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Research councils’ expenditure on energy-related basic, strategic and applied research is planned to reach £300 million over the current comprehensive spending review period. The Energy Technologies Institute, a new public-private partnership designed to co-ordinate research on and development funding for low-carbon energy technologies, currently has a budget of £600 million over the next 10 years, with the potential to increase to £1 billion with the addition of new partners. The Technology Strategy Board has a total budget of more than £1 billion over the current CSR period, which will include funding for energy development technologies. The UK element of the environmental transformation fund has £400 million over the next CSR period to invest in low-carbon and energy efficiency demonstration technologies.
Most important of all, we must not forget the substantial support that is available through the renewables obligation. Along with exemptions from the climate change levy, the RO will provide around £1 billion of support each year by 2010. Moreover, we will be considering a full range of policy options for supporting a step change in the deployment of renewable energy as part of our renewable energy strategy. Any decisions on additional funding will be made in the context of future spending settlements.
In the light of the assurances that I have given, I hope that the new clause will not be pressed to a Division.
Before I deal with amendment No. 1, let me explain the purpose of the subsections that the amendment seeks to remove. Because of the importance of getting our reforms of the RO right, it has taken some time for the Government—consulting industry and others—to develop the proposals. To ensure that developers continued to contribute new investment in the interim, we made a commitment to allow any projects becoming operational after 11 July 2006, before the banding proposals come into effect, to benefit from the greater levels of support afforded through banding. A tidal power station coming on stream tomorrow would receive two ROCs per MWh when banding comes into effect. There was a significant risk that, without such a commitment, developers would hold back vital investment in renewables while waiting for the increased levels of support to kick in. That would not have been an acceptable outcome.
However, some of the existing projects that will become eligible for a higher level of support once banding is introduced will also be in receipt of grant funding. The grants will have been notified to the European Commission as state aid, and will have been assessed on the basis that the generators will receive one ROC per MWh. We therefore need a mechanism to ensure that we do not find ourselves in breach of state aid rules through generators’ accumulating subsidies from different support mechanisms beyond the allowable thresholds.
The amendment proposes to remove the power for the order to allow generators in receipt of a grant to choose between receiving the new higher band for ROCs but surrendering the grant, and retaining the grant and continuing to receive one ROC per MWh. Ultimately that will be a commercial decision for generators, but it allows them the option of “banding up” when they could otherwise be barred from doing so
by state aid rules. It is important for that power to remain in the Bill so that when a banded RO is introduced generators can make a commercial decision on the path that they prefer, while ensuring both that state aid rules are not infringed and that consumers and taxpayers are given value for money. I hope that the amendment will not be pressed to a vote.
Mr. Weir: I understand what the Minister is saying, but is there not a danger that the research and development stage will never come about if there is no guarantee of a sustainable future?
Malcolm Wicks: I do not quite understand that point; I will be happy to discuss it with the hon. Gentleman outside the Chamber. We have got substantial support for research and development, but our purpose is to try to avoid double subsidy, not just because of state aid principles but because that would not be a proper use of money.
Sir Robert Smith: Will the Minister give way?
Malcolm Wicks: I have a long way to go in my speech before I reach some of the issues of particular interest, but I shall give way once more.
Sir Robert Smith: The Minister just said that this was not about state aid rules alone. If it were just about state aid rules, could there not be flexibility so that if the project truly needed the double ROCs and the initial grant to overcome the start-up costs, the issue could be revisited to see that it still complied with state aid rules?
Malcolm Wicks: This is more a matter of not subsidising something twice when that was never the intention; that would be a perverse consequence.
New clause 20 seeks to provide priority access to the electricity and gas transmission and distribution systems to electricity and gas produced from renewable energy sources. The text of the first part of this amendment, which relates to electricity, comes from the draft EU renewables directive. Before I start analysing the provisions further, I should make it clear that once the Commission’s proposals for priority access are finished and the directive agreed, these proposals could be implemented in the UK in a number of ways, not all of them involving primary legislation. We need to be careful not to implement something now just because we have the legislative opportunity.
Turning to the substance of the amendment, the first issue is that there is no current definition of priority access. Without a clear meaning of priority access, it would be difficult to avoid uncertainty, which would impact on existing generators and those planning future investments. That could discourage investments and would have serious repercussions on the meeting of our energy needs and targets.
The next issue is whether priority access is both consistent with our wider energy policy goals and the best route to accelerate the growth in renewable generation. It is important to have conventional generation alongside renewables, but it is essential that the access regime encourage new investment in reserve capacity. Without that, we could have serious difficulties in maintaining a
reliable electricity system. In this context, we are considering reforms to grid access arrangements as part of the transmission access review with Ofgem, to ensure that the regulatory framework remains fit for purpose in the medium and long term, and to speed up the connection of renewable generation. It is clear from this work that there are ways in which we could significantly improve the connection opportunities for renewable generation. We will set out that analysis when the final report of the review is published in May. However, it is important also to remember that from the perspective of a renewable developer, connection in a reasonable time consistent with the development programme for their project timetable is likely to be more important than whether they have been treated more favourably than other technologies.
On the second part of the new clause, which is not part of the EU directive I mentioned earlier, let me reiterate what I said in Committee: the Government are keen to support and investigate the cost-effective potential of renewable gas to contribute to the UK share of the EU target to achieve 20 per cent. of the EU’s energy from renewables by 2020. Renewable gas, or biogas, is produced by feeding organic material such as food waste, sewage sludge, animal slurries or energy crops into an anaerobic digestion plant, or from the decomposition of organic matter in landfill sites. It is important to remember that through this Bill anaerobic digestion—the biomethane it produces—will achieve two ROCs under the revised and reformed RO procedure.
By removing the carbon dioxide and other impurities, biogas can also be used to make biomethane. Theoretically, it is possible to inject biomethane directly on to the gas network in the UK, provided that the biomethane can meet the gas quality standards and pressure requirements of the national grid. The “Heat Call for Evidence” invited contributions on the potential of biomethane, the barriers to its deployment, and how best to tackle these. We will be feeding these considerations into our broader work on the renewable energy strategy. Until we have reviewed the evidence about the costs and processes involved in upgrading biogas to biomethane and injecting it into the gas system, we cannot judge what potential unintended or undesirable consequences might flow from the changes to the duties of the Secretary of State and the authority that are being proposed.
Moreover, we need to look at this matter in the round. We need to assess how biomethane fits with the ongoing work to develop a new renewable energy strategy by spring 2009. That will include looking at all renewable heat technologies and potential support mechanisms, rather than focusing on a single technology, as the new clause does. The kind of market enablement that it would provide thus seems entirely premature, and I ask hon. Members not to press it to a Division.
New clause 21 proposes changing section 185 of the Energy Act 2004. Section 185 was introduced as a transitional provision to ease the implementation of cost-reflective transmission in Scotland. It allows the Secretary of State to adjust transmission charges in a particular area of the country to help to mitigate any material hindrance to renewables development caused by the charges.
The new clause proposes the following changes to expand the scope of section 185: removing the provisions
that set time limits on the duration of a scheme adjusting transmission charges, and removing the requirement that only one scheme can be in force under section 185 at any one time. We are in the process of analysing whether there is a case for adjusting transmission charges on the Scottish islands under section 185. Renewable developers also face other practical issues, and that fact, along with section 185’s narrow focus on transmission charges, makes me believe that it is not the right instrument for supporting the development of renewables for the country as a whole.
Moreover, as we have just discussed, negotiations are under way at a European level to grant renewables priority access to the grid, and I have also made it clear that transmission will be one of the issues that will be closely examined in this summer’s consultation on our renewable energy strategy. I therefore ask hon. Members not to press the new clause to a Division.
On amendment No. 65, I would like to remind hon. Members of why we have included clause 78 in the Bill. We did so, first, to introduce flexibility in the timing of our annual energy report and, secondly, to remove statutory requirements that are either replicated elsewhere or are over-prescriptive. I believe it is right that we streamline our reporting requirements to ensure that our report is topical. We need reporting to be sufficiently flexible so as to allow us to exclude less relevant technologies and to include more relevant ones as developments dictate. Our changes facilitate that and, as such, we should retain them as part of the Bill.
There was some concern in Committee that we were repealing the requirement to report on energy efficiency. Let me reassure hon. Members that that important issue will still be covered in a number of reports produced by Government: under the Housing Act 2004, we are required to report on energy efficiency targets in residential accommodation; we produce the UK energy efficiency action plan, which we will regularly update as required under the EU services directive; and we would also expect to capture energy efficiency issues as part of our reporting on carbon emissions in the annual sustainable energy report.
I hope I can also reassure the House that we will still be reporting on the important issue of security of supply through the energy markets outlook, which is a commitment from the 2007 energy White Paper, and as a result of the duties to report under two EU directives relating to supply of gas and electricity. I remain convinced that those reports will cover the practical information on security of supply in which Parliament and wider stakeholders would be interested.
Our proposals to create some flexibility in the reporting period and cycle were designed to ensure that we could publish a report that was as relevant as possible by timing its publication around the availability of the most recent data. Such an approach would also allow us to join up with the reporting cycle proposed in the Climate Change Bill. I therefore listened with interest to the concerns being raised in Committee that our proposal to introduce flexibility on the reporting period and publication date could raise the spectre of the Government being tempted to use that flexibility to take the opportunity to delay publication of our report in order to obscure bad news. That was never our intention. The Government take the issue of reporting progress very seriously.
Even so, I have reflected on those concerns and considered whether there was an alternative way to allow the Government to produce a more relevant and up-to-date report while meeting the concerns about flexibility. In view of that, I have asked my officials to review whether we should consider a specific reporting period or specifying a publication date. The Government will return to the issue in due course, and I therefore hope that the amendment will be withdrawn.
Finally, I deal with feed-in tariffs and new clause 4, which I know are of some interest to the House. For those who take an interest in contemporary Labour history, it is interesting to note that this time my hon. Friend the Member for Nottingham, South (Alan Simpson) is supporting new clause 4.
Alan Simpson: I have always argued that clause 4 would be back. [ Laughter. ]
5.15 pm
I am not surprised that we are again revisiting this issue and that there is considerable cross-party support for a feed-in tariff for microgeneration. Although I can appreciate the desire to ensure that we have the right incentives and mechanisms in place to increase the deployment of renewable energy, especially in the light of our EU 2020 target, I cannot—for reasons that I hope to convince the House of—support this particular new clause. It seeks to require the Secretary of State to introduce a feed-in tariff, but it does not specify the size of generation it covers. It could cover all sizes of energy generation, large as well as small. If adopted, that could have a potentially serious effect on investor confidence.
Mr. Swire: Does the Minister agree that it would be an enormous assistance to the production of renewable energy, through the utilisation of waste or bio products, in rural areas such as my own if we had some mechanism that would reward that better?
Malcolm Wicks: Perhaps the hon. Gentleman will allow me to proceed with my argument.
I turn to the effect that amending the Bill in the way suggested would have on large-scale generation. The renewables obligation has been hugely successful since its implementation in 2002, adding some 2 GW of new renewable capacity. Hon. Members sometimes underestimate the momentum now behind renewables in this country and therefore inadvertently talk down the great efforts that have been made by that sector. In addition to the 2 GW that we now have, the renewables obligation has also been the major incentive for the 1.5 GW of renewables capacity that is now under construction, the 6.5 GW that has been consented and is awaiting construction and the 10 GW that is now in the planning process. That amounts to an additional 18 GW of pipeline projects in just six years of operation.
Most weeks, a couple of hon. Members approach me to urge that I not go ahead with a wind farm in their constituency. If we were not doing some of the right
things, I would not be getting those representations, although that is not to say that we will always agree to every project.
It is also important to recognise that later this year the UK will probably overtake Denmark as the world’s leading nation in offshore wind generation. I am also pleased to remind the House that some months ago we gave planning consent to the biomass plant in Port Talbot, which will be the world’s largest. I do not accept the criticism that we have stalled or are moving slowly on this issue. We started from a low base, and Opposition Members can explain that, because it did not occur under our stewardship—although that is rarely recognised in speeches. We started from a low base, but there is now a great deal of momentum.
Much has been said about the success of feed-in tariffs in other countries, particularly Germany. We should remember that Germany has benefited from a consistent supportive policy, as the Secretary of State reminded us, since the early 1990s—a period when I had no responsibility for such matters. The consistency of that approach has been a big part of Germany’s success, giving investors a solid base in which to invest. Consistency is important in relation to the renewables obligation, which is why I mention it. Whatever the merits of feed-in tariffs in other countries, we need to consider what will work best in the UK. I know that it is sometimes tempting to go to a country such as Germany and say that everything looks greener, but we need to beware of simple comparisons.
Feed-in tariffs and the renewables obligation are simply different methods of providing support to renewables projects. There should be no theology about this. We are talking about different mechanisms and which mechanisms might be fit for purpose in the UK.
Mark Fisher (Stoke-on-Trent, Central) (Lab): Is my hon. Friend saying that things are not better in Germany, that we do not have things to learn from that country and that we should not be following it down this road?
Malcolm Wicks: I am not saying that. I want to continue with my argument. We have things to learn from one another when it comes to climate change and carbon emissions. Maybe Germany can learn something from us about the need for a major demonstration project on carbon capture and storage in Germany—another way of cutting carbon emissions. I refuse to believe that somehow things are altogether better in another country than they are in the UK.
Gregory Barker: Will the Minister give way?
Malcolm Wicks: Not just yet, although it is nice to see the hon. Gentleman.
People sometimes talk about feed-in tariffs as though they were cost-free. That is not the case. We need to look at the costs as well as the benefits. As the International Energy Agency’s 2007 report on the German system recognises:
“The country’s feed-in tariff for renewables has resulted in rapid deployment of new electricity capacity, but has done so at a high cost.”
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