first half of 2009 we will therefore launch our renewable energy strategy, and will bring forward our more detailed proposals on feed-in tariffs for small-scale low-carbon electricity and incentives for renewable heat. In the light of these decisions, we will be in a position to set out in detail the expected contribution of on-site generation alongside other kinds of electricity and heat generation.

Therefore at this stage, rather than designating targets within the narrower terms of the Climate Change and Sustainable Energy Act 2006, we intend to bring forward broader proposals in the context of the renewable energy strategy.

(1) www.berr.gov.uk/energy/microgenerationresearch

(2) Available to download from www.berr.gov.uk/files/file46372.pdf