Energy Bill

[back to previous text]

New Clause 10

Renewable heat obligation
‘(1) The Secretary of State shall make regulations which introduce a renewable heat obligation on suppliers of fossil heating fuels.
(2) In this section a “renewable heat obligation” means a market-based regulation which requires suppliers of fossil fuels for the purpose of heating, to replace, over a specified period, a rising proportion of their supply with metered units of renewable heat energy.
(3) The regulations must provide that renewable heat energy units—
(a) are not eligible for support under the Renewable Obligation on suppliers of electricity, and
(b) may be generated using—
(i) biofuel;
(ii) blended and co-fired biofuel;
(iii) any solid, liquid, gaseous or electrical source of energy (other than fossil fuel or nuclear) which is produced—
(a) wholly by energy from a renewable source, or
(b) wholly by a process powered wholly by such energy;
(iv) electricity, where there is a net surplus of useable heat energy relative to the electrical input.
(4) Regulations made under this section must be made within a period of 12 months beginning on the date on which this Act is passed.’.—[Charles Hendry.]
Brought up, and read the First time.
Charles Hendry: I beg to move, That the clause be read a Second time.
We have had an exciting few moments—democracy in action. We now understand why we are trying to teach countries around the world that they should move towards democracy; it is so that they can go through that rather special moment where people who have spent years arguing for things then turn around and vote against them when they are given the opportunity to do so.
The issue of a renewable heat obligation was raised by many colleagues on Second Reading and by a number of people who have made representations to us about the fact that heat should be included in the Bill. A renewable heat obligation would require energy suppliers to source a percentage of heating fuel from a range of renewable sources, which could include solid, liquid or gaseous fuels produced from biomass, passive solar heating systems and geothermal systems.
About 50 per cent. of the UK’s final energy demand is in space, water and process heating. Around 1 per cent. of heat is currently generated from renewables. That has declined in recent years, both as a proportion of the whole and in absolute terms, as some industrial wood-fired systems have been decommissioned because of tightened emission regulations. Around 85 per cent. of domestic heat, 50 per cent. of industrial heat and 77 per cent. of commercial heat is provided by gas, with the remainder coming from coal and oil.
Heat is responsible for 47 per cent. of the UK’s CO2 emissions and, broken down by sector, roughly 42 per cent. of those emissions come from the residential sector, 43 per cent. from industry and 15 per cent. from commerce. By providing more heat from renewable heat technologies, we could deliver carbon savings of 7.3 million tonnes of CO2 by 2020. The biomass taskforce estimated that 7 per cent. of the UK’s heat energy could be provided from biomass alone. A successful example of a community heating scheme is in Tower Hamlets, which uses a gas-fired combined heat and power plant to provide heat and electricity at 20 per cent. below the cheapest supplier, saving 2,500 tonnes of CO2 a year.
More than two thirds of the energy output to power stations is lost as waste heat. That waste costs the UK economy more than £5 billion a year. It is clear that if our EU targets are to be met, a dedicated support mechanism for renewable heat will be needed. The introduction of an obligation on upstream suppliers of fossil fuels into the transport market creates a precedent for the same sort of mechanism to be applied in the fossil fuel heat market. That could give a steadily increasing incentive to generate cost-efficient renewable heat with a buy-out and recycle mechanism to address the potential for price spikes and provide a means for addressing any under-supply issues. Linking all three markets would enable renewables targets to be met with maximum economic efficiency.
Dr. Ladyman: As the person who in a previous life introduced renewable transport fuel obligations, I point out to the hon. Gentleman that many non-governmental organisations and environmental activists have now decided that they oppose that introduction because one cannot guarantee that the biomass will be produced sustainably. The Government have taken the sensible decision that 5 per cent. can produced sustainably, but they will not go beyond that until we can prove that it can be produced sustainably. If we were to pass the new clause, it would require the Government to do something that they cannot guarantee to do sustainably, and would therefore be far from a green solution to our problems.
Charles Hendry: The hon. Gentleman raises a valid point. Indeed, my colleagues voted against the RTFO on the grounds that one was not sure about the sustainability of the sources from which it was coming. I wanted to stimulate a debate about heat and about the whole of issue of energy, which has been missing from the debate so far and is missing from the Bill. Looking at it in this way provides the opportunity to address how we will do more to get heat from renewable sources. There are issues, such as the one that he has raised, which provide a challenge to going forward in this way, but that does not negate the importance of trying to do more to get more of our heat from renewable sources than we do at the moment.
Some observers say that, to encourage the development of low-carbon heating, local authorities should be mandated to develop a local energy strategy for heating. In areas with sufficient heat density that would be district heating, which would use the heat demand in public sector buildings to underpin its development. Under such a scheme, planners will be given the power to insist upon district heating, local CHP and other forms of decentralised energy, including microgeneration, in granting permission for developments. A study by the Energy Saving Trust found that in 2000, 83 per cent. of energy usage in the home was for space and water heating. That excludes electric water heating and still represents about 24 per cent. of total UK energy consumption.
4.30 pm
Unlike mainland Europe, the UK market for low-carbon and renewable heating remains underdeveloped due to the lack of a coherent strategy. For example, there is no policy to promote the use of renewable heat. The Government have set a target that all new homes should be zero carbon by 2016. The 83 per cent. of energy that a typical home consumes to provide space and water heating breaks down into 59 per cent. for heating and 24 per cent. for hot water. A newly built house with good standards of insulation can reduce heating requirements by about 75 per cent.
The new clause offers one way forward to encourage the generation of more heat from renewable sources. It has significant backing in industry, but I recognise that there are concerns. Essentially, it is a probing new clause to stimulate further clarification from the Minister of what he thinks could be done on this issue. For example, the question of the interaction with the renewable obligation has not yet been addressed properly. Effectively setting two administered prices for biomass under the renewable obligation and the renewable heat obligation will have a potentially disruptive effect on the outlook for investment in biomass power and combined heat and power. Some say that that is also highly unlikely to deliver investment in the heat network infrastructure. Only investment in the boiler or other heating plant would occur as a result of that obligation.
The critical factor in establishing a competitive alternative to gas in the heating market is this infrastructure. I realise that there are problems with this way forward, but I hope that it will give the Minister and other hon. Members the opportunity to talk about what more we can do to address heat within the framework of the Bill.
Martin Horwood (Cheltenham) (LD): It is a pleasure to be serving under your stewardship again, Mrs. Humble.
The new clause is a very welcome probing clause. There are some difficulties with it and the hon. Member for Wealden has been generous enough to point some of those out. However, it certainly deals with an issue that needs to be addressed.
I am not sure how many members of the Committee have installed renewable heat. I have, but it was a bit of a nightmare process. I have solar thermal panels fitted to my house. I looked to the predecessor of the low-carbon buildings programme and discovered that grants were in rather short supply. I realised very early on that it would be virtually impossible to be one of the few lucky runners who manage to secure a grant each month. I discovered that there was a rather bureaucratic process for the approval of various heating systems and supplies. The kind of heating system that I wanted, which included under-floor heating as well as heated water, did not at that time qualify for the Government scheme. In practice, I therefore had to take the risk of going with a somewhat untested supplier. It was quite an expensive process. It was one that I was willing to invest in, but for many members of the population, it would have been pretty unaffordable.
A real push is needed to shake down the market and establish leading household names as popular suppliers of renewable heat technologies of various kinds at the micro, household level. Costs must also be brought down to make it a more affordable technology. We need to tackle those issues.
As the hon. Member for Wealden said, 47 per cent. of our carbon emissions derive in one way or another from heating. Of that, 12 per cent. is from heat generated by electricity so there is a direct link back to electricity generation. Of the remaining 35 per cent. of direct heating, a very high proportion comes from gas and fossil fuels. We definitely need a long-term framework of financial incentives to incentivise not just individuals at household level and energy suppliers, but communities, social enterprises and others to take advantage of technologies such as combined heat and power. The low-carbon buildings programme is effectively a broken reed and a dead duck, and nothing from the Government has yet supplied it. I am tempted to use another horse racing analogy and say that it has fallen at an early fence. We certainly need some kind of incentive scheme to promote renewable heat at community level, where it is most effective.
I support the new clause, but there are some aspects that I would like to challenge. First, subsection (2) states that the provision would only require
“suppliers of fossil fuels for the purposes of heating, to replace, over a specified period, a rising proportion of their supply with metered units of renewable heat energy.”
Of course, if one looks at the large proportion of heat that is supplied by the generation of electricity, one will see that there are electricity suppliers, such as my own, Ecotricity, that do not have any fossil fuel supply. It is an entirely renewable supplier, so it would not benefit from any incentive under that phraseology because it is not a fossil fuel supplier, even though it is not a supplier of renewable heat as such. To shift and incentivise the market towards renewable heat, we need something a little more inclusive.
There is also the problem of the interplay between the renewable heat obligation and the renewables obligation. That needs to be worked out, as it is not clear how that would work with regard to the energy suppliers. As the hon. Member for Wealden mentioned, the Combined Heat and Power Association argues that one of the most critical elements in getting combined heat and power off the ground at community level is the need to build local infrastructure. That is what makes the critical difference in establishing it as an alternative to gas. I am not clear how the new clause would take us forward on that, so perhaps he will address that point in his closing remarks.
Finally, there is the issue of sustainability, which was raised by the hon. Member for South Thanet. I do not think that that is as much of a problem as there would be with liquid transport biofuels, where there is clearly a big concern about sustainability. I think that a great deal of local heat technology and the use of local biomass from waste products is probably very sustainable, but he is right to say that we need to be sure that certification and the methodologies are in place. I support the new clause and think that it is a welcome probing clause. It asks the most important question: if it is not exactly the right formula, what is and what will the Government do?
I hope that the Minister, on this one occasion, will not promise us yet more consultation exercises, because we have been discussing renewable energy and heat of various kinds in this country for decades and have had endless consultations. He should aim—I shall venture to suggest another horse racing analogy—to be the Kauto Star of British Politics in that area at least and forge ahead in a really proactive way, rather than just resting on his laurels having won one Gold cup and indulging in yet more consultation. It is clear that we need a long-term financial framework, and if not this one, then what?
Dr. Alan Whitehead (Southampton, Test) (Lab): I strongly support some form of heat obligation or similar, because it is important that we take account of that large area of UK energy, particularly in the context of the 2020 targets that have now been agreed for renewable energy. I support the idea in principle, but the new clause, as has been pointed out, seems to confuse itself substantially with the existing renewables obligation, particularly in its later provisions, and that would need to be fundamentally disentangled.
We should consider further the idea, which was raised in the Committee earlier, of pursuing some form of renewable gas obligation as a substantial proxy for elements of renewable heat obligation because of the substantial part of our heat requirements that is fuelled by gas. I also ought to report to the Committee the sad news that I already have renewable heat on my roof, and nothing whatsoever went wrong with the installation, the application for a grant to assist in the installation or its working. I know that that is a surprise to the Committee.
Dr. Ladyman: Perhaps I should start by declaring an interest, because I have just realised that my home is equipped for burning renewable fuel, as defined by the clause. I have a beautiful house that was built in 1714. It has a huge inglenook fireplace in which logs are the only sensible thing to burn.
Dr. Whitehead: It is a biomass heat station.
Dr. Ladyman: Indeed. Were we to pass the new clause, my excellent log supplier would be able to claim renewable obligation certificates, which he would sell to the local coal merchant and reduce the price of my logs. So I suddenly feel attracted to the new clause.
Having said that, I want to emphasise sustainability. There is always a temptation to think that if 5 per cent. of something is good, 10 per cent. must be twice as good. The European Commission has fallen into that trap, where biofuels are concerned. It assumes that because 5 per cent. can be produced renewably, 10 per cent. must be much better. If it cannot be guaranteed that that biomass is produced sustainably and that someone is not cutting down a rain forest or displacing food production to provide it, the carbon benefit of burning that biomass is negative.
After a lot of soul searching and calculations, the Government concluded that we can be confident of producing 5 per cent. of our transport fuel renewably from sustainable biomass production. They went through a great consultation and put huge effort into getting a set of criteria that will guarantee that the material is produced sustainably. I am confident that the renewable transport fuel obligation, as it stands, will have a sustainable net carbon benefit. Go beyond that 5 per cent., however, either to produce transport fuel or to produce a source of biomass for heat production, and it cannot be guaranteed that that will be produced sustainably. It may be that we can work out a way of doing that in the future.
It is unfair to criticise too much, because the hon. Member for Wealden has made it clear that it is a probing new clause that is intended to stimulate debate. I support that intention. I would certainly like to see better ways of producing heat, but it should not be assumed that biomass and waste, and all the other things mentioned in the contributions, have not already been taken into account in calculating how much renewable transport fuel we can produce. They have been taken into account. We already assume that some of that transport fuel will come from waste sources.
Martin Horwood: The hon. Gentleman is knowledgeable on the subject. Is he aware of the analysis by the Swiss Government, who have already set a framework for analysing whether biofuels are sustainable? That analysis places things such as soya and the American wheat industry at the most unsustainable end of the spectrum. Local biomass, however, is by and large sustainable, and makes a positive contribution to carbon reduction.
Dr. Ladyman: It may be that for small countries local biomass production can be a sustainable source of biomass. We are not a small country. We already have 34 million vehicles on the roads. Five per cent. of our road transport fuel is a huge amount of fuel and will require a huge amount of sustainable biomass. At this point, nobody is able to guarantee that anything more than that 5 per cent. can be produced sustainably. I agree that there are ways of calculating whether biomass is sustainable, but there is no international agreement yet on any of them. I hope we will have an international agreement soon. Whereas I am four square behind getting my hon. Friend the Minister to think about those issues, and behind moving to a position where we can contribute towards heat production from biomass, I counsel the Committee not to push the Government too fast down that road because they already have a huge task of ensuring that the renewable transport fuel obligation is delivered sustainably.
4.45 pm
Malcolm Wicks: This has been a good debate. On balance, I would say generously that it has produced more light than heat. I thank my Parliamentary Private Secretary, my hon. Friend the Member for Broxtowe, who, by convention, cannot speak on these occasions, for helping me with that part of the script. I will not follow the hon. Member for Cheltenham and make comparisons with horses and racing. One gets the impression that an event might be taking place near his constituency. I have been so diligent in swotting up for the Committee, I have missed out on exactly what gold cup it is.
We are all very impressed that the hon. Member for Cheltenham has installed solar panels; that is a very worthy and interesting experience. I am bound to say that, given his party’s opposition to most forms of energy, including nuclear and fossil fuels, and given that his party comrades have objected to wind farm after wind farm, I have a horrible feeling that he has installed solar panels out of some optimistic belief that the Liberal Democrats might form a Government and that that will be his family’s only form of heating.
Martin Horwood rose—
Malcolm Wicks: I think that the hon. Gentleman wishes to confirm my hypothesis.
Martin Horwood: The Minister ought to give way on this. As far as I know, the only form of energy that we have objected to is nuclear. We even support fossil fuel generation with carbon capture and storage. We have supported every form of renewable energy, including geothermal, which the Minister left out of the clause. Geothermal energy is being used viably by Gloucestershire police in its new headquarters and Chelsea Building Society in its new call centre, both of which are in or near my constituency and both of which I supported.
Malcolm Wicks: We will leave it there. I suspect that the sporting event that the hon. Gentleman has alluded to on nine or 10 occasions will produce quantities of biomass that might help him with the renewables issue.
Energy consumed for heating accounts for about 40 per cent. of the UK’s primary energy consumption. We have heard about the considerable proportion of CO2 that it produces. Heat is produced and used by a huge number of consumers, ranging from individual householders to very large industrial plants. In thinking about tackling climate change, heat is clearly a sector that we cannot afford to ignore. The Government already have a number of policies in place to tackle emissions from heat, including the European Union emissions trading scheme, energy efficiency measures generally and fuel poverty initiatives.
With programmes such as the low-carbon building programme, the energy efficiency commitment and, in future, the carbon emissions reduction target, we are focusing on improving the energy efficiency of dwellings, thereby reducing demand for heat. A third of the emissions savings estimated from the measures set out in the energy White Paper will result from energy efficiency policies, and much of that will relate to reductions in heat demand. Most of the estimated 100,000 microgenerators in the UK—including our colleague—are using renewable heat technologies such as solar and ground source heating.
Our minds, however, are increasingly focused on renewable heat, particularly given the EU target of 20 per cent. of our energy in Europe coming from renewables by 2020. We need to do more to tackle heat emissions if we are to meet that challenging target. The Prime Minister, in his speech to the WWF in November last year, announced that we will do more and introduce measures as part of the renewable energy strategy next summer.
For that reason, I am sympathetic to the intentions behind the new clause, tabled by the hon. Member for Wealden. It would require the Secretary of State to introduce a renewable heat obligation, which would require suppliers of fossil fuel heating to source an increasing proportion of their fuels from renewables. However, I am sure that the Committee will not be surprised to hear me say that I believe that it is premature to amend the Bill in that way. Tackling carbon dioxide emissions from heat is not straightforward. Any step to encourage greater use of renewable heating options would need to consider a wide range of factors, including the different needs of various customer groups and the large range of technologies available, each of which has different potentials, costs and practical implications with regard to the type of support that would deliver the best outcomes.
We are in the middle of reviewing our policy on heat, and the new clause would pre-empt that work. Last year’s energy White Paper, “Meeting the Energy Challenge”, restated the Government’s commitment to decarbonising heat and to increasing the use of renewable heat. Specifically, we said that we would
“conduct further work into the policy options available to reduce the carbon impact of heat and its use in order to determine a strategy for heat. The work will look at the full range of policy options”.
Since then, the Office of Climate Change, working closely with several Departments, including my own, has undertaken an in-depth study of heat. That project has focused on providing an overview of heat and the cooling sector—air cooling is quite important in this regard—to analyse the carbon impact of heat generation and cooling, to assess the potential to reduce that and to identify and assess alternative or additional policy mechanisms.
On 31 January, the project culminated in the publication of “Heat Call for Evidence”, which seeks further information on which the Government can base the next stage of our work. It outlines our understanding of the opportunities and prospects for renewable heat and examines options for possible financial support mechanisms to promote it, including capital grants, a feed-in tariff and a renewable heat obligation. The call for evidence will feed valuable information and insight into our strategy in 2009.
The call for evidence also considers issues such as how to promote renewable heat, including biogas; the role of low-carbon electricity and heating; how surplus heat can be captured, transported and used, especially where we have a well established gas network; options to reduce the heating needs of existing buildings, focusing primarily on the residential sector; the relationship between the EU emissions trading scheme and heating; the prospects for including heat in existing and proposed carbon markets; the non-financial barriers to the greater deployment of renewable heat technologies that will need to be tackled alongside any financial support mechanism; the potential for district heating; and the possible incentives and regulatory changes necessary for an expansion of such schemes.
Complex issues need to be worked through before we can know that a renewable heat obligation could work or whether it would be the most cost-effective support mechanism for heat. For example, unlike electricity, heat is not supplied directly to end users; rather, they are sold a range of heating fuels. The renewables obligation works because the end product is uniform. That allows us easily to measure how much of it is supplied and to impose an obligation to supply a percentage of it from a renewable source. The situation is not as straightforward with heat.
I do not agree that we should commit the Government to pursuing a particular financial support mechanism for heat, because all the options and implications of implementation have not yet been fully evaluated, and there is no guarantee that the measures that we will propose in the renewable energy strategy could be implemented by the new clause.
My hon. Friend the Member for South Thanet talked about biofuels, and he is a great expert on these issues because of his ministerial experience. I can, in a sense, confirm what he was saying, in that we take concerns about unsustainable sources of biofuels very seriously. The Government’s commitment to biofuels is subject to their being sustainable. The renewable transport fuel obligation is designed to encourage the use of only the right type of biofuels. It will require companies to report on the carbon that the biofuel has saved and the wider environmental impact. We are keen to move beyond that to mandatory standards as soon as we can.
We are introducing similar reporting requirements for the use of biomass under the renewables obligation. We will be able to keep the issue under review through the introduction of sustainability reporting for biomass users. That will enable us to monitor any sudden growth in the use of a biomass fuel and expose biomass sources to public scrutiny. A survey of the scientific evidence on the environmental impact of biofuels, commissioned by the Department for Environment, Food and Rural Affairs, is due to be published shortly.
No doubt, that will be disappointing news to the hon. Member for Wealden, who proposed the new clause. However, as he has indicated, it was probing in nature and has provoked a useful debate. Given the importance of tackling emissions from heat, only once we have finished the necessary analysis will it be appropriate to reach a decision on whether and what type of legislation is necessary. I give no apologies for that, because I am confident that taking the time to consider matters properly will help us to deliver the right policy. Therefore, I hope that the hon. Member for Wealden will consider withdrawing the motion.
Charles Hendry: The Minister thinks that I will probably be disappointed by his rejection of the new clause, but I have moved beyond the stage of disappointment during the past few weeks. I have accepted that, however much he may say that he is grateful or sympathetic, he will proceed to say that the amendment or new clause is completely unacceptable to the Government. However, the Minister has made a good case on this subject. As I said in moving the new clause, it is a probing one, because I feel that we need to do more about renewable heat, heat loss and other such issues. It was a way of stimulating that debate, as it has done so. I think that there is overwhelming agreement that more needs to be done.
Malcolm Wicks: In a spirit of generosity, I think that the hon. Gentleman was about to withdraw the motion, and I thank him for that. To encourage him further, when I said that the renewable energy strategy would be available next summer, I was being too pessimistic about the speed and energy of my officials. In fact, it will be available next spring.
Charles Hendry: I am delighted that my new clause has forced the Minister’s officials to bring forward the case and to work through the night burning all that oil and creating all that heat to provide us with the strategy in due course.
Malcolm Wicks: Not oil, but biomass.
Charles Hendry: That is more feasible, perhaps, than wind turbines on the roof of the Department.
I am grateful to the Minister for his response. We have addressed the main questions, and some aspects of the idea of a renewable heat obligation certainly need further thought. Therefore, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.
Previous Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 12 March 2008