DRAFT MODIFICATIONS TO THE
STANDARD CONDITIONS OF ELECTRICITY SUPPLY LICENCES
The Committee consisted of the following Members:
Mark Etherton, Committee Clerk
† attended the Committee
It is a great pleasure to serve under your chairmanship, Mr Gale. Let me start by explaining the absence of the Minister of State, Department of Energy and Climate Change, my hon. Friend the Member for Bexhill and Battle (Gregory Barker). He and I have joint responsibility for issues relating to feed-in tariffs. We work closely on this policy area, although he has been more involved in some of the public discussions over recent weeks and months. Today, however, he is at the major economies forum in Washington, so I am delighted to have the opportunity to discuss the measures with the Committee.
It is perhaps surprising that the debate has been called for this morning. The measures were laid before both Houses of Parliament for the statutory 40 days, between 9 June and 18 July, and they were not prayed against. That was the opportunity, perhaps most formally, to give parliamentary scrutiny to these measures, which have now been properly passed and are coming into effect.
The background to the debate is that towards the end of last year, we became increasingly concerned that the uptake of feed-in tariffs could substantially exceed budgeted expectations. That was primarily because of the prospect of large-scale solar PV being deployed that simply was not anticipated in the model put together by the previous Government. That modelling anticipated no large-scale solar installations in the early years of the feed-in tariff scheme and not a single scheme of more than 50 kW before 2013. That calculation was widely out, and that is the basis of the requirement to reassess how the scheme is implemented.
It became clear how wrong that calculation was from the number of schemes coming through the planning system. That was also confirmed by the large number of large-scale PV sites that were up and running before 1 August, when the fast-track tariffs came into force. Those schemes included several large 5 MW solar farms, which were massively greater than anything that had been anticipated.
Huw Irranca-Davies (Ogmore) (Lab): I am sorry to intervene so early, but will the Minister tell the Committee what limit he and the Liberal Democrats—now his coalition partners—supported when the Energy Act 2008 passed through the House? Was it 2 MW, 1 MW or 500 kW? Did they, in fact, strongly support 5 MW?
Charles Hendry: Our original position in opposition was to support 1 MW, and the then Government responded that it should be 5 MW. We welcomed that and supported it. However, it was always part of the then Government’s intention that there should be degression. Their response to the summer 2009 consultation says:
“‘Degression’ is where tariffs for new installations are set at a lower level each year than for installations made in previous years. This is to reflect, and also to encourage and drive, decreases in technology and installation costs.”
It was therefore an integral part of the scheme that the level of support would come down as costs came down. That was a core part of the way in which the previous Government rightly introduced the scheme. Those arrangements were intended to give a rate of return, so if the costs came down, the rate of return needed to reflect that.
Mr Mike Weir (Angus) (SNP): I understand what the Minister is saying, but the Solar Trade Association makes the point that the cost of solar panels is falling much faster than anticipated, so costs will go down anyway. It seems perverse to undermine a system that is clearly successful.
Charles Hendry: The intention of the original scheme was to give a return of roughly 5% to people who were investing. If the capital cost is now coming down by about 30%, it is only right that the support should come down to match that.
However, I return to the fundamental flaw in the original assessment, which assumed not one facility throughout the country of more than 50 kW. I am sure that the hon. Member for Ogmore will confirm that. We have seen many schemes coming through that are massively greater than that.
Huw Irranca-Davies: I thank the Minister for explaining how well designed the scheme was, and how the ability to recalibrate it was built in. However, I want to correct him and remind him of the ambition of the then Opposition for the scheme. Shortly before the election, they called for the scheme to be more ambitious and said that a future Conservative Government would maximise the potential for community renewables and extend the feed-in tariff scheme to projects up to 10 MW. The right hon. Member for Bermondsey and Old Southwark (Simon Hughes), a prominent Liberal Democrat politician at the time, actually called for the ambition to be tripled. Let us not make any mistake that Labour did not foresee such an issue or came to it unexpectedly. The then Opposition were clear that 5 MW was definitely what the level needed to be and, in fact, they called at the time for it to be far bigger.
Charles Hendry: The hon. Gentleman is simply wrong. Usually, he does his research very well on such matters. If he goes back to how the scheme was put in place, he will know that there was a threshold at 100 kW. Until that rate, the feed-in tariff was about 32p. Above 100 kW, there was not a single threshold to 5 MW. The economies of scale that would happen were not anticipated. Of course, it is possible to go to a higher level of ambition and take it up to 10 MW, but that would be at a lower rate of support than was envisaged for the schemes that were put into place.
The hon. Gentleman was very partial—if I am allowed to say “partial”—in his selection of evidence. We have chosen to take forward the scheme that the Opposition put in place. We addressed the flaw at its absolute core. We understand why it happened: no one anticipated the rate at which the cost of the schemes would come down, and we have had to respond to that to protect consumers and to ensure that the principles of microgeneration can be maintained.
The reality is that every 5 MW scheme incurs a cost of £1.3 million a year in feed-in tariff subsidies. The sum of £1.3 million is enough to fund more than 1,300 domestic schemes, so if the Opposition want larger schemes to come forward and want to preserve the 5 MW scheme, they must explain to their constituents why we would have to withdraw the ability to support them in respect of their individual homes, on smaller community schemes. It is extraordinary that the Labour party wishes to support such a regressive measure.
Charles Hendry: Let me finish. People on low incomes in the hon. Gentleman’s constituency and mine are paying higher electricity bills for incredibly wealthy investors to get a return of 10% to 15% on their investments. That rate of return is not available to most of our constituents. It would be inexplicable to put up people’s electricity prices to provide people with a rate of return that is huge compared with anything else that can be obtained elsewhere.
Huw Irranca-Davies: I am glad that we have this first opportunity to have this debate. It is good to thrash out some of these issues. In response to the understandable worries of Which? and consumer groups that the burden on bill payers should not be too high, will the Minister give us the figures? What is the most cost-effective scale for provision in terms of carbon dioxide savings? If he will not tell the Committee the exact figures, I will. They are not on a house-by-house basis, or on a sub-50 kW basis, but on a 250 kW basis, or half a megawatt basis, on schemes that could be designed for those very communities. One of the most inefficient ways in which to undertake such schemes is to focus entirely on the micro and individual households. Will he give us the figures in respect of the cost-effective nature of the programme?
Charles Hendry: We can bring a whole range of figures into the debate. Of course, economies of scale come through and larger schemes will be cheaper per unit of electricity generated. The feed-in tariff should have reflected that from the start, but it did not. As a result, we are now introducing those degression levels to reflect those economies of scale.
We also need to recognise that solar PV is not the cheapest way to deliver renewable electricity. Indeed, the evidence is that it is one of the most expensive. The hon. Gentleman may think it right to go around having a little bit of this, a little bit of that and a little bit of another technology and not to worry about the costs, but we have had to make sensible decisions about the best way to deliver on our ambition of a major roll-out of renewables at the lowest cost to consumers. The hon. Gentleman is nodding his head as if that is some
Micro-generation and the introduction of feed-in tariffs were also intended to change people’s attitudes. We wanted individual householders to think about how they could stop being just bystanders in the low-carbon economy debate and get involved, to consider what they could do on their roofs and in their own homes and communities. That is why maintaining support for the smaller scale—the householders—is such an important part of the scheme. It is more expensive than large scale, but if we were considering simply the costs we would have scrapped PV entirely, because there are other technologies. We want PV to be part of the process, but we have to do that economically and sensibly.
Dr Whitehead: Does the Minister recall the date on which his Department first engaged in discussions with the Treasury about the spending cap on tax-and-spend levies? He will be aware that the cap was introduced at the time of the Budget. Was he informed of the existence of the cap in perhaps December last year, or in January or February this year? On which date did his Department engage with the Treasury in discussing the cap and its implications?
Charles Hendry: I certainly cannot give the hon. Gentleman a precise date, but we and the Treasury were at one in believing that one had to put a figure on the measure. At the end of the day, when the original scheme was introduced, the then Government assessed that the total cost would be about £3.2 billion out to 2020. That cost was not broken down by year, so we then put in place a budget for how we expected the programme to grow over the years out to 2015, with some £800 million of the £3.2 billion to be spent over that time.
That brings us back to the core of the decisions we had to make. When we looked at how the scheme was running away, it was clear that, if we did not take action to cap the feed-in tariffs for larger schemes, the cost to consumers out to 2020 would be an extra £3.5 billion. Anyone who feels that we should not have taken this action, would have to explain to consumers why it was reasonable for them to pay £3.5 billion more to support wealthy investors over the rest of the decade.
Charles Hendry: It is not a huge amount. It is about £4 a year, and there is a cumulative effect over time. We are now under great pressure to look at the costs that are being added to people’s bills for low-carbon measures.
Albert Owen (Ynys Môn) (Lab): Earlier, the Minister said that solar PV was not the most cost-effective way of heating a home. What other technologies does he envisage taking the place of solar? Is he talking about more wind turbines on individual properties? Has his Department done a cost analysis and put in place the support mechanisms that will help people who are considering solar PV to move to other technologies?
Charles Hendry: The hon. Gentleman raises the issue of heating. We are primarily talking about electricity rather than heating. The renewable heat incentive will address heating issues. If we compare the levelised costs of different technologies, offshore wind comes in at £190 per megawatt hour, whereas solar PV comes in at £380 per megawatt hour.
Charles Hendry: I will happily give way to the hon. Gentleman again if he wishes me to. Dedicated biomass is under half that cost, at £165, and biomass co-firing is at £110. So there are significant ranges. I am trying to answer the specific point that he made and, as I say, I will happily give way again if he would like me to. The “UK Renewable Energy Roadmap”, which we published in the summer, sets out all the comparative costs, and it is right for consumers to have those.
We should recognise that the way in which the costs for the technology are coming down means that we will see more installations than had been anticipated. The costs are coming down, so, by spreading the money more thinly, more households and small community schemes can benefit than would otherwise have been the case.
Albert Owen: I am at one with the Minister about getting the proper mix. He is talking about large-scale wind development and biomass, yet he opposes larger-scale solar PV. There is a contradiction in the Government’s policy here. We are talking about microgeneration and relatively small community projects. What other technology can be used instead of solar PV in, for example, secondary schools, church halls or, indeed, hospitals?
Charles Hendry: Solar will probably be the leading technology. In the right locations, some people may choose to have wind turbines in addition to that or as an alternative, but solar is undoubtedly the technology of choice. In setting the new tariff levels for smaller-scale community schemes, we have set the level back at the original threshold. Therefore, people who will be investing in those schemes will still be expected to get a 5% return, which is what the original intention was under the previous Government. What we have done for those
Mark Reckless (Rochester and Strood) (Con): Since the original intention of 5%, long-term gilt yields have come down to virtually 2%, thanks to the Government’s excellent policies. Should we not correct the scheme to make the return less generous than 5%? Is not the problem with the statutory instrument that, within the cap on money, we are transferring that money from efficient schemes to inefficient schemes? So for any given costs that our constituents are paying, we are getting less renewables. Frankly, this is a grotesque waste of our constituents’ money.
Charles Hendry: My hon. Friend makes an important point and recognises what rate of return people could be getting by investing their money elsewhere. We all know from the anecdotal evidence in our constituencies how many people are investing in PV because of the return that they can see they will get. However, there is a wider issue. It is not purely about value for money; it is about helping to kick-start investment in the sector and changing attitudes. We recognise that that will involve some extra costs.
The measure we are considering is not about PV in general or small-scale PV; it is about the changes we made a few months ago to the large-scale PV. There will be a wider consultation about the feed-in tariff scheme in general to ensure that it is reflecting where the cost base should be.
Mark Reckless: Does the point not hold? The Minister says that he wants to change attitudes and encourage small-scale households and individuals to get involved, but every time one of those individuals gets involved and gets a very high return compared with others that are available, they are leaving less money for much more efficient schemes that would give us a far higher amount of renewables for any given amount of money.
Charles Hendry: My hon. Friend—[ Interruption. ] The hon. Member for Ogmore will have his chance in a moment. My hon. Friend again makes an important point. All the issues can be looked at in the comprehensive review, but we fundamentally believe that microgeneration and encouraging householders to see what they can do to be part of the solution are an important part of the process. If we want the industry to grow and develop, as with any new technology—the oil industry in the 1960s and the nuclear industry—a degree of support to enable it to come to maturity is an important part of the process. We absolutely believe that we have a resource
That is now preventing the most cost-effective solutions being developed. The Minister is not only slowing things down; he has made it impossible for the industry to catch up when the rest of Europe is going ahead with this rapidly.
Charles Hendry: I am intrigued. I do not know how the hon. Gentleman explains to his constituents that they should pay higher electricity prices in order for people who are much wealthier than they are to benefit from a very high rate of return, which they would not be able to get anywhere. That is the fundamental issue. The scheme was running away. Such installations had never been anticipated, and it would have been irresponsible of Government, having seen the scale of the developments coming through, to decide not to do anything about it. Bear in mind that in many of the community and school schemes, it is not the school installing them; they simply rent their rooms. It is an extremely wealthy investor who comes along and takes the feed-in tariff.
Charles Hendry: Not always, but on many occasions it is. It did not seem right to have such a regressive policy. I find it extraordinary that the Labour party is in favour of such regressive measures.
Jeremy Lefroy (Stafford) (Con): What evidence does the Minister have on the take-up of large-scale, greater than 50 kW installations since the measures were announced? Does he still find that there are people prepared to invest?
Charles Hendry: It depends on the level. We have introduced a degression of different levels. We have started to bring that down at 50 kW and it comes down again at 150 kW and 250 kW, up to 5 MW. Clearly, the interest in solar farms, where farmland was being turned over into solar farms, has died away considerably. It has almost dried up completely.
However, there is still interest in the community schemes. The feed-in tariff is not as generous as before, but it goes back to the original intention, which the previous Government supported, of giving people a 5% return on their investment. That change reflects the dramatic reductions in the costs of the technology.
Mr Anderson: The Minister asked how I would explain the increase in electricity charges to the people of Blaydon. Obviously, I will have to do a lot of explaining, because electricity charges will go up—we are going to offer support on that. However, I will explain to them that a factory in Blaydon, which had four projects in place worth up to £3 million, is now on hold because of this policy. Those were all projects of over 300 kW.
Charles Hendry: It does still mean, that if we had not taken these actions, every single one of his constituents would be paying higher electricity prices for an investment that they could never have been part of.
Huw Irranca-Davies: I thank the Minister for being generous and trying to make a good fist of a very difficult job. The choice that the Government have made in the fast-track review of feed-in tariffs has to be undone. He has chosen a more expensive option for bill payers. The figures that I mentioned earlier, which he had difficulty recalling, show clearly that, when we go to 250 kW and above, the price goes down to as little as a quarter per household. Compare that with, for example, the £3 per household feed-in tariff subsidy for 4 kW; the £3.50 for a 4 kW retrofit; and the £3 for 4 kW to 10 kW. They are all in that region, until we get beyond 250 kW, perhaps to half a megawatt, which is where the larger community schemes and larger hospital roofs are, when the feed-in tariff subsidy comes down to about 70p per unit. Why has the Minister taken the legs off this? It is down to 50 kW, which actually makes it more expensive for the constituents of my hon. Friend the Member for Blaydon.
Charles Hendry: We are going back to when the hon. Gentleman’s Government introduced the scheme. He, or his colleagues, did not believe that there would be a single scheme anywhere in the country by 2013. That was the basis on which they made their calculations and budgeted. Having seen how extraordinarily wrong those calculations were, it would have been irresponsible not to respond. The scheme was intended for microgeneration. It was not intended for multi-millionaire investors to put up farm-type schemes. We have gone back to what we and his Government supported to encourage the growth of a new industry as genuine microgeneration.
It is worth looking at the costs of such installations. A 50 kW scheme would cost approximately £200,000 to install—it would be the size of two tennis courts. That is where we have introduced the first level of the threshold. For investors—small investors, community groups, a village hall or a church—£200,000 is significant investment. We have therefore protected smaller investors to keep them, so that they get a very good rate of return on their investment, but above 50 kW we have introduced a new threshold, which keeps returns at 5%. The hon. Gentleman talks about economies of scale but surely he recognises that, if the economies of scale are that substantial, there should be a lower rate of feed-in tariff as those economies of scale kick in. Otherwise he is giving a much higher return, of 10% or 15%, to the bigger schemes, which are open only to the bigger investors.
Charles Hendry: My hon. Friend points out the facts. It is more expensive and other technologies deliver more electricity for the investment. We strongly believe that we want a mix. We have a lot of natural resources of which we are not taking advantage. We are third from bottom in the European renewables league due to the legacy of the previous Government. We are ahead of only Luxembourg and Malta in the extent to which we generate electricity from renewable sources, yet we have good solar opportunities—not as good as other countries, but we do have some good ones—very good wind resources and outstanding tidal resources of which we have not been taking advantage. We are determined to take forward a range of different technologies, but if we were not prepared to support some in the early stages of development, which are going to be more expensive, we would never see the exploitation of the tidal resource. As part of a balanced and mixed energy portfolio, it is sensible within a fixed capital constraint to see how we can take the technology forward.
Grahame M. Morris (Easington) (Lab): I thank the Minister for generously taking all the interventions. I want to place something on the record because it is significant. Information I received from Friends of the Earth makes a statement about the impact on domestic electricity bills. We have all faced increases. Average increases following the last hike by the big six are about £100 a year, but the impact of the feed-in tariff is 12p per average household domestic bill increase. Is he familiar with that figure and can he confirm it?
Charles Hendry: I cannot verify the 12p figure, but I know that stopping the large-scale schemes will save consumers about £4 a year on their bills. When we are worried about all the things that are pushing up costs, it is responsible to make those choices.
That brings us back, however, to the fact that the area of development in question was not anticipated; had it been, the previous Government would undoubtedly have put different thresholds in place. They would have established a threshold at 150 kW or 250 kW, because it would have made economic sense, and it is right to correct that failing in the original scheme now.
Jeremy Corbyn (Islington North) (Lab): I apologise for missing the first part of the Minister’s speech. I think that he will get the record for the largest ever number of interventions in a statutory instrument Committee, so he should be pleased about that.
As to the intervention by my hon. Friend the Member for Easington about costs, if 12p is not the figure, what is it? The Minister must know. Additionally, what estimate has the Minister made of the environmental improvement that society would get if we benefited from continuing the current scheme, which would encourage the installation of a large number of PV systems? Has he put a figure on that?
Charles Hendry: We have to make choices between different technologies. Should we provide more and more financial support to the most expensive technology? We believe that it has a role, but that it must be dealt with in sensible ways.
The United Kingdom will always be a price taker rather than a price maker in this area; if we had a greater roll-out in the United Kingdom it would not make a difference to the cost of the technology or achieve a reduction in the overall costs. The countries that will help to drive those cost reductions will be those in the Mediterranean, and other countries where there will be a much greater roll-out of solar technologies. We are benefiting from cost reductions that are being driven internationally.
We want by the changes we are making to ensure that people who invest in the smaller community schemes will continue to get the full rate of feed-in tariff. As they move to a larger community scheme they continue to get the rate of return assumed by the previous Government, of 5%, which will drive things forward.
However, the take-up of solar technology is enormous and, I suspect, is driven rather more by the fact that people can see the greater return they will get than by their passionate commitment to low-carbon technology. We are responding to falling costs, and it is only right that the level of feed-in tariff should respond as costs come down.
I am not sure whether the hon. Gentleman was in the Room when I said that the difference to consumers between taking the action and not taking it is £3.5 billion to 2020. We do not believe that that would be a reasonable cost. We believe that it is right that we should focus on technologies that can deliver the greatest return, while supporting the industry in question in growing, which it will clearly still do.
If the cost issue is such a central concern, was it a different Department that published the “UK Renewable Energy Roadmap” recently, and not the Department for Energy and Climate Change? If so, would the Minister refer to the statement in that document that considerable cost reductions are under way? It cites a report by Ernst and Young carried out for the Minister’s Department, which states:
Is not that a rather different picture from the one that the Minister has painted this morning? If he accepts that it is, how did that information come to be in his Department’s renewables roadmap document?
Charles Hendry: The hon. Gentleman is right to say that we produced the renewables roadmap document. We inherited laudable ambitions from the previous Administration for the role that renewables should play, but there was no indication of how that would be achieved.
My commitment as a Minister is that, if we have ambitious targets, and Government’s job is to raise ambitions, we need to be clear about how we shall deliver on those ambitions. The roadmap document
I think that we all agree that the cost of installing PV is coming down significantly. We do not seem to agree on whether the level of feed-in tariff support should come down to reflect that. If the intention was to give people a 5% return on their investment, which in current terms is still good, as the cost comes down by 30%, one would expect the feed-in tariff to come down similarly to reflect that cost. The Labour party, having put in place a degression system specifically to recognise that the cost would come down, now seems to be saying that the moment the costs come down, one should maintain the levels of support as they were. We are trying to be sensible and realistic and to protect consumers.
We see a fundamental division here. We all recognise that the costs of the technology are coming down and that the scale of the developments has been much greater in terms of size than was envisaged. There was a choice between doing nothing about that, and therefore blowing the budget, with huge additional costs of £3.5 billion to consumers, or taking realistic sensible choices to encourage the scheme.
Bear in mind that we are protecting the smaller developers. Small does not mean just a cottage. Small means the size of two tennis courts, a £200,000 investment. Those are not what we and most of our constituents would consider small investments. Nevertheless, those are the levels that are being protected without change to the feed-in tariffs. We have then said that progressively, with the economies of scale and costs driven down on larger-scale projects, it is right that the feed-in tariffs should reflect that.
We argue on the side of consumers. We say that there is a cost to consumers from the roll-out of renewable technologies, but believe that is a cost worth paying, because they add to our energy security and low-carbon agenda. They are things we wish to see happen, as did the previous Government. However, it is not a bottomless pit: if we want to carry consumers with us, we have to show that we are using their money in the most responsible and effective way. For my constituents and those of the hon. Member for Ogmore and everyone else to end up paying unnecessarily high electricity bills so that very wealthy investors get a 10% to 15% return on multi-million investments should not be the way to drive energy policy. Therefore, I am unashamedly on the side of the consumer and of seeing the roll-out of the technology. We have now got the scheme back on course and corrected the imbalances that were there before. I therefore urge the Committee to support us today.
Huw Irranca-Davies: I thank the Minister for giving me a lead into my speech with his mention of small investors. By those, he must mean Carbon Leapfrog; Community Energy Solutions; Awel Aman Tawe, back in my homeland of Wales; Community Energy in
This has been a hugely embarrassing episode for the Government, and damaging for the renewables sector. Having been afforded no opportunity previously by the Government to debate the feed-in tariff debacle, we have been forced to pray against this statutory instrument. Our purpose is twofold: to give the Government a chance to account publicly for their dire mishandling of the solar fast-track review and to apologise; but more importantly, to chart a way forward, to give the Government a chance to match their renewables rhetoric with actions.
The Committee will be surprised that the Minister of State, Department of Energy and Climate Change, the hon. Member for Bexhill and Battle, who is directly responsible for the feed-in tariffs saga, is not here today, and I have made him and his private office aware of my disappointment. I am sure that he is not trying to avoid facing the music, leaving his colleague to do so. To his credit, he has offered to bring me back some duty-free from his travels abroad.
We would all prefer to have the main protagonist here today. However, I genuinely have a great deal of respect for the Minister who has taken his place, and is trying to make the best of a difficult job in his colleague’s absence. I think he is owed some duty-free. The Minister here has played more than a bit part in the matter—he has been a little shy about stating that—not least in the prologue to this great adventure, when he played an early and highly respectable part. As Opposition Front-Bench spokesman, he was a vociferous advocate for the introduction of feed-in tariffs when the Energy Bill laid the framework for the tariffs. He and others in his Front-Bench team were particularly vocal—if he wants me to, I will give some quotes—on the need for FITs to be more ambitious and to go all the way to 5 MW. As recently as the run-up to the last election, he suggested going beyond that to 10 MW.
It is fair to say that the Labour Government were more reluctant and cautious. Initially, they resisted those overtures, and advocated a limit of 2 MW, but the Minister and others argued persuasively and compellingly, and the higher limit of 5 MW was achieved. It is a bit rich for this Government to argue that the higher limit of 5 MW was inappropriate when the Conservatives, including the Minister, argued for that. The Liberal Democrats, now coalition partners, also argued for that and more. But I am getting ahead of myself, so I shall return to the FIT scheme.
We were proud of delivering the measure under a Labour Government with cross-party support, and proud of its achievement in the first year of operation. So we were deeply disappointed with the current Government’s tragic mishandling of the success story on green jobs and green energy. The UK’s feed-in tariff scheme is innovative. It was introduced in April 2010 by the previous Labour Government with the support of both sides of the House. The first full year of the scheme saw more than 28,000 households and communities, including mine, install solar PV alongside increased take-up of micro wind turbines, hydroelectric schemes, combined heat and power devices and so on.
Ofgem data compiled by analysts to the end of June were published last Monday and showed some 44,000 separate feed-in tariff installations, three quarters of which were solar PV installations. That trebled the amount of solar power in the UK in a year from 26 MW before the scheme to nearly 80 MW in April 2010. At the end of 2010, there were 10,000 jobs in the industry throughout the UK, and that number was expected to rise to a conservative estimate of 15,000 by the end of 2011, up from just 3,000 jobs before the FIT scheme. I am sure the Committee agrees that, at a time of austerity, that is success by any measure.
Last autumn, as the FIT scheme was cruising along and ready to move up into top gear, the Government identified a hole in the road ahead—large-scale solar parks, especially on greenfield sites. Instead of calmly taking straightforward and necessary evasive action, before continuing smoothly along, they threw the car into reverse and crunched the gearbox. That was noisy and clumsy, and sent massive judders through the energy sector.
Charles Hendry: I am fascinated by the hon. Gentleman’s rewriting of history, which I will return to. Why did the previous Government not believe that there would be a single installation of 50 kW anywhere in the country before 2013? What would he have done if he had been the Minister when the miscalculation at the heart of this debate became evident? Would he have introduced any degression, and at what level?
Huw Irranca-Davies: Let me go backwards and work my way through. Yes, we would have done something. Yes, we would have applied degression. The Minister is anticipating the later part of my speech, because I am not just criticising the Government; I will propose a different way forward. There is an opportunity in the comprehensive review for the Government to rescue the tragedy and to do the right things. I will deal with all the points, and I am happy for him to intervene if I do not, but I will.
Last autumn, there were tragic judders throughout the energy sector, yet the Department’s diminution of support for the PV solar sector was clear when it did not merit a single word in DECC’s five-year plan. In November 2010, I queried with the Government whether feed-in tariffs were under threat. The Minister and his fellow Minister of State, the hon. Member for Bexhill and Battle, accused me of spreading scare stories. The latter said:
Notice that that is not just sub-50 kW. Within days of that question, despite all being light and joy according to the Minister of State, the hon. Member for Bexhill and Battle, key players from the solar industry were summoned to an urgent meeting with the Minister, a meeting that was confirmed in my subsequent questions to him in December. The word was that he was spooked by newspaper headlines screaming, “Solar park gold rush”. It is worth pointing out here, as I am sure that the Minister can confirm, that there was no Klondike in
He was absolutely right. There was time for a careful, considered and timely intervention. In answer to the Minister’s point, that is what we would have done—a well thought out and well executed recalibration. The scheme was designed to do that, but that is not, regrettably, what the Government did.
By 13 January, the calm reassurance from the Minister of State, the hon. Member for Wealden, had changed to mild concern, but still no panic. In his response to the hon. Member for Richmond Park (Zac Goldsmith) on 13 January 2011, he wrote:
“and our concerns about proposed large industrial-scale green field solar farms distorting the available funding for roof top and other innovative solar technologies, my officials have been monitoring and evaluating the situation.”
do not sound like the warning bells for drastic, disproportionate or precipitate action—yet that is exactly what we got. The Secretary of State made a shock written statement on 7 February 2011, announcing a sledgehammer of a fast-track review of the solar FIT.
Just to remind the Committee, those “super-size solar installations” of up to 5 MW were indeed the same scale of installation that, in opposition, the coalition partners had loudly and repeatedly demanded be in the FIT scheme. The sudden change in mind surely could not be to do with something as fleeting as tabloid headlines. Tomorrow’s chip paper had become today’s coalition policy. In their announcements and subsequent media briefings, Ministers, and by then the Secretary of State, who had been alerted to the desperate internal manoeuvrings in DECC, made clear that solar installations above 50 kW were unreasonably large.
The Secretary of State went on to “Channel 4 News” to defend the slow car crash that his Ministers were presiding over to try to defuse the growing concerns. He explained, dramatically with hand gestures and emotion, that a 50 kW installation was very large indeed, equivalent to 1,500 homes. Yet 50 kW is actually equivalent to 15 homes, maybe 20. Were those 15 homes a solar park in the Secretary of State’s mind? That added to speculation circling the fiasco that Ministers were involved more in cock-up—I am not sure whether I am allowed to use such Anglo-Saxon terms—than conspiracy, and had devised a back-of-the envelope policy response to the future threat of solar parks based on a flawed understanding of the basics by over-eager Ministers.
The response of the solar sector and the wider renewables and energy sector to the fast-track proposals reflected their genuine sense of betrayal and their immediate loss of confidence in the self-acclaimed, so-called greenest Government ever. They were scathing. Howard Johns, chairman of the Solar Trade Association, said:
Dave Sowden, chief executive of the Micropower Council, said that the decision was bad news for many worthwhile school, community, and public building projects. That forthright criticism was echoed by many from across the burgeoning industry, including the Renewable Energy Association, the Solar Trade Association and the Low Carbon Group .
David Mowat: I note the quote that the hon. Gentleman has given us from the Solar Trade Association. Does he have a similar quote from heavy electricity using communities or the heavy industry in the north of the country, which are headed towards paying the highest electricity prices anywhere in western Europe?
Huw Irranca-Davies: Well done that hon. Gentleman. Will he support us in opposing the Government’s blatant stealth tax on heavy industry users, which was part of the carbon tax? It is disgraceful, because it is giving carbon taxes a bad name, although it is separate from our deliberations today.
The hon. Gentleman is absolutely right. The Government and the Chancellor have made it clear that the recent carbon floor price announcement is not simply about incentivising low-carbon behaviour; it is a Treasury grab on heavy industry. It is a tragedy for steel, ceramics, brick-making and everything else, but it is not to do with our deliberations per se.
The Minister has done a sterling job in defending the costs, but there will be costs with renewables. There are costs because we believe that it is important to tackle climate change and to work with industry to do it. If he says that that is not the right way and that the fourth carbon budget report, which we have just signed off on a cross-party basis, is wrong, then the hon. Member for Warrington South is wrong.
David Mowat: I will take that as a no to the question on the quotation. Of course no one is saying that we should not be paying a premium for renewables. We are not talking about that battle; the discussion is on how much of a premium, for which type of renewables and at which scale. If the shadow Minister’s position is that paying 15% to 20% to investors is tenable, at the same time as having to close down parts of our manufacturing base due to heavy electricity prices, he is wrong.
Huw Irranca-Davies: If the hon. Gentleman were right, I would have to contradict myself and agree, but he is 180 degrees wrong. If we choose to invest in solar, the cost of investing in 50-150 kW, 150-250 kW and 250-500 kW, rather than sub-50 kW, is far less per unit than it is for my house generating its 3.9 kW. It is good that we incentivise individual households, as the Minister said, to show by example what can be done on a micro-micro-micro-micro level. It is good that the Government have kept the focus on sub-50 kW generation
Jeremy Corbyn: Does my hon. Friend agree that the majority of people who install PVs on their roofs do so because of environmental concern, rather than any greed, avarice or wish to make a great deal of money? Calculations show that the amount people get for putting PVs on the roof of their home is small indeed. They do it because they want to promote renewable energy sources and to protect the environment.
Huw Irranca-Davies: I agree. Much as I am often self-deprecating in this matter, that is exactly why, years ago, I installed thermal, I invested in rainwater harvesting and why I now have solar PV. Curiously, the example of having it on my house has led to half a dozen neighbours to do it as well. That is a good way of doing it.
Huw Irranca-Davies: It is about behavioural change. The feed-in tariff scheme was created to set an example and to show what can be done. Curiously, reports were published across the country this week, showing the take-up by local authority area. Remarkably, the two or three leading authorities were in Sheffield, Yorkshire and Aberdeen. They had spotted the ability, even within those bands, to generate for their communities, not for themselves, and to make large spatial investments.
Individual householders will continue doing that and earlier adopters of the technology will keep on pushing, because of their green motivation, but the tragedy of the Government’s policy is that it will make those schemes far less likely. Will the Minister tell me what has happened to those schemes beyond 50 kW? I will tell him in a moment, because we are seeing the Government running away from schemes larger than 50 kW. That brings in the social justice issue of developing, for example, a derelict brownfield or open-cast site in one of my communities at the top end of the south Wales valleys house-by-house, which is much more expensive and less cost-efficient, rather than developing that site, which will never be reclaimed or used for a factory, by putting in an installation so that the investment comes back into the coffers of such communities and protects them from the vagaries of rising fuel prices.
Only a few weeks before the announcement, the Secretary of State had expressed great public delight and basked in the media glow of Sharp Solar in Wrexham, which in January 2011 created 300 new jobs in solar panel production in north Wales. A couple of weeks later, Andrew Lee, the head of international sales at Sharp, summed up the betrayal felt by so many:
It is welcome that—thank goodness—the tariff for sub-50 kW installations has not been tampered with, which will enable domestic and very small-scale community installations to progress, but moderate and cost-effective medium-scale community projects that would have provided revenue and free electricity for communities up and down the country are now effectively dead in the water. That is the tragic brutal truth of this “Yes Minister” saga.
If Ministers and the Secretary of State were surprised at the ferocity of the anger in the renewables sector, let me explain why. The solar sector feels it has been misled. I have been told by those who attended meetings in the lead-up to the announcement that they had been informed that the Government were going to act decisively, but with intelligence and understanding. Discussions with Ministers and advisers had focused on such matters as perhaps reducing the upper limit to 2 MW—curiously, that was the level originally envisaged by Labour in the Energy Bill—the exclusion of greenfield sites or limiting larger installations to the roofs of public and agricultural buildings.
Those people told me about the soothing sounds that were made to the industry behind the scenes, which was why the subsequent announcement was even more shocking. Some of them could partially understand or even forgive the abruptness of the Minister’s pre-emptive strike on what he now terms “super-solar parks”, anticipating further developments in the planning pipeline from the fast-track review. However, by proposing to cut the legs off schemes above 50 kW in such an arbitrary and nonsensical manner, Ministers blundered catastrophically, particularly considering their commitment to domestic and community projects. Many of them are of more than 50 kW, and often of up to 250 kW and beyond, but they certainly would never be classified as, in the description of the Minister of State, the hon. Member for Bexhill and Battle,
To rub salt in the wounds, it was also widely reported that senior politicians were briefing the green lobby that the shock and awe strategy was not accidental and it was not a cock-up, but a deliberate if rather crass sub-Machiavellian tactic to take the steam out of the sector. That just added insult to injury.
That the consultation was still to come provided the hope that Ministers would hear the voice of the renewables sector, and respond in listening-Government mode. Far from it: nothing—I stress, nothing—changed, and the sector felt betrayed again. Donna Hume of Friends of the Earth summed up the majority mood by describing the consultation as an “utter farce”. It was an “utter farce” because of the elephant in the room—the Treasury. The imposition of a Treasury-driven cap and of cuts on the FIT scheme in the previous autumn set the parameters
“The 2010 Spending Review made clear for the first time that there are spending parameters within which the FITs scheme must operate, and stipulated the need to make 10% (£40 million) savings to the scheme in 2014-15 compared with original projections.”
“Do you agree or disagree that there is a need to limit access to FITs for large scale solar PV installations in order to meet Spending Review targets or should we limit access for other technologies to meet Spending Review targets?”
That was a pretty shameless attempt to play off one part of the diverse micro and community generation sector against another, having already told them that there was no alternative to the cap and cut that the Government imposed. Yet even with that deeply suspect and skewed question to open the consultation, designed to divide and rule, nearly 60% disagreed with the Government’s opening proposal. A staggering 81% disagreed with the new tariff bands and the accompanying proposed reductions of tariffs for PV installations. How did the Government respond? They ignored them. The summary of responses document on the FIT consultation noted
“The most frequently raised point was the impact on trust and investor certainty that the review has had—not only on solar tariffs or on the non-domestic sector, but across the board and across policies (e.g. including domestic investors and RHI)—it was argued that the impact will be felt for years to come.”
In June, hints were dropped that Ministers were working on other plans to revive large-scale solar farms, perhaps by including them in the renewable obligation project. We are waiting to hear about the projects at the moment. They were due before the summer, but we are still waiting. Other hints have been dropped along the way that electricity market reform could help to develop larger-scale solar PV in the UK. Yet, on the same day in June that the Secretary of State made his statement on the EMR White Paper, the Government published its “UK Renewable Energy Roadmap” and—no one could have made this up—solar PV and solar thermal technologies were not included, despite acknowledging elsewhere in the report that
Charles Hendry: I hope that the hon. Gentleman will recognise that the renewables roadmap was about large-scale technologies, not about microgeneration. There is a separate microgeneration strategy that talks about the
Huw Irranca-Davies: I thank the Minister for helping me with my point. Sub-50 kW is now the limit of the Government’s ambitions, yet they talk a good game about the future of larger-scale deployment potential in some other way. I expect the Minister, in the absence of his colleague, the Minister of State, the hon. Member for Bexhill and Battle, to explain how that is going to happen. The Minister makes my point for me. If sub-50 kW is what we are left with, where is the ambition for anything beyond it that is more cost-effective and better at delivering CO
As we enter autumn, I ask Ministers to think again about the responses to the fast-track review and put some flexibility for larger, community-scale renewables back into the mix. There were well informed but well ignored ideas in the consultation. Absolutely nothing changed. When is a consultation not a consultation? When before someone has written a document, they have decided already what will happen. Nothing changed. It is not too late to alter the scheme to allow desirable types of PV developments, including those that are larger-scale, more cost-effective, more carbon-effective, community-linked, roof-mounted, building-integrated, brownfield, on contaminated sites and related to low grid export, to go ahead. It is not too late to look at the ideas in the consultation on sliding tariff scales, dismissed by the Government because they are too complex, meaning that all we have now is sub-50 kW. It is also not too late to look at actively managed pipelines for larger schemes and caps on generation permitted in different bands. They are all good ideas. If the Minister proposes some of those ideas in the comprehensive review in the autumn, we will work with and support him. That is what we hoped would come forward. Listen to those such as Ernst and Young and to their response to the expectation that we would be spendthrift and that the cost would rise from £3.5 billion to £6 billion. We can work within the cap to make the scheme far better. It is not just us who are saying that. Ernst and Young’s analysis, which was submitted to the consultation and duly ignored, shows that there are different ways of doing things that will ensure that the scheme does not breach its first cap budget while still allowing projects above 50 kW to remain viable.
I hope I am wrong, but if the Government are as obstinate and deaf to these appeals as they have been throughout this episode we will vote against this provision today, knowing that the vote will be carried by loyal coalition Back Benchers and that the measures are already in place. It is a shot across the bows of a Government who have mishandled a critical issue appallingly. We want to work constructively with them to dig us out of this hole and work with the capped and chopped budget that the Treasury has imposed, without impacting on other renewable sectors or playing one off against another. We want to fashion a better way forward for solar and all other smaller-scale and decentralised energy sectors and, I have to say, to restore confidence and certainty where now there is doubt. It is not too late. At least I will be able to drown my sorrows on behalf of the industry if the absent protagonist brings some duty free back from his travels. I leave those
The Chair: I am faced with some difficulty. Statutory instruments are time limited to an hour and a half. That means this debate has to finish at 10.25. The Minister gave way to 10 hon. Members, but the Front-Bench speakers have taken over an hour. Four hon. Members wish to speak. It would be a pity if the Minister did not have some chance to respond to the debate. I hope to be able to call the Minister at 10.20 to allow five minutes for a ministerial response. I should be grateful if hon. Members would bear that in mind. I have no power to intervene if a Member is on their feet past the closure time, but if hon. Members wish to hear what the Minister has to say in reply to the points they raise, they will have to give him time to do it.
Lorely Burt (Solihull) (LD): I have to declare an interest, even if tangential. Like the hon. Member for Ogmore, we have photovoltaic panels and I rather hope that, with the interest the installation of ours has generated, it will be the norm for households rather than the exception in future.
We have heard how this programme has been a victim of its own success. I completely understand what the Minister is saying: the changes will be necessary. Cost factors are obviously important here. I worry that the cost is being borne by the already hard-pressed electricity consumer, rather than by the Government. I should be interested to know how, if Labour were still in power, it would have tackled that and paid to offset it.
There is a risk to jobs. We have the main review to come. The industry is holding its breath at the moment. Looking at charities, communities and not-for-profit organisations, I think that their community-scale projects often exceed 50 kW. Even roof-top installations on schools, hospitals and community centres are being affected. In Germany, 51% of all renewable energy is community owned. We should look at that model because Germany predicts that 9% of its energy will come from solar by 2020. The benefit goes to the community. I hope that when the Minister looks at the tariffs, and the bands in the tariffs as well, some accommodation can be made and that we do not put off the exponential growth that we are seeing in this industry and do not lose the investment that has already been calculated at £50 million. If we can get the tariffs right, we will have a viable project for the future.
Mr Weir: I want to make a few points briefly. I was very disappointed that the Minister set up straw men to be knocked down. He kept going on about the huge amounts being made by very rich investors, which was strange to hear coming from a Conservative.
I want to read out a brief extract from one of the many e-mails that I received after being appointed to this Committee, which is from OVESCo, a not-for-profit community company based in Lewes in east Sussex. OVESCo says that it is
“one of the many community groups using the Feed-in tariff (FIT) as a return on investment via a community share issue. Our first project to install 98kW…was successfully completed on July 27 2011 just before the reduction in the FIT for 50kW+ projects. We have over 250 local investors who backed our project and want us to develop more projects. The reduction in the FIT has meant that we can no longer make 50kW+ financially viable.”
It is not just rich investors who are affected; community projects are affected, too. Many of those community projects will not go ahead. If we are serious about getting the public to buy into the renewable revolution, we need to have more community projects that provide a real benefit for the community and that feel they have a real stake in this process.
The industry itself recognises that returns are perhaps too great, given the fall in costs was greater than expected. Surely there is a way to look at this issue without considering only the size of projects; we must also look at the return against the investment. The issue is not just the cost but how we get renewable energy into our system and how we get away from carbon-based energy.
The Minister talked about consumers’ electricity bills and he accepted that there was a cost to consumers with the roll-out of renewables, but he said that it was a cost worth paying. I agree, but he also talked about the extra cost to consumers up to 2020. I refer him to the Ernst and Young report, which was mentioned earlier by the hon. Member for Southampton, Test. It says that it is anticipated that solar PV could be subsidy-free by 2017. I want the Minister to consider that and tell me whether there are any other renewables currently being rolled out that will be subsidy-free by that time. I accept that there might be a short-term bump in the cost of using solar PV, but surely we should be looking at the cost to the consumer over the lifetime of solar PV. If the Ernst and Young report is correct, it appears that the cost over the lifetime of solar PV is much lower than, say, that of wind farms, which have had subsidies for many years and which will continue to receive subsidies for many years. Many of the other technologies, including wave and tide, are not even up and running, despite massive investment in them and it may be many more years before they are up and running.
In Germany, solar PV is already a very substantial contributor to the nation’s energy and it is estimated that one third of the UK’s energy could be met by solar PV. Solar PV is not something that we can ignore. There is a real danger that, by changing the FIT in the way that is being proposed, we will undermine an industry that provides not only energy but a great deal of construction work. Already, the cells are being constructed in the UK and I understand that the costs of making them are coming down, so that they are now very close to the costs of the cells being manufactured in China. Making those cells could provide a great deal of manufacturing employment.
Also, the idea that we need a sunny climate for solar PV is wrong. I remember some years ago being on the Scottish Affairs Committee when we were conducting
The Chair: In an endeavour to get a geographic spread, I will call Mr Reckless and then Mr Corbyn. If the Minister is to speak, I suspect that that might be as much time as we will have. I say that now because other hon. Members might wish to intervene.
Mark Reckless : The Government say that they are to be the greenest Government ever, yet this instrument is intended to shift resources from efficient solar schemes in sunny areas of the south-west to inefficient schemes elsewhere, so that the fixed, budget-capped amount of money available is spent in a way that gives us less renewable energy and higher carbon emissions. That strikes me as absolutely irrational. Inflation rose to 4.5% yesterday, and utility bills are rising higher still. My constituents are suffering from that. They have questions about that extraordinary sum of money— £3.2 billion or £3.5 billion, which is £400 million a year. Perhaps we are spending a little less than the previous Government, but I cannot justify that money. If we are to spend money on reducing carbon emissions and on renewables, we owe it—
Albert Owen: The hon. Gentleman is concentrating on the costs, but does his equation quantify the number of jobs? We are in a recession. Growth is slow. This is an industry sector that is growing and creating wealth for the country. Surely that should be taken into consideration.
Mark Reckless: That is my response. We will have less renewable energy and more carbon emissions for the same amount of money. As the Minister came close to admitting earlier, the aim of the programme is not to reduce carbon emissions or increase renewables; it is to include lots of individuals and households in the process. I am enormously frustrated. People’s installations will lead to less renewable energy and higher carbon emissions. Every time someone installs something small and inefficient with a high subsidy, there is less money for more efficient larger schemes, perhaps community schemes, yet those individuals will have a warm glow. They will feel that they are helping society or the planet, whereas really they are contributing to less renewable energy, and the 5% or 8% return on their money that they will get—that is very attractive compared with what is available—will be paid for by my constituents, who are in the main much poorer than the people investing in such installations.
The statutory instrument will lead to less renewable energy and higher carbon emissions for a fixed amount of money. I do not see why we want to tilt what subsidy
Jeremy Corbyn: I will be very brief, Mr Gale, and I hope that you will yawn when you want to move on to the next speech, if you cannot put a time limit on mine. This is the first occasion when I have ever regretted that a statutory instrument Committee is limited to an hour and a half. Normally we would be most grateful for them to be limited to 10 minutes or so, but this one is important.
I am disappointed by the Government’s proposals. The question of the alleged cost to the rest of the community of continuing with the current feed-in tariff regime is a bit of a red herring. The amount of money involved is not that great compared with the subsidy made to other forms of energy generation, such as nuclear, or with the specific promotion of hydro power, which is far more environmentally damaging than PV feed-ins. It also means that those who want to put PV cells on the roofs of their homes will be deterred even more. Not very many people do it, and the return is not very great. As I said in an intervention on my hon. Friend the Member for Ogmore, most people’s motive for doing so is not to make money but to make an environmental contribution. If it is difficult to put a figure on environmental benefits, we should at least recognise that PV is environmentally not damaging at all, apart from the energy costs in the manufacture of the panels in the first place.
The Minister’s contention is that he is trying to prevent very large farms and so on from being developed. He will also deter people from putting PVs all over very large buildings, which might be a very good thing to do. However, the real losers will be the primary schools and other schools that put PVs on their roofs. A number of primary schools in my area have made a great deal educationally out of putting PVs on their roofs. That has been an educational opportunity for the children. The whole community has begun to understand the process and therefore begun to debate the question of sustainability and how we look after the planet on which we live.
The message from the Government’s policy is cooked up in an economic argument. In reality, it is deterring people from being involved in protecting their planet by generating their own electricity. It is very damaging to community schemes and to schools and education. I wish that the Minister would think again. If the present Government are to be the greenest Government ever, why is he starting by painting the green out at the first opportunity?
Dr Whitehead: I have been racking my brains about how exactly this Marx Brothers comedy train crash happened. The centrepiece not just of the concerns among Opposition Members but of the much wider concerns in industry and communities as a whole was not that there was to be a review of feed-in tariffs. That was always accepted as part of the programme. Indeed,
I can conclude only that across the Minister’s desk, probably in January or February this year, came the news of the Treasury proposal to put a cap on all expenditure that was imputed as tax and spend in various areas relating to renewables. To be precise, the programme was announced on page 82 of “The Plan for Growth”— in the middle of nowhere—but it has profound implications for the development of renewables in general.
The cap includes three forms of renewables: the renewables obligation, the feed-in tariff and the warm home discount. The Machiavellian part of the cap is that it is an overall cap within those three renewable technologies; the expenditure can be moved around. The Minister was therefore faced in January or February with a crafty plan saying, “If you spend any more than a certain amount on feed-in tariffs, you will damage the renewables obligation and the warm home discount, so you’d better quickly work out how to reduce expenditure on feed-in tariffs if you want to keep that cap in place.” The Minister may well have been anticipating that that would not happen, because he would have known that, at that point, feed-in tariffs had not been declared as imputed tax and spend by the Office for National Statistics. Presumably he was serenely gliding towards a 2013 review of feed-in tariffs, confident in the knowledge that the Office for National Statistics would not impute feed-in tariffs as tax and spend by that point, only to be confronted suddenly with a Treasury that had decided after all that that was the case.
“The new control framework for DECC levy-funded spending covers DECC’s policies that entail levy-funded spending and that are classified by the Office for National Statistics as tax and spend for National Accounts purposes.”—[Official Report, 10 May 2011; Vol. 527, c. 1094W.]
Not true. I have correspondence from the Office for National Statistics that demonstrates that it never classified feed-in tariffs as imputed tax and spend and never told the Treasury that it had done so. The Treasury decided unilaterally to do that.
When news of the proposal came across his desk, the Minister must have been somewhat shocked to find that, with no back-up, despite what the Treasury had said in answer to questions, it had imputed feed-in tariffs as tax and spend. I can imagine his consternation when he had to make an abrupt reduction in expenditure because of something that he had apparently not anticipated before the review. I have considerable sympathy with him, and his ministerial colleagues, who also found themselves in that position.
We must, however, be straight about the matter. If that is what happened, we must question not only how the situation was managed subsequently, but what will happen with spending in future in relation to the 2013 review. What will happen to that imputed tax and spend ceiling? The Minister will know that I have raised the
The fact is, the imputed tax and spend is there—it arrived suddenly and, coincidentally, suddenly the Minister decided to put all the gears into reverse. I hope that when he responds he will reflect on how that situation happened and on its implications. That is important, not just because of what has happened in the past, but because we want to know about future investment and feed-in tariffs.
Charles Hendry: This has been an unusually stimulating statutory instrument debate. I am grateful for the contributions and the way in which the matter has been taken forward. Sometimes, however, there has been more heat than light—hopefully renewable heat and light—but I shall respond to some of the points that have been made.
What we had to deal with was simple. There was a scheme that we absolutely supported in principle and we urged the previous Government to implement it. When we looked at it, however, we identified that installations costs had fallen by 60% since 2008, according to Bloomberg New Energy Finance. Bearing in mind the principle of degression, such a fall must be considered in relation to preserving the rate of return. The assumption had been that there would not be a single scheme anywhere in the country of more than 50 kW. I have a map, however, that shows 24 schemes of more than a megawatt in England and Wales and 13 schemes of 5 MW, with many more coming through planning. That shows how mistaken those calculations were. Bear in mind that every scheme of 5 MW gets £1.3 million a year in FIT support under the old scheme. In addition, because it had been assumed that there would be no big schemes, no break points had been included for degression.
In response to my hon. Friend the Member for Rochester and Strood, we sought to encourage small-scale low-carbon electricity generation because we believe that it is important to decarbonise and to encourage a change of attitude. We want households to think about what more they can do. We have therefore maintained the support level for household and small community schemes at a threshold that would cost £200,000 for installation and would give a good rate of return for investors. In response to the hon. Member for Islington North, the provision will not squeeze out schools. If a primary school spends £200,000 on an installation, that is a big investment, and that will be completely protected. To respond to my hon. Friend the Member for Solihull, above that level, we have maintained the 5% rate of return that was envisaged in the original scheme. We will focus on those schemes to ensure that we can continue to give support.
I am surprised by the tone that the hon. Member for Ogmore has taken. There was formal consultation on the measure, to which the Labour party, for all its noise today, did not respond—it did not make a single proposal.
Charles Hendry: The hon. Gentleman does not have a single figure relating to what the level should be per kilowatt-hour. We have protected the essence of supporting microgeneration. We are determined to support such schemes in future because we want them to build up. We could not contemplate, however, £3.5 billion of extra costs on bills for over-subsidising schemes with a 10% or 15% rate of return. We have taken the measure back to what it was intended for and have corrected the failings in the previous scheme. We have protected the smaller schemes to encourage a change in attitudes. I firmly believe that we have acted responsibly and in a manner that enables the policy to go forward sensibly.
The Chair: I share the view of the hon. Member for Islington North that this is one of those rare occasions where there has been inadequate time to discuss a statutory instrument. I am grateful to all hon. Members for the courtesy and restraint that they have shown.