Climate Change and Sustainable Energy Bill |
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Mark Lazarowicz: I beg to move, That the clause be read a Second time. The Chairman: With this it will be convenient to discuss the following: Government new clause 35—Renewables obligation: issue of green certificates. Government new clause 36—Renewables obligation: issue of green certificates: further provisions. Government amendment No. 37 Mark Lazarowicz: New clause 29 deals primarily with the simplification of renewable energy certificates for microgeneration. I am aware that in due course the Government will make suggestions to simplify the so-called sale and buy-back agreements—or indeed to remove the need for them in appropriate circumstances—and to allow for what is called amalgamation, effectively pooling a number of individual microgenerating units so that they can be treated as one rather than requiring each to be considered separately. It has been pointed out to me by those in the industry who are concerned with the issue that such proposals will still not remove some fairly onerous administrative provisions for those who wish to claim renewable energy certificates for microgeneration. For example, there is a requirement for an additional meter that must be read each year, and the meter might not be the responsibility of the supplier who provides the customer with the electricity that they purchase. That drives the need for two meter readings, both of which must be processed, thereby increasing the transaction cost. I am also told that for some reason there is a requirement that the renewables obligation certificate meter must be read within an 11-day period that most frequently happens to fall during the school holidays, which does not assist people who want easy access to the renewables obligation certificate meter. It has been suggested that the approach should be to allow instead a proper product and installation standard-based approach, whereby the technology type is tested and fitted to an approved standard. Based on that assessment of the type, it would be possible to assess what renewables obligation certificate should be granted in the case of the consumer in question. That would greatly reduce the transaction costs to which I have referred. The new clause would not require the Government to introduce the type approvals system; it would merely remove a legislative block preventing the introduction of such approvals without new primary legislation. Those who want to see that change accept that the proposal needs more work, and my new clause
Gregory Barker: I shall speak to new clauses 29, 35 and 36. We know that the Government intend to table their own amendments on removing the need for sale and buy-back agreements and allowing for so-called amalgamation, effectively pooling together a number of individual generating units so that they can all be treated as one. Such proposals, however, would still not remove some fairly onerous administrative provisions for those wishing to claim ROCs. For example, there is a requirement for an additional meter, which must be read each year. Moreover, that meter might not be the responsibility of the supplier who provides the customer with the electricity that they purchase. That drives the need for two meter readings, both of which must be processed, which arguably doubles the transaction costs. There is also currently a requirement for the ROC meter to be read within an 11-day window bang in the middle of the Easter school holidays. In addition, the rounding feature for ROCs means that any output between 500 kW of annual energy and 1,499 kW is the same: it is rounded to one ROC. We believe that the solution is to allow a proper product and installation standard-based approach, whereby each technology type is tested and fitted to an approved standard and appropriate random checks are applied. On that basis, a matrix of product installation types can establish whether a particular installation deserves one or two ROCs each year. The supplier can then redeem that number of ROCs for the duration of the microgenerator’s operation. That completely avoids all the transaction costs that were referred to earlier—and if the process in Whitehall is expensive, it must be incredibly expensive to carry out the process that I have outlined. 5 pmThe final point is that we are not at this stage asking the Government to introduce such a system of type approvals; we are merely asking them to remove a legislative block that would prevent its ever being introduced without primary legislation. I entirely accept that there is much more work to do on this matter, the detail of which, with the proposed primary legislative change, could be dealt with through the renewables obligation order. That may never happen if the Government choose otherwise. We need to have the relevant discussion over the next year or so, before a decision is made, but we do not want to have to start the primary legislation process all over again simply to remove a block and then have to go through the secondary legislation route as well. Surely it is a much better and more efficient use of parliamentary time to get the first blockage removed now, while the opportunity exists, without prejudice to the question whether the matter will be seen through in secondary legislation. Column Number: 121 With respect to new clauses 35 and 36, the Government came forward in 2005, as part of a review of the renewables obligation, with three proposals on small generators: first, allowing agents to act on behalf of small generators through the process of accreditation in claiming ROCs and allowing them to be issued to agents; secondly, allowing agents to amalgamate the output of small generators; thirdly, removing the requirement for a sale and buy-back agreement for generators who generate electricity for their own use. There was strong support for those proposals during the review consultation. The changes should be non-controversial and, I hope, enjoy cross-party support. The Bill introduces enabling powers so that the renewables obligation order can be amended to allow for the proposals. There should be consultation on the detail of the proposals prior to the amendment of the renewables obligation order. Subject to primary legislation receiving parliamentary approval, it is intended that those changes will be made to the order from 1 April 2007. In the context of the renewables obligation, small generators are defined as those with a declared net capacity of 50 kW or less. It is essential to allow agents to act on behalf of small generators and to amalgamate output. Currently, agents are not allowed to act on behalf of small generators, which means that small generators must complete the required administrative arrangements such as gaining accreditation and claiming ROCs themselves. Also, ROCs could be issued to agents who could then sell them on on behalf of a generator instead of issued directly to the generator, who would have to sell them on. For small generators, those administrative processes can be burdensome, particularly when generating electricity and claiming ROCs are not part of their core business. If we are really going to give microgeneration a jump start, we must deal with not only the financial incentives but the administrative burden. It is likely that generators who are currently able to claim only very small numbers of ROCs in a year may be put off by the administrative burdens involved in achieving a small benefit gain. In particular, the proposed change will help generators whose output is very low, who would not normally be in a position to claim few if any ROCs. We hope that such an amendment will allow a market for agents to emerge—agents who are familiar with the process of accrediting renewable stations and claiming ROCs, and who can achieve economies of scale by acting for large numbers of small generators. In this way we hope that in future small generators can gain the benefits of the renewables obligation without the current administrative burden. That would be greatly in the spirit of co-operation. However, there would be no requirement for small generators to use an agent if they did not wish to do so. Those who wanted to act for themselves would be perfectly entitled to continue to do so. The removal of sale and buy-back agreements for small generators is also important. The renewables obligation defines the obligation in terms of the supply
Such issues are technical and administrative, and I am largely persuaded that if we are really to encourage microgeneration, there is a great case for a wholesale review of the process. However, what is proposed would be a very good start, and given the context of this Bill and what we are able to do at this point in time, I hope that the Minister will take the new clauses on board. Malcolm Wicks: The Government are keen to amend the renewables obligation to ensure that microgenerators can more easily access the benefits that they deserve. I shall speak later to the amendments that I have tabled to achieve just that. I have some concerns about new clause 29, however, which was tabled by my hon. Friend the Member for Edinburgh, North and Leith, and the reputational risk that it could have for the smooth functioning of the renewables obligation. The new clause would allow the obligation order to be amended so that microgenerating equipment could be “deemed”—that is the crucial word—to have generated a certain amount of electricity each year. The effect would be to remove the need for microgenerators to demonstrate that electricity has indeed been produced. Evidence of renewable generation is a fundamental requirement to take advantage of the significant benefits of the renewables obligation. The generating equipment may well have been type-approved and in certain circumstances generate at a certain level, but that is not a guarantee that it will be properly installed or that when it breaks it will be fixed. Nor do those factors take into account the siting of the equipment, so there would be less incentive on the owner to install their equipment in the best location. The support provided by the renewables obligation to the renewable sector is of course significant, but I do not wish to put at risk the credibility of the system by providing further support without clear evidence that renewable generation has taken place. Such a situation would reflect badly not only on the microgeneration sector, but on the integrity of the obligation itself, and I want to avoid that. I understand the arguments that the proposals would reduce the administration involved in a small generator’s having to take meter readings, and that increasing the certainty of income from renewable obligation certificates—ROCs, as they are known—would improve incentives for microgeneration.
Those opting for annual claims simply have to provide Ofgem with a reading at the start and finish of an obligation period. They are also sent a reminder to do so by Ofgem about a month beforehand. I do not believe that that is an unreasonable burden. New clause 29 would also allow for the renewables obligation order to be amended so that generating stations could be deemed to have generated a certain amount of electricity each year. The power proposed is broad and general, rather than specific to microgenerating stations, but the intent of the proposal is clear. My concern remains the same: removing the need for generating stations to demonstrate that renewable electricity has indeed been produced would take us further than we would wish to go. The amendments to which I shall speak shortly will introduce further real benefits by allowing agents significantly to reduce administrative burdens for smaller generators and by removing the requirement for a sale and buy-back agreement with an electricity supplier. Those changes can reduce the requirement of a small generator to the simple provision of a meter reading once a year to claim the benefit of ROCs through an agent. 5.10 pmSitting suspended for a Division in the House. 5.29 pmOn resuming— Malcolm Wicks: I am sorry if I have delayed the Committee, Mr. Benton. There was some suggestion that there would be a second vote, but it did not transpire. As I was about to say, I am happy to explore further the ideas that inspired the new clauses and, in particular, to assess the recommendations made by the distributed generation co-ordinating group. However, it would be sensible to undertake that further work before putting specific provisions in primary legislation, so I must oppose new clause 29. I turn now to new clauses 35 and 36 and amendment No. 37. Hon. Members who are familiar with the renewables obligation will be aware that it is a fairly complex measure, as the provisions before us demonstrate. I believe that the policy behind them, though, is a simple one. New clause 35 would provide
5.30 pmThe changes would allow agents to act on behalf of small generators through the process of accreditation and claiming of ROCs. They would allow ROCs to be issued to agents and would allow agents to amalgamate the output of small generators. They would remove the requirement for a sell and buy-back agreement for small generators who consume some or all of their generation. During 2005, a review of the renewables obligation took place that involved two consultations on various issues, including those that I have outlined, and there was strong support for the proposals, not just among generators, but among electricity suppliers. Allowing agents to act on behalf of small generators, not just in the accreditation process, but in the claiming and issuing of ROCs, would remove a level of administration that we know can be a burden. The additional change of allowing agents to amalgamate output would allow small generators to benefit from the renewables obligation by joining forces with others in the same boat, when previously they may not have generated enough to make claiming ROCs worth while. Currently, many individual small claims for ROCs are required, but in the future it would be possible for agents simply to submit one large claim—a significant reduction in administration for all concerned. There is also an opportunity for a market to emerge in agents who would have the expertise to gain the most benefit from the obligation, particularly through economies of scale. It is important to note that we do not intend the use of agents to be compulsory. They would simply allow small generators to have greater flexibility when accessing the benefits of the obligation. Any changes to the renewables obligation order would be subject to statutory consultation, and that is where the detail of the proposals would be addressed. The removal of the sell and buy-back agreement is a little less self-explanatory. Under current legislation there is a requirement that if generators want to consume electricity that they have generated themselves, and claim ROCs, they must first sell the electricity to a supplier, before buying it back for their own consumption. It is clear that that is not only an administrative burden—indeed an administrative absurdity—for small generators, but could be a barrier to their making ROC claims or establishing generating stations. The proposed provisions are for enabling powers to allow the renewables obligation order to be amended to remove the sell and buy-back requirements for smaller generators. They would also allow the order to be amended to make it easier for small generators to claim ROCs for electricity that they do not consume themselves, including where the electricity is sold within a private wire network. As with the proposals for agents, the removal of the sell and buy-back requirement will be subject to a statutory consultation which will set out the detail of the proposal. Column Number: 125 I hope that the Committee agrees that the proposed provisions will make it significantly easier for microgenerators to gain the access to the benefit of the obligation that they deserve. New clause 36 contains a number of additional provisions relating to the operation of the renewables obligation, which will assist the effective working of the amendments introduced by new clause 35. Amendment No. 37 changes the long title of the Bill to take account of the fact that it will now include measures relating to the renewables obligation. I therefore oppose new clause 29, and I urge acceptance of new clauses 35 and 36, and of amendment No. 37. Mark Lazarowicz: The Minister’s comments have convinced me, so I shall not press my proposals and I welcome the Government amendments—they represent a significant opportunity to extend microgeneration. It may be a technical area, but it is one that could make a real difference for many potential consumers by allowing them to take up microgeneration. That is warmly to be welcomed and I believe that it will soon make a significant impact on the industry. I beg to ask leave to withdraw the motion. Motion and clause, by leave, withdrawn. New Clause 30 Duties of the Gas and Electricity Markets Authority towards microgeneration consumers
Brought up, and read the First time. Mark Lazarowicz: I beg to move, That the clause be read a Second time. This new clause seeks to clarify the duty of one of the regulators, the Gas and Electricity Markets Authority, towards microgeneration consumers. Ofgem’s duties include a duty to protect the interests of consumers, which sounds fine as it stands, but the duty has a bearing only on electricity conveyed by distribution systems. Self-produced electricity is by definition not conveyed by distribution systems, yet a plethora of rules and regulations that fall within Ofgem’s sphere of influence affect the electricity produced by consumers. It is therefore important that there is no doubt that Ofgem’s duties should apply not only to general consumers but to those who produce electricity themselves. It has been suggested that the approach
Again, this is a probing new clause. I hope that the Minister will say something about how it might be possible to ensure that Ofgem’s duties are extended to the consumer who produces electricity, as well as to general consumers. Gregory Barker: I will be brief. As the hon. Member for Edinburgh, North and Leith has eloquently explained, Ofgem’s general duties require it to protect the interests of consumers. That seems fine in principle but the definition of consumer does not protect those who generate their own power, which is something we ought to encourage even when it is through a microgeneration unit connected to the grid. They are not protected because the definition relates only to electricity conveyed by large distribution systems. Self-produced electricity is by definition not conveyed by distribution systems, yet a plethora of rules and regulations in Ofgem’s sphere of influence affect the electricity produced by consumers. Protection for such consumers is therefore justifiable—especially in the case of ROCs, where Ofgem’s procedures contain some real difficulties as they are designed for large-scale generators. That consequently creates proportionately high transaction costs for small consumers. The hon. Gentleman’s new clause is good, as far as it goes. The Conservative party is increasingly of the view that there must be a wholesale change in the way in which energy is regulated, and we certainly want to consider whether a more flexible and responsive system that encourages microgeneration and decentralised energy is possible. We will ask whether Ofgem should be completely transformed into a sustainable energy regulator or something far more suited to the 21st century, rather than simply administering a system that is profoundly of the 20th century—a coal and wire system that has its antecedents before the second world war. As the party of the future, we are grappling with that issue as we speak. Malcolm Wicks: The hon. Gentleman might be the future, but it will take some while coming. As I said on Second Reading and on earlier amendments, the Government will not support piecemeal amendments to the principal objective and general duties of Ofgem and the Secretary of State. Regulatory certainty and stability are essential if we are to attract investment into our energy sector. Although it is for Parliament to set such duties, we would not be acting responsibly if we did not consult properly on such a major change to see how broad and far-reaching any amendments might be. We would want to understand how industry and the regulator might deliver any new duties, given that costs inevitably find their way back to the consumer, whom Ofgem must protect. Column Number: 127 The Bill already seeks to amend section 47 of the Electricity Act 1989, which would establish a clear statutory link between Ofgem and microgeneration. At an earlier sitting, I thought that we had reached a consensus that that sent a strong signal from Parliament to the regulator about how important microgeneration is to our energy goals. Ofgem’s principal objective is clear and gives it clarity and purpose in its decision-making process. Its principal objective is
and we must always remember that the statute describes consumers as both future and existing consumers. That means that Ofgem should not make decisions that discriminate against microgeneration. Secondary duties require Ofgem to have regard to the environment and the achievement of sustainable development. The Secretary of State also issues social and environmental guidance to Ofgem. That allows it to contribute to broader Government policies without going against the principle of arm’s length regulation. Ofgem has to produce regulatory impact assessments for all its important decisions, and those assessments must include an environmental impact assessment. Given the benefits that we expect to emerge from an increase in microgeneration, and given Ofgem’s existing duties, I cannot see how microgenerators can be discriminated against. I am not sure whom the new clause would protect by adding the words “in parallel with . . . distribution” at a number of points in section 3A of the Electricity Act 1989. There are two ways in which to operate a microgenerator. The first and most common is to have a microgenerator and a distribution wire. In that way, one’s supplier can provide one with electricity when one’s generator does not deliver the amount that one requires, and the wire can be used to export any unused electricity. In that instance, the consumer is already protected by the current legislation. The second, rarer scenario is that one has a microgenerator and no back-up from the distribution system. In that case, I am not sure what protection the regulator could offer. I turn now to the suggestion that we amend section 3A(3) by adding
to the other vulnerable consumers to whom Ofgem and the Secretary of State must have regard. I hope that the Committee agrees that it is perfectly reasonable to consider the elderly, the sick, the poor and those in rural communities, but that owners of microgenerators do not fit naturally on to that list of vulnerable consumers. I understand the desire to promote microgeneration, and we are working hard to do so in many areas, but the new clause would not help our cause. I hope that my hon. Friend, having listened to the arguments, will consider withdrawing the new clause. Column Number: 128 |
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