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so we need not be specific at this stage.

Mr. John Redwood (Wokingham) (Con): Will my hon. Friend confirm that given that flexibility, it would be possible to devise incentives for both microgeneration and bigger renewable schemes? I think we wish to encourage both, but they may require slightly different balances or packages.

Charles Hendry: My right hon. Friend is absolutely right. There is no specific provision in the new clause requiring that distinction to be made. Some would argue that a feed-in tariff would be appropriate for larger-scale generation. I think that the renewables obligation works well to encourage both kinds of generation and that we could run the two systems side by side, but nothing in the new clause requires such a decision to be made. The aim must be to achieve the optimal combination from different sources of power. In Germany, private individuals and investors are responsible for 90 per cent. of the investment in renewables, and just 10 per cent. of the investment comes from the major energy companies. In this country, the situation is not reversed; it is even worse than that.

Mr. Swire: Someone who erected four 10 m high wind turbines at a capital cost of £35,000 could put 16,000 kW back into the grid and receive an annual payback of £500 a year. There is no incentive inherent in that. Does my hon. Friend agree that if we genuinely want everyone to attempt to produce energy from renewable sources, we must move towards the German, or continental, model and provide incentives? Otherwise people will simply give up.


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Charles Hendry: The current system provides no incentive, although there is tremendous enthusiasm. At a meeting that I attended in my constituency recently, about 50 people were asked how many of them generated their own heat and electricity. About three hands went up. When they were asked how many would be interested in doing so, every hand went up. There is an enormous appetite for renewable generation. What is holding people back is the lack of the predictable income stream that could be achieved through feed-in tariffs.

I am conscious of the time and I know that others wish to speak, so I shall not prolong the debate. However, I want the hon. Member for Nottingham, South to know that we strongly support his new clause and will vote for it if he pushes it to a Division, because we consider it a crucial part of our attempt to enable this aspect of the energy debate to take off.

I have tabled a new clause and an amendment. New clause 17 concerns the way in which moneys are looked after. Before the renewables obligation, renewable developments were funded under contract to the Non-Fossil Purchasing Agency. The NFPA continues to operate contracts for existing developments. It auctions the renewables obligation certificates and renewables levy exemption certificates that arise from them, and uses the proceeds to service the contracts.

Over time a surplus has built up, as the value of the ROCs and LECs has exceeded the cost of managing the contracts. Clearly that surplus has been contributed by customers for the purpose of renewables development. At present, however, that money simply sits on the Chancellor’s balance sheet as yet another stealth tax. That was recognised in the Sustainable Energy Act 2003, which provided for £60 million of the surplus to be spent on renewable energy. That funded the grants for round 1 of offshore wind and it has been fully spent. However, some £180 million is currently sitting unused in the surplus account. It could be used to help to develop renewables, especially from market technologies that are further away from development at present, such as marine. The measure I propose would remove the statutory bar that prevents that money from being spent for the purposes for which consumers paid it. It gives the Government an option, but not a duty, to direct that that money is spent rather than treated as a hidden reserve. I hope the Minister will accept it as a step in the right direction.

3.45 pm

Amendment No. 65—which we will return to, particularly in another place—addresses the Government’s responsibilities to report. The Bill as it stands proposes a reduction in such Government responsibilities in these areas. If it is enacted, the Government will no longer need to report on the following: what is being done on a range of specified energy sources, particularly renewables and microgeneration; measures being taken to ensure that the necessary expertise is available; and what is being done to achieve their energy efficiency aims, as required under the 2003 Act.

The Bill also gives scope for changing the reporting periods. In future, reports might cover not a whole year but more than or less than a year. At a time when we are trying to get people more involved in these issues, reducing the reporting requirement on the Government
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is a step in the wrong direction. We want people to have more information and a better understanding of the issues.

The Government are currently trying to take matters in the wrong direction. They have resisted our attempts to get more information on gas storage availability, which is a crucial part of our energy security. They have resisted our attempts to make sure we have a better understanding of the skills base, which is particularly needed in order to build new-build nuclear power stations. They have resisted our attempts to make sure that there is a better understanding of what is being done to tackle fuel poverty. They have resisted measures for consumers to be told how much of their money is going on environmental taxes. We will pursue this matter further.

The key issue in this entire Report stage is feed-in tariffs. The hon. Member for Nottingham, South set that out extremely eloquently in introducing his new clause. We will support him today. It is crucial that we push this forward as a way of making microgeneration not just an aspiration in this country but a reality—and one that we can deliver now, so that we do not end up asking in 10 years’ time, “Why didn’t we start that earlier?”

Dr. Whitehead: I support the idea of having a feed-in tariff, particularly for microgeneration, because it is important to distinguish between different forms of incentive for various kinds of generation—large and small generation and microgeneration. As this debate progresses—with increasing urgency, I hope— questions must also be asked about incentives to make sure that heat is used efficiently and that biogas comes on stream as a substantial element of our power mix.

In Committee, I moved a new clause on feed-in tariffs, which I particularly wanted to be considered in the context of microgeneration. I did not press it to a Division, in part because of the response that was received in Committee.

On feed-in tariffs, it is important to be clear about what we want to do in future concerning incentives for microgeneration—which, as my hon. Friend the Member for Nottingham, South (Alan Simpson) mentioned, will inevitably be an increasingly important part of our energy mix. Indeed, the Energy Saving Trust suggested that by 2050 some 30 per cent. of our total electricity supply could be provided, in one way or another, by smaller-scale generation or microgeneration: by individuals or communities placing the surplus that they have gained from generation in their homes or communities in the grid, thereby adding to the total amount of power available to the general population. We must consider what kind of incentive is the most useful and important in securing that move forward. What will ensure that large amount of renewable generation at all levels, which will ensure that input across a more distributed electricity grid?

I have some experience in this area because I am in the process of installing a solar photovoltaic roof on my house. I hope that it will generate 3 kW of electricity. I mentioned in Committee that I had not gone down the grant route, but I am delighted to tell the House that I subsequently applied for a grant and it was instantly accepted, in what was one of the most speedy turnarounds of any piece of Government bureaucracy that I have
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ever encountered: within a day of my applying for the grant, I received a message on my computer telling me that my application had been accepted. Even so, the grant will subsidise only a small proportion of the total cost of my solar photovoltaic installation.

I may receive a renewables obligation certificate for my generation, but I want to know what I will get for the surplus that I export from my house now. That is a different form of motivation from the one that large energy generators thinking of investing in renewables will have at the front of their minds. They will want to know what the market will be like by the time they have considered and completed their investment and taken part in the build, and their investment, whatever it might be, is ready to produce for the market. They will also want to know what the market will be like during the life of that particular investment. Thus, they will want to know, among other things, that the market will be stable over a considerable period of time.

That is one of the key considerations in ensuring that renewables obligations have the right banding in terms of generation. We have discussed that issue during the passage of the Bill and there was no disagreement about it in Committee from any side. We must also consider over what period that obligation exists and, indeed, what headroom will exist in respect of the obligation to ensure that the pull through continues. That matter was also discussed in Committee.

Large generators will take considerable cognisance of all those issues. There is considerable evidence to suggest that although the emplacement of large-scale renewables facilities has lagged in this country for particular historical reasons, the installation of large-scale offshore wind facilities is proceeding rapidly. That is due, at least in part, to the security that the renewables obligation gives those installations and to the idea that they will therefore be able to export their product over a considerable period of time with the support of the renewables obligation behind them. As far as large-scale generation is concerned, it appears to me that the renewables obligation has begun to have a considerable effect.

Gregory Barker (Bexhill and Battle) (Con): Why during its first six years did the renewables obligation not encourage large-scale offshore wind power? Nothing has changed in the North sea and nothing has changed in the renewables obligation, so what has happened suddenly, after six years? Why is it such an ineffective mechanism that it took six years to have an impact? That has to be compared with the rapid progress that has been made in Germany.

Dr. Whitehead: The hon. Gentleman makes a valid point about the progress of the installation of larger-scale renewable generation, but the picture in the UK is complex. It relates partly to incentives and partly to planning permission. The record of several authorities—I shall not mention which party is in control in those areas because that would be otiose as far as this debate is concerned—for uncertainty when it comes to planning applications has been a factor in the rate of progress of installations.

Another substantial factor, which I attempted to address in Committee, is the issue of connections to the grid. At the moment, there is a substantial delay to
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projects that already have investment agreement and, in some cases, planning agreement because they do not have a reliable time for connection to the grid and, therefore, they do not have the ability to make money from the electricity they are exporting.

Mr. Swire: The Government have now been in power for 10 years. Does the hon. Gentleman agree that if they had wanted to be at the forefront of this change they would have overcome all these hurdles of connectivity to the grid, planning permission and other issues, as have other European countries such as Germany? We have had a complete absence of leadership on this and we are now beginning to pay the price.

Dr. Whitehead: Moving as rapidly as we would want from the position that the UK was in, for particular reasons relating to the source of its energy supplies and the choices that it made historically about those sources—and therefore the mechanism by which those supplies would be delivered—to where we know we have to get to in the near future with regard to the proportion of energy supply that comes from renewables sources, has been a considerable challenge, and will remain so. It is true that the planning environment has not helped in that process. The Planning Bill will address some of the issues of larger-scale renewable power stations and the Marine Bill, which will be introduced later this year, will provide a single permission regime for offshore generation. So things are changing, and so will the circumstances in which large-scale renewable sources operate.

It is true that if we take all the investment proposals for both onshore and offshore installations that are in the pipeline, that are consented but awaiting build, or that have everything in place but no date yet for connection, the total amount of electricity generation represented is getting on towards filling the gap in power supply that we need to fill over the next few years. That represents a substantial change in large-scale electricity supply.

There are therefore several different factors affecting the development of large-scale renewable installations, one of which is the nature of the incentive for investment in the first place. The renewables obligation has generally worked relatively well to bring those investment decisions forward. However, the renewables obligation has barely touched microgeneration. As I have demonstrated, it is not a particular incentive for those who are developing microgeneration. A feed-in tariff would be a much better incentive in that area. The issue that we would then have to address, which is central to my concerns, is that we are not in a position to build incentives on a tabula rasa. We have a series of existing arrangements for developing power and the importation of renewable electricity that are based on the renewables obligation. If we chucked all those arrangements out of the window and went for a universal feed-in tariff tomorrow, that would fundamentally disrupt a number of the investment decisions on larger-scale electricity generation. In fact, large-scale electricity generation would be put in reverse.

4 pm

It is important not only to get the feed-in tariff right, but to get the tariff’s application right. If we are thinking along the lines of introducing such a tariff, it is important to get its nature right, particularly as regards microgeneration. Should a feed-in tariff be
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based on the total production undertaken by a microgenerator? Should it be a net tariff based on what the microgenerator exports? Should it be an estimated tariff as a proportion of the total invested? A number of different instruments could be used depending on what is decided.

The way in which the feed-in tariff works in Germany has led to a few perverse consequences, although I agree with my hon. Friend the Member for Nottingham, South that it has been immensely positive in terms of drawing through microgeneration. However, those who install solar photovoltaic panels export all the electricity generated from those panels into the grid, take a feed-in tariff for that and then buy all their domestic electricity from the grid. The perverse consequence of that is the lack of interchange between what those people produce from the panels on their roof and what they consume in their houses.

It seems to me that one of the purposes of engaging in the development of microgeneration, particularly microgeneration that is locally sourced and distributed, is that there should be a relationship between the electricity consumed in the house and that produced by the roof panels. If the system does not connect the two, part of the purpose of such microgeneration is missed. That might be an accidental consequence, but it results from the design and operation of the feed-in tariff.

It is important that we get any feed-in tariff right, because I agree with my hon. Friend the Member for Nottingham, South that such a tariff is almost inevitable. It seems that there is no better way to move microgeneration to the next phase of implementation than some form of feed-in tariff. However, we need to consider different incentives, for example on renewable heat and gas, and to be clear about how they apply.

After I moved my clause in Committee, I was encouraged to hear my hon. Friend the Minister suggest that the idea of a microgeneration feed-in tariff in particular would be one of the subjects of a review this summer. It is fair to say that he has developed that policy since the Committee sat. The question for the House, as it was in Committee, is whether the amendment or a similar one should be left on the table or whether we should go for a vote. In order to ensure that we get things right and undertake the consultation over this summer that was suggested by my hon. Friend, the amendment should remain on the table—it should not be withdrawn and never heard of again. There should be an understanding that we will have to go in this direction, so it is important that we get that direction right, that the review is completed quickly and that the mechanism for getting microgeneration right in the UK is implemented.

I hope that the review will be the subject of a further energy Bill next year, as has been widely suggested. That Bill should deal with questions such as how we obligate and implement action on renewable heat and make sure that the present escape into the air of heat that has no energy output is covered by an obligation system. Energy companies should be obliged to do something with that heat, or suffer a penalty for not doing so.

Martin Horwood: I should like to join in the congratulations to the hon. Member for Nottingham, South (Alan Simpson) on bringing forward new clause 4,
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and on the elegant and persuasive way in which he proposed it. I am happy and honoured to be one of the new clause’s co-signatories.

The hon. Member for Nottingham, South has gathered an extraordinary coalition to support new clause 4. At the last count, 276 hon. Members had signed the early-day motion, and the hon. Gentleman has managed to unite the right hon. Member for Wokingham (Mr. Redwood) at one extreme with the hon. Member for Bethnal Green and Bow (Mr. Galloway) at the other—something that must be virtually unique. He has also brought the National Farmers Union together with Greenpeace, and the TUC with the Country Land and Business Association, and he has generated wide support in the renewable energy sector.

For me personally, though, the icing on the cake is that the hon. Member for Nottingham, South has got the support of Lily Allen. That is extremely welcome: I am sure that he will agree that “All Right Still” is a work of genius, and that “Lily and Friends” is a much underrated show. If the Minister were to accept new clause 4, I am sure that the hon. Gentleman would put in a good word, so it is possible that we will see the Minister on Lily’s sofa before too long. That would be great.

More seriously, the Government’s direction of travel on this matter has been positive, but once again it seems to be leading us towards more consultation, and possibly yet another energy Bill. The Government seem reluctant to accept even the modest and flexible powers set out in new clause 4. Oppositions are quick enough to criticise Ministers who want to take on too much power, but this Minister should seize this opportunity to be praised from all sides of the House for taking on at least some powers that we all want him to have.

More delay would be a serious concern, as it would mean that we would drift on with this matter into 2009 or 2010, with further primary or secondary legislation—perhaps both—needing to be discussed. The question is why would we need to delay further, when so much work has been done already?

The Government commissioned a world-leading piece of work to analyse policies for climate change mitigation in detail. It is called the Stern report, and it addresses the question of feed-in tariffs in some detail. Stern says:

in other words, the sort that we have already—


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