The
Committee consisted of the following
Members:
Barker,
Gregory
(Bexhill and Battle)
(Con)
Brown,
Lyn
(West Ham)
(Lab)
Burgon,
Colin
(Elmet) (Lab)
Cairns,
David
(Inverclyde)
(Lab)
Dorries,
Nadine
(Mid-Bedfordshire)
(Con)
Hamilton,
Mr. David
(Midlothian)
(Lab)
Horwood,
Martin
(Cheltenham)
(LD)
Hughes,
Simon
(North Southwark and Bermondsey)
(LD)
Leigh,
Mr. Edward
(Gainsborough)
(Con)
McGovern,
Mr. Jim
(Dundee, West)
(Lab)
Mole,
Chris
(Ipswich)
(Lab)
Mudie,
Mr. George
(Leeds, East)
(Lab)
Mullin,
Mr. Chris
(Sunderland, South)
(Lab)
Ruddock,
Joan
(Parliamentary Under-Secretary of State for Energy and Climate
Change)
Timpson,
Mr. Edward
(Crewe and Nantwich)
(Con)
Wiggin,
Bill
(Leominster) (Con)
Chris
Stanton, Committee Clerk
attended the Committee
Sixth
Delegated Legislation
Committee
Tuesday 17
March
2009
[John
Bercow in the
Chair]
Draft
Renewables Obligation Order
2009
10.30
am
The
Parliamentary Under-Secretary of State for Energy and Climate Change
(Joan Ruddock): I beg to move,
That the
Committee has considered the draft Renewables Obligation Order
2009.
As
always, Mr. Bercow, it is a pleasure to serve under your
chairmanship. The Government are introducing this order to introduce
important changes to the renewables obligationchanges that make
it more effective, more efficient and so better able to deliver our
targets for renewable energy. Renewable energy is a vital part of our
strategy for tackling the two major challenges we face: combating
climate change and ensuring a supply of secure energy for the
UK.
As the
Governments main mechanism for encouraging new renewable
electricity generation, it is crucial that the renewables obligation is
a successas, indeed, it has been. Before the RO was introduced
in 2002, eligible renewable electricity generation was less than 1.8
per cent. of total UK supply; by 2007, it was 4.9 per cent., almost
three times as much. There is much more in the pipeline. As of October
last year, more than 2,000 MW of renewable electricity generating
capacity was under construction; 6,300 MW has been consented; and
8,700 MW is at the planning stage. The UK has become No. 1
in the world for offshore wind, overtaking Denmark in October last
year. Clearly, however, even that success is not enough, and we need to
do much more. That is why the order makes some fundamental changes to
the RO that will allow it to bring forward a higher level of renewables
generation from a wider range of sources. The most significant of those
is the introduction of
banding.
The
RO was originally designed as a technology-neutral instrument intended
to pull through the most economic forms of renewable generation. It has
delivered on that, proving particularly successful in bringing forward
technologies such as landfill gas and, especially, onshore wind, which
have huge potential for mass deployment. However, if we are to meet the
challenging targets we have set ourselves for increasing the proportion
of our electricity that comes from renewables, we need a greater
contribution from technologies that have been less deployed, such as
biogas and offshore wind. Banding will enable us to provide higher
levels of support to the technologies that are further from market.
Whereas currently each megawatt-hour of eligible generation is awarded
one renewables obligation certificate, or ROC, a banded RO will mean
that different technologies will get different numbers of ROCs. For
example, offshore wind and biogas will receive more ROCs than onshore
wind and hydro, which will in turn receive more than landfill or sewer
gas. All microgenerators, defined as those with a
generating capacity of up to 50 KW, will receive two ROCs for each
megawatt-hour, irrespective of the technology
deployed.
In
addition to banding, there are several other aspects to the changes
that we are making. To ensure that the level of the obligation always
remains above the level of actual generation, we are introducing a
headroom mechanism. That will give certainty to investors by making the
ROC price more stable and predictable, as well as ensuring value for
money for consumers. Given the current economic climate, I am sure that
hon. Members will agree that these considerations are even more
important than ever. To protect investment decisions made on
information available at the time, we are committed to the principle of
grandfathering. Subject to certain exceptions, stations in existence
when we announced our proposal to introduce banding will continue to
receive one ROC per megawatt-hour. The banding levels in the draft
order were based on research into the costs and market potential of
each technology type, and the order details a process for these to be
periodically reviewed. That balances the need to provide investors with
a stable support network, while ensuring that we can respond to market
developments so that banding levels continue to provide the right level
of incentive for project
developers.
Technologies
such as wind, solar and wave power are the subject of most comment, but
we also have considerable potential to generate electricity from
biomass and waste. Questions of sustainability are rightly raised over
these new sources of generation. The evidence is that the great
majority of biomass fuels used for electricity generation in the UK are
sustainable. However, to ensure that we have better understanding of
the issue, we are introducing with the order a sustainability reporting
requirement for all but the smallest generators who use biomass. The
renewable fractions of municipal and commercial waste are currently
underused resources. Conventional waste incineration plants are not
eligible for support under the RO but should of course be economic
under the landfill tax regime. However, because we want to encourage
the development of more efficient technologies such as combined heat
and power, anaerobic digestion and gasification, we have simplified the
fuel measurement requirements to make the RO more accessible for
eligible generation.
We are also
making a number of small technical and administrative changes under the
order. In particular, we are changing the administrative requirements
for microgenerators to remove the barriers to participation in the RO
that some small generators experience. We believe that the costs of
administering the RO should be met by those who participate in the
scheme and will benefit from the changes that we are introducing. That
is why we are making a further change so that the costs of
Ofgems administration of the scheme are met from the buy-out
fund rather than through the network operators, as is currently the
case.
The order is
the culmination of a programme of work involving close consultation
with industry on the development of the policy. The changes were
subject to a statutory consultation, which closed in September last
year. These changes will set us on the way towards meeting our share of
the target of 20 per cent. of EU energy to come from renewables by
2020. But we will not stop there. We will continue to work closely with
Members to drive forward in this important area. We have taken powers in
the Energy Act 2008 to introduce a feed-in tariff for generators up to
5 MW, as well as to introduce a renewable heat incentive. We announced
in the pre-Budget report in November last year our intention to extend
the RO from its current end date of 2027 to at least 2037, thus
providing investors with the certainty they
need.
10.37
am
Gregory
Barker (Bexhill and Battle) (Con): It is a pleasure to
serve under your chairmanship today, Mr. Bercow.
I am grateful
to the Minister for her remarks on this important draft order. As I am
sure she is aware, it is urgent to take these measures. The renewables
sector, in particular that part dealing with newer technologies,
especially wind, was already struggling to remain economically viable
before the credit crunch, but since the global economic crisis hit,
that sector has been affected by the downturn. If we are to meet our
2020 target, much more needs to be done to help the UK renewables
industry to ride out the financial storm. The offshore sector in
particular was struggling before the credit crunch, and now it is
struggling even more.
To illustrate
that point, the chief executive of Siemens, having seen his company
take a 38 per cent. year-on-year decline in renewables orders,
said,
If I
had to take one division out of our 17 for deferrals or pushouts, I
would probably take
wind.
The
investment bank UBS is predicting a 20 per cent. decline in investment
in wind capacity below predicted levels for 2009. Paul Goldby of E.ON
has remarked specifically that the economics of the London
arraythe flagship of UK offshore windare on a knife
edge.
Even before
the sector was hit by the financial crisis, it was struggling to meet
the ambitious targets because of the failure to invest in a broader
range of renewable technologies beyond one or two, such as onshore
wind. Investment was massively skewed towards just one or two
technologies. So, what is the problem and are these measures a fitting
solution to the very significant challenges that the renewables sector
faces? To understand that, we have to look briefly at the success, or
otherwise, of phase one of the renewables obligation certificates
regime.
The
renewables obligation was set up to provide support to renewable
technologies to allow them to develop a maturity in the marketplace,
with a particular focus on technologies that were not yet at the front
of the cost curve, in order to make their final progression to being
cost-competitive with fossil fuels. As certificates were issued
equally, however, regardless of particular technologies, capital
logically flowed to the cheapest renewable technologies. For most of
the life of the RO, that meant that, in practice, the largest single
beneficiary of the consumer subsidy was not offshore wind, marine,
exciting solar technology or any of the cutting-edge technologies that
we are likely to envisage when we think about the exciting world of
21st-century clean energy, but landfill methane gastapping gas
coming off old rubbish
dumps.
The
first phase of the RO attracted into development a significant number
of proposed wind projects, which, with landfill methane projects,
earned the lions share of the subsidy, gaining 30 per
cent. and 28 per cent.
respectively of the subsidy and a total of more than two-thirds of all
the certificates issued even last year. Despite the large number of
projects proposed, only 3 GW of wind actually made it into
operationa fact I shall come back to. Indeed, with
hydro power and biomass co-firing taking up another 15 per cent. and
11 per cent. of the pie, it is clear that the RO as it stood
was singularly failing to back the new, exciting, emerging technologies
at the expense of the older, already established, 20th-century
technologies, which were already well developed. That was never the
intention behind that funding
mechanism.
As
we now face the fallout from the financial crisis, and with large
offshore wind projects such as London array sitting on a knife edge,
what assurances can the Minister give that the increase in the ROCs
allocation will make those projects deliver the returns that prudent
investors require to proceed? Many projects, such as the London array,
have argued that they should qualify for two ROCs, and have plausible
figures to prove it. What consideration has the Minister given to those
reports and to the representations that the Department has had from the
industry, particularly in the light of the most recent economic
circumstances? Is the Minister certain that the London array will go
ahead and that the investment will flow with just 1.5 ROCs to
support the project?
The economics
of the London array have changed substantially in the past few months
alone. Before, we were receiving lobbying from a coalition of investors
that the economics did not quite stack up. We saw evidence of that when
Shell withdrew from that project last summer and publicly announced
that there was simply not enough profit in the project for the private
sector. The company went instead to the United States, and I understand
that it will invest in wind in Texas as an
alternative.
Luckily,
Masdara company from the UAEdecided to step in, but we
are still hearing that the economics of the project do not stack up,
particularly because of the collapse in the pound. The substantial
devaluation of sterling in the past few months has forced up set-up
costs very substantially. More than 70 per cent. of the
projects capital costssteel and concrete for the huge
turbines that are proposed to be erected in the North seaare in
euros, because very little of the infrastructure is manufactured here
in the UK. Can the Minister say with sincerity that the Department has
looked clearly, in detail, at the individual economics of offshore
projects, or has a more broad-brush approach been taken, as I suspect
it
has?
If,
as the regulations state, policy U-turns are an acceptable reason to
rethink the banding, are the crash in sterling or the credit crunch not
enough to change the banding from what was proposed last year? The
1.5 ROCs proposal has been on the table for some time. I am
sceptical about whether the proposals in the draft order reflect the
latest state of the economy.
The bottom
line is that had we developed the renewables sector early enough, we
would be insulated from some of the effects of the fluctuation in
sterling because we would have developed a stronger domestic
manufacturing base to support the investment in our offshore
infrastructure. It is sad that so much of the machinery and capital
equipment is manufactured overseas. What assurances can the Minister
give that the Government have a
strategy to support the building of a revitalised domestic manufacturing
base in the renewables sector, and that the proposals will not simply
create a climate that sucks in more foreign turbines and equipment
manufactured in Europe or elsewhere? When will the Government wake up
to the huge additional upsides to the renewables agenda in terms of the
onshore jobs and economic recovery that could be created if we started
to service the renewables energy sector by creating and manufacturing
the energy infrastructure here in the UK? That will not happen through
tinkering with the ROCs if the changes do not produce the large
offshore wind projects that will be the mainstay of our renewables
deployment during the next five years.
How seriously
can the Minister brandish a target of 30 GW of offshore wind capacity
by 2030 if the same projects are telling her that 1.5 ROCs are not
enough? Will she explain how the measures in the draft order will
deliver better value for money? The first phase of the renewables
obligation was delivering carbon abatement at approximately £110
per tonneroughly the same as those projects delivered by the
Carbon Trust and 10 times the current emissions trading
scheme price. Purely in carbon terms, we would have been better off
simply retiring certificates. Dividends have been paid to developers at
levels far above those that simply provide a marginal subsidy to allow
the projects to go ahead. The National Audit Office has found that the
best sites have received more support from the renewables obligation
than was strictly necessary to ensure that they were developed. We have
overcompensated some of the most economic sites, while those
technologies that need support to pull them through have been starved
of funding.
In a report
for the National Audit Office in 2005, consultants Oxera estimated that
up to 21 per cent. of the emissions avoided by replacing coal with
biomass in co-fired coal plants was eroded by increases in the output
of those plants. The RO delivered a couple of percentage points of new
renewables to the total energy mix, but if one looks further afield one
sees that over the same period since 2002, a different form of
technology supportfeed-in tariffstook Germany to the
forefront of the global renewables technology sector, building a strong
worldwide position in those new, fast-emerging energy
sectors.
Feed-in
tariffs on the continent have provided a fixed, predictable income
stream that has lowered the costs of capital by giving long-term
certainty to investors in a way that the tradeable scheme can never do.
Ironically, despite our so-called liberal market, the more
interventionist German system has done more with less support from
consumers. We eagerly await details of the Governments feed-in
tariff scheme for smaller-scale renewables, for which we have been
arguing for some time.
I was
cautious when the Government announced consultation on a further
iteration of the renewables obligation. The Minister boasted of its
success in her opening remarks, but the bottom line is that it has not
delivered the same number and breadth of projects that the same money
has delivered in Germany under the feed-in tariff system. Although we
do not want to undermine or upset existing investments in any
waywe too are committed to the principle of
grandfatheringit is clear that we need to direct more support
to the
industries that are further down the cost curve, particularly offshore
industries, if we are to develop Britains true renewable energy
potential.
It
is typical of the present Government to have taken nearly two years of
consultation to introduce the measures in the draft order. The question
is: will they deliver? It certainly seems that by reducing the share of
the pot for co-firing and landfill gas to 0.5 and 0.25 ROCs
respectively, the measures get a handle on the historically
disproportionate nature of the subsidy directed to those now well
established technologies, and we welcome that. By rewarding offshore
wind, biomass and co-fired combined heat and power with 1.5 ROCs, the
Government acknowledge the need for extra support, but we question
whether that goes far enough, because the numbers seem to just be
pulled out of the air.
It cannot be
the case that the technologies in each of those bands are exactly equal
in their need for support. In contrast, continental feed-in tariffs use
a more sophisticated range of metrics to generate more precise levels
of support for individual technologiesa tailored and constantly
monitored form of support, rather than the broad-brush banding
approach, which we are to adopt. In the present economic circumstances,
it is more important than ever that, as the level of economics and the
dynamics of funding change, the system of support remains up to date,
fair and competitive.
It is not
clear from the extensive literature on the subject where the choice of
banding came from. What specific matrix is there to support the
Governments choices? Given the change of pace in the sector, it
seems likely that the Minister will have to re-juggle sooner rather
than later, to avoid more severe distortions in the market. Indeed,
with more than 10 technologies at two ROCs apiece, the field is wide
open for some technologies to continue to be favoured
disproportionately, and for others that may also have huge long-term
potential to be left washed up high and dry, lacking that crucial extra
bit of consumer support. With long-established technologies such as
tidal barrages and tidal lagoons in the mix, is Minister sure that she
is not creating another open door to utilities to profit at the expense
of consumers, who bear the costs of the scheme on their electricity
bills?
The
proof of the pudding is in deliverymegawatts on the ground. Of
the 19 GW of wind projects brought forward, only 3 GW-worth were
constructed. Current planning delays add millions to the costs of
developing even a medium-sized project. Grid connectivity leaves
planning-consented projects waiting in a queue for connection and
paying crippling connection fees. What is the Minister doing to ensure
that those and other bottlenecks are resolved? It is not only the
renewables obligation that has held back the development of British
renewables.
What
consideration has the Minister given to suggestions of a low-carbon
obligation approach, as proposed by many experts in the field,
including Dieter Helm? Such a scheme will support technologies such as
gas-fired CHP, which have a huge part to play as transition
technologies in the next few years and which are in need of support to
justify investment to get them over the economic hurdle. The large
capital costs of district heating networks, for example, are often
justified when seen as a longer-term investment in the low-carbon
economy. They represent true transition technologies as
they are easily retrofitted, particularly with biogas or biomass. CHP
systems compare favourably in that regard to the dead-end technology of
co-firing biomass in old, outdated coal-fired power stations.
Unfortunately,
however, under the proposals in the draft order, CHP competes without
support with subsidised renewables, including biomass co-firing. The
focus on electricity generation in the draft order also ignores the
huge potential of renewable heat and heat efficiency. Thanks to our
proposals in the Energy Bill, the Minister is now consulting on
renewable heat incentives, albeit in some hurry. I urge her to work
with her colleagues to learn the lessons of the renewables obligation
and to start from a tariff rather than an obligation-style
system.
Will the
Minister comment on how those two sets of measures might overlap, for
example, in biomass CHP, where projects might be claiming ROCs and a
heat tariff? How do the measures deal with problems identified in the
last Ofgem renewables obligation annual report, such as moderations to
landfill gas sites not reported to Ofgem, poorly calibrated flow meters
at biomass stations, discrepancies in procedures for sampling fuel at
co-firing sites, and many others?
Does the
Minister consider that adjustments to the buy-out price have achieved
the desired result, and what is her strategy for making adjustments
under the draft order? Does she think that Ofgem has delivered genuine
value for money in running the scheme? How does she think the
investment in software to fix bureaucratic bottlenecks during the first
phase of the renewables obligation will translate into value in the new
phase? What estimates has she made of the costs of grandfathering the
existing renewables obligation allocations?
Does the
Minister regard two ROCs as the absolute upper limit to allocations,
when we know that the Scots are issuing a greater number of renewable
obligation certificates for technologies such as wave power? Has she
considered whether the RO is a subsidy to the Scottish renewables
sector at the expense of the English consumer? That is what would
happen if a higher level of ROCs were deployed in Scottish waters,
drawing on English consumer subsidy to fund that. I am not arguing
against higher support for the Scottish industry. What I want is a
level playing fieldif that is possible at seaacross
British waters, so that we see the fast deployment of these exciting
new technologies in British waters all the way round the British isles,
and do not have particularly favourable conditions just north of the
border. How does the Minister account for such a potential discrepancy
arising out of the
measures?
Although
we have many reservations about the past performance of the renewables
obligation and have criticised the one-club golfing approach that it
has created, banding is a major improvement to what has been a deeply
disappointing programme, given the huge potential we have to be a
global player in the 21st-century renewable energy sector. I hope the
Minister will listen harder to the industry and work to improve the RO,
so that we see the delivery of major renewables projects, with all the
jobs and economic advantages that that will entail. We must focus not
only on the 2020 renewables targets, as hard and as stretching as they
are, but on our carbon-abatement targets, as well. We have to ensure
that the measures in the draft order do not over-prioritise one at the
expense of delivering value for money in the other.
The renewables
obligation disappointed and frustrated those who wanted to go harder,
faster and wider in the development of the British renewables sector in
its first phase. We will look closely to see whether a radical
restructuring of the RO with banding is sufficient. It is clear that,
with a feed-in tariff, renewable energy can be developed much quicker
than we have been able to do. I hope the new banding system succeeds,
but to do that it requires a sense of ambition, open-mindedness and
pragmatism to be shared in the Government. My suspicion is that we
still have a one-size-fits-all approach from a system that is too
Whitehall-centric and does not do enough to encourage the
entrepreneurial smaller, newer and exciting
technologies.
11
am
David
Cairns (Inverclyde) (Lab): It is a pleasure to serve under
your chairmanship, Mr.
Bercow.
I
rise to make a very brief contribution, not least because I do not want
to feature in the next volume of memoirs by my hon. Friend the Member
for Sunderland, South because I have detained him for too long. I
welcome the announcement on the policy direction that the Minister
outlined this morning. [Interruption.] My
contribution seems to be driving Conservative Members from the room.
They must think that they are about to be bested in debate and have
fled the
field.
I
welcome the order, but I want to ask a couple of specific questions.
The original proposal to introduce such banding to the ROCs came first
from the previous Labour-led Administration in the Scottish Parliament,
at the instigation of a Liberal Democrat Environment Minister. It is
therefore surprising that we have yet to hear from the Lib Dems. I hope
that they will point out that the Administration in Scotland was on the
mark in this respect, unlike the shambles that we are seeing there
today.
The
interoperability of ROCs north and south of the border is vital. Energy
and environment Ministers north of the border have some Executive
devolution on these matters, but the policy areas rightly remain here.
Although Scotland has a third of the UKs coastline and climatic
conditions that make it particularly attractive for an offshore wind
facility, we must ensure that we have a single GB market for energy.
Central to that is the market for renewable energy, and central to
that, in turn, is the interoperability of ROCs north and south of the
border. That has been a key factor in ensuring that the industry north
of the border has developed to the extent that it has, as I have seen
for
myself.
The
hon. Member for Bexhill and Battle was a little grudging about what has
been achieved with onshore wind. We have real-world targets that we
have to hitinternationally binding targets and treaties that we
have signed up to. We want to produce more renewable energy from
whatever source, and the first wave of ROCs has brought on onshore wind
to a great degree. The truth is that the technology for offshore wind
is not nearly developed in terms of its cost structure; nor does the
technology for wave and tidal have anything near the potential of what
there is for onshore wind. It was therefore right to focus on the first
wave of ROCs in ensuring that we maximised our capacity from onshore
wind.
I share the
hon. Gentlemans regret that we are not manufacturing or
fabricating turbines to the degree that we should. I lament the passing
of the Vestas factory in Campbeltown and Machrihanish, which I visited
a couple of years ago. It is still going, but nothing like in the way
that it should be. The Norwegians clearly have a great advantage over
us in this regard. I hope that the Minister is giving careful
consideration to what can be done to ensure that our ability to
manufacture, or at least fabricate, these turbines is encouraged in
whatever way possible.
We also have
a strategic advantage in technology associated with clean coal and the
construction of supercritical boilers in Scottish companies such as
Clyde Blowers and Doosan Babcock, which are exporting massively to
China. Whatever we do in this country to mitigate climate change and
CO2 emissions, the big challenge comes from places such as
China and India. China is still opening coal-fired power stations at a
tremendous rate of knots. If we in this country can introduce
technology significantly to mitigate the damage that is being done to
the environment there, we will not only be helping to ensure that our
industry flourishes but doing a great thing for the future of the
planet. The key to that is ensuring that the industry in this country
gets a share of the domestic market, which means that the Government
must push forward with clean coal technology and consider fitting new
coal-fired power stations with that technology, as well as
retro-fitting existing ones. Coal still has a very significant role to
play in providing energy for this
country.
In
Scotland, we have seen significant developments in onshore wind. The
first phase of the ROCs played a part in that; the largest wind farm in
Europe is being constructed in Lanarkshire. However, we must guard
against false claims for renewable energies offshore or onshore. The
First Minister of Scotland is particularly prone to confusing installed
capacity with potential output if wind farms worked at 100 per cent.
capacity 100 per cent. of the time. If they did, they would provide
more energy than Scotlands two nuclear power stations, but they
do not. To pretend that we are getting as much energy from renewable
sources as from our nuclear power stations is to perpetrate a complete
falsehooda fantasyon the people of Scotland, and the
First Minister should stop doing
it.
The
First Minister also needs to get a grip on the looming energy crisis
that is heading Scotlands way. Although banding of the ROCs and
bringing on offshore wind technology will play their part, they can
only ever provide a minority share. If we are to avoid the looming
energy crisis, he must get a grip on his attitudes towards clean coal
technology and towards nuclear power, of which a majority of Scots
demonstrated that they are in favour in an opinion poll this
weekend.
I
welcome the order, which is a big step in the right direction. It will
help in developing offshore wind and other technologies that will make
a contribution towards our targets on clean energy and climate change.
However, it will only ever be part of the overall energy solution.
Although this Government are tackling the issue in the round, sadly the
Government of Scotland are failing the
people.
11.7
am
Martin
Horwood (Cheltenham) (LD): It is good to be serving under
your chairmanship once again, Mr.
Bercow.
I
thank the hon. Member for Bexhill and Battle for his enlightening
history of the subject of renewable energy. He made some important
technical points. I am glad that the Conservatives previous
aversion to interference by Government does not prevent them from
offering opinions on Ofgems software. The speech by the hon.
Member for Inverclyde was very helpful; to hear anyone saying that a
Liberal Democrat Environment Minister is on the mark is music to my
ears. To be honest, even the phrase Liberal Democrat
Environment Minister is music to my ears, and I hope that it
will be repeated in
future.
The
renewables obligation has been an essential part of the architecture of
promoting renewable energy in this country but, as the hon. Member for
Bexhill and Battle said, it has so far failed to deliver. This country
has had a lamentable performance in promoting renewable energy, and we
still languish near the bottom of the European league on that front.
The European average is some 13.6 per cent. share of electricity coming
from renewables, but we are proud of being at 3 or 4 per cent. and, in
the Ministers words, overtaking Denmark. Given the size,
population and coastline of Denmark compared with that of the UK, it is
a matter of shame that we were ever behind
Denmark.
There
have been some worrying trends, even in the latter years of the
previous phase of the renewables obligation, particularly as regards
the percentage of the renewables obligation being met by the
presentation of genuine ROCs as opposed to companies using buy-outs to
meet the obligation. The proportion of the former fell from 96 per
cent. in 2004-05 to 76 per cent. in the following year and to only 68
per cent. in the year after that. That is in the context of the
obligation increasing, but the statistics are still important. What
does the Minister think that the future trend is likely to be over the
next couple of years? Will we see an increasing renewables obligation,
but with an increasing percentage being met by buy-outs rather than
through genuine renewable
energy?
The
new architecture for promoting renewable energy should not just include
the renewables obligationas the hon. Member for Bexhill and
Battle said, it must now start to include feed-in tariffs. Liberal
Democrat Members, too, called for those during the passage of the
Energy Act 2008, and we were pleased that the door was opened to them.
Will the Minister enlighten us on her latest thinking on feed-in
tariffs, particularly how they will interact with the renewables
obligation? Concerns have been expressed in some parts of the industry
about how the different schemes may affect each other. There is a
precedent with which the Minister is very familiar; I brought it to her
attention and to that of companies such as BT. The interaction between
the carbon-reduction commitment and the renewables obligation is
causing perverse problems for companies such as BT that generate quite
a lot of their own energy from renewables. I am sure that she will get
around to dealing with that problem at some
stage.
The
banding of the ROCs is very welcome if it gives the right signals to
investors, but, as we discussed during the passage of the Energy Bill
last year, it carries the
risk of politicians sitting here trying to pick winners. I remember the
exercise that we went through when Government amendments were being
tabled in trying to get the complete list of renewable technologies and
ensure that each one was slotted into the right place. As the hon.
Member for Bexhill and Battle pointed out, there is a danger that this
may prove to be a rather inflexible, slow system. These measures are
coming into force a whole year later, with the economics of the market
situation having changed pretty fundamentally. The discussions that we
had last year are now rather out of
date.
Innovation
and investment are vital to renewable energy, so it is right that we
are giving a higher incentive to new technologies which are not as
commercial as onshore wind and biomass, such as wave, tidal stream,
photovoltaics, geothermal, gasification and anaerobic digestion. Those
are all important technologies and it is right to give them additional
support, but I am worried that we may accidentally also be supporting
unsustainable forms of non-renewable energy, such as the wrong types of
biomass. I was encouraged by the Ministers remarks about the
reporting requirements that are included in the order. She may wish to
expand on how that will stop the importation of unsustainable biomass
for
co-firing.
The
provisions on time scale and headroom are welcome as technical fixes to
prevent perverse incentives. There are, however, still
questionsas, again, the hon. Member for Bexhill and Battle
said; I echo him on several mattersabout whether one ROC for
onshore wind and 1.5 ROCs for offshore wind are sufficient incentives
in the current economic climate. What flexibility will the Minister
have to review those incentives at an early date in the light of
threats to projects such as the London array? It would be a great shame
if there were any serious threat to that going
ahead.
Banding
may be necessary, but it is not sufficient. We still need a wider
business environment that sends clearer signals to investors in the
renewable energy sector. On that front, I am afraid that the Government
are giving some very mixed signals. Some of us were gathered here a
week or so ago to discuss the European energy strategy and found that
the Government are currently unwilling to sign up to a European
supergrid as a matter of policy. I find that regrettable. The Minister
may wish to correct that impression and confirm that the Government are
behind a supergrid after all, as it must surely be an essential part of
Europes renewable energy
future.
It
also sends a poor signalnot from Government, but from the
marketthat the price of carbon has fallen so low. That damages
the investment signals on renewables. The Government are fiddling the
shadow cost of carbon, which is used to assess large-scale projects.
That has given a helpfulfrom their point of viewgreen
light to the third runway at Heathrow, which is not a great
contribution to tackling climate change. In the long term, if it is
maintained, it may also undermine investment in areas such as renewable
energy. It is a shame that when the Government were looking for
stimulus packages they chose to waste £12.5 billion of public
money on a largely useless cut in VAT, which has been neither helpful
to retailers nor particularly noticed by consumers. An alternative
might have been to spend billions on energy efficiency, which could
have reduced the demand for electricity
significantly.