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Even at the top of the list of Ofgem’s secondary requirements, the definition of sustainability remains absolutely key. Unfortunately, in other Government Departments—not necessarily in this new Department—we have seen the use and abuse of the word “sustainability” in many different respects: the Department for Transport appears to believe that it is sustainable to build a third runway at Heathrow; the Department for Business, Enterprise and Regulatory Reform thought that it was sustainable to build unabated coal-fired power stations; and the Department for Communities and Local Government thinks it is sustainable to bulldoze over increasingly large areas of the countryside. The word “sustainability” is thus one that needs to be tightly defined. Luckily for the Government, one body has been very robust in its definitions and very wise in its advice—the Sustainable Development Commission. I
thus urge the Department—and, indeed, Ofgem, in exercising its duty—to take its advice on the precise definition of sustainability and sustainable development.
Subsection (2) inserts the words “existing and future” in respect of Ofgem’s customers. It is an interesting and clever formulation to address this issue and place it within the primary duty, but it is a little obscure and it poses the question of why we cannot one day simply value the environment in its own right, without having to regard it as a consumer entitlement of future gas or electricity customers. It is an awkward formulation, and I am not convinced that it will achieve what some of our noble Friends believed it would, as they thought it would be a completely unambiguous provision, but there is still room for some doubt about that.
In the end, we have to encourage Ofgem to look radically at pricing and payment for energy works. The reform of energy pricing should one day break the link between the increased use of energy and electricity and the profits of the energy companies. That link has to be broken in some way. We need to reflect on whether it can be done by allowing consumers to pay still more for increased use of energy or by capping the profit that an energy company can take from an increase, perhaps redistributing it as another means of tackling fuel poverty. These issues are being looked at by other regulators. Ofwat is having some interesting discussions in connection with the current price review on water, attempting to break the link between resource use and private profit. It seems to me that Ofgem should be looking into the same issue, but I am not convinced that the provisions in the Bill will be strong enough to allow that to happen.
For another example, some have advocated moving forward on the access transmission system from what is described as the “invest and connect” model to a “connect and manage” model that would prioritise connections to renewable sources of electricity and provide a structure that would guarantee a priority for low-carbon technologies and an incentive to move towards them. That has been advocated by the British Wind Energy Association—and I suppose we might say that it would advocate that, wouldn’t it? But it is also supported by the Sustainable Development Commission, which is there to advise the Government independently on the application of sustainable development policy. It is through tests such as this that we will really see whether this section of the Bill is strong enough to achieve the kind of change that we want to see in the energy markets, and will support the ambitious targets for carbon reduction that we will probably be debating later this evening.
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Mr. Weir: I want to make a few brief remarks on this subject. I have had many struggles with Ofgem over the years on the question of transmission charges. I genuinely welcome the amendments, which move things forward a little, particularly on up-front charges and the ridiculous situation with people having to wait years for connections. I continue to have concerns, particularly about Ofgem’s state of mind on locational charging and economic theory. That was always frustrating when discussing transmission charges and connection charges with it. Earlier I mentioned the possible development of the Pentland firth and the need to strengthen the grid overall. I am not sure that Ofgem, even with this proposal, has the mindset to do that.
I say that because I well remember the last Energy Bill, during whose passage there was a lot of discussion about capping charges for access to the grid. At the end of the day, a clause was inserted into the Bill to allow one area to have capped charges. It was widely assumed at that time we were talking about the Highlands and Islands of Scotland. However, it was only the islands of Scotland on which the price cap was placed; it did not really work, and Ofgem continued on its own merry way.
I am not clear from the amendments the basis on which the Secretary of State will intervene to deal with this point, or what advice he will take before doing so. Ofgem has tended to be the organisation that advised the Secretary of State of the actions he should take, so we seem to be getting into a slightly circular difficulty with that. The measure will also last for only two years. This is the same argument with the sunset clause on the capping charges, which allowed five years, if I remember correctly, for the first development that was capped, as it was very quickly on a sliding scale. I am not convinced that this proposal will get to the root of the problem.
Having said that, I recognise that there are slight signs of change in Ofgem in recent months. I was slightly encouraged by its recent report on the energy companies, which was far from perfect but did finally show that it intended to take action on the scandal of prepayment meters. That suggests that Ofgem’s mindset is beginning to change a little, but I would have liked to see something stronger to ensure that the grid was strengthened and our wide capacity for renewables would be able to connect to the grid quickly. I fear that that will be the bottleneck that will prevent the uptake of many renewable resources.
Mr. O'Brien: I shall respond briefly to the hon. Member for Angus (Mr. Weir), as most of the other comments were welcome and positive. The hon. Gentleman is right to say that we need to examine transmission access, which is why we have had the review. We need to make sure that that is now put in place by consultation. Obviously, access is a difficult and a complex issue. This is not just about the way in which it is administered; it is about the actual mechanics of getting access and the cost of creating that access for the new renewables or other projects, particularly in terms of bringing renewables on to the grid. We need to make sure that, as we have a target of 2020, we create the mechanisms that enable that target to be achieved. I accept many of the points that the hon. Gentleman made, but I wish their solutions were easy; they are not. He is right to say that we must continue to work to try to resolve them.
Lords amendments Nos. 55 to 64 agreed to [some with Special Entry].
Lords amendment: No. 65, to insert the following new clause— Renewable heat incentives.
Alan Simpson: I beg to move amendment (a) to the Lords amendment.
Mr. Deputy Speaker: With this we may discuss Lords amendments Nos. 70, 77 and 105.
Alan Simpson: Lords amendment No. 65 is decidedly good news and amendment (a) simply seeks to put a time frame around its implementation. The reason I say that it is decidedly good news is that there has been a very important shift in the thinking about how we deal with the heat part of the energy agenda. For a long time whenever Members approached Ministers on the issue, we were given the rather intriguing assurance that the Department had a “team on heat.” This may have raised some eye-watering prospects as to what life was like in the then Department for Trade and Industry or Department for Business, Enterprise and Regulatory Reform, but it was not clear whether this team on heat was delivering anything.
One of the problems was that the efforts at that time were centred on trying to find an equivalent of the renewables obligation for heat. The good news about the amendment is that it represents an abandonment of that search in favour of a feed-in tariff arrangements; a production tariff, the like of which we can see in operation in other parts of Europe. I welcome that, and the important thing for us to address now is the time scale and the significance of the measure in connecting with other parts of the renewables agenda that we have already debated this afternoon.
I would like to give just a couple of examples of why it is important that we get the time frame right. Perhaps I should say in parentheses that I welcome the fact that the Government have accepted that there should be no threshold in relation to heat generation. That is a definite good move that allows us to bridge the gap that currently exists between ourselves and, for example, Germany in relation to the generation of heat from renewable sources. In the UK at the moment there are 17 biodigesters producing gas and heat. In Germany, there are 5,500. The reason for that is that the German system already has a production tariff, which allows the system to work in ways that direct heat to off-grid communities and/or to the fuel poor, while allowing it to connect to the use of biogas for electricity. That is why it is important that the Government synchronise the timetables for the introduction of this renewables-intensive programme, and that we set in the cross-party amendments the same sort of time frame that we wanted to see in place for the introduction of feed-in tariffs for electricity. Let me give some examples as to how that makes sense.
First, if a hospital, as in my own city, is considering investing in the construction of a biodigester that would take hospital waste, including food waste, and some of the biodigestible waste from other parts of the city, it will want to use that waste to create biogas, to increase its quality to biomethane and to use it to provide direct heating. In parts of the summer, when it might not require heating to the same extent, the obvious answer is to turn the excess heat into electricity. So there is an overlapping purpose: connection to the renewable energy agenda makes sense for the renewable heat agenda.
The same applies to off-grid communities and the fuel poor. I brought representatives of one of the German companies across to explain that to officials in my own city. Some of the officials in Nottingham struggled to grasp the scale of what was on offer. The Germans were able to say that, in respect of fuel poor, they could offer
fixed gas prices for the entire contract period for the disposal of the biodigestible waste. In an era of ever-spiralling gas prices in the international gas market, everyone who can offer, in real terms, fixed gas prices by taking what is currently a problem—biodigestible waste—and turning it into a fixed-price resource is almost offering a winning lottery ticket. Against the criteria of how we address the needs of the fuel poor and those of off-grid communities, such schemes in many respects offer a potential that is at least as large as the capacity to generate renewable electricity and place it in the context of renewable gas and heat. The point of amendment (a) is simply to say that, if we seek to remove confusion, it would be phenomenally helpful if the schemes for both could be synchronised.
I do not want to be dogmatic given that, if I were to turn the argument around slightly, it would be disastrous to hold back one scheme just because the final details were not in place for the second. However, it is still legitimate for us to say that, as we think about the time scales for electricity, it makes sense for us to try to synchronise them with the time scales for the introduction of renewable heat incentives. In many cases, the same companies, communities and localities will be at the heart of that investment planning. So if we are to offer a genuinely joined-up approach to our renewables strategy, it would be helpful to have the same sort of time scale according to which we seek to deliver them.
I do not want to go into the arguments that we have rehearsed in relation to the details of the scheme and the tariffs that would apply, but the principle of synchronising timetables is one that, I hope, we can commit ourselves to, and I hope that the Minister, even if he cannot accept amendment (a), can give assurances that that is the Government’s intention as they seek to motor on both of those important fronts.
Charles Hendry: I associate myself very much with the remarks that we have just heard from the hon. Member for Nottingham, South (Alan Simpson). We welcome greatly the distance that the Government have already travelled on this issue. In Committee, we were told that this was a step too far, and there was a sense that we would fail to include any aspect of heat in the Bill. It shows how far the Government have moved that we are considering in more detail today a proposal that was put into the Bill in the other place.
There is no doubt that the issue has been overlooked for too long. About half the energy consumed in the United Kingdom is in the form of heat, and its generation is responsible for about 47 per cent. of our carbon emissions, so it must be a crucial part of the Government’s carbon abatement programme. But all too often, it has been easy to overlook the importance of heat, because many different households are involved, it is complicated and the solutions have been less easy to consider than in other parts of energy policy. However, we are glad that the Government have sought to address the issue and have made progress on it.
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I very much endorse what has been said about the need for a clearer time scale. The concern is that we are moving in the right direction, but we do not know at what speed or when we might arrive at the conclusion that we want to reach. It is also right that there should
be no threshold and that we should be thinking big and have big visions about what can be achieved. Clearly, any such threshold would have been regrettable.
Just a couple of weeks ago, I visited a plant just outside my constituency that is operated by Southern Water and that takes all the waste from Burgess Hill and puts it through a very advanced, sophisticated system—the waste is put into a digester; the biogas that comes off is collected in a huge balloon and is used to power the generator; and the heat from the generator goes back to the digester and is used to assist the digestion process. It is very neat process. The only thing that is missed is the extra heat that is emitted as part of firing the boilers, which means that, as a result, some heat escapes into the atmosphere. The final link would be to capture that heat and supply it to businesses or homes that need extra heat.
Lots of individual parts of the solution are being thought about, but what is sometimes missing is the element of joined-up thinking that draws them all together and makes it all happen in the manner that we want. I hope that the Government can give us some more detail, particularly on the time scale, because if investors and consumers want to get involved, they need greater clarity.
There is also concern that the Lords amendment does not indicate the nature of the tariff and whether it can be varied according to technology types and energy sources. The Renewable Energy Association is concerned that the Lords amendment excludes biodiesel, as it refers to biogas and biomass. There is concern that it could be extremely problematic to have a definition of biomass in primary legislation for the first time that is possibly inconsistent with existing support mechanisms. The Renewable Energy Association suggests that the safest approach would be to use the definition of biomass found in the current renewables directive and the draft 2008 version.
Biomethane is defined as gases produced by renewable sources, but it is possible to produce methane from biomass, and it looks as though that process may have been inadvertently left out.
We generally welcome the fact that the Government have decided to accept the recommendation that heat should be addressed in the Bill, but there is an element of disappointment that things have been left so vague, especially with regard to the timing.
Steve Webb: I welcome the inclusion in the Bill of the renewable heat incentive and support amendment (a), which, again, tries to set a timetable. I will not repeat all the points that were made on the timetabling of the feed-in tariff, but they apply in precisely the same way.
The Minister may well say that this is a much more embryonic thing and that it has been subject to less thought, less discussion and so on. I understand that point, but an explanation would be helpful to those in the outside world who watch these debates—I imagine that someone does—and who might like to know the direction of the Government’s thinking. I certainly realise that I am very hazy about what the renewable heat incentive might look like. I was trying to probe that a bit in the debate on the ways and means resolution. If I install some sort of renewable heat project, I can expect some sort of financial return. I am slightly hazy about what and how much it might be and so on.
My understanding of the Government’s thinking from the ways and means resolution is that the scheme will probably be funded by a levy on the energy companies and fossil fuel generators. Essentially, Ofgem would introduce a levy and take money from the generators. That money would presumably go to the Treasury and become a Government grant to renewable heat producers. If the Department already knows that that is roughly the model that it is considering, it would help those in the world outside who might be thinking of going into such things to understand what sort of support they might get, just in very broad terms. I understand that the Minister does not yet know the detail.
Again, on timing, as the hon. Member for Wealden (Charles Hendry) says, we are talking about something that is a huge part of our overall energy mix and that could be a big part of our renewable energy targets by 2020. According to figures from the National Grid Company which I am sure the Minister has seen, in what might be described as a “stretch scenario”, an amount approaching 10 per cent. of our 15 per cent. target for 2020 could come from renewable heat, gas on the grid and the like. The scope for that seems enormous.
Given that, as the Minister said, 2020 is only a little over 11 years away, it is worrying that Lord Hunt was so vague about how long all this would take. It would be very worrying if there were any unnecessary delay. I hope that the measure can be introduced at the earliest possible opportunity, but failing that, I hope that the Minister will paint even the most broad-brush picture showing what a scheme of this kind would look like.
Mr. Weir: This is a strange moment for me. I warmly welcome the amendment, not least because on the one occasion when I managed to get near the top of the ballot for private Members’ Bills, I introduced a Bill providing for a renewable heat obligation. That Bill, which was drawn up by Friends of the Earth, was talked out. I also sponsored a Bill promoted by the hon. Member for Edinburgh, North and Leith (Mark Lazarowicz) providing for a renewable heat obligation. As I recall, that obligation was dropped from the Bill because of staunch opposition from the Government. I am delighted that times have changed, and that the renewable heat obligation is now becoming part of the Energy Bill.
I agree wholeheartedly with the hon. Member for Nottingham, South (Alan Simpson). The amendment shows how much the debate has moved forward in the last few years. I appreciate that the scheme is at an embryonic state, but if it can be made to work, it has the potential to contribute a great deal to our fight against carbon emissions and many other problems, not least fuel poverty. I welcome the Government’s change of heart, although it has been some years coming.
Mr. O'Brien: As the House knows, an amendment that we tabled in the other place enables the Secretary of State to establish a scheme allowing us to create incentives for renewable heat.
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