Motion of Regret
That this House regrets that the draft Modifications to the Standard Conditions of Electricity Supply Licences disappoint the legitimate expectations of businesses who placed reliance on Government announcements as to the availability and amount of subsidy, and favours the least efficient forms of solar electricity generation.
Relevant document: 34th Report from the Merits Committee
My Lords, I have no interest to declare in solar energy. Indeed, I am something of a sceptic and regard the subsidies we are discussing today as something of an unwelcome and unjustified imposition on the public. I am all in favour of the measures that the Government are taking to control the cost of these subsidies, but I regret—putting it gently—the way in which they have chosen to do that. I believe that they breach the trust that ought to exist between Governments and those who place faith in what they have said. The measure fails to take account of the opportunities for building new industries in this area, and it has been structured so as to be a much harsher imposition on consumers than it needs to be.
Before the election, we, the Conservative Party, were talking in terms of extending the limits of the feed-in tariff for solar to 10 megawatts—that is, if you are to believe Friends of the Earth. Personally, I do not often do so, but I suspect that the Government are more favourable towards them. However, on 1 February 2010, the Government said that adjustments would be made to the feed-in tariff,
“as evidence on actual deployment, costs and performance emerges … with the first review due to take place in 2013”,
subject to degression in the level of feed-in tariff from 31 March 2012. The meaning of that seems plain to me: anything that you get under way before 1 April 2012 will be at the stated tariff. Fine, that was said by a previous Government, but new Governments cannot just tear up what has been said before, which is what we appear to be doing.
The result of people relying on that government statement was that serious investors who were committed to supporting the development of alternative energy throughout the UK spent money on sites, on the design of kit, on planning, on organising grid connections and in some cases on building factories to make the kit. I do not have an exact figure but the closest I can get to the amount that was invested on this basis is in the order of £50 million. That has all been burnt to a crisp by the way that this Government have decided to change the feed-in tariff. The Government ought to reflect on the effect of that on their reputation. This is something that you expect to happen in the dodgier parts of the third world, not here. It makes the Government seem frivolous and unreliable.
I understand the underlying motivation but things could have been done in a different way. The tariff could have been lowered more generally. People running little schemes, operating at household level, must be pinching themselves at the level of feed-in tariff that they have been left with. I think that they find it hard to believe how profitable they are going to be over the next few years, which is why they are keeping so silent on the subject of the order.
If we had taken the general industry advice and lowered feed-in tariffs by 25 per cent to 30 per cent overall to achieve a general lowering of the market, we would have put investors in a position where, although they were not earning the returns that they had once expected from their investments, their money would none the less have been worth something and they would have gone ahead in one way or another with their schemes. Indeed, we could have offered some transitional arrangements, looked at the people who had invested a lot of money and said, “Right, you may not be able to take advantage of the scheme this year but we will let you bleed into the scheme over the next five to 10 years so that all you have lost is the time value of your money, not the absolute value”. However, we have done none of that. We have required them to write off everything and, in the case of many overseas investors, just throw up their hands and go off elsewhere, never to think of returning to the UK—at least, that is what they say.
We have also missed a trick in support for the solar industry. If noble Lords look at the current statistics, they might reasonably say, “What industry?”. Solar costs about 25p per kilowatt hour and the sun does not shine very much in this country, so it seems a basket case when looking at alternative technologies. DECC’s levelised cost estimates for solar say that, while in 2007 its estimate was that solar would cost 51p per kilowatt hour in 2015, in 2011 it is estimating that the cost in 2015 will be 23p. The cost of solar is falling extremely fast. Partly this is due to economies of scale as other countries, such as in the Far East and Germany, go in for large-scale solar development, and partly because it is an electronic technology. In common with many such technologies, given a decent market and the application of research and development, which is happening worldwide and indeed in the UK, its costs are coming down—predictably, to my mind. If the department is as wrong now as it was four years ago, the cost of solar electricity in 2015 will actually be 10p per kilowatt hour and at that point it will have achieved grid parity, or close to it.
Solar electricity is unlike a lot of other forms of electricity generation. It is local. It replaces electricity at a retail price rather than a wholesale price. There is no requirement to build extra grid for it. There will be no equivalents of the campaigns in east Wales and other places against the vast new lines of pylons marching across the countryside to bring us our wind power because we do not need them; in fact, solar saves on grid capacity. It is much more acceptable than wind in many ways, and that surely must have a value. There is generally no difficulty in getting planning permission for solar installations and none of the opposition that you get to wind power, and one can see why: it is a much less visually and aurally offensive technology. It produces daytime electricity and so is replacing the most inefficient forms of power generation, the peak generators that are turned on only in the daytime when we hit peaks. Its profile is generally complementary with wind; we tend to have sun when the wind is not blowing and vice versa. It irons out some of the peaks that we will have in electricity generation as a result of having a substantial amount of onshore and offshore wind.
The solar electricity industry has suffered because nowhere in government does anyone have a responsibility for looking after it. You can see this from the EMR White Paper that was published a couple of days ago. There seems to be very little understanding in that document of the benefits of local generation. It seems to be written entirely from the point of view of suppliers who think in terms of large centralised electricity generation and then distribution through a grid. The interests of solar energy do not appear to have been taken into account. The potential for solar being an economic form of electricity supply in its own right without subsidy by, say, 2020 does not seem to have received a rational assessment anywhere in government, although a lot of big companies like General Electric are being a good deal more optimistic than that. They are the proponents of the new solar technologies rather than the old one that we are used to.
There is a lot of development going on. If we look at all the prospects and sources for renewable energy, solar is the only one where we are seeing large and consistent cost reductions. It is the only one where we are looking at an end to subsidy rather than a continuous imposition on people’s electricity bills.
I get the impression that the Government have decided that our future is to be an installer of Chinese-made kit rather than to have a presence in this industry ourselves. One of the little things which convinces me of that is that they seem to be talking about a pot of money which will be available under the feed-in tariff scheme rather than continuous; in other words, at some point it will come to an end. This is fine for general builders who would be putting up these things one day and then doing something else the next, but if you are trying to build an industry, something that will add real value and jobs to the UK economy, having an episodic form of subsidy which will go through periods of unavailability is completely hopeless. All you can run on that basis is a business based on imports. We have this concentration on mini-installations—on the vanities of individual householders thinking that they are doing something for the climate by installing these vastly uneconomic things on their own roofs—rather than looking at how we can make a serious dent in our need for electricity generation by looking at things on the scale of factories or office buildings, all of which have been wiped out by the route that the Government have chosen to take.
I regret that the route that this Government have taken to achieve a laudable objective has so abused the trust that people have placed in the Government’s word. They have missed the opportunities to create a new industry and instead put an imposition on the consumer which is much higher than it needs to be to achieve the level of electricity generation that we would have from solar as a result of the subsidies. I do not think that there is any going back; Governments rarely back-track on this sort of thing. I am not urging the Government to spend more money on solar. However, they should sit down with the industry and make a proper assessment, first and most urgently, of how distributed generation should work under the EMR—they have got that wrong and have an opportunity to set it right. Secondly, they should make a proper assessment of their response to the real prospect that solar will achieve grid parity within the lifetime of this Government and the next; and how, under those circumstances, we are to have in this country our share of a great new industry rather than just being importers. I beg to move.
My Lords, one of the great fallacies of this debate about the changes that the Government intend to make to the feed-in tariff scheme is how it has been characterised as being between the Government, who say that they recognise that the scheme needed to be changed, and those who argued that no change was necessary whatever the financial implications. I lay that to rest at the very beginning of this debate. One of the reasons for my Motion today is that we consider the Government's projections to be flawed in that no one expects or is asking for the scheme to be left exactly as it is. The Solar Trade Association, Friends of the Earth, Low Carbon Group and others are all calling for cuts to be made in line with falling costs and a faster degression rate, so that the level of tariffs reduces faster over time.
It has not been fully understood that feed-in tariffs are designed as a pump-primer for the industry, to get it going. They would not add significant capacity in the early years but are really a building block to get a much faster-growing industry, as we have for example seen in Germany. For the same reasons, feed-in tariffs should not be seen as a permanent subsidy. The speed, the scale and the way in which the changes have been made is hugely damaging to investor confidence across the renewables sector, as the noble Lord, Lord Lucas, also outlined.
The purpose of the tariffs when they were brought in by the previous Labour Government was to encourage solar as part of the energy mix that is needed in this country to help achieve energy security, to help meet our renewables targets and to open up green energy generation to businesses, communities and householders. The consultation that the Government undertook on their proposed changes could have been a real opportunity for them to work with the industry to address its concerns. However, the consultation was only six weeks long, whereas the Government code of practice states that consultations should normally last 12 weeks or longer. Furthermore, 81 per cent of respondents opposed the Government’s plans and made alternative suggestions, but not a single change was made.
The consultation divided the market as being above or below 50 kilowatts, thus not only making the large-scale solar farms to which the Minister will no doubt refer unviable, but also community schemes and business and industry projects. The scheme was originally designed to incentivise projects up to 5 megawatts. The Secretary of State, Chris Huhne, has expressed his view that we do not leave our energy future to the exclusive preserve of the big six energy companies. Given the recent price hikes, I am sure that many of your Lordships would agree with that assessment. However, is the Minister aware that capping the scheme at 50 kilowatts is exactly what the energy companies lobbied for in the first place?
On the purpose of the Government’s changes, when the Government announced their consultation it was clear that this was a financial decision. The Government saw that there was increased interest in large-scale solar farms, particularly at the rate at which the tariff was set and with the significant fall of around 30 per cent in capital costs. That had not been anticipated by the department’s modelling, as undertaken prior to their introduction. Therefore, the Government consulted on proposals to reduce tariffs for solar developments of more than 50 kilowatts by 38 per cent to 42 per cent; for projects of more than 150 kilowatts by 50 per cent; and for projects of more than 250 kilowatts or any stand-alone installation of any size by nearly 70 per cent. That makes those larger developments and stand-alone developments unviable, which was clearly the Government’s intention. The Government’s argument is that these costs would have been too high if the industry had carried on growing at the same rate and, for the money involved, it would not have had enough capacity to make the investment cost-effective.
I understand that the Government want to avoid oversubsidising solar power. Capital costs have fallen so that is not an unreasonable objective. It is one that the industry fully understands. However, it would be helpful if the Minister could tell us what other options were considered to address the issue. Did the noble Lord consider any other tariff rates that would have reduced the costs but not choked off investment? Given that the costs are met not by government tax and spend but by the consumer—we are mindful of the need to keep prices down for the consumer—what estimate has the Minister made of the costs to an individual household over the next 10 or 20 years? I do not mean an estimate of the costs as though there were no changes at all. Most of us agree that some change was required and any analysis must take that into account. I see him frowning at me at this point. It is quite a tall order, so I am happy for him to write to me about this. However, those answers may go some way towards understanding the Government’s approach to this issue.
I have to tell the Minister that these cuts do not affect only solar farms, even by the Government’s definition. They go all the way down to projects such as installations on school roofs and community projects. The impact on community energy schemes must be addressed. The Government claim that they are supportive of community energy schemes. Is the Minister aware that the Government’s action, by setting the bar at 50 kilowatts, has also impacted on these schemes? For those who live in a development of flats, one where their roof is not appropriately placed, or one that is in a preservation area, the only option open to them is a community-scale solar scheme. These are much more cost-effective. I hope that this is an unintended—rather than intended—consequence, but the impact is the same.
For a typical UK small street or hamlet of, say, 60 houses, a community installation scheme would need to be of at least 150 kilowatts in scale, meaning that it would accrue support of 15p for each kilowatt hour under the proposed new tariffs. A community installation for a village of more than 90 houses would receive even less—only 8.5p per kilowatt hour—under the proposed new tariff. Solar installations of this scale do not access lowest-cost equipment. They do not benefit from economies of scale because fixed costs—development costs, connection costs, operating costs and administration costs associated with community schemes—are spread over a limited capacity. I shall read to your Lordships’ House from a letter about the impact that these proposals would have had on a development that is, fortunately, already in place. The South Yorkshire Housing Association installed a 54 kilowatt photovoltaic array at a scheme providing temporary accommodation for homeless families. The letter says:
“However, under the proposed changes to the Feed-In Tariffs none of that work would have been possible … This type of installation is not the kind of ‘Solar Farm’ the changes are intended to be targeting”.
There is also the issue of the impact on energy supply. Small-scale renewables covered by the feed-in tariff—that is, those under 5 megawatts, as defined in the 2008 Act, although the Minister and his colleagues argued at the time for that to be increased to 10 megawatts, as the noble Lord, Lord Lucas, indicated—have the potential to deliver one-third of our energy use. If the scheme had not been decimated, it could have generated roughly the same amount of electricity as a nuclear power plant by 2020. Now we plan to install less solar power this decade than Germany did last year. The impact on the industry has been massive. One issue is the impact on the growth of jobs. Before the feed-in tariffs, there were 3,000 jobs in the industry. By end of last year, there were 10,000 jobs, which was anticipated to increase to 20,000 by the end of this year. A fortnight ago, the Secretary of State, Chris Huhne, said to the corporate leaders group:
“The next time someone asks where the growth is coming from, you can tell them. Green energy”.
However, this review has culled one of the few fast-growing green energy industries, and potentially thousands of much needed jobs and tax revenue with it.
There is also—the noble Lord, Lord Lucas, made this point very clearly—the issue of investor confidence. The Government’s credibility on this issue has been severely damaged. As the Government’s energy White Paper highlighted this week, £200 billion of investment is needed in our energy system to make it fit for the 21st century. Will the Minister address the issue of such a dramatic change on such a tight timescale, with minimal consultation, having such a destructive impact on potential future investment? Ernst & Young has set out the effects, stating that the whole investor market has been ripped up by the feed-in tariff review. Ernst & Young goes on to say:
“Regulatory uncertainty will lead to an increased cost of finance over what would have been achievable under a stable FiT regime”.
In other words, in a mad rush to save money on this scheme we may have made every other policy designed to reach a low-carbon future a more expensive instrument. I am sorry that the noble Lord is smiling at me quite so intensely; there are many people who do not find this subject particularly amusing and are very concerned.
As regards the next steps and the lessons to be learnt from this, the full review of feed-in tariffs is an opportunity for the Government—I am trying to assist the noble Lord—to engage properly and fully with the industry as a partner and friend, not as an enemy. First, the Government need to show ambition. Instead of confining the solar industry to a cottage industry, there must be a vision of how local and decentralised energy can play a major role in creating a more open and competitive energy market and allowing these industries to grow. Both the comprehensive review of feed-in tariffs and the Government’s electricity market reform plans are opportunities to do this.
Secondly, there is an opportunity to look at examples from other countries and learn from these. For example, Germany has a degression mechanism which controls volume as well as returns. These mechanisms are set to reduce the tariffs once capacity thresholds are met. This would work in the UK only if we were significantly more ambitious with our PV programme. Such engagement with the industry and a wider knowledge of practice in other countries could have helped avoid the present crisis by allowing the Government to bring forward more measured changes that were in the long-term interest and would have been widely understood and supported.
Thirdly, as an interim measure there is an opportunity now to ensure that this industry is not brought to a halt. Will the Minister consider the very simple measure of taking advantage of the ROC budget being underspent at present by combining the two to assist the solar and renewables industries? This situation could be turned round and provide an opportunity for the Government to create jobs and transform towns. Communities across the country could generate their own green energy and discover the joy of their meters going backwards rather than constantly forwards.
My Lords, the only interest I declare is that I was a member of the campaign that persuaded the previous Government to adopt feed-in tariffs in the face of some reluctance in Whitehall. I think it was in November 2008 that my noble friend Lord Hunt of Kings Heath—a most enlightened Energy Minister—reacted positively to a Motion which had been tabled by no less a person than the noble Baroness, Lady Wilcox, then the Conservative spokesperson on DECC, to whose Motion was added no less a person’s name than my own.
The original amendment had no limit but led to the Government proposing the 5 megawatt limit, which dealt with the majority of schemes that we had in mind to benefit from that. The terrible thing is that that policy has worked. The decision, which was welcomed at the time by the parties which became the coalition, was also welcomed by and large by the industry. As the noble Lord, Lord Lucas, has said, it led to plans being brought forward, investment funds being found, schemes being established and many more schemes being proposed. However, the new Government decided that they would have a review just as the policy was getting off the ground. The review took a bit of time. They then got round to announcing the new rates. The initial rates were perhaps not entirely susceptible to rational justification but provoked the desired result. As noble Lords have said, investment has been stopped in its tracks by the 70 per cent cut in the feed-in tariff subsidy provided for schemes of between 50 kilowatts and 5 megawatts.
Other noble Lords will no doubt also have received representations from firms and organisations saying that this decision stopped well advanced plans in several parts of the country. Certainly, firms in Somerset, Cornwall, Yorkshire, the West Midlands and Scotland have approached me, and all say that plans which would otherwise have come forward have been stopped in their tracks. The whole point of this policy was to bring forward such investment. It was pump-priming in the sense that it drove down the price of solar energy. According to the Government’s own impact assessment, the price of solar energy came down by 30 per cent. In other words, as I say, the policy was working. That is rare enough in energy policy; to stop it after a few months because it is working seems to me bizarre in the extreme. The idea which is occasionally put about by the Government or other commentators that originally the policy was intended only to encourage domestic solar panels on housing, or small groups of housing, is absurd.
The reason why we wanted to move beyond 50 kilowatts was precisely because we were looking to semi-commercial or larger activities. For once, I cite myself, seconding the Motion of the noble Baroness, Lady Wilcox. We were talking about single-site operators; we were talking about farmers; we were talking about all-district heating schemes; we were talking about individual large buildings, schools, university campuses, community projects and small industrial estates. Those were exactly the sites on both the public and community side and the commercial side which we were attempting to encourage to adopt solar energy by extending the limit to 5 megawatts. The idea that it has been a distortion that the benefit has gone to farmers and industrial operators is quite wrong.
One reason we proposed that was that most such schemes would involve single-site operators who would not be that interested in the ROCs market, that ROCs were an inadequate incentive for them and that feed-in tariffs would be a much better way of mobilising that market. So it proved, as it has in other countries. Two or three days ago, I had an e-mail from one of my friends, who has no particular interest in the field, who was driving through Germany, remarking on the farms that he was visiting and passing, many of which ran on solar energy, and the solar panels on public buildings, flats and so forth. Germany has made a major investment in solar energy and, as a result, there are about 100,000 jobs in Germany in the solar and related installation industries. It was working elsewhere; it was beginning to work here; but the Government stopped it in its tracks.
I must address one other issue which was touched on by the noble Lord, Lord Lucas. Other noble Lords will have received a representation from Which?. I have often acted as consumer champion in this House, as has the noble Baroness, Lady Wilcox, who proposed the policy. We have to counter that argument. It is true that the cost eventually falls on the consumer, but that is true of every proposition to try to change the energy mix. The cost of ROCs eventually falls on the consumer. The cost of CERTs eventually falls on the consumer. The cost of various other schemes has all fallen on the consumer. That is an argument not for changing one bit of the green energy incentive plan but for looking at it in its totality.
I would have understood if the Government said: “We are looking at this in the light of trying to get a more rational system whereby, instead of different forms of subsidy employing dramatically different implied prices of carbon, we get something more consistent”. I would have understood if this had been part of a policy to ensure that the burden on the consumer was more fairly distributed than under the present system, which is almost a poll tax on energy consumers. That is not what is being said. The Government are not even saying that they are looking at the feed-in tariff consistently across the range of applications. Instead, we have hit a particularly promising and successful policy before it has really got off the ground.
The Minister’s colleague, Greg Barker, has spoken movingly and convincingly about his commitment to decentralised energy. As the noble Lord, Lord Lucas, said, this is the ultimate in decentralised energy in that it is very local, does not require a huge amount of connections and can operate without a huge burden on the grid. I do not understand why the Government have done this—or perhaps I do. Within the Minister’s department—which, generally speaking, I think is one of the better Whitehall departments—there was resistance even when the previous Government were trying to change the position. It took a lot of overturning. I was very grateful to my noble friend Lord Hunt of Kings Heath, who was able to face out that opposition. More importantly, it faced opposition from the Treasury.
I recognise that the Government are not likely to go into reverse again on a one-off, but I hope that in their assessment of the incentives for a decarbonising energy system they will seriously look at it realistically and provide for those industries where the cost can genuinely come down. I think that the noble Lord, Lord Lucas, was quite right that there is a lot more scope for reducing solar energy per unit. The Government should look at a rational system for subsidising, via either the tariff or government expenditure, the acceleration of the move away from fossil fuels and carbon usage, and instead come up with a system that has the effect of what this part of their incentivisation plan was about to do—to bring forward investment that otherwise would not have happened, speed up plans and, in the solar sector, engage in very rapid installation as it is probably one of the easier and quicker forms of investment in technology in greener energy. I hope that the noble Lord and his colleagues will be able to resist any recalcitrant elements in their own department and, more particularly, the Treasury when they come to look at this again, and I strongly urge them to look at it again.
My Lords, I rise briefly to register my strong support for the two Motions. I declare an interest as a director of a company that has already received planning permission to build a substantial solar farm in the south of England, but whose whole future has now been put in doubt because of the Government’s decision to reduce the feed-in tariff so drastically. I simply wish to say that I agree with everything that has been said so far today on this subject, and I am very keen to hear what my noble friend the Minister will have to say by way of, I hope, reassuring me, my noble friend Lord Lucas, and the House that he will get together with the industry and try to resolve this serious difficulty. It is basically a nascent industry that has been snuffed out at birth. Having said those few words, I look forward to the Minister’s response.
My Lords, I had not meant to intervene in this debate. In fact, I am breaking the habit of the past 25 years, since I was the Minister responsible for taking the Electricity Bill through Parliament. I also declare an interest as president of the Association of Electricity Producers.
I just want to enter two notes of caution about what has been said. Of course, renewables and solar are a good thing—nobody doubts that—but they are also expensive, as has been admitted by the noble Lord, Lord Whitty. They also require, certainly when talking about wind power, heavy extra capacity. Therefore, on capacity grounds and on price grounds above all, whatever we say about renewables—I hope that we will say positive things—we have to be realistic. One thing that worries me about the present situation is that we set targets that turn out to be unrealistic. Oil power and carbon-related fuels will be necessary. We will have to have either carbon-free coal or oil-fired power stations to a very great extent in the future. We had better recognise that, otherwise we will be another £200 billion behind in investment.
My Lords, as I have said on other occasions, I am pleased about the way in which DECC has managed to negotiate very positively with the Treasury over its budget, even in the areas of private taxation that are reflected in private energy Bills, and how the overall programme for renewables has started to move ahead. I also sympathise in many ways with the Government’s priority to make sure that as many people as possible are involved in the renewables industry so that households that want to fit solar PV to their houses, or SMEs solar PV to their business premises, can do that. Both those things are positive.
Having said that, the difficulties caused to the industry by this major change in policy over a short period of time have been very great. I understand and agree with my noble friend Lord Lucas on this. As many Members of the House will know, I come from Cornwall. I represent an electoral division there that as we speak is constructing a 5 megawatt facility to make sure that it can throw the switch before midnight on 31 July. I do not know whether any electricity will flow then: presumably it will, in order to come in before the tariff changes. In Cornwall, about half a dozen sites will hit the grid before the deadline arrives.
It is clear that a very large number of investors wanted to come into this field. Some were opportunists—which is not necessarily a bad thing, because we are trying to work with the market—but there was a basis to enable a number of new renewable energy companies that genuinely held the values of decarbonising our economy to start, work and gain ground in order to be part of that decentralised electricity-generating system that so many of us in the House want to see. Those business starts and the growth of micro-businesses into medium-sized businesses can no longer happen. The amount of investment, for example to secure planning permissions, was very great.
I accept that not all the schemes should have gone ahead. Planning permissions were extremely easy to obtain because people did not object to them as they do to a number of other renewable technologies. However, now the momentum has stopped in its tracks. I very much regret that. The particular practical difficulty is that even where too many of the larger schemes would have been very onerous, there were a number of community schemes, too, that have come to a halt or will not be fulfilled.
Two days ago, as well as receiving the electrical market review, we saw the UK Renewable Energy Roadmap, which I very much welcome. On the whole it is an excellent document. However, perhaps it is illustrative that chapter 3, “Actions”, names the technologies of onshore wind, offshore wind, marine energy, biomass electricity, biomass heat, ground source heat pumps and air source heat pumps—I am very pleased to see those there—and renewable energy in transport, which we sometimes forget about but which is of equal importance.
Solar PV is nowhere in that list. The document includes a case study of solar PV and states:
“The Government believes that solar PV could potentially have a role to play in larger-scale UK renewables deployment in the future”.
That is a very iffy assessment of solar PV. I am very aware, as we have seen today and during part of this week, that the UK is not the best country in the world for solar PV. However, there is no doubt that the technology is potentially useful. The costs are expected to come down very significantly in future. The initial FIT rate was too high and provided too great a return, but it has come down so much that it has acted as a veto on the industry. As a result, the green jobs that all of us want to see have been postponed or might not happen as they might have done.
The document goes on to say that the Government encourage solar PV on a large scale as part of the ROCs regime. Will the Minister say whether there is a way forward there for large-scale PV? The renewable obligations review is due in the next few weeks. The Government have cut out the higher FIT rates. Could they over a temporary period fix a higher ROC rate for solar PV so that we could again encourage investment in this industry? When the costs come down we can reduce the ROC rate, as we would do with any other technology.
Will the Minister tell us how many ROC schemes there are on solar PV at the moment? I do not know whether there are many. I would be interested to know what the scale of demand is at the minute. I think there is a good future for solar PV in this country. We want to encourage it for jobs and growth, and I would like it to be a larger part of the jigsaw of the renewable road map for the future.
My Lords, I welcome this debate. It is important that we discuss these issues and get clarity on them. I hope I am going to do that in response. I have received a very good letter from the chairman of the British Photovoltaic Association in conjunction with the director of the Combined Heat and Power Association, the chief executive of the Anaerobic Digestion and Biogas Association and the chief executive of the building council for sustainable energy. They say a number of things, including: “Those highly dependent on the previous tariff of photovoltaic levels are now few in number in comparison with the sizeable and growing industry for other parts of the feed-in tariff”. They also give a word of warning and, “urge people not to reopen the Government’s decision at this stage. It would cause lasting, and we believe irreparable, damage. This would apply not just to solar PV but also to the vibrant and growing activity of small and medium-sized wind, aerobic digestion and microchip”. Finally, they say: “We would urge you to oppose any attempts to overturn the Government’s decision implementation on 1 August”. I think that sets out the stall of the industry that we have consulted and discussed things with.
The noble Baroness said that it was a very short consultation. Of course it was a short consultation because the industry wants certainty. In government, we unfortunately have to make choices. We are in a situation of rising electricity and energy prices, and we have to make choices in order to prevent that. These are the questions we asked ourselves when getting to the point of making this decision. Do we consider that at a time of rising bills we should encourage the spending of £7 billion on solar PV? Does this represent value for money? Does it have a real impact on our demand for electricity, given that it produces under 0.1 per cent of our electricity supply? Even if everything worked as planned, by 2020 it would be only as much as 0.3 per cent of our energy supply. Like the noble Lord, Lord Teverson, who is so sound on all these subjects—even though I do not think he is in complete agreement with me, for a change, on this one—we asked ourselves whether we are best suited as a country, given that we need electricity in winter when we have narrow daylight hours, and whether this is the most effective way of creating electricity. Therefore, is this a core activity for the Government?
We also looked at some of the schemes that were being offered. I am sure this does not apply to my noble friend Lord Liverpool, but schemes were offering a 21.4 per cent return on investment guaranteed by government-backed FITs and were being sold to people as the greatest investment opportunity for a long time. There are many examples of that. The Government are concerned that people could be taken advantage of.
Similarly, did we think the support that we gave the schemes was fair? If you were putting up onshore wind you would get one ROC, if you were putting up offshore wind you would get two ROCs, and this feed-in tariff is the equivalent of over five ROCs. Is that fair and reasonable for the rest of the industry?
The noble Lord, Lord Lucas, criticised us for frivolous and unreliable decisions worthy of a third-world country. I emphasise that this is not retrospective. It does not apply to people who have installed this. I absolutely repudiate his suggestion that this is frivolous and unreliable. To suggest that we should push on with this regardless is frivolous and unreliable, which is why we have stopped it.
What was the purpose of this particular form of electricity generation? It was for microgeneration, and microgeneration stays as is. The noble Lord, Lord Lucas, referred to covering this green and pleasant land with pylons. I totally agree that that would be an unattractive sight. However, this could have covered our green and pleasant land with solar panels, and that was the intention of a lot of the large solar providers. That is not an attractive proposition either. For domestic use, microgeneration is still useful and still creates an opportunity—and, for that matter, for anyone who wants to put up solar panels of the equivalent size of two tennis courts. There is still scope within the industry to carry on.
Those were the questions we asked ourselves when coming to this difficult decision, which I am absolutely convinced is the right one. This is nothing to do with the Treasury because it was the Treasury that passed the FITs in the first place. I am grateful to the noble Lord, Lord Whitty, who said that this would pump-prime the industry. The industry has been pump-primed to such an extent that it was probably getting overheated and it was time that we adjusted it. I hope that allays fears about why we are doing this.
I will deal with a few specific points before I wind up because we are running out of time. The noble Lord, Lord Lucas, referred to £50 million invested. In the overall scheme, we are saving £3 billion. That is a pretty modest figure to throw back at us. In the overall scheme of things, it is very small. I think the noble Baroness, Lady Smith of Basildon, is broadly supportive of this. She may be frowning now or smiling in a minute, I am not entirely sure. Either way, she is quite right to point out that communities are very relevant to this. We do not want to have a huge impact on communities, but it has to be balanced. Of course, communities can benefit from this by adjusting their aspirations accordingly.
That probably covers most of the ground covered by the debate, apart from the question asked by my noble friend Lord Teverson about whether a review of ROCs could be considered. Obviously I am not going to prejudge the review on ROCs that we are having, but of course at any time convenient to him I am prepared to listen to him and discuss this. We are only too aware of the impact on jobs, but in focusing on the jobs we want to create by putting our shoulder behind a number of the other industries, we feel that we can achieve our very substantial aspiration on jobs.
I am grateful to the noble Lord for his explanation. I can assure him that I do not agree with what he is doing, which is why I tabled the Motion today. I asked him another specific question about what options were being considered other than the two all or nothing questions that he has spoken about today. He has not answered that or my other questions. If he cannot answer today, I would be very grateful if he could write to me.
My Lords, I can answer that straightaway. Let me make it clear that we considered every option. A whole magnitude of options are put forward in reviews and consultations with industry, so of course we considered other options. However, the option that was actually put to us, largely by industry, suggested that the contribution of FITs was going to be even more expensive than it is now, and I am afraid that that was an option that we were not going to embark upon.
In closing, I see no real sense in the feed-in tariff at the level that it was. We have made the right and brave decision. It is a decision to support the consumer, which is obviously a priority for the noble Lord, Lord Whitty. It saves consumers from a vast increase in bills on a form of electricity generation that is not really going to impact on the importance and size of the problem ahead of us.
My Lords, I am grateful to my noble friend for his reply, except that he did not actually reply to the last questions I asked him. I would very much appreciate the opportunity to come and see him to ask them again. They are: how are we going to deal with distributed generation in the energy market review, and what plans are we making for the day when solar becomes a competitive source?
I can respond to that. I do not intend to respond to questions on the broad scope of electricity generation in this debate. If the noble Lord had attended the debate on our electricity market reform Statement, or if he wishes to read the paper that was published this week, he would see how we are attempting to deal with the supply and demand side. It is a very big subject that unfortunately I do not feel I can cover now.
I am not trying to tempt my noble friend to do so. I am merely trying to tempt him to spend some of his time subsequently discussing it with me. I agree that the EMR review is an interesting paper, and I have read it with great interest. However, I think it misses the point about solar.
I will argue with my noble friend about his use of the term “not retrospective”, and I suspect that my noble friend Lord Liverpool would too. If you put a lot of money into a project and the Government then produce a cut-off that makes it impossible to realise that project, while there may be a few lucky people in Cornwall, there are a lot of unlucky people elsewhere who are losing what for them is a lot of money, even if it is not for the Government. I beg leave to withdraw my Motion.