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I want to be brief, but I should make a couple of small declarations of interest. I am a very small investor in the Westmill wind farm co-operative in Oxfordshire, and I am a customer of Good Energy Group plc. Thinking of small businesses and small concerns makes me ask about the specified maximum capacity. We should use the correct language. It is not really a threshold; it might be one for the renewables obligation, but it is not the threshold for the feed-in tariff, which is probably half a kilowatt.
The specified maximum capacity is an issue. I support the fact that we have travelled a great distance; before the summer recess, we were considering one hundredth of the generating capacity as a maximum, but now the figure has multiplied by 100, which is a great step forward. My question relates to small businesses that may want to generate renewable electricity, but find a glass ceiling. What do they do when they get to 5 MW? Will they have to split off into separate entities to avoid the bureaucracy, which would be an additionalnot a separate or replacementburden? When they get to that maximum capacity, they will have to consider seriously what they do with their business, and that could mean a limit on their expansion. That will happen in the early stages, because we are just starting out on this process. I support having no specified maximum capacity for a feed-in tariff, but since we are having one, we need to consider what happens to businesses as a result.
Paddy Tipping (Sherwood) (Lab): I am anxious about my hon. Friends comment. The renewables obligation has served us well in many respects, but it has not been acceptable and valid in the case of small microgeneration projects. Surely one cannot run the renewables obligation alongside a feed-in tariff that has no upper limit.
Colin Challen: We will, de facto, be operating a feed-in tariff alongside the renewables obligation. Some people who have small generation units of less than 5 MW may operate both systems. There might be an administrative burden for small businesses. What happens when they get to that ceiling? Do they split off, sell out to somebody else, or start again? Having the ceiling imposes a whole range of questions. I say to my hon. Friend, whose record on renewable energy is among the best in the House, that the real answer to his question is to ask why we did not start with the feed-in tariff all those years ago, instead of trying to improve on a failed system of supportthe non-fossil fuel obligation, which was a Thatcherite market solution largely designed to support the nuclear industry.
In a few years timenot immediately, because businesses, schools and communities will be just starting off with this far more confident future ahead of themwe will have to review this and consider increasing the maximum.
Will my hon. Friend reflect on his own knowledge of how feed-in tariff schemes operate in other parts of Europe, particularly Germany? Is not the right way to set the interface in running two schemes in parallelfeed-in tariffs and the renewables obligationto be found in setting tariffs for higher levels of energy generation? After we have done that, is it not sensible to let the market itself decide? Although we are introducing
further reforms to the renewables obligation, the Ernst and Young study commissioned by the Government last year set out specific and serious ways in which the structure of the RO is an obstacle to the development of renewables, in so far as it requires people to second-guess the future price of tradeable certificates. Is not the strength of the feed-in tariff regime its clarity and certainty over the guaranteed time for which it operates?
Colin Challen: I completely agree with everything that my hon. Friend says. We want that certainty, and in the near term we will now see it for people who want to invest their own money in small schemes. That is a brilliant step forward. The 5 MW maximum that will be in the Bill, since there is no other amendment, is a huge advance. However, the certainty that that brings will last only for a certain period, until people want to go that little bit further but do not want to get involved in the complications of the RO, which was designed for big businessthe big box solutionand not for the smaller player. In a few years time, in the fourth term of a Labour Government, we will have to ask ourselves what is the appropriate level for the maximum capacity. By that time, it should not be a problem, because people will have accepted that we have made this start and it will be a matter of a little tick-box that goes up to 50 MW or whatever is then thought appropriate in the light of experience.
Steve Webb (Northavon) (LD): It would be remiss of me not to add my congratulations to the hon. Member for Nottingham, South (Alan Simpson) on all his achievements. We have all been harangued by him in the nicest possible way, and mysteriously come round to his way of thinking. I pay tribute to him, and to those who have briefed and lobbied us, including Friends of the Earth, which has been mentioned.
We welcome their lordships addition of a feed-in tariff, but the Liberal Democrats have added our names to amendments that support more definition of deadlines and the financial subsidy mechanism. Perhaps we are still not quite there on urgency. The Minister will be familiar with the 100 months campaign, which was launched at the start of August. It talks about 100 months before reaching a tipping point for climate change. We are already three and a half months through that time. We need a new way of thinking about such matters, which does not involve a consultation, a discussion paper, a Green Paper, a review or a period of further reflection. We are past all that.
Like the hon. Member for Wealden (Charles Hendry), my worry about the Minister in another place, who said that he hoped that we could achieve the aim in 18 months, but perhaps we cannot, is that not acting quickly is not an option. It is far better to get something roughly right by, as the right hon. Member for Suffolk, Coastal (Mr. Gummer) said, locking people in a room for a weekend, and then perhaps refining it, than to try to wait until it is perfectit probably would not be perfect anyway.
I am worried by the mentality that assumes that we have to work according to financial years. I do not know whether I am right, but I sense a presumption about 6 April. I hope that that is not the case. I do not know where 6 April comes fromperhaps pagan festivals and the spring equinoxbut it should not govern when we have to act. Things are far more urgent. We should get on with it the very day, week or month that we determine how to act.
I therefore support amendment (a), which would set a deadline of within 12 months of Royal Assent. We could fill any time availablewe could spend six years thinking about thisbut we urgently need to get on with it. I therefore urge the Minister to accept amendment (a). Even if he were not forced to do so, I am sure that he would want to pull out every stop to ensure that action was taken in 12 months.
I welcome amendment (f), and if the Minister does not feel able to accept it, I hope that we can test the Houses opinion on it. It deals with combined heat and power. One could be a purist and say that, because that is not a renewable, it should not be included. That would be an argument, albeit one that I do not accept. However, if we intend to include combined heat and power and recognise its contribution, the low threshold is odd. I know that the Minister will try to justify it shortly, but the contribution of combined heat and power, at least in the transitional phase when we try to move to very low carbon, if not zero carbon, is demonstrable. To constrain it so much, up-front, in primary legislation is odd. Tariffs can differ according to technology and at varying thresholds, so the potential to treat small micro-CHP differently from larger CHP already exists. Removing the constraint simply gives the Government more power and flexibility. I therefore hope that the Minister will accept amendment (f).
A potential downside of the feed-in tariff has not been mentioned. We support and welcome the feed-in tariff, but I hope that the Minister will reflect on that possible downside. Who pays for it? If we are not careful, we know which small-scale community groups, hospitals and schools and householders will do small-scale generation. We know who will have a solar panel anddare I say it?a small-scale wind turbine on the roof. We know the social groups and the income bands that will do that and to whom the feed-in tariffs will be paid, if we are not careful. Everybody else will pay for it in their bills, and that will be bad news for fuel poverty.
We have a combined Ministry dealing with climate change and energy. Part of the energy remit is obviously affordable energy. Clearly, there is a tension. However, given that we want feed-in tariffs, and that we want them to be generous enough to make things happen, does not that place a great onus on the Government to get serious about social tariffs and tackling fuel poverty by other means? If all we do is introduce a generous feed-in tariff that results in an increase in fuel bills across the board, we will worsen fuel poverty. None of us wants to do that. What will go hand in hand with feed-in tariffs to ensure that we do not make fuel poverty worse? I hope that part of the answer is insulation and so on, but that is happening anyway. We hope that other energy efficiency measures will be taken, and that companies will introduce social tariffs, but there is precious little evidence of that so far.
Mr. Drew: I thank the hon. Gentlemanmy neighbourfor giving way. Does he agree that that point is a weakness, and that one way of responding to it would be to collectivise the operation of the feed-in tariffs? One weakness of the renewables industry is that we rely far too much on pepper-potting activity, depending on the willingness of individuals to participate. We need communities, neighbourhoods and streets to take up initiatives together, so that they can benefit from the efficiencies that arise from economies of scale.
Steve Webb: I agree that one possibility for the 5 MW threshold is schemes of that kind. However, even if a school undertakes such a scheme, the money goes to the school. That is great for the school, but who is paying? Everybody else is paying, through their energy bills. My worry is that we will do something that is entirely laudable and right, but which has unintended consequences for those whom we are all so concerned about.
Alan Simpson: Is the hon. Gentleman aware of one way in which other EU partners have begun to address this issue? The certainty of the tariff system has allowed local authorities to cushion the installation costs in social housing, so that rather than being a barrier to addressing fuel poverty, the system turns out to be an additional resource. However, that is possible only by doing what the Secretary of State has done, which is to set a threshold high enough to encourage municipalities to undertake schemes on that scale.
Steve Webb: We can certainly learn from what has happened elsewhere, and the examples that the hon. Gentleman cites are good ones. For example, if a local authority takes forward a scheme, the revenue from that scheme can cushion council tax bills, or whatever. My worry is that whereas local authorities in Germany, for example, are substantially devolved, with revenue-raising power and other freedoms, we are grafting the feed-in tariff on to a British system that is staggeringly centralised. Local government has little power to do those things, although some find ways. There is great potential for what the hon. Gentleman describes, but a lot of other things would have to happen to facilitate it. In a sense, that is what I am flagging up. We need to ensure that mitigation measures are in place so that we get the good of the feed-in tariff without the damage of fuel poverty.
I want briefly to raise two other issues. The first is the issue of grandfathering, which is to say that we want to avoid any hiatus. Again, that argues in favour of the 12-month limit proposed in amendment (a). We want people to invest now; we do not want them to hold off. One reason for holding off on a smaller-scale developmenteither a renewables obligation development or a feed-in tariff developmentmight be to wait and see what happens to the feed-in tariff. If the Minister could confirm that somebody investing in a certain regime would be guaranteed that regime for the life of the project, that would remove some of the investment uncertainty. If somebody was considering investing in a 4.4 MW two-wind-turbine project, that project would be below the threshold, and therefore potentially either feed-in tariff-able or ROC-able. We would want them to invest now and to get on with it, so can the Minister clarify whether, if it turned out that the feed-in tariff would be more beneficial, such a person would be able to opt into the feed-in tariff, perhaps once and for all, for the lifetime of the project?
If I were deciding today to go for a two-turbine 4.4 MW project, which could relate to either a ROC or a feed-in tariff, could I switch on to the feed-in tariffonce we know what it is, that isor would I be committing myself to the ROC for ever, in which case I might delay until I knew what the feed-in tariff was? Can the Minister confirm whether there might be a one-off opportunity to switch? I am still slightly hazy as to whether, once everything is up and running and both schemes are potentially available to small-scale generation, people will choose one or the other, or whether they would be able to switch between the two and change their minds. Can the Minister clarify how the two will interrelate?
We warmly welcome the feed-in tariff, and the Governments amendment (g), which increases its scope. We need action to check that fuel poverty will not be worsened by the measure, but above all we need a sense of urgency, not endless further consideration to try to perfect the provisions. We must not make the best the enemy of the good. We must not simply strive for perfection when that means delay, because we will never have perfection. We need to get on with itin which spirit, I support amendment (a), and I believe that amendment (f), on combined heat and power, also needs to be supported.
Mr. Elliot Morley (Scunthorpe) (Lab): May I also give my warm support to the introduction of feed-in tariffs? The Government have been bold on this matter. I also give my support to the campaigns by non-governmental organisations such as Friends of the Earth, and to the many Members of this House who have taken the issue forward.
It is fair to say that if we had understood feed-in tariffs better at the beginning of the incentivisation of renewables, the Government might have gone down that path. However, I understand, given the need to encourage investment in large-scale renewables and the fact that there has been a lot of investment in ROCs, that the Government are reluctant to disturb the stability that has been put in place. Stability and certainty are important, which is why I accept the argument that it is important for the Government to give some indication about time scale, pricing and structures. That cannot be done overnight; it will take a little time and involve some consultation. However, the sooner it is done, the better in terms of the undoubted benefits that we will get from a feed-in tariff. Those benefits will be both environmental and economic. There is no doubt that feed-in tariffs will be a great stimulus to the development of new small-scale technologies, and I am keen to see support for manufacturing in this country, innovation and new developments.
I also want to mention the potential impact of the measure on fuel poverty and people on low incomes. Some good points were made on that by the hon. Member for Northavon (Steve Webb) and my hon. Friend the Member for Stroud (Mr. Drew). Will the Minister consider the idea of a community or co-operative approach to encourage small-scale renewables? Perhaps one way of doing that is through warm zones. To their credit, the Government have pioneered warm zones, whereby additional funding is made available for insulation in areas of low-income housing. It would be possible,
without too much difficulty, to adapt the funding for those zones to encourage the installation of small-scale renewables in the same way. I am sure that that could be done in partnership with local authorities. As my hon. Friend the Member for Nottingham, South (Alan Simpson) said, many local authorities would be very keen to be involved in such a scheme.
It is important that the environmental and economic benefits of small-scale renewables should be spread out to provide social equity. That way, we would have all three strands of sustainable development: social, economic and environmental.
All in all, this measure is a very welcome development, and I agree with my hon. Friend that the Secretary of State and the new Department deserve a great deal of credit for it. However, it is important, if we want the development brought forward, to have the earliest indication about the details and time scale, as other hon. Members have made clear.
Mr. Mike Weir (Angus) (SNP): Along with other hon. Members, I warmly welcome the Lords amendments that bring in the feed-in tariffs. I am glad that the Government have moved a considerable distance towards this. That is not something that the Minister will hear often from my party, and I hope that it does not damage him too much in the eyes of the Prime Minister.
I fully support amendment (a), which was tabled by the hon. Member for Nottingham, South (Alan Simpson). It is important that there is certainty regarding when the feed-in tariff will be introduced. The sooner we know, the better. As others have said, the hon. Gentleman led a very good campaign that received support from both sides of the House to get this far on the matter, on which he deserves our congratulations. Hopefully, he will be able to get us a little bit further, so that we can all be satisfied that feed-in tariffs are definitely coming.
My interest in the matter comes about because I represent a largely rural area. In many parts of rural Scotlandthis also affects many other rural areasthere is a problem because many homes are not connected to the gas grid. I have for a long time raised questionsthe Ministers predecessor, the right hon. Member for Croydon, North (Malcolm Wicks), heard me raise them oftenabout the problems of off-grid supplies for hard-to-treat homes. That is a serious issue for my area and many other rural areas.
The hon. Member for Northavon (Steve Webb) rightly talked about fuel poverty, which is a real problem for those not connected to the gas grid at the moment, but wanting to heat their homes. I believe that feed-in tariffs offer the opportunity to look at renewable energy as a way of tackling the problem, and significantly alleviating fuel poverty in rural areas. It is not without its problems, one of which was touched on briefly by other Members: that many of the renewable energy resources are very expensive to install at the moment. The feed-in tariff will help to some extent, but we also need to ensure that the capital cost of the equipment is reduced, to allow many other people to take advantage of this. I look forward to the day when smaller communities can have their own renewable energy, and feed in the excess to the grid.
That raises yet another problemthe nature of the grid itself. There have been ongoing problems with renewable energys access to the gridan issue that I have spoken about on many occasions. I shall not rehearse all the arguments again, but I note that only this week, the Crown Estate Commissioners started their licensing application for renewable energy through wave and tidal power in the Pentland firth, which offers huge potential for renewable energy. Even there, however, there are problems accessing the grid.
The hon. Member for Nottingham, South mentioned the Pelamis development. On a visit, I actually stood under a Pelamis machinethankfully, it was not in the water at the time. It has huge potential, but it needs to get into the grid. This a problem that we are going to have to tackle through Ofgem, to ensure that the grid can take on both large-scale and small-scale renewables and allow the feed-in. I suspect that many energy companies will allow grid access difficulties to stand between customers and feed-in tariff.
Alan Simpson: The hon. Gentleman is making an important point, but I hope he will accept that how we tackle the grid does not need to be addressed in this legislation. The EU directive on renewables gave all EU countries the right to decide for themselves whether renewables were to have priority access to the grid, or whether it would be left to the market. The UK took a decision not to make that a binding obligation. We could reverse that decision ourselves; we do not need to view it as a deficiency in the Bill. We can change the Governments remit through regulation, which does not require primary legislation. If we have the will, there should be no obstacle to changing the remit and putting ourselves on the same sort of playing field as the rest of Europe.
Mr. Weir: I accept the spirit of what the hon. Gentleman says; I was not suggesting that we needed to build requirements into the Bill. I was just making the point that the issue will have to be tackled, along with the introduction of the feed-in tariff. Grid access is a real problem, and we should not blind ourselves to it.
Mr. Gummer: I hope that we are not in danger of sounding churlish to the Minister, as there is no doubt that we have moved a long way in a very short time. There is also no doubt that the new Ministry has got off to a very good start; right from the beginning, certain things were announced that we had all hoped for. The 80 per cent. reduction in emissions by 2050, and feed-in tariffs, were two things that gave all of us across the House a feeling that the new Ministry had lined up its ducks in the right order.
Therefore, it is with a certain amount of reluctance that I say to the Minister that there is a third element to this that would make a big differencewhat I might describe as urgency. If we are being fair about the excellence aspects, we must also be fair about the drawbacks. We have treated many of these matters with a lack of urgency. The Government have not been as quick or fleet-footed as they ought to have been. Most of us would accept that.
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