Climate Change and Sustainable Energy Bill |
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Malcolm Wicks: I suspect that there is not a great deal between us on this point. We are working on a comprehensive strategy to remove the barriers, such as planning requirements, that prevent the development of a sustainable market for the technologies. The strategy will be published by the beginning of April. There are already two specific targets to which microgeneration installations contribute: a target to have 10 per cent. of our electricity provided by renewable energy sources by 2010 and a target to have 10 GW of combined heat and power capacity installed in the same time frame. I recognise that there is a lot of support for a specific microgeneration target. Many responses to our consultation on the strategy suggested that such a target would have a beneficial impact on the growth of the industry. However, even if we were persuaded by the arguments for an additional target, it would be difficult to set a meaningful one given that the industry is in its very early stages. Indeed, I propose a new political philosophy: not every good policy idea needs its own target. Hon. Members may find that surprising coming from a new Labour Minister, but I put it forward for consideration. 4 pmI opposed the wording of the original clause 4 in my hon. Friend’s Bill because it placed a specific duty on the Secretary of State to set a target now—my hon. Friend was being very modest in not requiring either the Prime Minister or the Queen to set that target, but we have had that debate—regardless of the difficulties involved in setting targets for an industry that is in its infancy. However, I am content with his proposed amendment, which gives the Secretary of State a suitable period in which to assess the progress of the industry and undertake further research into the impact of any target that might affect the overall strategy or the growth of the industry. If by November 2008 the indications are that a target would have a beneficial impact on market penetration by microgenerators, we will be able to undertake further work to develop a suitable target or targets. Column Number: 29 Hon. Members may have noticed that the clause draws a distinction between the scope of any such target in England and Wales and its scope in Scotland. That is because heat-generating technologies are a devolved matter. Not all the hot air is in England and Wales. When setting a target, we will have full discussions with the Scottish Executive, with the aim of agreeing a target for all microgeneration technologies across the UK, without prejudicing the Executive’s right to have a specific target for heat-generating technologies in Scotland. I think that the approach to targets proposed in my hon. Friend’s amendment is a sensible way forward. I want to comment on the intervention by the hon. Member for Chipping Barnet (Mrs. Villiers)—clearly, coming from that constituency, she is a supporter of biomass. I think that she was suggesting in her useful contribution that we should have sub-targets for different technologies. It is the Government’s role to show an interest in and support R and D in some of the new and interesting technologies, such as biomass and tidal power. Indeed, we offer such support, because we need to find ways to pull through into the market the technologies that can survive there. That is a serious issue. However—I hope that I am not contradicting myself; I do not believe I am—it is not the Government’s job, and certainly not a Minister’s job, to pick out what will be the successful technologies in years to come. The hon. Lady was not necessarily putting that idea forward, but I do not believe that micro-targets would work. However, she made an important point about the different technologies that exist now. The hon. Member for Bexhill and Battle, the Opposition spokesman, has tabled an amendment that gives the Secretary of State a duty to publish his reasons for not designating a target, should that be his decision in November 2008. I noted that the official spokesman for the Liberal Democrats supported a Conservative amendment—but it is not for us to judge which three Liberal Democrats might join the Conservative party this week. The support that he was offering his colleague may or may not have been a clue. We have looked at the amendment and there may be a range of reasons for rejecting it. However, when I was considering those reasons while turning over my compost heap on Sunday afternoon, I could see no merit in any of them. Indeed, I am content to support the amendment. Andrew Stunell: Was that an indication that the Minister is thinking of joining the Conservative party? Malcolm Wicks: To be honest, I still think that that party needs some leadership, but I am not tempted. Clause 6 would give the Secretary of State a duty to report on the implementation of our microgeneration strategy and on the achievement of any target that we may set. I made it clear on Second Reading that we would report on such issues as a matter of course, so I have no objection to recasting clause 6 into new clauses 6 and 7. I also support amendment No, 29, which is consequential on clause 4 not standing part of the Bill. Column Number: 30 In summary, I do not support clauses 4 and 6. I do support amendment No. 29 and new clause 5, as amended by amendment (a), and new clauses 6 and 7. I am sure that that is perfectly clear to all of us. Question put and negatived. Clause 4 disagreed to. Clause 6 disagreed to. Clause 7 Sale of electricity produced by domestic microgeneration Question proposed, That the clause stand part of the Bill. The Chairman: With this it will be convenient to discuss amendment No. 28, in clause 11, page 6, leave out lines 8 to 10. New clause 8——Sale of electricity generated by microgeneration: power to modify distribution and supply licences etc.—
Column Number: 31
New clause 9——Exercise of powers under section (Sale of electricity generated by microgeneration: power to modify distribution and supply licences etc)—
Mark Lazarowicz: I invite the Committee not to allow the existing clause 7 to stand part but to replace it with new clauses 8 and 9, and to agree to amendment No. 28, a consequential amendment that is also in my name. The clause would require the Secretary of State to establish a scheme enabling electricity produced by domestic microgeneration to be sold. I have had many discussions with those advising me on the Bill about the clause and I understand that the Government have raised a number of questions about it, in some of which I can see some merit. Even where I cannot see any merit, I accept that the changes must be made if we are to produce a coherent measure. Column Number: 32 I understand that the Government believe that the direct requirement in the clause would not be consistent with their approach to intervention in the energy market, which I recognise as the overall Government policy on the issue. In any event I accept that, as there are specific difficulties with the wording of the clause, it is appropriate for changes to be made. I accept that there are a number of difficulties with the requirement in the clause that a supplier buy electricity at the market rate. First, it is difficult to account for the range of different ways in which consumers might choose to supply the market. Because this is a growing technology, in some areas it would be difficult to specify what the market was and what was the correct rate to apply. There have been discussions about the appropriate wording. It has been suggested that a “fair” rate would be better than a “market” rate, but that again leads to potential difficulties with definitions. Mr. Weir: I appreciate what the hon. Gentleman is saying about the difficulty of setting a market rate. However, if I understand his modifications correctly, no rate will be set. Is there not a danger that if the matter is left to individual electricity companies, they will set a tariff for buying microcell electricity that is too low to make any difference to the supplier? By removing the clause and inserting the new clause, is the hon. Gentleman not reversing the problem back to the microgenerator? Mark Lazarowicz: I do not believe that that would be the effect, but if the hon. Gentleman will bear with me, I shall try to come to that point in a minute. I also want to explain a difficulty with the requirement to buy back electricity at the market rate. Although it seems a good idea, there may be circumstances in which it would be uneconomic to make such a requirement of a supplier, because the extra arrangements would create a large extra cost for the electricity company. In addition, as was suggested to me by at least one person who contacted me, who appeared to be well informed, there are already some circumstances in which energy companies buy electricity at prices above the market rate. The individual who spoke to me was concerned that if my Bill came into effect, it would make his own arrangements uneconomic, because his company would no longer be able to buy back electricity at a rate higher than the market rate. For all those reasons, I accepted that the current wording would have to be changed. The Government put it to me that the onus should really shift to the power companies; they should come forward with proposals to ensure maximum take-up of the opportunity for domestic consumers to produce electricity for microgeneration. Some power companies do that anyway. I understand from my discussions with the Government that they are keen for suppliers to develop a scheme on a voluntary basis. My proposed changes would give the Secretary of State back-up powers to require a scheme to be set up if the industry does not come forward with a scheme voluntarily within a certain time frame. I hope that the Minister can say a little more about how he envisages
Mr. Philip Hollobone (Kettering) (Con): Would not the sale of electricity from microgeneration plants simply form part of the renewables obligations of electricity power companies, just as the power companies already buy power from wind turbines on a major scale? Should we not discourage the Government from over-complicating what should be a fairly straightforward system? Mark Lazarowicz: It is essential that the scheme is not over-complicated, but I accept that the reality is complicated. To take the point about the renewables obligation, which is to some extent covered by the next clause and the replacement clauses, if the renewables obligation certificate can be made available to the domestic consumer, it could provide additional resources that consumers could trade in the market to subsidise the their domestic microgeneration installation. However, in many cases the consumer will also require the ability to sell the electricity itself in the market to provide extra cash to justify the cost of installation, so we will need both the ability to sell the electricity, and the ability to make effective use of the renewables obligation certificate regime to bring together the financial advantages for microgeneration, so that the consumer can take advantage of them. In any event, the purpose of the new clauses is to give the Secretary of State powers to develop a scheme that would make suppliers offer a tariff to their own customers to export electricity from microgeneration units. That aims to counter the perceived barrier to suppliers being willing to buy such electricity. It would be up to the Secretary of State to decide the exact details of how that scheme is put into effect. Given that this is a complex subject, I think that that is the correct way forward. It is important to note that under new clause 9 the Secretary of State would be asked to decide whether to use his power within 12 months of the Bill receiving Royal Assent. That gives the industry a reasonable time to develop its own schemes, but does not put off until some vague date the time by which the question has to be addressed. It provides a time limit, both for industry and to concentrate the mind of the Department. With that explanation, I invite the Committee to agree to deleting the existing clause and to the substitution of the new clauses. Gregory Barker: I concur with a great deal of what the hon. Gentleman says; he has put his case extremely well, and this is a very complex issue. This is an ambitious little clause, the subject of which ought to be the subject of a whole White Paper on the decentralisation of the entire British energy system. If we are going to bring that about, and have a microgeneration revolution, we will need more than this little clause. There are a vast number of issues that need to be addressed thoroughly if we are going to achieve the truly flexible two-way supply system that microgeneration holds out the possibility of achieving. At the heart of such a decentralising White Paper must
4.15 pmI fully accept that simply compelling generators to purchase domestically generated electricity is a big matter: it requires the Government to intervene in the electricity market, which, under the previous Acts, they are not able to do, and it raises issues about market pricing and discounts. I should hesitate to push forward something so important that would have such profound economic consequences on the companies involved without thinking it through. Mr. Hollobone: Is there not an obligation on power companies to supply residents in their area? Is that not a market intervention sanctioned by the Government’s Energy Act 2004? Gregory Barker: That is probably so. When we talk about the obligation to purchase renewable energy, we are talking about a fundamental difference between electricity companies buying commercially generated electricity from commercial operators, which have the infrastructure to supply electricity regularly at an agreed tariff at agreed times through a fully commercial infrastructure, and making those companies replace or complement that supply by purchasing at all times electricity that is generated on a much smaller scale, intermittent, of a different volume, and taken through a different network. It remains to be seen whether the existing distribution network at household level is capable, on a large scale, of taking such inputs. This is a complex area, but we as a nation and as an electricity market need to get our head around it. However much I wish it were not the case, I fear that, by themselves, the clauses will not be sufficient to bring about the microgeneration revolution that is so desirable. The hon. Member for Edinburgh, North and Leith has planted a flag on the subject by raising it in his Bill, but I do not think that the provisions are sufficient to secure the progress that we want. However, I accept the amendments that he has proposed and support the thrust of the Bill. Malcolm Wicks: Again, I am grateful to my hon. Friend the Member for Edinburgh, North and Leith for tabling the amendments. He has indeed planted a flag. It is clear that being able to sell any excess electricity from microgeneration units is seen as one of the economic advantages of microgeneration and as a way to promote take-up. It is also clear—rightly or wrongly—that microgenerators believe that there are barriers to selling their unused electricity, in that very few suppliers offer a tariff for that exported electricity. On Second Reading, I said that we could not support the original clause 7, which would impose a requirement on suppliers to buy electricity from microgenerators at the market rate. Supporting such a proposal would go against our commitment not to intervene in energy markets. The energy sector needs
Mr. Hollobone: I am not entirely convinced. We are confusing the distribution of electricity with the supply of electricity. The physical distribution of electricity through wires happens automatically. Electricity supply is a non-physical product—it is a financial contract between an electricity supply company and a consumer. Electricity supply companies have to make thousands of decisions each day about residents buying electricity from them—they are obliged to do that in their franchise areas. In respect of the generation of domestic electricity, would it not be simple for the Government to make it an obligation on the part of the supply companies to purchase from domestic consumers in their franchise areas? Malcolm Wicks: Let me advance my argument further on that point. I was about to say that stability and certainty are a prerequisite for that development, which is why we are committed to delivering within a liberalised, competitive market framework. The original clause 7 would have been an intervention in the market that would have made suppliers buy electricity from microgenerators at a certain price in a way that would not apply to any other form of generation. It would also push an unsustainable business model on to suppliers. Few businesses can sustain their viability by selling their product at the same price as they buy it. Microgeneration has been identified as a form of generation that can contribute to the Government’s White Paper goals. As such, it is up to us to look at how we can remove barriers, perceived or otherwise, that might be in the way of an increased take-up of microgeneration. Of course, microgeneration, which qualifies for renewable obligation certificates, will be a more attractive proposition for suppliers. I can understand why suppliers, which are looking to buy large volumes of electricity and at a specified time, might wish to overlook the relatively small amounts of electricity exported from microgenerators. Not knowing when that exported electricity will be available does not make it more attractive. The purpose of the amendment is to give a clear steer to the market that we want it to play a full part in encouraging the growth of microgeneration. I am aware of at least one supply company that is now in partnership with a wind microgenerator. I am pleased that many suppliers are already developing their own programmes to demonstrate such action. The new clauses would not set a specific tariff, but it is explicit that suppliers are expected to acquire the electricity. As the microgeneration sector develops, it is hoped that suppliers will use the tariff that they offer customers for exported electricity as a means of competing—as part of their overall energy packages.
New clause 8 would allow the delivery of any scheme through the licensing regime. Ministers would have powers to amend both supply and distribution licences to ensure that microgenerators can sell their electricity. Licences are enforced by Ofgem and businesses can be fined if they do not fulfil their licence obligations. It is preferred that the market develops its own initiatives to support microgeneration, and I am confident that we shall see an increase in momentum in the short term. That is why the suggestion that Ministers make a decision 12 months after Royal Assent about whether to use the power is sensible. It shows that we trust suppliers to support microgeneration. It gives them time to develop, in an unprescriptive way, initiatives to help microgeneration. However, it also sends a strong message that the Government will help microgeneration by ensuring that suppliers offer a tariff for exported electricity should the relationship between microgeneration and suppliers not evolve as we hope and expect. |
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| ©Parliamentary copyright 2006 | Prepared 27 January 2006 |