Draft Renewable Heat Incentive
Scheme (Amendment) Regulations 2014
The Committee consisted of the following Members:
† Ainsworth, Mr Bob (Coventry North East) (Lab)
† Baldwin, Harriett (West Worcestershire) (Con)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
† Cooper, Rosie (West Lancashire) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Fallon, Michael (Minister of State, Department of Energy and Climate Change)
† Greatrex, Tom (Rutherglen and Hamilton West) (Lab/Co-op)
† Horwood, Martin (Cheltenham) (LD)
† Jackson, Glenda (Hampstead and Kilburn) (Lab)
† Knight, Sir Greg (East Yorkshire) (Con)
† Lloyd, Stephen (Eastbourne) (LD)
† Lumley, Karen (Redditch) (Con)
† McCartney, Karl (Lincoln) (Con)
† Moon, Mrs Madeleine (Bridgend) (Lab)
† Morris, David (Morecambe and Lunesdale) (Con)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
Sutcliffe, Mr Gerry (Bradford South) (Lab)
† Wharton, James (Stockton South) (Con)
Anne-Marie Griffiths, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Monday 12 May 2014
[Mr Andrew Turner in the Chair]
Draft Renewable Heat Incentive Scheme (Amendment) Regulations 2014
4.30 pm
The Minister of State, Department of Energy and Climate Change (Michael Fallon): I beg to move,
That the Committee has considered the draft Renewable Heat Incentive Scheme (Amendment) Regulations 2014.
I welcome you to the Chair for this important Committee, Mr Turner; I know that we are going to be in good hands.
I am pleased to have the opportunity to open this debate on the renewable heat incentive, which is commonly known as the RHI. Although we will be focusing on the regulations before us, it might be helpful to the Committee if I began with some general words of background about the scheme. The Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker) spoke about renewable heat in the recent Committee debate on the regulations that introduced the domestic RHI in April. Within the first few weeks of the domestic scheme opening for applications, more than 480 households have been accredited and are due to receive an RHI payment for making the move to renewable heat. The launch of the domestic scheme underlines our commitment to renewable energy. The scheme is an innovative world first, and truly a landmark for the way in which we heat our homes.
Nevertheless, domestic renewable heat is only part of the story. If we are to achieve our significant ambitions for renewable heat, we must have larger-scale deployment in the non-domestic sector, which is the subject of the regulations. We have already started to make progress on the non-domestic scheme that was launched in November 2011: earlier this month the total number of accredited installations passed the 4,000 mark; and the total amount of renewable heat generated under the scheme recently exceeded 1 TWh. The scheme is driving the deployment of renewable heat, but we must continue to improve it in the light of feedback, introduce support for entirely new technologies, and make the existing support better. The regulations will introduce the most recent updates and improvements to the non-domestic scheme and help to incentivise increased deployment.
Glenda Jackson (Hampstead and Kilburn) (Lab): Before the Minister moves on from the domestic scheme, will he provide us with data on the means by which individual households are creating renewable energy—for example, are they using solar panels or wind turbines? What difficulties might an individual who wishes to use renewable heat face with regard to planning procedures and neighbours’ disquiet?
Michael Fallon: I am happy to write to the hon. Lady about the details of the various planning permissions. A number of different technologies can be used—for example,
there is a variety of underground heat pumps. Ofgem provides a weekly breakdown of the different accreditations by the different technologies on the domestic pages of its website. We will be reporting on the operation of the new scheme each month, and we expect to publish a full report covering the period from the launch on 9 April to 31 May towards the end of June, when we will be able to see the take-up technology by technology. If it will be helpful, I will be happy to write to the hon. Lady about the difficulty of planning and whether we have any data about if one technology is more difficult to install than another in the kind of urban constituency that she represents, for example.Glenda Jackson: I am grateful to the Minister for his reply and promise to write to me. He has told the Committee that 480 households and 4,000 installations are involved. Do those figures include communities that have entered into renewable energy schemes to sell energy over a larger area?
Michael Fallon: No, the figure of 480 deals with simply households and reflects the quite rapid take-up since the regulations introduced the scheme towards the latter part of last month. I was trying to indicate to the Committee that the domestic scheme that my right hon. Friend the Minister of State introduced had got off to a reasonable start.
The measures to improve the non-domestic scheme have the support of the industry and experts in the sector, and they are being introduced following a full consultation. They will deliver tailored and appropriate support to a greater range of renewable heating technologies under the scheme. They will increase the support available for some of the existing tariffs, ensuring that every technology plays a role in the future of non-domestic heating, and they will ensure that the scheme delivers more renewable heat within the available budget by improving the existing budget management system.
Let me begin with the extension of the range. The regulations introduce a tariff for air to water pumps. Heat pumps are a key plank in both our short-term goals for renewable heating and our long-term carbon budgets. The non-domestic RHI already supports ground and water-source heat pumps, but we always intended to support air-source heat pumps, which are easier to install and more affordable than other heat pumps—it might assist the hon. Member for Hampstead and Kilburn that I am getting on to the different technologies. Up to now, we have not had the data to enable us to set a tariff for air-source heat pumps, but after gathering those data, we propose to introduce support at 2.5p per kWh.
We also propose to introduce support for large-scale biogas combustion. Biogas plants have the double benefit of reducing the amount of waste sent to landfill while providing a renewable source of heat. Plants of less than 200 kW are already supported under the RHI, but larger biogas plants represent the majority of pipeline projects for biogas. The message from our stakeholders was clear—RHI support is crucial for the success of the industry—so the regulations introduce two new tariff bands for biogas: 5.9p per kWh for medium-scale plants, and 2.2p per kWh for large-scale plants.
In addition, we are also introducing new bespoke tariffs for some already supported technologies. Biomass combined heat and power is a key technology for our
longer-term decarbonisation plans, as well as for the 2020 renewable targets, and that technology is currently eligible under the same tariffs as biomass boilers. CHP projects, however, have an entirely different cost and require tailored support to encourage deployment, so the regulations introduce a tariff of 4.1p per kWh for eligible biomass CHP installations.We also propose to introduce a new bespoke tariff for deep geothermal heat. Deep geothermal provides renewable and low-carbon heat without, of course, any air quality issues. It has a small surface footprint and its ability to provide non-intermittent heat makes it ideal for providing heating in an urban environment. Previously it was supported under the ground-source heat pump tariff because, again, of a lack of data, but we have now been able to set a tariff, so the regulations introduce support at 5p per kWh.
The regulations also expand the waste streams that are eligible for support. The combustion of municipal solid waste is already supported. Our review of waste policy reflected our commitment to increasing renewable energy from all waste. Restricting energy from waste plants that make use of other waste streams is presenting a barrier for new projects, so the regulations extend eligible waste streams to all renewable waste, which is consistent with the approach taken under the renewables obligation.
In addition to introducing new tariffs, the regulations implement the changes resulting from last year’s review of some existing tariffs, allowing previously underperforming technologies to play a role in our energy future. Large-scale biomass combustion for heating is identified in our bioenergy strategy as a priority pathway for biomass resources. However, the current tariff of 1p per kWh has proved insufficient to incentivise uptake of the technology. Following the review of the costs and representations from the industry, we propose to increase the tariff for large biomass—that with a capacity of 1 MW or higher—to 2p per kWh.
The next underperforming technology considered under the tariff review was ground-source heat pumps. Heat pumps are a key part of our carbon plan. Ground-source heat pumps are highly efficient and of particular importance to our long-term carbon goals, but the support available for them has not resulted in the uptake that we expected. The tariff review concluded that the current tariff is too low, so the regulations increase support to an aggregated tariff of 7.2p per kWh. The regulations also make it easier for ground-source heat pumps to make use of their unique ability to store heat for future use when it would otherwise have been wasted.
The final change in the regulations arising from the 2013 early tariff review affects solar thermal. The review suggested that a higher tariff was required to incentivise the installation of solar thermal, so the regulations increase the tariff to 10p per kWh, which is the level of our value-for-money cap.
The third major area on which the regulations improve is how we manage the budget of the scheme. A key component of our budget management system is the accuracy of our expenditure forecasts. Since introducing the budget management mechanism in April 2013, we have learned from our experiences and listened to feedback from industry, and that has allowed us to make two key improvements. Very large installations vary and have their own particular requirements, so applying averages
to them can distort estimates. Under the regulations, more use will be made of evidence from the individual plants to give a more accurate estimate of the committed spend. Secondly, from the experience that we have gained, we are able to establish when installations are most likely to make demands on the budget, so estimates can therefore be improved by including installations within them.In addition to all those major changes, the regulations make refinements to the operation of the scheme. They bring improved clarity for participants registering as biomethane producers, update testing standards, simplify the approach to additional capacity for accredited installations, and improve the grant repayment mechanism. The regulations bring in the improvements necessary to increase deployment in the non-domestic RHI. We have learned a lot since launching the scheme in November 2011. We have a stronger evidence base because of our consultations and engagement with industry, and we have a better understanding of renewable heat technologies than when the RHI was originally developed. The regulations can help us to put our improved knowledge and experience into practice to help the RHI to deliver on its ambitious aims.
4.43 pm
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Mr Turner, for what I think is the first time.
I am grateful to the Minister for explaining the regulations in detail. He began by mentioning the domestic part of the renewable heat incentive. He and his predecessors will have attended many Committees in which we have discussed renewable heat, and he will know that the percentage of UK houses with renewable heat is very low —less than 1%. The fact that the RHI finally came into effect, just over a month ago, is indeed to be welcomed.
I draw the attention of the Committee to my entry in the Register of Members’ Financial Interests, as I had the opportunity to visit Sweden last year to see the use of ground-source heat pumps, mostly, on a district heating model. My hon. Friend the Member for Hampstead and Kilburn spoke about projects for a range of households, rather than just one, and I saw the huge benefit that had come from that over 20 years.
Last week I visited, in the constituency of the hon. Member for Clacton (Mr Carswell), a project from towards the end of the old community energy saving programme. A number of properties that were off-grid were insulated and then had heating introduced through ground-source heat pumps, at no cost to those householders. Those householders saved an average of £500 on their heating bills last winter, and they felt much warmer and more comfortable in their homes, quite apart from the environmental benefits. Huge benefits can be gained from the use of renewable heat, so I hope that it will continue to be supported by Members on both sides of the House.
The Minister explained that the regulations implement a number of measures announced in the December 2013 consultation response on renewable heat schemes. He will know, despite what I have just said, that large-scale renewable heat schemes are much cheaper than individual schemes and can help to meet targets at a lower cost to the taxpayer than smaller-scale units. He ran through the figures for the support regime, but he will be aware
that although the Government are committed to the RHI until 2020, the budget is limited by the spending review period that ends in March 2016. The RHI budget for new projects from April 2016 will therefore not be available until the comprehensive spending review takes place, but the Government have indicated that they intend to introduce a tariff guarantee scheme from April 2016 to ensure that developers receive a commitment on what RHI tariffs they will receive when they commission a project.I have been told that several projects have been cancelled or had their construction delayed until after April 2016. Has such concern been expressed to him or his officials? If there is an unnecessary delay to some of the larger projects, it will not help the agenda that he eloquently set out.
I want to raise a few of points of detail about the regulations. First, I welcome the inclusion of commercial and industrial waste, as well as municipal waste. That is important, given the high energy use of industrial processes that could benefit from that reclassification, owing to the amount of heat that they use. Under proposed new regulation 8, ground-source heat pumps are required to demonstrate
“a seasonal performance factor of at least 2.5”.
What engagement has the Minister had with ground-source heat pump suppliers about that provision? What proportion of existing heat pumps will meet that criteria and how challenging will it be to develop the technology? What proportion of legacy owners who were part-funded under the old renewable heat premium payment scheme have transferred to the RHI?
In July 2013, the Government announced that large-scale biomass projects would have to ensure that their biomass was delivered by suppliers on an accredited list, which was due to be introduced in the spring. However, in response to consultation feedback, the Government announced that that would happen this autumn. Will the Minister let the Committee know whether it is still expected that the accredited suppliers list will be introduced in the autumn? He will be aware that there are concerns among hon. Members about the nature of the biomass suppliers.
The degression triggers within the scheme indicate that the first tariff change notice is due to be issued at the start of June. Will the Minister inform the Committee whether it is likely that the first notice will be announced on 1 June to take effect on 1 July 2014? Hon. Members will be content with degression in support according to cost, which is different from adopting an arbitrary approach and something to be welcomed. If the Minister will respond to my points, I shall be grateful.
4.50 pm
Michael Fallon: I am grateful to the hon. Gentleman for his general welcome for the adaptation and improvement set out in the regulations. I was certainly interested in what he had to say about the domestic renewable heat incentive scheme, and it was useful to hear of his exotic travels to Sweden and Clacton.
On the budget provision under the RHI, it is true that the figures are set out only to the end of 2015-16. That is because this matter does not fall under the levy
control framework; the amounts come out of general taxation, so the figures that are available have to be linked directly to the periods of the spending review. For that reason, I cannot help him with provision after 2016, but I am well aware of the point about tariff guarantees, and that matter is still under consideration. Although the tariffs themselves are out there for a relatively long period—some 20 years—there is of course no guarantee about the rate of the tariffs. That is under consideration, and I will get back to the hon. Gentleman about that.I am pleased that the hon. Gentleman’s welcomes the extension to other forms of waste. He asked whether the suppliers list for pumps, which is due to be published this autumn, is still on track. The answer is that it is open for suppliers to register, and we have the schedule for purchasers that we anticipated.
I cannot tell the hon. Gentleman exactly what percentage of people who were on the RHPP scheme have transferred to the RHI. It is a little too early to be sure of that, but I will certainly get back to him if we do have particular figures.
The hon. Gentleman also asked whether I had heard concern being expressed about the importance of large-scale plants. That takes us back to the issue of tariff certainty. Our intention, as I have said, is that there should be some form of tariff guarantee. We are developing a number of policy options and hope to publish a paper shortly.
Glenda Jackson: I, too, welcome the proposal to expand the regulations to include industrial waste, but will there be separate plants—I cannot think of a better word—for industrial waste to be transformed into combined heat and power, perhaps, or will it be used in existing plants that dispose of municipal waste?
Michael Fallon: The hon. Lady yet again asks me a technical question to which I am not sure that I know the answer. I suspect that the answer is both, but perhaps I can reply to her when I have a proper answer, rather than risking misleading the Committee.
The hon. Member for Rutherglen and Hamilton West asked me questions about biomass and whether degression will still apply from 1 June. I hope that he will allow me to write to him about those two points, to which I do not have the answers to hand.
I think that there is general support for the improvements and extensions to the scheme and the management of its budget proposed in the regulations, which I hope that the Committee will proceed to support.
The Chair: I shall now put the Question—
Martin Horwood (Cheltenham) (LD): On a point of order, Mr Turner, which relates to the vote. I have realised that I probably have a direct pecuniary interest in this matter as I have a renewable heating system, so I wanted to declare that for the record.