Draft Renewables Obligation Order 2002

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Mr. Robert Key (Salisbury): What a pleasure it is to serve under your chairmanship, Mr. Illsley. I welcome the Minister back from Scotland, where he was last night. I think that he had a happier time there than he would have had in the Chamber, where we engaged in an acrimonious debate with the Scottish National party, whose representatives, I note, are absent today.

I shall begin by declaring a happy interest, in that I buy green electricity from London Electricity. That company is owned by the French company Electricité de France, but there we go—that merely underlines the Minister's point. It is music to my ears to hear him talking of market forces at work and inviting the industry to let the market decide. The Conservative party really has won all the arguments during the past decade or two.

Mr. Wilson: But you lost the election.

Mr. Key: But, as I frequently remind the Minister, we will be back, and in just a little while I shall be sitting where he is sitting, which is why I will not oppose the order today. Indeed, we welcome the order and we recognise the contribution made by renewables to energy supply, which is a key element of the Government's strategy to reduce carbon dioxide emissions and meet their Kyoto requirements.

The obligation, as the Minister explained, has been designed around creating a renewable market that exerts competitive pressure on renewable generation in order to limit the potential cost to the consumer. That was set out in paragraph 2.42 of the consultation paper. All electricity suppliers will have to provide 3 per cent. of their electricity sales from renewables sales, as defined by the renewables obligation, rising to 10.4 per cent. of sales for the year ending 2011. Suppliers must comply by one of three options: they can buy renewables obligations certificates—ROCs—from the generators of renewable electricity, trade in them or pay the buy-out price of £30 per mWh, which is distributed as the Minister described.

The Conservatives support a balanced energy policy that combines security of supply with environmental and economic objectives. We welcome the renewables obligation as a positive step towards achieving those objectives. The Minister put an enormous amount of work into the PIU energy review, and we were delighted to see the full published version rather than the endless leaks, which were so disruptive over so many months and achieved so little.

The energy review recommends an expansion in the amount of energy obtained from renewables to 20 per cent. by 2020—and, as the Minister said, that is only the start. We agree that we must take every opportunity to use sensible and sustainable renewable energy sources, which have a huge contribution to make to our nation's quality of life, among other things. Greater use of energy is increasing our greenhouse gas emissions precisely when we are committed to reducing them. That is why we should

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face up to our problems and give renewables an environment in which to develop.

We agree with the arguments behind the use of renewable energy resources, generating power close to the point of consumption, minimising the use of power and using natural resources. We should all strive to ensure that advances are made in this area, so that there continues to be diversity in supply, but we have reservations about the extent to which the obligation can meet its target of 10.4 per cent. of sales for the year ending 2011.

Some changes were made to the renewables obligation statutory consultation, which was issued by the Department of Trade and Industry on 3 August 2001. First, will the Minister tell us about the relaxation of criteria for the eligibility of hydro plants to which he referred, which has risen from 10 to 20 MW? The directive on electricity from renewable energy sources has set the eligibility criteria for the European Union at 10 MW. The adoption of the 20 MW criteria may have been motivated by concern over the increasing age of hydro installations and the need to refurbish them. It is expected that including large-scale hydro in the renewables obligation scheme will provide an incentive to carry out the needed refurbishment. Will the Minister explain in a little more detail why he made the change? Does he fear that it may hinder the development of small-scale hydro plants, which seemed to be an objective during the consultation period?

Another change from the consultation was the adoption of a reciprocity clause. Should another member state of the European Union introduce a similar obligation, the United Kingdom will amend the provision, as the Minister explained, to recognise certificates of supply to customers in the United Kingdom from other member states. That proposal applies to Great Britain. He mentioned Northern Ireland, and we need to tackle the question whether that country will be included in these provisions, as I hope it will. The adoption of a reciprocity clause in a national certificate system is one more step in the liberalisation of international trade, which is good, but have the Secretary of State or his officials had any early discussions with other countries on the matter? That is important, as we need to know the implications for the interconnection infrastructure, which is the subject of considerable speculation in the market.

The third change from the consultation is the ban on the borrowing of renewables obligation certificates. The Government propose to allow the borrowing of certificates. In the earlier draft, the borrowing of ROCs was limited to 5 per cent. of the supplier's obligation in any period. Under the new document, the Department of Trade and Industry decided that the supplier had enough options to comply with that obligation, and that borrowing should therefore not be allowed. Will the Minister justify the removal of the flexibility that was given to suppliers?

In recent weeks, one of the questions repeatedly put to me outside the House has been why the Government did not take a much simpler approach

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to the matter and implement a carbon tax. I asked the Treasury why the Chancellor of the Exchequer had decided not to implement such a tax, and I received quite an interesting answer, which stated that

    ''the Government believe that a downstream tax on energy such as the CCL is the best approach to take to the taxation of energy products, as it allows the Government to balance the need to encourage improvements in energy efficiency with other policy considerations. The extent of fuel poverty in the UK is well established, and the Government do not propose taxing energy use in the domestic sector.''—[Official Report, 25 February 2002; Vol. 380, c. 1032W.]

That is not what is happening. In paragraph 6.41 on page 102 of the energy review, it says:

    ''The support needed to get technologies to the point where unit costs fall substantially comes at a cost. The existing Renewables Obligation will cause a price increase to domestic consumers which could be as large as 4.5% in 2010. The proportionate increase on industrial bills will be larger: it could be double the size of the domestic effect. Both increases will be phased in gradually over the period as the obligation takes effect.''

That is an interesting point. We are told that we can expect prices to go up by 4.5 per cent. for domestic consumers by 2010, and by double that for industrial consumers. I suspect that the increase will be much more than that, given that every energy supplier that I have spoken to in the past few weeks is predicting quite a big hike in electricity prices for both sets of users later this year.

The Minister said that the price rise must be acceptable to consumers, but what is acceptable? I acknowledge that we have got used to falling energy prices in this country. They are substantially lower than elsewhere, and are certainly lower than prices in France and Germany. Those countries have the problem of trying to liberalise markets—at least, I wish that I could believe that they were trying; I do not think that they are trying very hard. The Danes' electricity is enormously more expensive, and there is certainly no liberalised European energy market.

Energy suppliers are straining to find enough green energy to meet their obligations and to take more of their supply from renewables. They are passing the cost of their failures on to customers, according to industrial and commercial energy buyers. We need to know from the Minister what measures will be taken to protect those buyers. In a press release dated 18 February, TXU Europe said that compliance with the United Kingdom's renewable energy obligation would cost it about £20 million in the scheme's first year. Sustainable energy portfolio manager Ashley Turner said that TXU, one of Britain's biggest electricity suppliers, would pass on some of the extra costs to industrial customers but that the company would strive to limit the impact on energy bills.

The proposed obligation on electricity supply companies may fail to promote less developed technologies such as offshore wind and energy crops. Those technologies will be needed on a large scale if the Government's renewable energy target for 2010 is to be achieved. Both the technologies are likely to be more costly—at least initially—than the proposed buy-out price, and suppliers will therefore have no incentives to invest in them. How will the progress of the obligation be monitored to ensure that the key technologies are being developed?

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I spoke to a grain supplier in my constituency last month and asked him about using seed for energy crops. He said that some was available, but that no one was interested. The market is completely undeveloped. There is obviously a great opportunity for him, but the Government will have to do more to encourage the farming community to invest in such new cropping. It could be a godsend for many farmers.

The Minister also mentioned what had not been included in the order. The Local Authority Recycling Advisory Committee said that energy generated from waste that is not exclusively from renewable sources is predominantly generated from sources other than fossil fuels, and that therefore it saves on the extraction and use of those non-renewable resources. For that reason, local authorities would like to see the continued support of energy from waste technologies as renewable sources of energy, provided that all possible practical uses are made of the resources contained within the waste before it is committed to generation from combustion. Such an approach is borne of the realisation that we cannot recycle and reuse every constituent part of municipal wastes, and solve our waste management problems through these measures alone. There is also no way that the United Kingdom will be able to meet its obligations under the European Union landfill directive, without a significant shift from landfill disposal to energy from waste.

The Government say that energy from waste is competitive without a renewables subsidy, where that applies to the traditional mass-burn type of energy from waste. However, in the past two years there has been a major increase in the research and development—and the promotion—of alternative energy from waste technologies, including anaerobic digestion, gasification and pyrolysis. It is for such technologies that the local authorities would like to see the proposed renewables obligations.

I again ask the Minister to explain why he has decided to ignore the local authorities' calls to include certain energy-from-waste technologies, which provide a service to all our households and industry, throughout the UK? We should listen more closely to their voice.

The obligation allows for co-firing of biomass to be restricted by 75 per cent. by April 2006, and to be ended in April 2011—as the Minister explained. For a conventional power station to use energy crops requires significant new investment in fuel storage, handling facilities and changes to combustion equipment. There must be greater scope for power stations and potential energy crop producers to recover that new investment. Will the Government extend the time frame to allow co-firing to play a part in meeting the UK's Kyoto targets? I hope that consideration will be given to that, in any monitoring that they do.

Combined heat and power and nuclear generation were not included because they are not renewable sources of energy, but they are low or zero carbon sources. On 12 February, the Minister answered a parliamentary question about why combined heat and power is excluded. He said:

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    ''Responses to the Statutory Consultation on the Renewables Obligation included the suggestion that excluding electricity from good quality combined heat and power (CHP) installations from the total electricity sales figures on which the Renewables Obligation was based might be an effective means of supporting CHP.

    In the event, this suggestion was not pursued, on the basis of clear legal advice that it would be going beyond the powers conferred by Parliament (ultra vires) to use an Obligation intended to promote renewable energy to promote other forms of energy generation.''—[Official Report, 12 February 2002; Vol. 380, c. 293 W.]

That is very interesting, and it prompts me to ask whether we should change the law to make that situation not outwith the law.

What happens if the targets are not met? Even Powergen, which has one of the industry's largest portfolios, conceded that it cannot guarantee that it will meet the 3 per cent. target. How can we force someone to buy a product that we do not know will exist? To make renewables a reality, several key issues must urgently be addressed. The first of them is about the transmission of renewable energy from where it is generated to where it is used.

The Minister will recall that I asked him in January when he would publish the consultancy report on the feasibility of a sub-sea cable on the western seaboard of the British mainland. He answered:

    ''The report is expected shortly and we propose to publish it soon after it has been received. Decisions about further action will be taken in the light of the report's conclusions.''—[Official Report, 15 January 2002; Vol. 378, c. 158W.]

I hoped that the report would have been published by now. Will it be published?

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