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18 Nov 2008 : Column 156

If that is true, and if urgency is very important, it is reasonable to support the amendments, to ensure that people get on with it. That is not because I believe there is any possibility of the Government going back on their feed-in tariffs decision. It would be foolish for anyone to suggest that someone will turn up and say that that is not what the Government promised. I would love to find out who it was in the Treasury who hated feed-in tariffs for so many years. There must have been a person whose life’s determination was to block feed-in tariffs. However much the argument went on, somebody there deep in a cavern was determined to make sure that it would happen over his dead body. Now we will find the body, but it would be interesting to know to whom it belonged.

I do not think that the Government will get this wrong, but we need to involve people outside in a real crusade to find answers to the issues of climate change. The reason why I have always believed in feed-in tariffs, and why we made them a central part of our energy proposals in the “Quality of Life” report, was simply that we dare not leave to the experts, the big companies or the ministries the job of finding the way to solve the challenge of climate change. We must get every kind of person with any kind of contribution to make that contribution. As my hon. Friend the Member for Wealden (Charles Hendry) said, we are an innovative country and we can find ways that were hitherto unthought of.

Feed-in tariffs draw those ideas out and encourage all sorts of different people to find structures that make it possible for us to apply new ways of generation that would otherwise not occur. I hope that the Government will help us by ensuring that we know that this will happen quickly, and that people know how it will affect them. Will the Minister answer some of the questions asked by the hon. Member for Northavon (Steve Webb), who speaks for the Liberal Democrats, in terms of understanding whether people who opt in to one system can opt out, if the other is more suitable?

Perhaps the Minister will take these questions as compliments to the Government. We are all pleased that today we can see this new beginning; we just want it quickly. Christmas cannot come quickly enough, because we do not have time, and urgency must be injected not only into the Government, but into the world outside. If the Minister can give us that assurance, we will have a real reason to thank the new Ministry, beyond all the plaudits that it has received already.

Mr. Mike O'Brien: I welcome the debate and its positive tone, not least in terms of the praise for the Government and, quite rightly, for my right hon. Friend the Secretary of State. I join other Members in paying tribute to the work of my hon. Friends the Members for Nottingham, South (Alan Simpson) and for Morley and Rothwell (Colin Challen) and others who, on an all-party basis, have pressed for the changes.

The hon. Member for Wealden (Charles Hendry) was right that this measure will help hospitals and schools, but 5 MW of electricity can heat an awful lot of homes, indeed thousands of them, so that means we can ensure that we have electricity, and heat in due course, for large communities.

May I also reassure the hon. Gentleman that we are talking not about super-ROCs, but about real feed-in tariffs? That is certainly the obligation to which the
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Government have signed up, but there has been much lengthy debate about the effective deployment of renewables since the Bill was introduced in the House in January. I am pleased that hon. Members both sides of the House share our objective of ensuring that we are best placed and have the best possible financial framework to enable us to meet our 2020 renewables target.

The changes that we will make to the renewables obligation under the Bill will build on the success of the renewables obligation so far and lead to the deployment of more diverse mixes of larger-scale renewable electricity projects as we move towards 2020. That is important: although there is a lot of praise for the introduction of feed-in tariffs, the renewables obligation will continue to be a primary means by which we ensure that the 2020 target is hit.

We have listened to the arguments that the RO is not suitable for domestic and small-scale electricity generation projects, at least partly because of its relative complexity. Although some small-scale projects have operated via the RO, the results are patchy, so we have decided to introduce feed-in tariffs for small-scale low-carbon electricity generation. An upper cap for those feed-in tariffs has been defined in the Bill to give clarity and certainty to investors in large-scale projects under the RO. Our original amendment in the other place set an upper limit of 3 MW—we wanted the upper cap to be high enough to give us sufficient flexibility to ensure that we can direct support to small-scale projects of the right capacity.

It is important that there is no confusion about the fact that the 5 MW limit relates to capacity, not generation. The capacity restriction is not dependent on the number of kilowatt-hours that an installation will generate over a year. Different technologies will generate different kilowatt-hours of electricity, and they will be paid over that period. This is a capacity argument in terms of determining whether or not they qualify, rather than anything else. It is important that that point is made clear during the debate, so that no one expects all those technologies to generate at that massive 5 MW level or whatever, but we also want the cap to be low enough to avoid delaying perfectly viable renewable projects under the renewables obligation. Since the debate in the other place, we have decided that the 5 MW level will be better than the 3 MW one because it will enable projects that fall into the 3 to 5 MW category to benefit from feed-in tariffs. Those involved in such projects should analyse the evidence to find out which tariff is beneficial.

We will, of course, consult on the tariffs next year. As part of that process, we will undertake further analysis to determine the limit at which FITs would be set below the 5 MW cap. It is important to note that we expect that the renewables obligation will deliver the vast majority of renewable electricity up to 2020. We intend to make further announcements soon on how we plan to modify the renewables obligation to ensure that it delivers a much higher share of renewable electricity by 2020 than previously planned.

On a one-off opt-out to the RO or to FITs, we intend to make further announcements on our approach to transitional projects that could be captured in the new scheme. Our aim in this announcement, however, is to minimise the risk of projects being tempted to wait and
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see before committing to either the RO or FITs. It is absolutely crucial that we ensure that investment confidence is sustained in the RO for larger-scale electricity projects and that no project is disrupted while we develop a feed-in tariff policy to support small-scale low-carbon generation. Indeed, 2020 is only 11 years away; delay now is undesirable.

Amendment (a) seeks to require the Secretary of State to modify licences within a period of 12 months after Royal Assent to the Bill. I understand the wish of Members in all parts of the House to make rapid progress on these enabling provisions and to ensure that we deliver an effective scheme as quickly as possible. The need for urgency is felt no more keenly than in Government, especially in view of the EU renewables target that we need to hit by 2020. However, we also need to ensure that we get this right.

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For example, before we can modify the relevant licences to implement the policy, we need to develop models enabling us to introduce a scheme that can effectively encourage deployment on the scale that we want. We need to consult on our analysis on the proposed tariff levels of payments for the different technologies. We need to work with the electricity suppliers and Ofgem, which will deliver the tariffs to generators to ensure that the licence modifications that we propose will function as we intend, alongside the existing licence conditions that regulate this complex market.

Members should not assume that this process will be simple. It will be enormously complex. However, the benefits will be considerable and important, so we shall have to go through the process and we shall have to get it right. It will involve spending a vast amount of consumers’ money, for, as was pointed out by the hon. Member for Northavon (Steve Webb), the consumer will ultimately pay for much of it. We do not want to waste any of that money. We do not want people to be pushed further into fuel poverty because we are spending more money than is necessary on a particular project.

The hon. Member for Northavon said that we had wasted enough time, and that we needed to get on with all this. I agree about the urgency, but moving too fast and getting it wrong will carry a price, and that price will be paid by consumers. We have an obligation to ensure that we get the process right, and that means getting the consultation right. While we all agree on the need for urgency, I trust that we also all agree on the need to ensure that we do not land consumers with a big and unnecessary bill.

Last but not least, we need to allow time for Parliament to scrutinise the draft proposals before modifications can be made. Parliament takes its time with things: it has to go through the processes. Let us ensure that we can carry out our consultation on the feed-in tariff system and the proposed tariff levels next summer. Following that consultation and through further work with Ofgem, electricity industry players and other interested parties, we shall be in a position to finalise the implementation aspects of the system, such as arrangements for payment processes.

Taking all that into account, we are committed to introducing a feed-in tariff scheme for small-scale electricity in 2010. Our ideal target is for the scheme to go live in
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April 2010, so that it can be aligned with the financial year of the renewables obligation. As I do not know the date of the next general election just yet, I cannot assure my hon. Friend the Member for Morley and Rothwell that “power to the people” will be at the top of the manifesto; but I can say that, if this Parliament extends to a full term, it might.

We should not underestimate the challenges inherent in delivering a fully operational scheme in a little over 16 months, but, despite its complexity, it is important for us to set a target and try to meet it. We are committed to introducing the feed-in tariff as soon as possible. However, choosing an arbitrary date at this stage will fetter our ability to deliver a fully functional and effective scheme in 2010, and may put consumers at risk of having to pay more than they need.

Charles Hendry: The Minister says that he wants the introduction of the scheme to coincide with the start of the financial year 2010. Does that mean that if he missed that date, perhaps owing to factors beyond his control, the scheme would not be introduced until April 2011, or would he intend to introduce it as soon as possible thereafter?

Mr. O'Brien: I would intend to introduce it as soon as possible thereafter. In the event of a delay of a month or two, we would aim to introduce it after that. If, for example, Parliament took a little longer to discuss things for some reason, we would want to allow that time framework, but we would then be able to introduce the scheme at the appropriate moment. April is a convenient date because many, although not all, businesses manage their annual calendars in relation to it, but it is not an essential date.

Alan Simpson: I wholeheartedly agree with the Minister that it is more important to get the scheme right than just to get it in place quickly, but will he consider the following two things in the process of trying to combine those two goals? First, it is clear from today’s amendments that a considerable amount of expertise in the House could be harnessed towards coming up with a scheme that we get right in the first place, so can we have a commitment to try to harness that know-how now, rather than leave it to the end of a consultation process? Secondly, will the Minister make sure that we have as seamless a transfer-in as possible, which does not lose certain things? For instance, will he look specifically at the current decision to close access to the low-carbon building programme in seven months’ time, because the danger is that we will have precisely the sort of renewables energy-generating companies that will then cease to have access to the only low-carbon schemes we are currently promoting, yet we will still be dependent on such schemes for perhaps a year after they have ceased to exist? Will he look at the interfaces, so that we do not lose access to our current expertise?

Mr. O'Brien: We will certainly look into those issues, but I cannot offer my hon. Friend an assurance on them. I can assure him, however, that we want to utilise the know-how, and I can think of few better people to have their know-how utilised than my hon. Friend, and I ask him now if he will work with Ministers and our officials on developing the detail of this strategy over the coming 16 months, because there will be a lot of
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work to do. I hope that when he rises to close the debate, he will be able to reassure us that he is prepared to work with us on that.

I have quite a lot still to say, so I shall try to give as full a reply, and as brief, as possible. Amendment (b) to Lords amendment No. 42 suggests we replace the term “financial incentives” in proposed new subsection (2)(a) with “payment”. The use of the term “financial incentives” clarifies that the general purpose of the scheme is to incentivise low-carbon electricity generation through financial incentives, as opposed to other means such as a regulatory obligation or barrier-busting support, such as help with the planning system. We believe that such clarity is helpful in setting out beyond any doubt the primary purpose of the scheme. However, to give additional reassurances about our intentions, I would point to the powers under proposed new subsection (3) that specifies the term “payment” in all the key provisions that will establish the scheme. In others words, it is explicit that we are dealing with payments to small-scale generators. What is proposed will be a real feed-in tariff scheme.

Amendments (c) and (d) seek confirmation that the Government intend to introduce a feed-in tariff scheme similar to those established on the continent. We want to ensure that those schemes work as effectively as possible in the UK electricity system, and we need to get this right. We certainly want to learn from our European colleagues and make sure we consider the best features of their schemes. My officials have already benefited from discussions with the German Government during the policy development process. Officials also attended the meeting of the international feed-in co-operation group in Brussels earlier this month, which was also attended by representatives from Spain, Germany and Slovenia. It aimed to update co-operation on feed-in tariff developments in the UK, and to show how countries could learn more about best practice from other nations with operational tariffs in force. That group has recently updated its best practice paper, which will be an extremely useful document for us to use when developing this policy, and we look forward to working in close co-operation with other countries. In line with best practice, the expectation is that generators will receive a guaranteed payment for generating electricity over a set period of time. This is covered in proposed new subsection (3)(a), which allows for “specified circumstances”.

Changing proposed new subsection (3)(b) to include the words “level of payment” in addition to outlining how a payment is calculated is unnecessary as this is already covered in the proposed new subsection. For newly installed plants only, we expect that the level of payments for a given group of technologies will decrease year by year to take account of learning and economies of scale—a familiar concept in most feed-in tariff schemes. That eventuality is already covered in proposed new subsection (3)(c).

Amendment (d) to Lords amendment No. 42 concerns, among other things, the distribution system, a point that was raised on Report in the other place. It demonstrates the sort of complexities created by the introduction of a feed-in tariff. The new scheme has to operate within what is effectively a dynamic electricity system with many players and interested parties. Subsections (1) and (2)(b), as proposed in amendment No. 42, seek to address those issues by giving us the power to modify distribution licences where we believe it necessary to do
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so. The proposed new clause is sufficiently flexible to allow different levels of tariff payments to be made to different sources of energy and technologies as well as to different scales of plant, so I can give hon. Members some assurance on that point.

Finally, I would like to respond to amendment (f) to Lords amendment No. 42, which removes the capacity limit for fossil-fuel combined heat and power within the feed-in tariff. CHP has an important role to play in moving the UK towards a thriving, competitive, low-carbon economy. That is demonstrated by the range of support measures that we already have for good quality, fossil-fuel CHP, such as the exemption from the climate change levy, special status in the second phase of the European Union emissions trading scheme and eligibility for enhanced capital allowances. Those measures are already in place. We should not forget that the principal purpose of the feed-in-tariff clause is to reward smaller-scale renewable electricity technologies in order to meet our ambitious renewable energy targets.

However, we were persuaded by the arguments put forward in the other place by the Opposition, who sought, through their own amendment, to place a cap on CHP of 50kW. They did so because micro-CHP is still a technology in development, unlike large-scale CHP, which is a proven technology. As with other technologies, we can expect our final feed-in tariffs policy to set different tariffs for different scales of micro-CHP units, but it is most important that we support CHP appropriately. We cannot know all the unintended consequences of taking a last-minute decision to switch from a mechanism that should principally be about incentivising small renewable projects to one which can encourage non-renewable CHP up to a scale of 5 MW. Is that what that the Opposition intended? I have some concerns about that. The right place to consider the incentive framework for non-renewable CHP above the micro-level is in the forthcoming heat and energy efficiency strategy, not here.

Paddy Tipping: I am grateful to the Minister for giving way; he is being very amendable to the House. He talked about the incentives for CHP. I remind him that the Government have set a target for CHP, and he knows that we are a long way from achieving that. I welcome his undertaking to look at the issue again when we talk about a renewable heat strategy. It is important that we make significant progress in that respect.

Mr. O'Brien: My hon. Friend is absolutely right. I can heartily give him such a reassurance, particularly on a day when we remember Peter Lehmann, who was most active in ensuring that CHP was put on the public agenda. Today, on the day of his funeral, I pay enormous tribute to a man who was a wonderful advocate for people who suffer from fuel poverty, and who campaigned strongly for CHP. It was in the latter context that I first met him, and I reassure my hon. Friend that I—along with him and other hon. Members—want to ensure that the work that Peter did to advance CHP will be delivered upon.

Steve Webb: I do not understand why the Minister wants to prevent himself from having a power that he might want to exercise. Let us suppose that he keeps the
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50 kW threshold in the Bill, but then decides, through his other strategy, that the best way to incentivise 100 kW or 150 kW CHP is through a feed-in tariff. He would be able to get on with that if we were to give him the power to do so today. Why does he want to prevent himself from having that power?

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