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Brian White (Milton Keynes, North-East) (Lab): My hon. Friend is aware that regulators primarily look at the face of statutes rather than at their detail. Given that there have been problems with sustainable development in certain parts of the industry, how does he intend to address such regulatory barriers?

Mr. Timms: I suggest to my hon. Friend that Ofgem is starting to address effectively the challenges of sustainable development in precisely the way in which all of us would wish. That is happening under the arrangements that we have in place, and I shall say a little more about those in a moment.

Clause 81 specifically addresses renewables, but we have a strong and effective renewables policy in place. The renewables obligation is incentivising unprecedented investment in the sector. The British Wind Energy Association estimates that some 350 MW of capacity will be built this year, which is more than three times as much as last year. More than 2,000 MW of wind generation projects have already received consent, and a recent Ernst and Young report ranked the UK as the place with the most potential to invest in new wind energy capacity, and as the second country out of 17 for renewables investment as a whole. The policies that we have in place are delivering the results that we all want to achieve.

The commitment in clause 81 on sustainable development that my hon. Friend underlines is already built into existing energy legislation, which is demonstrated by what is happening at the moment. Both my right hon. Friend the Secretary of State and Ofgem must have regard to environmental matters when carrying out their functions under part I of the Electricity Act 1989. In practice, Ofgem produces regulatory impact assessments for key proposals, including assessments of any impact on the environment. It publishes an annual environmental action plan, and "helping protect the environment" is one of the seven themes of its new corporate strategy. We can see progress made on the social aspects of sustainable development by examining Ofgem's annual social action plan. Ofgem is actively taking forward its brief on environmental and social concerns, so I put it to the House that a sustainable development commitment already exists.

Mr. Robert Key (Salisbury) (Con): I am grateful to the Minister for giving way on the question of Ofgem's environmental concerns. An independent panel of environmental experts has been established to guide Ofgem's green agenda. The environmental advisory group is made up of policy experts from government, industry and green groups to advise the regulator on the priorities for its work in relation to the environment. However, I was surprised to learn that the nuclear industry, the electricity generator that produces a
 
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quarter of our electricity—the most environmentally friendly electricity because it is carbon free—is not part of that green committee. Why not?

Mr. Timms: The hon. Gentleman helpfully—from my point of view—underlines the strength of Ofgem's commitment to address the issues seriously. We all recognise that the nuclear industry produces a substantial amount of carbon-free electricity, which represents a valuable contribution. Of course, there is a question whether we will have new nuclear capacity in the future, and I know that that topic is close to the hon. Gentleman's heart. I say to him, as the Prime Minister said to the Liaison Committee last week, that there are serious barriers to address. We must consider the economics of new nuclear power and whether people will be prepared to invest in it. Some major issues on nuclear waste also need to be addressed. I welcome the fact that Ofgem has put in place the advisory group to which the hon. Gentleman referred.

Mr. Michael Weir (Angus) (SNP): Will the Minister give way?

2 pm

Mr. Timms: I think that I need to make a little progress, particularly in view of the points made by the hon. the Member for Banff and Buchan (Mr. Salmond) about the need for us to be brisk.

Government amendments Nos. 8 and 9 are consequential amendments that are necessary following the deletion of clause 81. Both amendments reinsert parts of other clauses that were deleted in Committee as a result of the introduction of clause 81.

Government amendment No. 2 ensures that the annual reports to be produced under the Sustainable Energy Act 2003, for which my hon. Friend the Member for Milton Keynes, North-East was responsible, cover the implementation of the technologies specified, as well as progress made in research and development. That captures the intent of the amendment tabled by my hon. Friend the Member for Brighton, Kemptown in Committee. There has been a slight change from his original wording—he mentioned deployment—in respect of the phrase "bringing into use", which was included as a result of legal advice. I hope that he will agree that the meaning remains the same.

Government amendments Nos. 13 and 14 are important amendments that seek to improve investor confidence in the renewables market by taking further steps to reduce the impact of a future shortfall in the renewables obligation buy-out fund. During the passage of the Bill, there has been some debate about whether the moves now represented in the amendments can be made. In Committee, we agreed to consider an amendment on this issue tabled by the hon. Member for Hazel Grove (Mr. Stunell). As I said at the time, the case for mutualisation or recovering some or all of a shortfall after it had arisen has been made here and in another place. We have listened to those arguments and taken account of developments in the market, some of which have strengthened the case for mutualisation in recent months.

I should make it clear that while our amendments go further than the existing provisions in clause 116 in reducing the impact of a supplier shortfall, I am under
 
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no illusion that they will remove the risk of a shortfall altogether. The renewables obligation is a market mechanism. There is inevitably an element of risk as companies can and do fail. What we want to achieve is a balance between reducing the risk and impact of shortfalls and not placing undue additional burdens on consumers or adversely affecting competition.

Mr. Andrew Stunell (Hazel Grove) (LD): I thank the Minister for tabling the amendments. Is he entirely satisfied that the mechanics that they set out will deliver the benefit that he asserts they will? There seem to be some technical problems, about which I have received representations, and I would be grateful for his reassurance on that point.

Mr. Timms: I think that the amendments deal with those issues, and if the hon. Gentleman wants to put to me a detailed point about mechanics, I shall be happy to look at it.

The amendments need to be seen as part of a set of measures to address the problem of supplier defaults, sitting alongside the measures already set out in clause 116 to address reductions in the length of obligation periods and impose surcharges on late payments. Together, those provisions are a sensible response to the problem of supplier default, and a balanced one that provides a measure of protection for the buy-out fund at an acceptable cost to consumers.

Mr. David Drew (Stroud) (Lab/Co-op): Does my hon. Friend accept that one of the problems during the period of default of a major supplier is that the administration process may not prioritise the renewables obligation certificate? Will he talk to his friends in the Department to ensure that we clarify the situation with regard to the administrative process, with particular regard to this aspect of energy production?

Mr. Timms: I shall be happy to talk to my officials along those lines, although I am not sure whether anything further can be done on that front. I pay tribute to my hon. Friend, who has followed the matter with close interest and raised it frequently with me. I think that he will welcome the steps taken in the amendments as an effective response to the problem.

In broad terms, Government amendment No. 13 gives the Secretary of State power to introduce an order requiring licensed suppliers to make additional payments following a shortfall. A number of detailed issues will need to be addressed, such as how the payments are assessed, when the suppliers need to make them and over what period and at what level they need to be made. Perhaps the issue that my hon. Friend has just mentioned will also arise. Those will all be the subject of a statutory consultation exercise later this year, before the detailed changes to the renewables obligation can be made. The amendments enable us to introduce mutualisation to recover part or all of a shortfall, and so give some additional confidence to the renewables market.
 
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I hope that the House will welcome those amendments, and the other Government amendments and new clause.

Mr. Laurence Robertson (Tewkesbury) (Con): It is a pleasure to follow the Minister in speaking to the amendments.

The Bill was greatly improved by Members of the other place and was the subject of interesting debate in Committee. It started off as a necessary and functional Bill when the Government introduced it into another place, but their lordships greatly improved it by introducing a number of measures that went beyond the original content. One of those measures was a clause relating to microgeneration.

It would indeed be a useful step forward if every household in Britain could generate electricity as well as use it, particularly if they could do so from renewable sources. Such electricity could be used as it was generated or sent to the grid for use by business at that time. The household could perhaps draw other electricity later in the day when it needed to do so.

Obtaining maximum benefit from such an arrangement would probably require a change in building regulations. Although their lordships' amendment did not go so far as to make such a suggestion, it was very useful in that it sought to require the Government to produce a strategy on microgeneration—a strategy that could perhaps include an intention to amend building regulations to require all new houses to be fitted with solar panels, for example.

Their lordships' amendment also included a requirement for the Government actually to set targets for microgeneration. I understand that the Government have varied the amendment slightly and are saying that specific targets for microgeneration would cut unhelpfully across other commitments in the energy White Paper relating to renewables and combined heat and power. That is their reason for attempting to change the original Lords amendment. I think that that is a little unfortunate, because I do not see how that could happen. In many ways, those strategies are very different. However, we are where we are, and given that new clause 4 is the only one available for the House to consider today, we will support it.

I should like to spend a little time speaking to new clauses 20 and 21, however, which were tabled in my name and those of my hon. Friends. New clause 20 attempts to put back into the Bill another amendment that was made in another place, introducing a clause that attempts to increase the use of combined heat and power—a process that is more efficient than other forms of generation, because it uses the surplus heat that is used for generation in the first place.

In respect of a number of combined heat and power proposals, planning permission has been obtained, but nothing has yet been built, and a number of CHP plants are running at below capacity. I understand that is the case because there is a lack of confidence and investment in generation at the moment, which is a general problem that must be addressed. However, given that we all want to cut emissions and that it is recognised, certainly by the Opposition, that there may be a problem with security of supply in the medium term due to that lack of investment, a greater contribution from CHP would be
 
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very good news indeed. The Government must have recognised that that was the case when they set the CHP target of 10 GW by 2010, but the industry is apparently on course to realise between only 7 and 8 GW by that date unless something is done to help it along. That is what new clause 20 is all about.

My discussions with the Combined Heat and Power Association have led me to believe that excluding CHP from the renewables obligation calculation would in fact provide sufficient encouragement to the industry, enabling it to have a more realistic chance of reaching the Government's own targets. In Committee, however, the Government had the original clause removed, basically because they claimed that removing CHP from the renewables obligation calculation would have an adverse impact on the use of renewables. The CHPA disputes that fact. New clause 21 would give the Secretary of State the power to amend the renewables obligation target if necessary, based on the previous year's or the present year's CHP production, to counter any possible adverse effects on renewables. That is complicated, but I am sure that the House is with me.

I accept that that arrangement could cause a seesawing of production from each source, but that is unlikely once the investment in each has been made. It would move us along towards cutting our emissions, again in the way that the Government say that they want to do; otherwise, we may have a problem in meeting the emissions targets by making the cuts in emissions that we all want. Renewables, which we all support, are struggling along, and most commentators feel that the 2010 and 2015 targets are challenging, to say the least. Over the next 20 years, the nuclear industry will be reduced to providing just 2 per cent. of our electricity generation from its present output of 22 per cent., unless there are extensions or new build. Even if renewables entirely replaced nuclear—and there has to be a big question mark over that—we would have gone absolutely nowhere on cutting carbon emissions, because, as the Minister acknowledged, nuclear emits no carbon. That point is frequently made by my hon. Friend the Member for Salisbury (Mr. Key).

Combined heat and power can make a contribution in that situation. However, the Government seem to be saying, "Carbon emissions bad, no carbon emissions good." That is true, but surely lower carbon emissions, as with CHP, represent a move in the right direction. It is wrong to say that because it is not a zero-carbon process it should not be encouraged, because if it emits less carbon, it is better than those methods which produce much carbon.

I am disappointed that the Government chose to strike out the help and encouragement that we are trying to give to the CHP industry. If they believe that our amendments were and are imperfect, I regret that they did not and have not proposed their own, nor have they proposed any form of assistance to the CHP industry. That will be a great disappointment to it.

I should like to give encouragement to the Labour Members who, in Committee, proposed the amendment on clause 81, which deals with the principal objective to promote renewable energy. I have no intention of stealing their thunder by speaking against Government amendment No. 1, which seeks to undo all their good work, but I assure them that if they oppose that
 
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amendment and force a vote, they will find us in the same Lobby. [Interruption.] I remind Labour Members that we won that vote in Committee, so there is all to play for.

On the new clauses relating to the renewables obligation, we support moves to strengthen the security of the obligation in terms of moneys paid in, or due to be paid in, and we recognise the Government's attempts to achieve that through new clauses 13 and 14. Although, like Liberal Democrat Members, we have one or two concerns, we recognise the need to improve that obligation and accept that the Government are doing their best to move in the right direction in that respect.

I do not intend to say much about new clauses 2 and 3, which deal with energy efficiency. Indeed, I should like to draw attention to the fact, almost as a point of order, Mr. Deputy Speaker, that this morning we were informed that my hon. Friend the Member for Vale of York (Miss McIntosh) would be able to move those new clauses, but it subsequently turned out that that advice was incorrect. I regret that, because she would have spoken with far more eloquence and knowledge than I could possibly muster.

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