Energy Bill

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Clause 36

The renewables obligation
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Charles Hendry: I beg to move amendment No. 16, in clause 36, page 23, line 47, after ‘sources’, insert
‘and research and development costs involved in enabling the industry to make efficiency gains;’.
The Chairman: With this it will be convenient to discuss the following amendments: No. 21, in clause 36, page 24, line 9, at end insert—
‘(g) the possible impacts on the environment associated with generating electricity from each of the renewable sources or with transmitting or distributing energy so generated.’.
No. 17, in clause 36, page 24, line 30, at end insert
‘, providing that such a review is undertaken at least every four years.’.
Charles Hendry: The first of the two amendments in my name and that of my hon. Friend the Member for Billericay examines the research and development costs in enabling the industry to make efficiency gains.
The Bill outlines factors that the Secretary of State must take into account in considering banding provisions, which predominately make a great deal of sense. It looks at the costs, including capital costs, the income of operators of generating stations and who is exempted from the climate change levy, and the desirability of securing the long-term growth and economic viability of the industries associated with a generation of electricity from renewable sources. The amendment would simply add a factor to that last one, which is designed to help the industry develop as quickly as possible.
Amendment No. 17 is a rather different issue and relates to the regularity with which reviews should be carried out. As I said earlier, we support the principle of banding, but we recognise that technology is changing fast and levels of bandings need to reflect that. Having already seen how the current ROC system has encouraged some technologies, such as methane and onshore wind, over others, we recognise that there needs to be change. ROCs have helped to mature the lower-cost industries relatively quickly and now it is right to channel extra help to the more expensive technologies. The Bill gives the Secretary of State the right to alter bands, either at intervals set in secondary legislation, or when there has been a specific change that he believes would justify a reassessment. The amendment would put on the face of the Bill a requirement that there should be a reassessment of the banding levels at least every four years. If the Secretary of State decides to carry out a review less than four years after the previous review, it would not prevent him from doing so, but it would mean that we could not simply stumble on without a review for several years. With the best will in the world, things take longer than we might wish, but having talked about banding for at least the last two years that I have been doing this job, we owe it to those investing that they should have clarity about how the process will move forward.
The Minister may say that the order will specify the appropriate length of time between reviews, but orders cannot be amended readily in Committee and there is a strong case for the Bill to set down clearly when reviews will take place. That would also make it easier for different industry groups to make representations about the appropriate level of the ROCs and it would drive forward investment if business knew when the next change was likely to happen.
Martin Horwood (Cheltenham) (LD): The hon. Gentleman is addressing an important idea with this amendment, which is locking in incentives to research and development. That is a laudable aim and we would be entirely happy to support the amendment, should he press it. That is a legitimate thing to take into account, and the Liberal Democrats generally would support an amendment to the banding system.
In order to address amendment No. 21—and I am treading cautiously, having been corrected this morning—I would like to comment on why we think this would be a good idea. We also want to add a paragraph (g) to proposed section 32D(4), so that the Secretary of State would be asked to take into account the possible impacts on the environment associated with generating electricity from each of the renewable sources or with transmitting or distributing the energy so generated.
It is worth remembering that the environmental movement has been around for a long time, discussing many issues other than climate change. We can become so focused on carbon emissions that we can sometimes forget that there are other, wider environmental impacts that should also be taken into consideration. The development of different, renewable technologies, while obviously broadly a very positive development that we absolutely support, can have environment impacts of their own and those ought to be taken into account when banding is developed. This simple and elegant amendment would ask the banding process to take into account those wider environmental impacts.
Charles Hendry: Can the hon. Gentleman clarify what he means by environmental impact? Would it, for example, also include the visual impact? That would be seen to be an environmental concern in many people’s eyes. How does one then assess wind turbines, for example, which some people think are fantastic and wonderful while others loathe them?
Martin Horwood: The hon. Gentleman raises an interesting point. I had not been thinking particularly of the visual impact, which I think is dealt with by planning law—perhaps the Planning Bill might be the place to address that particular issue.
I will, however, give one example. We all know that if properly exploited, the Severn estuary could contribute some 5 to 7 per cent. of the UK’s electricity generating supply. In terms of carbon emissions it is an entirely good thing that that should proceed and that either a barrage, lagoon system or some other form of exploitation of the energy resources in the Severn estuary should proceed. But there will be inevitable environmental impacts—on the flow of the Severn and affecting biodiversity and wildlife habitat—and it is very proper that we take account of such impacts when banding different renewable power sources .
There are indeed concerns about their environmental impact of wind turbines, although not so much their visual impact. I think that they are very beautiful things. I have stood in many a Liberal Democrat supported constituency, where the wind turbines have been supported by both the local council and the local MP, and I have been underneath the wind turbine and listened for this alleged noise and disruption that it is supposed to cause people. I have heard very little that would disturb me; I am an enthusiast for wind turbines. However, if they are insensitively located and if the base of the turbine is rooted in an environmentally sensitive habitat, such things would be taken into account under the scope of our proposed amendment. It is quite proper, even for those of us who support wind turbines, to acknowledge that there are real concerns and I hope that the Minister will look kindly on our amendment.
Anne Main: I am listening with a huge interest to the possible impacts that the hon. Gentleman is discussing. I suggest that they are so wide ranging that they would be almost unenforceable if they are all put within this particular banding. Perhaps he would like to touch on that, because there are so many visual, environmental, marine, and biological impacts—the footprint of the wind turbine—that I fail to see how they could all be encapsulated elegantly, as he put it, in this amendment.
Martin Horwood: I am grateful to the hon. Lady for her intervention but I do not think she is ambitious enough. A wide range of policy tools that have already been developed from the EU’s wildlife and habitat’s directive and from environmental impact assessments are designed to tackle precisely such difficult problems. This is an enabling provision that would allow the Secretary of State to design a banding system that could take into account environmental impacts of that kind—the technology and the systems behind assessing environmental impacts are already well established so I do not think that would be too much of a challenge.
Anne Main: We often see from an environmental assessment whether something will have a mild or moderate or severe impact, and many of us will have seen that in the planning process. How will the hon. Gentleman evaluate the differences between the benefit and the harm? It will be a very fine and difficult line to tread and this Bill is perhaps not the right place for it.
Martin Horwood: I am grateful to the hon. Lady, but she is creating mountains out of molehills. All the other clauses in this part of the Bill are similarly simply phrased relating to costs and, of course, they will hide great complexity in the implementation. The same applies to our amendment, but nevertheless I commend it to the Committee.
Malcolm Wicks: This has been a useful discussion. Amendments Nos. 16 and 21 propose new matters that the Secretary of State should have regard to. Amendment No. 16 seems designed to ensure that the Secretary of State takes account of individual technologies’ research and development costs when setting the banding regime. Few renewable technologies that we brought forward under the RO are completely mature and most have scope for technological development and efficiency gains. Driving these gains is, of course, important, but I believe this amendment is unnecessary as the Secretary of State will already need to take account, under new section 32D(4)(a), of the costs associated with generating electricity from each renewable resource. Any well managed equipment manufacturer will set the price for their equipment at a level that includes their necessary research costs. Therefore R and D costs will already be covered in the banding regime, because these costs will form part of the costs that a developer will pay for the equipment that they use to generate electricity.
Furthermore, for those technologies that are not yet competitive, even under the banded RO, this Government have set up the Energy Technologies Institute and the environmental transformation fund. In many cases, we believe that high-risk projects, such as demonstration of wave and tidal-stream technologies, are better supported by grant schemes that can mitigate the initial capital risks, rather than simply by relying on operating support under the RO, which will leave companies exposed to high levels of technology risk. I therefore do not believe, on reflection, that this amendment is necessary, but perhaps I can still be persuaded.
Malcolm Wicks: Is this not a case in which the periodic reviews of banding, which are the subject of another amendment, would allow such consideration to be taken? If the technology has developed in such a way, can we not look at it under future banding?
Mr. Brian Binley (Northampton, South) (Con): My concern is the front-end costs. The costs of creating the technologies we need to create in order to set all this renewable and alternative energy will be very front-ended and we need to give all the help we possibly can if we are to hit the targets we need to hit. It seems to me that the suggestion of my hon. Friend the Member for Wealden would aid that process and would be in the interests of the Minister’s objectives. I am not sure that the Minister has really taken into account that front-ended nature of the research and development, but that is necessary if we are to progress in the way that we need to.
Malcolm Wicks: As I said earlier, I hope that we have some capital grant schemes to enable R and D. I mentioned the new Energy Technologies Institute, which is particularly important, but I could also note the support we are giving to marine technologies, supporting them in an early phase and then again in order to get them through what some people refer to as “the valley of death”, which is the period between R and D and commercialisation. For marines, we have a support fund, I think, of up to £50 million, so I understand the critical importance of that early phase and what the hon. Member for Northampton, South calls front loading.
Certainly, learning effects are integral to technology development and cannot readily be separated out under a banding regime. That is why, as I have said already, we have the other support schemes that I have mentioned, such as the Energy Technologies Institute, that support R and D. This has been a useful discussion but I was about to say that I do not think that the amendment is necessary.
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Amendment No. 21, proposed by the hon. Member for Cheltenham, has been cast slightly wider, and seems designed to ensure that the Secretary of State takes account of individual technology’s impact on the possible environmental impact of new generating stations when setting the banding regime. It is an interesting point. I hope to persuade him, however, that sadly his amendment is not necessary, but I have some sympathy with the intention behind it. It is a question of whether we can proceed in better ways.
The amendment seems difficult to use for its intended purpose, and potentially risks confusing two different processes. First, the amendment is drawn very widely—the Secretary of State is asked to look not at the likely environmental effects of a particular technology, but rather at the possible effects of the generation, transmission and distribution associated with a generating source. This could be defined in terms of all possible positive impacts, such as carbon saving, or all possible negatives, such as visual amenity, land use or impact on agriculture. If we are into visual amenity, we are into difficult territory—because the hon. Gentleman wanders and sees a host of wonderful wind farms, whereas others seem to see the devil incarnate. Assessing a visual impact objectively is not always easy, although I am rather on his side, by the way, on that argument. It is difficult to see how such a comprehensive assessment could be reached, and then how it could be reflected in the banding structure, without acceptable levels of complexity and bureaucracy, and indeed, disagreement.
Secondly, we need to bear in mind the possible impact on renewable deployment of adding this additional requirement. We have set out our banding structures to increase total renewables growth, increase RO efficiency and help to bring forward developing technologies. The bands will therefore be set to maximise renewable generation towards our targets at best value for money. Future reviews would follow the same principles. Therefore, introducing an additional environmental assessment now would muddle the objective, and could even reduce the ultimate level of renewable generation. If, as a result of this, we reduce the incentives for some renewable technologies, rather than seeing alternative greener renewables taking their place, we risk seeing even greater levels of generation coming from fossil fuel stations.
That does not mean that we are not concerned about the effect on the environment of renewable technologies. A number of elements in the Bill demonstrate that we take this very seriously. For example, we will be introducing powers through the proposed new section 32J to the Electricity Act 1989 in clause 36 to enable Ofgem to require biomass generators who receive ROCs to provide information about where that biomass comes from. Indeed, we are increasingly concerned about sustainability issues around biofuels and biomass. So that is an important measure.
We will ensure that Ofgem publishes the information. This reporting requirement will have the express purpose of ensuring that we have an accurate picture of how sustainable a given source of biomass is, and that this is exposed to public scrutiny. There is also the power to exclude certain renewable technologies or sources from the benefits of the RO, and this is laid out in clause 36, and proposed new section 32C(1)(a).
However, the environmental effect of individual generating stations—which will vary according to geography, business plan and supporting infrastructure—is better addressed on a case-by-case basis, primarily of course, through the planning system and environmental impact assessments. A developer will have to satisfy the local authority or the infrastructure planning commission—should the Planning Bill go through—that the environmental impact is appropriate and limited. This is the correct stage at which to undertake a full environmental assessment. Will the hon. Member for Cheltenham consider not pressing his amendment in the light of my description of these important issues?
Finally, amendment No. 17 concerns the timing of reviews of the RO banding provisions. It is clear that, once implemented bands, should not be set in stone and that will allow us to respond to technological and other changes, thereby ensuring that the RO remains an effective and efficient tool to promote renewable generation. For that reason we have made provision in the Bill, in proposed new section 32D(8)(a), to allow the bands to be reviewed. However, in considering the appropriate time for and interval between reviews, we need to balance ensuring that the RO remains cost-effective and efficient with the need to give investors confidence and certainty about the support that they will receive under the RO.
The timing of those reviews will be set out in the secondary legislation and, in the Government response to the consultation, we have made the commitment that the first of these will coincide with the start of EU ETS phase 3 in 2013. The timing received strong support during the consultation process because in future the support levels required for renewables will be increasingly dependent on the carbon price under the EU ETS.
As I have already indicated, our job is to balance the need for a stable and predictable system for investors and developers with the need to change support levels over time to reflect changes in the cost of renewable technologies and other market developments. The approach in the Bill achieves this. Setting out the review timetable in secondary legislation provides investors with the considerable certainty that I have argued for, but still allows for flexibility. Any changes to the secondary legislation are subject to statutory consultation. Given the strong industry support for linking the review of the EU ETS timetable and the sufficient safeguards provided by setting the timetable out in the secondary legislation, will the hon. Member for Wealden consider withdrawing his amendment?
Charles Hendry: The Minister has responded to amendment No. 17, but my sense about the banding decisions is that they go into the “it’s all too difficult” box for a while. There is lots of discussion and there is plenty of opportunity for people to make contributions, but decisions keep being put off. That has been the history of the past couple of years.
The Bill provides an important opportunity to put the banding provisions in place, but we have been talking about that for a very long time. Amendment No. 17 would provide greater certainty so that people knew when a decision would be made on changing the banding arrangements. That said, I think that the Minister’s point about the next banding decision being taken in 2013 to tie in with the next stage of the EU ETS makes sense. Clearly a four-year rule would not work with the 2013 date. I understand the sense of the his point, so I will not press amendment No. 17 to the vote.
Martin Horwood: Of the amendments tabled by the hon. Member for Wealden, we remain sympathetic to amendment No. 16 and from what we have heard during the debate if the hon. Gentleman wishes to push that to a Division, we will happily support him. I missed the opportunity to express further sympathy for amendment No. 17, which also seemed a sensible issue to address. There is almost an outbreak of cross-party consensus now.
Continuing that theme, I was pleased with the Minister’s remarks on our amendment No. 21, where he made very encouraging remarks and seemed to be, at least, expressing support for the spirit, if not for the letter of the amendment. If he is concerned that the amendment is too broadly drawn, or that it might have unintended consequences—that seemed to be the essence of what he said—I suppose that in a spirit of hope we would be happy not to press it so that he would have an opportunity to introduce one that was even better and that went a little further than he went and explicitly made wider environmental concerns part of the banding process in the Bill.
Question put, That the amendment be made:—
The Committee divided: Ayes 7, Noes 9.
Division No. 1 ]
Baron, Mr. John
Binley, Mr. Brian
Hendry, Charles
Horwood, Martin
Main, Anne
Swire, Mr. Hugo
Webb, Steve
Iddon, Dr. Brian
Ladyman, Dr. Stephen
Palmer, Dr. Nick
Reed, Mr. Jamie
Robertson, John
Seabeck, Alison
Tipping, Paddy
Whitehead, Dr. Alan
Wicks, Malcolm
Question accordingly negatived.
Charles Hendry: I beg to move amendment No. 18, in clause 36, page 29, line 30, after ‘“biomass”’, insert
‘and to set out acceptable circumstances for the growing of biomass;’.
The Chairman: With this it will be convenient to discuss the following: New clause 15—Extension of Marine Renewables Deployment Fund
‘The Secretary of State shall make regulations to extend the remit of the Marine Renewables Deployment Fund to include support for the early development of wave and tidal technologies that need to complete pre-competitive research and development through deployment and demonstration.’.
New clause 17—Use of biomethane
‘(1) In section 32(8) of the Electricity Act 1989 (c. 29), in the definition of “renewable sources”, at end insert—
“and shall include the use of any gas drawn from a gas network to which premises supplied by the supplier are connected where at the time the gas is drawn from the network the supplier has arranged for the shipping to the consumer at those premises of the same quantity of renewable biomethane gas and that quantity has been introduced to the gas transmission or distribution system to which the consumer’s premises are connected.”.
(3) In section 124 of the Energy Act 2004 (c. 20), after subsection (5) insert—
“(6) For the purposes of this section ‘supplied’ shall include supply of any gas or other fuel drawn from a gas or other fuel network to any premises where at the time the gas or other fuel is drawn from the network by a consumer the supplier has arranged for the shipping to the consumer at the same premises of the same quantity of renewable transport fuel and that quantity has been introduced to the gas transmission or distribution system to which those premises are connected.”’.
Charles Hendry: After that moment of excitement, we move on to yet another exciting amendment. I am certain that this one will have even more support on both sides of the Committee.
The clause provides for a definition of biomass, which is certainly necessary. One of the principal concerns about biomass relates to the conditions in which it is grown. Clearing food stocks to grow it could potentially do more harm than good if food prices for those in developing countries increase, just as clearing rain forests to grow biofuels would do more harm than good. Biomass and biofuels have an important role to play, but not at any cost.
The technology is moving fast. We are seeing the development of cellulosic biomass, which uses different parts of the same product for food and for biomass. We are also seeing biomass being grown in terrains, particularly those adjacent to deserts, which could not sustain other crops. Over time, technology will resolve some of the concerns, but it seems sensible that the Bill should give the Government the power to decide which methods for growing biomass are acceptable and which are not. The amendment simply seeks to make that small change.
Steve Webb: We have a group that includes one amendment and two new clauses, all of which deal with different sorts of renewable technologies. New clause 15 relates specifically to marine renewables. I hope that the Committee will bear with me. I want to deal with the new clause in some depth, as it is important.
The Minister will have been well briefed and will know that the wording of our new clause, which involves extending what the marine renewables deployment fund does, has been modelled on a similar scheme in Scotland. The wording is taken directly from the objectives of the Scottish scheme, which, unlike the Westminster Government’s scheme, has succeeded.
At present, there is a £50 million budget for the fund—the Minister gave the figure earlier—and £42 million of that has been allocated for what are called
“multi-device early stage commercial generation facilities using technologies that have completed their R&D and are ready to move into a commercial environment.”
The final words,
“ready to move into a commercial environment”,
are the key. Certainly as of about a fortnight ago, the amount that had been allocated under the heading was zilch, zippo, nada, nothing. In other words, despite the fund having been announced almost a year ago, I understand—again, I hope that the Minister will correct me if I am wrong—that there have been just two applications for the £42 million section of the fund, and they have both been turned down.
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I am concerned that this is one of those Government grant schemes—the Department for Environment, Food and Rural Affairs is very good at them—that sound great and get a good headline but do not deliver. The fact that they have not spent the money is some indication that they have not achieved anything yet. Our new clause would expand the scope of the fund to bring in somewhat less commercially developed technologies. In this context, we should examine tidal lagoon technologies.
I said at the beginning of my contribution that our new clause is modelled on Scottish Ministers’ wave and tidal energy support scheme, which also funds—this is the crucial word—pre-commercial projects: the early development of wave and tidal technologies that need to complete pre-competitive research and development through deployment and demonstration. The Minister has referred to Orkney and the European Marine Energy Centre. If I remember rightly, the Scottish scheme has already funded about half a dozen projects, which have already taught us things about those alternative technologies.
Why are we so concerned to see pre-commercial technologies supported more effectively? My hon. Friend the Member for Cheltenham mentioned earlier the Severn barrage issue and that by 2020, we could get 5 per cent. of the nation’s electricity from that source. However, many people are concerned that a full-blown barrage might be environmentally too high a price to pay. The principal alternative, which the Department for Business, Enterprise and Regulatory Reform’s own feasibility study is examining, is tidal lagoons.
Interestingly, when the Sustainable Development Commission considered the issue, it said that
“there is little authoritative evidence”
on the technology, which again indicates how preliminary it is. To clarify, tidal lagoons, to quote from the SDC, use
“hydropower turbines in an offshore impoundment”,
and the,
“lagoons could potentially be developed in a number of shallow coastal areas with sufficient tidal range.”
That is what we are talking about, and the SDC said that it
“would like to see the Government investigating their long-term potential by funding a demonstration project”
Malcolm Wicks: Just one?
Steve Webb: The SDC continued:
“This would allow a full evaluation of the costs and the potential environmental impacts.”
That is what the SDC recommended, and if I am right, the Government set it up to advise them on such matters. In due course, I should therefore be interested in the Minister’s response to that recommendation. There is already a fund lying dormant, because the Government cannot even find anybody to give the money away to, so £42 million has been set aside and they have not given anybody a penny yet.
Malcolm Wicks: Does the hon. Gentleman not recognise that the money has not been spent because no project has yet satisfied the criteria? One does not just give money away—even in a fantasy Liberal Democrat Government. One does so when the project meets the criteria. One must do things properly.
Steve Webb: I can always tell that we are making a good point when the Minister gets narky.
The whole point of the new clause is that the criteria are too restrictive. Nobody has been found to give £42 million to, because people cannot meet the criteria. The new clause would expand the criteria so that the Minister could not only get another nice headline, but achieve more and spend his £42 million analysing technology that is not quite as advanced as the scheme that he set up is looking for but has yet to find. There is a sort of Bermuda triangle problem at the moment.
The reason that we must expand the fund’s scope is, to quote the SDC, that
“there is a lack of evidence with which to assess the long-term potential of tidal lagoons.”
Given the nature of the British isles, it says that
“there is potentially a significant resource in shallow water areas around the UK.”
The commission also talks about an “information gap” and
“a strong public interest in developing one or more tidal lagoon demonstration projects.”
There is the Minister’s answer:
“one or more tidal lagoon demonstration projects.”
The Minister urges me to be realistic, but I am being exceptionally realistic. We do not call for additional public spending or money that has not already been allocated; the money is in the Department’s budget, allocated for marine renewables deployment, but it cannot spend it because nobody can leap its hurdles. We therefore suggest broader criteria, and the evidence north of the border is that when broader eligibility criteria are applied, schemes get in. Lessons are being learned north, but not south, of the border.
John Robertson (Glasgow, North-West) (Lab): The hon. Gentleman has obviously done much more inquiry north of the border than I have. Can he tell me what the likelihood is of a return on the money that we put into such renewables? I am a Labour Member, and we do not have many rural or coastal seats. What are the chances of the councils in those areas allowing us to develop lagoons?
Steve Webb: I am slightly surprised by that intervention, because part of the point of the technologies is that they are deemed more environmentally friendly than some of the alternatives. A number of Labour seats are not far from the Severn estuary, and a number of Labour Members attended the meeting about the Severn barrage that the Secretary of State organised a few days ago. This is not a rural Tory-Lib Dem issue; it is one for all of us. Lagoons are regarded as potentially a more environmentally friendly way of meeting our renewable energy needs without the damage caused by bigger schemes.
To answer the hon. Gentleman’s specific question, I believe that the Government are considering an application for the Humber estuary. I have a suspicion that there might be some Labour seats in that area.
John Robertson: And we would probably have the problems that we seem to have in other areas. I return to my first question—what are the chances of getting a return for our money? There is no point putting money into such developments because the hon. Gentleman wants to expand the criteria if, by doing so, we develop a form of energy that is not sustainable and that is of no use. If we are going to spend money on promoting energy policies, should it not be along the lines that we should actually get a return for the taxpayer’s money?
Steve Webb: The nature of the schemes that we are discussing is that they are pre-commercial. The short answer is that we do not know; if we did, we could make a commercial judgment, people could get renewables certificates and a whole mechanism could kick in. We are not at that stage; the point is that there are technologies that have potential. In principle, tidal lagoons could give a return—whether it would be a commercial return, I do not know. It might well need the sort of subsidy that we are giving other renewables.
I do not understand where the hon. Gentleman is coming from. The technology is at an early stage and we do not know whether it is the answer. There are schemes to subsidise early-stage research on it, which will help us to answer the hon. Gentleman’s question, but if nobody can get money from the fund in the first place, that must be crazy. A fund of £42 million has been set aside and the Government cannot even give it away because nobody can clear the hurdles. That cannot be a rational strategy.
Mr. Jamie Reed (Copeland) (Lab): The hon. Gentleman is making interesting points. Does he share my fear that there is a risk that we might spread our public money too thinly, on too broad a range of potentially accessible and productive renewable resources? Does he have any indication of the costs that lagoon projects might entail?
Steve Webb: I do have that concern, because I understand that the Scottish scheme, which is obviously on a smaller scale, has funded nine projects. I do not know the precise details, but that might be spreading the money a bit too thinly, as the hon. Gentleman says. We might be able to learn more by giving a bit more money to fewer schemes. There is a trade-off. A substantial sum of £42 million has been earmarked, and a fair amount of pre-commercial research and development could be done with that.
As I indicated earlier, tidal lagoon technology is critical because the big-bang Severn barrage scheme, which could account for 5 per cent. of all our electricity, has environmental objections attached to it. Lagoons are the principal alternative, and we need to know as soon as we can how viable they are. The Government have set up a feasibility study, which will report in two years. If it says, “We are worried about the environmental impact of barrage, but we have no idea whether lagoons are any good,” because there is no demonstration project anywhere, we risk yet more delay and decades rolling by.
Mr. Reed: In response to that point, surely we would know what alternatives to the Severn barrage were available to us by dint of the fact that projects would have taken place in Scotland.
Steve Webb: No, because the things that have been funded in Scotland are pre-commercial developments. That is the problem. The title of the fund is the marine renewables deployment fund. It is intended to fund things that are ready to be deployed on a commercial scale. The technology is not yet there, and it is unlikely—looking at the sorts of schemes that have been funded in Scotland—that by the time the feasibility study is finished they will have gone through all the early research and development, got to the stage of commercial deployment, been deployed and be ready for evaluation. That is why I want to try to remove the obstacle. If the money is sitting there now waiting to be used, it seems criminal not to do so.
John Robertson: The hon. Gentleman has been very generous with his time, but I still want to get my head around what he is saying. The £42 million is there to be used. Is he saying that we should keep opening up the criteria until we have spent £42 million just for the sake of spending it? I could be wrong, but if a Government did that, would it not be the duty of the Opposition to call attention to the fact that £42 million of taxpayer’s money had been wasted? Should we not look at several criteria that suggest that there is a chance that we will get a return for our investment, or do we throw the money away and hope that some day we might get something back?
Steve Webb: Let me take the hon. Gentleman through the steps of my argument. Step one is that the Government have set up a Sustainable Development Commission to advise them on sustainability, renewable energy and similar matters. Step two is that the Sustainable Development Commission has said that tidal lagoon technology is very interesting, and that the Government should consider it as part of their renewable energy objectives. Step three is that that same commission has said—I think that I quoted this earlier—that there is a huge information gap about that technology. I started at the end, with the money, and perhaps I was not clear about it, but my sequence of reasoning is that the technology has potential. Expert advisers employed by the Government have said that that is the case and that there is a gap in our knowledge. We need demonstration projects and money for those projects. Where could the money come from? There is a marine renewables deployment fund that has not spent its money. With a tweak that we know gets schemes in north of the border, why do we not apply that available money to something that needs doing? I assure the hon. Member for Glasgow, North-West that I am not desperate to spend the £42 million on just anything lying around. Independent respected advisers say that there is a need to progress such schemes; there is no obvious source of funding beyond this, and it seems to be a good way to spend the money.
Charles Hendry: The hon. Gentleman has made an extremely interesting case, for which I have a great deal of sympathy. It seems that many of the Government funds have not been used adequately to encourage microgeneration, photovoltaics and so on. Has he examined whether the banding of ROCs could be used to help achieve the right result? Were the banding set at the right level—two is suggested for marine and tidal, but that might not be enough—would that not have the same result?
Steve Webb: I am grateful for that intervention. The hon. Gentleman asks a fair question. However, no one can get ROCs until they generate on a commercial scale. Getting to that point is the barrier that we wish to overcome.
Charles Hendry: The valley of death.
Steve Webb: Indeed, the valley of death. We are trying to overcome that hurdle and barrier and get to the point at which the renewables obligation can kick in. The fact that the Government offer two ROCs, or doubled ROCs, for wave and tidal stream technology, suggests that they want to encourage it. However, if we do not get to the starting block—or the starting ROC—we will face that problem. I hope that I have given a flavour of what we are trying to achieve through new clause 15. We support the fact that the Government have a marine renewables deployment fund, and we would like to see it deployed on pre-commercial technology, which is critical to the whole renewable electricity strategy of the country.
Malcolm Wicks: This has been a useful debate. I hope that I can persuade colleagues that the amendments and new clauses are not necessary—I might need to speak at some length on this.
5.45 pm
On amendment No. 18, the Government believe in the importance of ensuring that the most sustainable forms of renewable electricity are incentivised over the long term. We are aware of the interest in the sustainability of biomass. Earlier, the hon. Member for East Devon asked me a question, and I managed to muddle up my answer through no one’s fault but my own. By definition, crops grown principally for energy production are known as energy crops, which seems perfectly sensible. Non-energy crop biomass is any other biomass type. Energy crops include short-rotation coppice willow and poplar, as well as elephant grass, also known as miscanthus. Non-energy crop biomass includes crop residues such as straw. No farmers should be left unable to sell their crops as a result of the cap, which does not apply to energy crops. If I am able to supply the hon. Gentleman with more information to provide even greater clarification, I shall attempt to do so.
Amendment No. 18 would allow secondary legislation to set out acceptable circumstances for growing biomass. The Government take sustainability seriously. In 2006, we published research into the sustainable impact of the major biomass fuels used under the RO—mostly co-fired alongside coal. The study by Themba, an external consultancy that specialises in the sustainable use of biomass, examined those major fuels and found that the net carbon balance for the production, transport and use of biomass for co-firing was positive in all circumstances for both imported and domestic biomass. Clearly, as the use of biomass grows, the potential for other fuels to be used and for some of them to raise issues of sustainability, will also grow. That is why the Bill contains provisions to introduce sustainability reporting for all generators of more than 50 kW that use biomass.
Our approach to sustainability of biomass is the right one, and the amendment is therefore unnecessary. As I have mentioned, the renewables obligation order will require generators to report on the nature, quantity and source of the biomass, what land has previously been used for and whether production meets any of the other existing or planned sustainability standards. That information will be published by the authority, Ofgem, to bring transparency to the issue. Clearly, we must balance the benefits of regulating sustainability against the administrative complexity involved and any evidence that such regulation is necessary.
We believe that having a transparent reporting requirement is an appropriate approach to monitoring the sustainability of biomass under the RO. Implicit in our approach is the recognition that this is a developing area; as such, we must keep it under review. If industry practices develop that have a significant, negative impact on sustainability, we will, of course, act. It would not be appropriate to introduce speculative legislation specifying criteria for biomass when we have no compelling evidence that its use in electricity generation is unsustainable. Our proposals under proposed new section 32J(3) will allow us to build an evidence base to help us to decide whether action is necessary in future.
The amendment is unnecessary. However, we recognise that there might be a case for ensuring that the Government have powers to take further account of sustainability issues relating to biomass. In terms of reporting to Ofgem, to which the amendment seems to relate, we already have the ability, under proposed new section 32J(3)(a), to specify the information relating to biomass that must be provided.
If we need to act, we have other powers generally under the Bill that allow us to take appropriate measures through secondary legislation. First, under proposed new section 32A(2), the Secretary of State may limit the eligibility of specified renewable sources under the RO. Secondly, under proposed new section 32D, the Secretary of State may allocate renewable sources into different bands. Those powers allow for a range of responses. For example, we might consider excluding certain forms of biomass if we had concerns about their sustainability. That has been our approach to peat, which is an excluded fuel. Such responses will, as ever, be subject to consultation. For those reasons, I ask the hon. Member for Wealden to withdraw his amendment.
Moving on to new clause 15, I think that all Committee members are aware of the importance of marine energy technologies and the part that they could play in our overall renewable strategy. If marine energy technologies can be successfully developed to the point at which their costs are reduced sufficiently to allow them to compete alongside other forms of large-scale renewables, they have the potential to make a very significant contribution towards achieving our medium and longer-term renewable energy and emission reduction goals.
The MRDF, to which the new clause relates, was designed to assist with a commercial demonstration of the marine energy technologies that are ready for full-scale deployment. Some £50 million has already been allocated to that fund in order to support the first large-scale commercial demonstration of marine energy technologies. Although no technology developers have yet met the fund entry criteria, owing mainly to a lack of data operating in real-life marine conditions—not enough of the kit has been in the water for long enough—we expect at least two developers to be in a position to apply later this year.
New clause 15, tabled by the hon. Member for Northavon, suggests that we move the focus of the MRDF scheme away from commercial demonstrations of new marine energy technologies towards pre-competitive research, which could duplicate other research funding. Perhaps it would help if I briefly set out what we are currently doing on R and D for marine technology.
Dr. Brian Iddon (Bolton, South-East) (Lab): I was slightly concerned to read last Sunday in The Observer that Edinburgh-based Pelamis Wave Power is about to take its machine offshore in Portugal, after trialling it in the Orkneys. As a result of the lead that the Government have taken so far, I thought that this country might be the first to begin the large-scale generation of electricity from wave power. According to The Observer, an Ernst and Young study recommended three ROCs, instead of two, which might have kept Pelamis Wave Power, and perhaps other developers, in Britain. Will the Minister comment on that Ernst and Young report and the claims last Sunday in The Observer on Pelamis Wave Power?
Malcolm Wicks: First, let me pursue my own analysis. I, too, read the article. I did not agree with all of it and hence checked the football results in another newspaper in order to verify them, because of my doubts about that particular article.
Funding of R and D for marine technologies has been available from our technology standards board—I think that that should be the Technology Strategy Board, but I stand corrected—the research councils’ SUPERGEN marine programme and, of course, will be available under the new Energy Technologies Institute. At the moment, we are at the R and D phase, which we are taking very seriously. However, I hope that we are approaching the deployment and demonstration phase.
Mr. Swire: I know that the Minister is not responsible for other countries, and least of all European countries, as he has pointed out already. However, does he have any idea of how much other European countries are spending on R and D in marine technology? Are we at the top of the pile, or further down?
6 pm
Malcolm Wicks: I believe that we are somewhere near the top, but if I can get accurate data to send to the hon. Gentleman, I shall do so. There is a militant tendency, of which I appreciate that my hon. Friend the Member for Bolton, South-East is not part, to suggest that other countries are way ahead on everything. They are not. We are one of the leading nations, partly for geographical reasons—we are an island people—in marine technology.
The ETI was formed specifically as a collaboration between industry and the Government in 2007 to take forward R and D work in the energy sector. In December last year, it launched two calls for expressions of interest, one of which focuses on marine technologies. Since 1999, more than £35 million has been committed to research and development, which had led to a number of marine technologies being developed and tested at full scale. The Government have also invested in the European marine energy centre in Orkney, which I had the good fortune to visit and which is a £50 million dedicated test facility for wave and tidal technology developers. The South West of England Regional Development Agency’s £28 million wave hub project is also important. It is a purpose-built proving ground for larger-scale demonstrations.
The hon. Gentleman would not want to give the wrong impression because he is an optimist by nature, but already our country is doing a great deal on research and development. It is important to keep the MRDF to support larger-scale demonstration for the next important phase of the innovation process for the development of marine technologies. To repeat a phrase, of which I am not the author, there is always an interim period. Sometimes the money is available for research and development—I am arguing that we have put a good deal in—but the gap between that and deployment is often the difficulty before it becomes commercial and profitable: the so-called valley of death.
That is why there is a strong argument for keeping the fund for its original purpose, rather than, as the hon. Gentleman seeks to persuade me, to push it early into the process for further research and development to compete with the other technologies. I want to keep the fund to support larger-scale demonstrations for the next important phase, and in my view the proposed changes would dilute that focus and risk duplication with other research and development funding available from the Government.
I understand the hon. Gentleman’s question about Pelamis, which is not to be confused with the old refrain, “Och, och, och, there’s a monster in the loch”, which I think was Polaris—I must not go back to my radical youth. At that stage I had a quarrel with another form of nuclear technology. The Ernst and Young report did not recommend three ROCs. I am advised that for wave and tidal stream, it assessed only the costs of technologies. I am told that it made no recommendations.
We expect schemes to come forward in the UK over the next few years to exceed the level in Portugal, helped in part by the support offered through our banding proposals, but if there is an opportunity now with Pelamis to test the technology and in simple terms to have it in the water for long enough to prove its effectiveness, I rather welcome that. I am a patriot and, as someone reminded us the other day, a patriot is someone who does not hate other countries. I rather welcome Portugal’s interest in the technology, and I hear that the contract is a commercial one.
That is the situation, and I am sure that I have persuaded the hon. Gentleman that we are doing enough for him to consider withdrawing his amendment. That does not bring me to his new clause, so I shall sit down and hope that someone moves us on to new clause 17.
Dr. Alan Whitehead (Southampton, Test) (Lab): I will indeed move on to new clause 17 so that my hon. Friend can respond to it. Its purpose is simply to draw into the renewables obligation mechanism supplies of biogas when they are placed in the distribution network. Do we want to encourage the development of biogas? My view is that we do, for a number of reasons. The most important is that the targets for renewable energy that we have agreed in the EU suggest that we should produce 15 per cent. of our energy from renewable sources by 2020. At present most of that target will have to be achieved from renewable electricity because, since the target talks about energy, the other part of that is heat and road transport fuel.
Heat is overwhelmingly supplied by gas. At present there are no significant mechanisms for introducing a renewable element into gas supply and therefore the target for about 15 per cent. of renewable energy will almost all have to be borne by the generation of renewable electricity. So widening the ability to reach that target by including the way that gas can supply heat from the grid appears a sensible way forward.
We have had debates recently about whether there should be a renewable heat obligation. Following that, we had considerable discussion about how one measures what goes into a renewable heat obligation. Since the overwhelming majority of heat is produced by gas, having a renewable gas obligation is a good proxy for renewable heat obligation. It is measurable and, as my amendment suggests, can relatively easily be incorporated into a renewable obligation arrangement.
The problem is that biogas can get an ROC if it makes electricity. The very helpful guide note which has been distributed to accompany this clause sets out on page 6:
“If an anaerobic digestion plant is receiving two ROCs from now on, it will keep that level of support even if the bands change and support for anaerobic digestion drops down to 1.5 ROCs.”
Support for anaerobic digestion is based on the gas coming from the anaerobic digestion plant making electricity, effectively on a private wire arrangement, directly from the plant to electricity production. If the gas goes into the grid or does not go to make electricity, it does not get any ROCs. That appears to be an anomaly especially because all analyses show that if biogas goes into the grid, it saves 72 per cent. more carbon dioxide by being used for heat and other purposes than if it were used to make electricity in the way that I have described.
The question we have to ask is whether it is possible for that biogas to go into the grid It is technically possible and very straightforward. Many people will have heard of Schmack Biogas, the largest biogas company in Germany, which has undertaken numerous developments in biogas and now has a capacity around Munich of almost 4 million cubic metres of bio-methane per year. It is cleaned, goes through a process and goes into the grid. It is relatively straightforward.
Hon. Members will not be surprised to know that the managing director of Schmack Biogas is Ulrich Schmack. He suggests that within five years his biogas, with rising energy prices, will be comparable in price to imported gas supplies. It is not a technology which is way beyond the boundaries of cost; it could contribute substantially to our renewable targets. Biogas is readily available both in rubbish bins via digestion and, of course, standing in fields around the country. The technology could be encouraged and could make a substantial contribution if it were introduced into the renewables obligation system. In the same way, we are banding ROCs to try to bring forward renewable technologies so that they are able to play their part in a much larger renewable energy economy. Doing that for biogas seems eminently sensible and straightforward.
I have no doubt that my hon. Friend the Minister will suggest that it would be a good idea if I did not press the new clause. I trust that he will underline the importance of biogas to the energy economy and the understanding that methods might be considered to introduce some form of renewable gas obligation system, either through the mechanisms in the Bill or otherwise in the near future. However, I shall pre-empt my hon. Friend by asking leave to withdraw the amendment. The new clause is not a complete amendment because it would be necessary to introduce further clauses to ensure, for example, that the Minister was able to set levels of renewable gas that gas suppliers would be obliged to produce, in the same way as the technical details of clause 36 do for electricity.
I hope that my hon. Friend will provide considerable encouragement on the principle of the new clause and about providing a way to allow him to play a role in renewable energy through biogas in future. I beg to ask leave to withdraw the amendment.
Martin Horwood: Thanks to the mysteries of parliamentary procedure, I find myself supporting a new clause that the hon. Member for Southampton, Test intends to withdraw. Nevertheless, I shall press on in the hope of influencing the Minister in the spirit of the new clause, which we Liberal Democrats support.
At a time when questions are being raised in public about various forms of bioenergy, not least by the Environmental Audit Committee, of which the hon. Gentleman and I are both members, it is important to identify sources of bioenergy, including biomass, that are highly efficient at reducing carbon emissions and highly sustainable. Biogas anaerobic digestion is one of those sources and it also has commercial potential.
I am told that the injection of methane into the national gas grid is not only viable, but is growing apace across Europe with a 25 per cent. per annum growth rate. The Department for Environment, Food and Rural Affairs has already identified biogas produced by anaerobic digestion as one of the best ways of dealing with food waste. That will please the hon. Member for St. Albans and others who have raised great concerns in the House about the future of the collection of putrescible waste. Providing that important energy source, which is also sustainable, is an important way of contributing to the handling of food waste. If DEFRA welcomes it and wants to see it developed, it would be a good example of joined-up Government if DBERR also picked up this opportunity to look kindly on the general thrust of the new clause, which we Liberal Democrats support.
Malcolm Wicks: I wonder whether I can trespass on your patience slightly, Mrs. Humble, by replying to the point that the hon. Member for Northavon made about lagoons before talking about gas. I was going to save it until the end of my speech, but I have realised that I shall not be able to finish it for procedural reasons.
I listened carefully to the hon. Gentleman. Lagoons are supported under RO, as he knows. There are plans for lagoons off Rhyll and Swansea bay. My Department has been in discussions with companies that are interested in bringing forward these projects. Our banding proposals will provide two ROCs for tidal lagoons. As the hon. Gentleman probably knows, although he did not mention it, tidal lagoons are covered by the Severn barrage feasibility study. We are looking not only at the barrage, but at all tidal ranges—I think that is the technical term.
I turn now to new clause 17. As members of the Committee know, when finalised in spring 2009, our EU renewable energy targets will be fulfilled through renewable electricity, heating and transport fuel. The way in which we support each element will be subject to careful analysis, but there are some areas where they overlap. Biomethane certainly seems to be one of them. The new clause is drafted to enable electricity generated from natural gas to be treated as a renewable and therefore eligible for ROCs as long as the electricity supplier has a contractual arrangement with a renewable gas supplier and that an amount of biomethane equivalent to that supply has been introduced to the grid. It would further enable a supplier of transport fuel to fulfil their renewable transport fuel obligation without actual delivery of the fuel from renewable sources, but introduction to the grid of an equivalent amount of gas.
The Government recognise that biogas produced from the anaerobic digestion of organic materials may be an important part of the fuel mix going forward, but also that it has a number of uses. By way of digression, I must say that, in my family, it is not me who is the fan of “The Archers” on Radio 4. However, I was home the other day listening to the news on the wireless after which the familiar refrain came on the air. I was about to turn it off, when suddenly I heard those magic and exciting words “anaerobic digestion”, which seem to be creating some concern in Ambridge. That goes to show how such matters are now becoming mainstream in our media.
Biogas can be burned to provide heat and/or electricity or it can be used as a transport fuel and, as such, could qualify for support under the renewables obligation or the road transport fuel obligation. It therefore has a role to play in meeting our renewables targets. However, I am unconvinced that the new clause is the correct way in which to proceed. I was encouraged that my hon. Friend the Member for Southampton, Test seemed slightly unconvinced, too, towards the end of his speech. He was conceding that it was not necessarily perfectly formed, although I thought that it was a good work in progress.
The renewables obligation has always been based on electricity actually generated by renewable sources. The new clause would break that link. We therefore need to tread carefully and to consider the impact that such a proposal would have on the RO and the implications for its administration. It is also important that we should not end up double counting. Once the link between actual delivery of the renewable fuel and generation is broken, that becomes more of a risk. For example, if such a provision comes into effect, we will need to be careful not to allow the same gas to count towards both the RO and the RTFO.
We will also have to deal with the potential for subsidy shopping, whereby the producers of biomethane will sell simply to whichever—the RO or the RTFO—provides the greatest reward. That could maximise the cost to the consumer and lead to potential disruption of the supply chain to downstream industries if support levels change. Furthermore, as I said, renewable heat will very much be part of our renewables strategy. More work is being undertaken at EU and national level, which will have an input.
As my hon. Friend knows, the Government published a call for evidence on heat generation in January to continue developing a strategy in the area and that document specifically includes questions on the use of biomethane. Indeed, should we introduce a support scheme for renewable heat, there would be a further opportunity for double or even triple counting and further subsidy shopping if we did not carefully consider the issues and support structures in the round.
Although I can therefore express some sympathy for the intention behind the new clause, while work on all the issues is being undertaken in the context of the renewable energy strategy, it would not be appropriate to accept it. I was therefore grateful to my hon. Friend the Member for Southampton, Test who suggested that he might consider withdrawing it.
6.15 pm
Martin Horwood: I want to ask the Minister a technical question. Earlier in his remarks he said that lagoons would be covered within the current banding of ROCs at the level of two ROCs and, therefore, in the emerging technologies section. I do not have the exact text, but from the brief we were given, emerging technologies included wave and tidal stream but I do not think that that very clearly includes barrages and lagoons. I may be wrong and I look forward to being corrected, but as I understand it, tidal stream is about turbines under the surface of the water; a wave is about exploiting wave power and not tidal flow as we would be talking about in the case of the Severn and others. If the Minister does not have the technical answer at his fingertips right now, I am happy for him to tell me the answer later.
Malcolm Wicks: In the Government’s response to our own renewables obligation consultation, we set out the banding criteria. Under emerging technologies, as well as wave and tidal stream and many other forms of renewables, we talked about tidal empowerments and, in brackets, as an example, we said tidal lagoons and tidal barrages below 1 GW of potential. I hope that that has satisfied my colleague.
Steve Webb: Perhaps I can respond to new clause 15. I was trying to think of an analogy that would help me to explain where the difference lies between myself and the Minister. The best I could come up with was considering the Minister as a finely honed athlete, but one who is a relay runner. I will not get too carried away with this idea, but when it comes renewable technologies, it seems that there is a continuum that might be analogous to a relay race. The first lap might be pure research; the runner of that lap hands on the baton to the second lap which might be the first R and D starting to apply this pure research; the next lap is the commercial stage development and so forth; another lap and suddenly we are up and running with full-scale commerce. In this race the Minister is like the runner at the start of the third lap, holding out his hand, waiting for the baton, saying, “We have a Marine Renewables Deployment Fund, but you have to get to my starting line before I can have the baton and carry on”. The state of play as far as I can see it is that—at least so far—the previous runner is only halfway round the lap.
I was interested in the Minister’s response about Swansea and Rhyl. Presumably the Marine Renewables Deployment Fund is for England and Wales. I am waiting for a firm nod but I will carry on. Therefore, if there are millions of pounds of Government subsidies to be had, I am interested in the fact that neither of them applied for it. Presumably if they are at the stage of putting these things into bays, one might imagine that they were, more or less, at the starting line that I have just described.
Were it the case that we are on the brink of these demonstration lagoon products, I would be much more reassured. But the Minister said that we have been doing R and D for eight years, and still nobody can put the baton in his hand and take the money off him. There must be some barrier that we have still not overcome.
Malcolm Wicks: Might not the barrier be that this is not easy. I visited Orkney and met professionals and enthusiasts there. The professionals had their feet on the ground, when they were not in the boats. One of them likened this situation to being where the Wright brothers found themselves. I thought that a comparison with aviation was very interesting coming from a professional involved in this work. It indicated to me, in terms of the use of the marine development fund—which, as every schoolgirl knows, is for England and Wales as Scotland has its own interest in this—that we have to be quite careful to safeguard that scheme.
By the way, I, too, am rather frustrated that we have not been able to spend the money, because I am an enthusiast for this work, although a level-headed one. I told the hon. Gentleman that we have spent quite a lot of money on the R and D phase and that there are a number of companies and pieces of kit in the country that show great promise, but I suppose that he is saying, “Forget what the fund was meant to be about. Just use that for more R and D.” I am not sure that that is a very disciplined approach to the question.
Steve Webb: Is this still an intervention?
Malcolm Wicks: Yes. I would prefer to do the R and D properly and then use the fund for its purpose.
Steve Webb: I am grateful for that very full intervention. I will not repeat myself, but I do not understand why those Welsh projects that are about to come on stream, or whatever the verb is, have not come under the scope of the fund. Perhaps they did not think that they needed it. My sense is that these things still need subsidy, so I am intrigued that they do not need it, but perhaps we can park that for a second.
All I am saying is that this is a continuum. My argument is not that we simply take the money and do exactly the same as all the other things are doing. That would just be duplication. There is a gap, according to my analogy. I am urging the Minister to take one step back in the continuum. The runner from behind might then be able to hand on the baton and we might achieve what we all want to achieve. I am not wholly reassured that the Minister has satisfied us on that point.
Charles Hendry: I am not quite sure how biomass, biogas, marine, wave and tidal all got lumped into one debate, but we have had an interesting debate on a range of issues.
I shall comment first on the new clause that the hon. Member for Northavon was just discussing. I sense complacency on the part of the Government, which is worrying and unfortunate. There is an interesting distinction in relation to the proposal that was dealt with just now, about research and development and efficiency gains. The Minister did not feel that that was necessary, but he is now being rather complacent about the research and development that is taking place.
The sense that I get from talking to companies in this field is one of frustration that they are not receiving more help. Perhaps the reason why no one has been able to claim the money from the Government’s fund is that the fund has not been framed correctly, not that every company trying to work in this field has got it wrong in terms of the stage of development that they are at. It is right to go back and examine the basics of this again to see how more support can be given.
On amendment No. 18, however, the Minister has been able to give us assurances. He has rightly pointed that there is no evidence of abuse of the system so far and that the powers are included elsewhere in the Bill. He was very comprehensive about that. The only area on which I am anxious relates to his remarks about the reporting elements that are required. The Liberal Democrats have tabled a subsequent amendment, which would delete clause 78, because that changes fundamentally the reporting criteria that exist, which we believe would be profoundly misguided at this stage. For the Minister to rely on the reporting element is something that we would have to review carefully, but I will in due course, with the leave of the Committee, withdraw the amendment.
Perhaps we can finish on a note of agreement on biogas. We support the instincts that the hon. Member for Southampton, Test mentioned when introducing his new clause and we agree with the comments that the Liberal Democrats made on this. I hope that the Minister will feel reassured that the measures that he takes to try to address the issue will have cross-party support, because we all see that biogas has enormous potential that has not been exploited. We would like the Bill to address that. We have tabled a new clause, which we hope will be debated in due course, on a renewable heat obligation. Those are all parts of a comprehensive energy policy. I hope that the Minister will be reassured to know that there will be cross-party support for the measure. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
The Chairman: With this it will be convenient to discuss the following:
New clause 6—Feed-in tariffs
‘(1) The Secretary of State may by regulations make provision to introduce feed-in tariffs for renewable micro-generation and decentralised energy.
(2) In this section—
“feed-in tariffs” means a requirement on utilities to buy electricity from renewable sources at a feed-in rate to be set by the Secretary of State, dependent on available renewable technology;
“micro-generation” means any generation under 250kW;
“renewable energy” means any form of energy produced in the generation stage without using fossil fuels or emitting carbon;
“a feed-in rate” means a guaranteed payment by the energy suppliers for each kilowatt of electricity generated.’.
New clause 8—Feed-in tariffs (No. 2)
‘(1) The Secretary of State may make regulations for the purposes of requiring designated electricity suppliers to purchase the electricity generated from renewable sources by small-scale generators (“feed-in tariffs”).
(2) For the purposes of subsection (1)—
(a) “small-scale generators” are persons generating electricity below a level to be determined by the Secretary of State following consultation,
(b) “renewable sources” are such energy sources as may be determined by the Secretary of State following consultation,
(c) “designated electricity suppliers” are those persons licensed by the Secretary of State to supply electricity as set out in section 6 of the Electricity Act 1989.
(3) The Secretary of State must consult for the purposes of determining the appropriate form of regulations as set out in subsection (5) below and must—
(a) commence such consultation within a period of six months of the day on which this Act is passed,
(b) determine a reasonable period of consultation,
(c) consult with—
(i) designated electricity suppliers,
(ii) the National Consumer Council (incorporating energywatch),
(iii) the Gas and Electricity Markets Authority (“GEMA”),
(iv) the National Grid,
(v) such generators of electricity from renewable sources as he considers appropriate,
(vi) such environmental organisations as he considers appropriate, and
(vii) such other persons as he considers appropriate.
(4) The Secretary of State shall, within six months after the end of such consultation, make regulations for the purpose of bringing into effect feed-in tariffs pursuant to subsection (1), in such manner as the Secretary of State shall consider appropriate.
(5) The regulations mentioned in subsection (4) above must—
(a) define the renewable sources in respect of which feed-in tariffs shall apply,
(b) define the maximum level of electricity generation in respect of which feed-in tariffs shall be available, as referred to in subsection (2)(a) above,
(c) define which persons generating electricity from renewable sources shall be eligible for feed-in tariffs,
(d) prescribe the means by which tariffs applicable under feed-in tariffs are to be calculated and, where necessary, amended,
(e) prescribe, where appropriate, the terms and duration of the feed-in tariff arrangements,
(f) make provision for the payment and incidence of the costs of connection of relevant small-scale generators to the National Grid,
(g) make provision for the regulation of feed-in tariff arrangements by a designated body,
(h) make provision for the Secretary of State to report periodically on the effectiveness of the regulations made under subsection (1) in achieving their objectives,
(i) provide for the making of any necessary amendments to distribution licences or supply licences held by any person, and
(j) make such changes as may be necessary to existing legislation, including that providing for the Renewables Obligation Order.’.
New clause 14—Tariffs for renewable energy
‘(1) The Secretary of State may by order impose on each energy supplier falling within a specified description (a “designated energy supplier”) an obligation to reimburse producers of renewable energy falling within a specified description (a “renewable energy producer”) for each unit of renewable energy produced as set out in subsection (4) (and that reimbursement rate is referred to in this section as a “renewable energy tariff”).
(2) The descriptions of energy supplier upon which an order may impose the renewable energy tariff are those supplying electricity or gas—
(a) in Great Britain;
(b) in England and Wales; or
(c) in Scotland,
excluding such categories of supplier as are specified.
(3) In this section—
“renewable source” has the same meaning as in the Utilities Act 2000 (c. 27);
“renewable energy” means energy from renewable sources;
“renewables obligation” means the obligation specified in section 32 of the Electricity Act 1989 (c. 29);
“specified” means specified in the order.
(4) The renewable energy tariff shall set the reimbursement level for each kilowatt hour of energy produced by the renewable source and may—
(a) be set at different levels for different types of renewable source,
(b) be varied at different times as prescribed in the order or in successive orders.
(5) The order shall set out—
(a) the renewable sources in respect of which renewable energy tariffs shall apply,
(b) the tariff applicable to each renewable source,
(c) which installations shall be eligible for renewable energy tariffs, and any provisions to exclude installations accredited under the renewables obligation,
(d) which renewable energy producer shall be eligible to receive renewable energy tariffs,
(e) which designated energy supplier shall be responsible for paying the renewable energy tariff to a particular renewable energy producer,
(f) the terms and duration of the renewable energy tariff arrangements,
(g) how the amount of energy produced and upon which the renewable energy tariff is payable shall be measured, determined or deemed,
(h) provisions for the regulation of renewable energy tariff arrangements by a designated body,
(i) provision for the Secretary of State to report periodically on the effectiveness of the regulations made hereunder,
(j) any necessary amendment to distribution licences or supply licences held by any person, and
(k) such other provisions as may be required for the efficient and cost-effective operation of the renewable energy tariff.
(6) Before making an order, the Secretary of State must consult—
(a) the Authority,
(b) the energy suppliers to whom the proposed order would apply,
(c) representatives of renewable energy producers to whom the proposed order would apply, and
(d) any other persons he considers appropriate.
(7) An order under this section shall not be made unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.
Malcolm Wicks: There are no other volunteers to introduce this debate, so I shall. I ask colleagues to bear with me, because I need to address this group at some length.
The group covers a clause stand part debate on clause 36, which is about the renewables obligation, plus three proposed new clauses that suggest a feed-in tariff enabling clause for large-scale renewable generation and microgeneration. I will introduce the debate, and I assume that colleagues will introduce their new clauses.
In essence, clause 36 replaces the existing sections in the Electricity Act 1989 that relate to the renewables obligation with new sections that incorporate all the amendments to the RO that have been made in primary legislation since 2002, as well as our proposed changes. It will enable industry, Ofgem and other key stakeholders to consider the RO in its entirety.
In many respects, this is a consolidating measure, as well as one that introduces a new development in the RO. I propose to focus only on the parts of the clause that represent real changes to the RO, but I have provided a paper, which colleagues now have in front of them, that covers in more detail all the new sections that we propose to bring into the Act.
Clause 36 allows the Government to make important changes to the RO placed on electricity suppliers in Great Britain in order to improve its cost-effectiveness and to drive even greater renewables deployment in the UK. I contend that the RO has been hugely successful since its implementation in 2002 and, in a short time, has led to a significant increase in the amount of renewable electricity generated in this country. Eligible electricity generation in the UK has increased from 4.9 TWh in 2001, the last year before the obligation came into effect, to more than 14.5 TWh in 2006.
However, we can do more to increase further the effectiveness of the RO. The aim is to move to a banded system that reflects the cost and stage of development of each technology, and makes the RO more effective at increasing the deployment of renewables. Some technologies are amply rewarded by the existing system. Landfill gas, for example, does very well, and we will seek to reduce the support for new plant that that technology gets in future.
In contrast, most offshore wind farms do not receive enough support under the existing RO alone to make them economic. We will need to bring developing technologies forward if we are to achieve our ambitions to diversify and decarbonise our electricity supply. The existing obligation is for each supplier to provide evidence that it has supplied to customers in Great Britain a specified amount of renewable electricity. New section 32 will change that. In the future, the obligation will be to submit to Ofgem a certain number of renewables obligation certificates, or ROCs. That important change will allow the introduction of banding.
We have already talked about how the current RO is technology-neutral, in that all generators of renewable electricity receive one ROC per megawatt-hour of electricity generated. Following our changes, some technologies will be awarded with a ROC if they produce less than 1 MWh hour of electricity in the future, while other technologies will need to produce more than 1 MWh of electricity to receive a ROC. In terms of fulfilling the obligation, however, which is expressed as a number of ROCs, each ROC will have an equal value.
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The major new element in new section 32 is in subsection (2)(a), which provides for the supplier’s obligation to be calculated. Our intention is that the overall level of the obligation for the years up to 2015 will be the same as it would be under the current order. To achieve that we will, in the first instance, convert the existing RO—which increases in annual steps to 15.4 per cent. by 2015—from an obligation calculated in megawatt-hours, to one calculated in ROCs. For example, the obligation for 2011-12 under the current order is set at 11.4 per cent. For an electricity supplier with sales of 50 terawatt-hours, this would represent an obligation to supply 5.7 terawatt-hours, or 5.7 million megawatt-hours, of renewable electricity. In future, the obligation will be to present 5.7 million ROCs or pay a buy-out price for each ROC not presented.
In setting the obligation levels, we need to balance the interests of generators and investors with those of electricity consumers, who are paying for the costs of the deployment of renewables. The costs of moving towards a lower carbon economy are increasing, and we need to understand the price impacts. Ofgem has calculated these costs to be around £7 to the average household in 2006-07. The higher the level of the obligation, the greater will be the cost to consumers, but equally, if generation goes higher than the level of the obligation in any year, the trading value of ROCs may crash, since no suppliers need to buy them.
Anne Main: The Minister referred to the consumer of power being responsible for the renewables. Energywatch drew it to my attention only yesterday that every consumer can ring up and find out about what they are entitled to, as a result of that contribution. It is interesting that the Minister has raised it now; perhaps we can highlight that we are all entitled to contact our energy supplier and find out more about what they can offer us in return for that contribution.
Malcolm Wicks: That is useful, but if I have understood the hon. Lady correctly, consumers are entitled to—
Anne Main: Advice.
Malcolm Wicks: Yes, it must be advice on how to make one’s home more thermally efficient or to deploy renewables and so on.
Malcolm Wicks: Certainly, that is just one element of the environmental costs that fall on the consumer. The hon. Gentleman is right to say that we need to factor in other things, not least the ETS. This is beginning to be, cumulatively, quite a significant part of one’s energy costs.
I was saying that we must ensure that we organise the scheme so that the trading value of ROCs does not crash to a situation where no suppliers need to buy them. Although this represents a risk to investors and generators who want to know that they will get a level of return, we do not think that consumers should pay more than is necessary to deliver a given amount of renewable electricity. To balance those two considerations, we want to keep the obligation just above the level that the market will deliver. We will introduce a level of headroom in the obligation, so that it remains 8 per cent. greater than the predicted supply of certificates in a given year. At present, we intend that to happen up to a level equivalent to 20 per cent. of electricity sales.
New section 32B makes just one addition to what was previously provided for by existing section 32B—to expand the existing list of “permitted ways” to cover private wire networks in subsections (10) and (11). Permitted ways cover various situations in which electricity generated from renewable sources is eligible for the award of ROCs despite not having been sold on through a supplier, or if it is difficult to prove that it has been. A private wire network means that the generator does not hold a supply licence under the Electricity Act 1989 and supplies to a customer or customers over a distribution or transmission system, which usually provides a direct link between the generator and the customer.
Private wire networks have the potential to benefit community and distributor generation projects. We want to encourage those projects, and the change will allow them easier access to the benefits available under the RO. We will consult on whether a size threshold should apply to generators using permitted ways, but we certainly intend to apply the provision to small generators under 50 kW, such as a micro-hydrostation operated by one party on the site of an old water mill, supplying community buildings such as a village primary school.
Dr. Whitehead: Is it my hon. Friend’s understanding that if a private or small commercial dwelling was both using microgeneration to power its own energy necessities and exporting some of it, it would get a ROC for everything and not just for the energy that it exported?
Malcolm Wicks: I think I need clarification on that point, but I think that the short answer is yes. It may even be the longer answer as well. I shall leave it there, unless I am corrected. So that is good news.
The changes being introduced in proposed new section 32C clarify the existing flexibility to exclude other forms of generation or to award ROCs for only a proportion of the electricity generated. Those matters would be specified in the RO order, following statutory consultation. Exclusions could be based on the type of renewable source, the description of the station or the method of generation. For example, we will continue to exclude well established hydroelectric stations that do not need support under the RO. As my hon. Friend knows, some of them are very well established indeed.
We intend that Ofgem should award ROCs for only a proportion of the electricity generated where renewable fuels are used alongside fossil fuels or where renewable fuels, such as biomass, have some fossil fuel contamination. In both those instances, the provisions will allow the RO order to specify that Ofgem may first require an operator to determine the respective proportions of fuels used, and then issue ROCs only for the renewable element of the fuel burned and not the fossil fuel element. The new section also provides scope for revoking ROCs after they have been awarded to a generator in certain circumstances. The order will specify the circumstances in which that might happen.
Proposed new section 32D is key to our reforms and provides for the power to band the RO. That will allow us to tailor levels of support to the technology involved, which will have two benefits: first, it will bring forward a wider range of technologies, and secondly, it will avoid over-rewarding cheaper technologies at an unnecessary cost to the consumer. We covered in our early debates a number of issues relating to banding.
Technologies that are well established, low-risk and require little capital investment, such as those used in gas and sewage works, will receive less support than they currently do. Those that are well established but require high capital investment, such as new hydroelectric plants, will continue to receive one ROC per megawatt-hour. There is a further group of technologies that are relatively well developed but whose commercial deployment still represents significant challenges, including offshore wind, most importantly, as well as dedicated biomass stations.
Finally, our banding proposals recognise a further group: emerging technologies that need to show much greater reductions in cost if they are to become competitive but have the potential for large-scale deployment in future. They include electricity generated by wave and tidal power, about which we had a useful debate, advanced technologies for waste treatment and solar power. The criteria on which Ministers will take banding decisions are set out in proposed subsection (4). The aim of the provision is to provide comfort for investors, and that the decisions taken on banding will be rational and consistent. Ministers will have to take into account the full economic costs and incomes faced by certain projects, the overall stability of the RO, the future of the industry and any targets for renewables arising from the EU renewables directive.
During our consultations, the industry also asked that the banding regime be not subject to continuous review, and I have already touched on that point in the debate. New section 32E is a new provision that allows for grandfathering, which is a key principle of the reforms. Having become a grandfather myself for the first time two weeks ago—[Hon. Members: “Hear, hear.”]—through the birth of young Matthew, I am very interested in grandfathering and have a lot to learn about it. It is a key principle of the reforms. [Interruption.] I just wanted to ensure that everyone was awake.
Dr. Whitehead: So Matthew will get the same pocket money regardless of any changes in pocket money levels in the future?
Malcolm Wicks: He is not on the staff.
The provision ensures fairness by safeguarding investments entered into prior to the announcement of banding in the 2006 energy review. After we introduce banding, our proposal is that those stations that were in operation and receiving one ROC per megawatt-hour prior to 11 July 2006, with the exception of co-firing, which we propose to band down, and microgeneration, which we propose to band up, will continue to receive that level of support. The same principle will apply when we reassess the bands at the next planned review in 2013, so if a plant receives two ROCs from now on, it will keep that level of support even if support for the technology drops to, say, 1.5 ROCs. The provision will ensure that as costs reduce, the RO will be able to step down the overall level of subsidy being provided, thereby increasing the value for money of the RO and protecting customers while not prejudicing those generators who have taken the initial risks.
The new section also allows the Government to ensure that state aid rules are not infringed. Some projects have received capital grants on the basis that they will receive one ROC per megawatt-hour. Where the generator is due an increase in ROCs once banding is introduced, it could mean that the cumulative amount from the grant and the RO will breach the state aid thresholds. Proposed subsections (4) to (8) provide a power for the order to allow generators to choose to surrender the grant and receive the higher level of ROCs. Ultimately, that will be a commercial decision by the generator.
New section 32I introduces a new funding arrangement for the administration of the RO. Currently, the administration costs of the RO are funded through licence fees from the gas and electricity network operators. They are not participants in the RO, and it seems inappropriate that the costs of administering the obligation should fall to them. Instead, the new section will allow the administration costs to be taken from RO by out-payments. We anticipate that the administration costs will account for only a small percentage of the buy-out fund, but should Ofgem reach a stage where the buy-out fund is very small and cannot cover the costs, my Department will cover them.
Charles Hendry: The Minister was going through the measures in a logical order—A, B, C, D, E, F, which is logical to my mind. However, he suddenly skipped G and H. We have them on the helpful note that the Liberal Democrats circulated on behalf of the Minister’s office earlier, and I wonder whether he plans to return to them in due course.
Malcolm Wicks: My very useful officials originally provided me with quite a long speech, and this is a slightly, but some might say not greatly, reduced version. I apologise if I have not gone through the whole alphabet, but during the debate, I may be able to satisfy the hon. Gentleman’s alphabet curiosity—a little bit—if he is itching for me to do so. Does the hon. Gentleman want to press me at this stage? [Hon. Members: “No!”]
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Allow me, therefore, to proceed to the very exciting proposed section 32J, which creates a power to require biomass users to report on sustainability. We have covered that area in some detail already, so I shall say no more for now. Proposed sections 32G and 32H are rather important because they carry over existing powers other than the Ofgem funding points. Proposed section 32K is largely a standard implementation clause, about which I therefore do not need to say anything. Proposed section 32M defines some of the terms that we have already discussed, which are also very important, but about which again I do not have to say anything.
The whole thing enables an order to make provision for what might be accepted as sufficient evidence of the proportion of the fossil fuel content of waste in such circumstances, which could include the use of declarations by generators in view of difficulties with accurate and cost-effective measurements. To avoid the risk of inaccurate calculations, proposed section 32M also includes a provision enabling Ofgem to require sampling of fuels in specified situations to ensure that ROCs are awarded only for genuine renewable generation. I think that that is an important provision.
Finally, subsection (3) of proposed section 32M is intended to deal with the establishment of a single electricity market in the island of Ireland, which pools generation between Northern Ireland and the Republic, and sells the electricity on a single market basis. The new section should allow us to ensure that the single electricity market does not disrupt the incentives that we give to generators and suppliers in Northern Ireland by allowing suppliers to demonstrate equivalent supply in Northern Ireland, given that they cannot demonstrate that a particular amount of electricity was generated in the UK and supplied there.
My notes say to “canter through” that very detailed passage in the Bill, so I hope that I have done justice to its contents, and obviously, in due course, I shall be happy to expand on some of those points. I apologise to the hon. Member for Wealden, and to the majority of the Committee, I think, for not covering the provisions in greater alphabetical detail. As I think that George Bernard Shaw once said—if I may appropriate his words—I apologise for writing such a long letter, but I did not have time to write a shorter one.
Further consideration adjourned.—[Alison Seabeck.]
Adjourned accordingly at thirteen minutes to Seven o’clock till Thursday 28 February at Nine o’clock.
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