Draft Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013
The Committee consisted of the following Members:
† Barker, Gregory (Minister of State, Department of Energy and Climate Change)
† Berger, Luciana (Liverpool, Wavertree) (Lab/Co-op)
† Bridgen, Andrew (North West Leicestershire) (Con)
† Coffey, Ann (Stockport) (Lab)
† Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
Dowd, Jim (Lewisham West and Penge) (Lab)
† Ellison, Jane (Battersea) (Con)
† Farron, Tim (Westmorland and Lonsdale) (LD)
† Hemming, John (Birmingham, Yardley) (LD)
† Jones, Graham (Hyndburn) (Lab)
† Kaufman, Sir Gerald (Manchester, Gorton) (Lab)
† Latham, Pauline (Mid Derbyshire) (Con)
† McGovern, Jim (Dundee West) (Lab)
† Sandys, Laura (South Thanet) (Con)
† Stephenson, Andrew (Pendle) (Con)
† Stewart, Bob (Beckenham) (Con)
† Swayne, Mr Desmond (Lord Commissioner of Her Majesty's Treasury)
† Wright, David (Telford) (Lab)
Lydia Menzies, Committee Clerk
† attended the Committee
Sixth Delegated Legislation Committee
Tuesday 9 July 2013
[Philip Davies in the Chair]
Draft Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013
2.30 pm
The Minister of State, Department of Energy and Climate Change (Gregory Barker): I beg to move,
That the Committee has considered the draft Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013.
It is a pleasure, Mr Davies, to serve under your chairmanship on this sunny afternoon.
The coalition is absolutely committed to delivering cleaner energy and cheaper bills for British consumers. The renewable heat incentive is one of several Government financial schemes focused on combating climate change and changing how we use energy, but also on helping consumers to move away from expensive fossil fuels—especially off-grid customers in rural areas who are dependent on heating oil.
The measures under scrutiny today, however, deal with the non-domestic RHI for businesses, communities and industry. The RHI was launched in November 2011 for industry and is currently available only to the non-domestic sector, although I expect to be announcing details of a domestic scheme soon.
The scheme underlines the Government’s commitment to renewable energy and is an innovative world first that has already begun to make an important contribution to moving the UK’s public and commercial sectors on to new renewable heating technologies. I am confident that the RHI will play a significant role in the Government’s achieving a number of long-term goals, such as the 2020 renewables energy target and decarbonising the UK’s heat generation. The coalition sees renewable heat as an essential component of the UK’s long-term energy mix. The spending review settlement demonstrates our commitment to the long-term support of renewable heat. A budget of £430 million in 2015-16 will enable ambitious growth of renewable heat and will create a substantial number of green jobs.
It is important to update the Committee on what the scheme has already delivered. As of 1 June, we had 2,235 full applications to the scheme with 1,540 accredited installations and 1,091 receiving RHI payments. To date, the scheme has paid out over £13 million and, based on current applications, we expect to have paid out £53.8 million by this time next year. We are clearly still at the beginning of the scheme, but the signs are encouraging and there is growth.
I am genuinely encouraged by the first 18 months of the industrial RHI, but the Government are committed continually to improving and expanding the scheme, working closely with industry and responding to the feedback of scheme participants. We recognise the industry as the experts in delivering renewable heat and green
growth, and we highly value the ideas and suggestions made to us. My Department works closely with the private sector to improve the scheme’s capacity to deliver.An example of how we have listened and reacted to the views and needs of industry is the recent early tariff review consultation. The RHI has done a good job of incentivising some renewable heating technologies, but I am determined to see real growth in renewable heat right across the board. To achieve that, we have worked with the industry to gather performance data and market intelligence and propose revised tariff levels, which will really kick-start the market for technologies that have underperformed to date. We have received some helpful feedback from the consultation responses and will be announcing final levels of support in the autumn.
The changes to the metering requirements of the non-domestic RHI included in the draft regulations are another fine example of Government and industry working together to reduce the administrative burden—but more of that later. We are not only working on ensuring that we make existing support better, but also recognise the importance of expanding the scheme and introducing new tariffs to deliver more and a greater diversity of renewable heat technologies.
Last September, we consulted on the introduction of support for air-source heat pumps, large-scale biogas combustion, biomass direct air and expanding the forms of waste that are eligible for the scheme. We also consulted on introducing new specific support for deep geothermal heat and biomass and bioliquid combined heat and power or CHP. The Government will be providing their response to the consultation later this year.
My final point before we move on to the main topic of the day relates to our budget management system. The last time I stood before a Committee speaking about the RHI was during the debates about the introduction of the RHI’s tariff degression policy. The mechanism ensures that the RHI does not overspend, while also providing clarity and assurance to industry about how we will manage the budget.
We have already seen the degression system in action—medium biomass deployed to the level that meant a trigger point was hit, which, combined with an overall trigger having been met, has resulted in a 5% tariff reduction. Gradual, deployment-led, managed decreases such as that allow us to direct deployment so that we are able to afford a good mix of technologies in the RHI and ensure value for money in the tariffs paid. The RHI will help achieve a number of key objectives. It is a unique scheme that is still in its infancy, which means it is essential that we take every opportunity to evaluate it and enhance its performance.
The regulatory amendments on the table are being introduced to deliver several key outputs. First, we want to protect the quality of the air we breathe through the introduction of emissions limits for new biomass installations supported through the scheme. Secondly, we want to increase take-up through reducing the burden associated with metering. Thirdly, we aim to extend the scheme to commercial drying and cleaning, which will take place outdoors and allow the relocation of accredited installations. We are also using this opportunity to provide greater clarity to some other more technical regulations. Many positive changes are being made to improve the scheme. I will now take the opportunity to expand on each of the amendments.
In response to industry feedback from the first RHI consultation in 2010, we built the principle that payments must be based on metered use of eligible heat into the heart of the RHI. For the non-domestic sector, that provides the greatest certainty that public money is being used wisely and actually generating renewable heat. Since the launch of the scheme, however, feedback from participants has indicated that the current metering requirements are overly burdensome and seen as a barrier to the switch to renewable heat. To remedy that, we have revisited the principles of what needs to be metered in the RHI.
Do not get me wrong; non-domestic RHI support is still based on the principle of metered heat, but we have developed a new approach that provides much more flexibility and will reduce installations of redundant or unused meters. That will be achieved by moving from a system where the physical locations of meters are specified to one where instead we specify what needs to be metered.
Through those changes, we will also encourage energy-efficient behaviour by simplifying the metering system for those who minimise heat losses by properly insulating external pipes. We will also allow heat loss calculations to be used in place of meters in circumstances when they will be more accurate than a meter, and, when a back-up gas or electric fossil fuel heat source is still in place, we will allow fuel consumption to be measured rather than the heat output. Those simplifications will make the RHI less cumbersome and increase take-up while still ensuring we have a robust system to protect the public purse.
We are also proposing four other smaller scheme improvements, two of which expand the scope of the non- domestic RHI and two to provide clarity to the current regulations.
Through the regulations, we are introducing a mechanism to allow the relocation of an accredited installation. That change is essential in allowing the energy service company model to work in the renewable heat sector and also serves to provide greater reassurance for investors in renewable heat that their asset will retain value. Enabling a renewable heat installation to be moved will remove the risk of the system becoming redundant if the business it is providing heat to relocates or does not require it as a heat source any more.
Another change that will help the RHI deliver renewable heat is adding new eligible purposes to the scheme. Currently, to be eligible for the RHI any heat produced must be used within a building, but that has restricted the suitability of the scheme for some industrial processes. With that in mind, the regulations open up the scheme to commercial cleaning and drying processes that take place outside. Of course, those additional eligible outdoor processes will be subject to the existing scheme rules, which prohibit wasteful uses of heat.
We also introduce two minor changes to provide clarity to the scheme. The first makes it clear that water found in the ground is an eligible heat source for ground source heat pumps. That has always been a Government policy intention, but we have received feedback from the industry that that was not always understood. The regulations remove any doubt about the issue. The second change is to allow the installation used for the assessment of the installer to join the microgeneration
certification scheme and be eligible for the RHI. That will avoid a stockpile of otherwise eligible installations being unable to claim the RHI.The final change introduced by the regulations is the creation of air quality emissions limits for biomass boilers receiving RHI support. Where biomass replaces either coal or heating oil, there is no increase in the emissions levels of key air quality pollutants, but when it replaces gas or electricity, the emissions are higher. As biomass is expected to represent a significant proportion of RHI applications, the introduction of the limits is vital for protecting our national air quality.
With last summer’s “Renewable heat incentive: Providing certainty, improving performance”, we consulted on how we could best implement emissions limits. It is essential that the RHI scheme does not have a negative impact on our environment. From the announcement of the scheme in March 2011, we have made it clear that we are committed to introducing air quality emissions limits for solid biomass boilers. The combustion of biomass can lead to an increase in pollutants—mainly particulate matter and oxides of nitrogen, the pollutants that we intend to limit.
New participants will be required to demonstrate that they meet the emissions limits by providing emissions certificates to Ofgem, which will be provided to participants by the manufacturers of biomass boilers. When producing the certificates, manufacturers will be required to test their boilers and clearly show through the certificate what types of biomass fuel—logs, woodchip, pellets and so on—their boiler can combust without exceeding the emissions limits. Participants will not be permitted to use types of biomass fuel that are not listed as being compatible with their boiler on their emissions certificate, and they will be required to demonstrate to Ofgem that they are meeting that requirement.
To minimise the administrative burden on boiler manufacturers, we will allow type testing of boilers. That means that when there is a family of boiler models that are identical apart from their capacity, only a limited number of them will need to be tested. Plants that have had to obtain an environmental permit will not be expected to provide an additional emissions certificate.
I appreciate that a lot is covered in the regulations, but I hope the Committee will agree that they are all positive improvements and will either encourage uptake of renewables or limit the environmental impacts of the scheme. The regulations are planned to come into force on 24 September, allowing industry adequate time to prepare for their implementation.
In conclusion, the RHI is a unique scheme that is working towards achieving a significant change in how we produce heat in the UK. The regulations reflect the continued evaluation and improvement of the scheme, which are paramount to its success. The regulations will encourage uptake of the scheme and provide investors with additional reassurance that this market is evolving, growing and worth investing in. I commend the regulations to the Committee.
David Wright (Telford) (Lab): I have listened to the Minister’s comments. Can he give the Committee some assurance that he will come back to the House with a review of the regulations’ implementation? Would he be
able to do that over a set time period? Does he envisage such a review being in the form of a written statement that could be deposited in the House of Commons Library? We would all be fascinated to know whether the changes have been effective.Gregory Barker: It is not our plan or purpose to have a formal review, but we will certainly keep the House up to date. The hon. Gentleman will have plenty of opportunities to lay written parliamentary questions and ask oral parliamentary questions on the progress of the scheme. I hope we will be able to keep him fully up to date on the progress of the scheme in the usual way.
2.44 pm
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): It is a pleasure to serve under your chairmanship, Mr Davies, for what is, I believe, the first time. I thank the Minister for his statement and for setting out the details of the regulations. I particularly welcome his comments about the forthcoming announcement on the domestic renewable heat initiative. As he will know, many companies and individuals are eagerly awaiting that announcement. I believe that he used the same words about the last piece of secondary legislation that we discussed. I hope that the announcement is coming very soon.
Gregory Barker: Just to be clear, we will make the announcement before the House rises for the recess.
Luciana Berger: That is excellent news.
As the Minister outlined, the regulations will require biomass heat installations that apply to join the non-domestic renewable heat incentive scheme in future to comply with new limits on emissions. This is a good step considering the status quo. It addresses what has been one of the clear issues with the RHI since the Government launched the scheme in 2011. The RHI offers tariffs that are intended to compensate for the higher cost of equipment to reduce air pollution. However, there is no actual requirement for the equipment to be installed. This has special significance given that the Minister has made it clear that he expects to see a significant surge in heat generation from biomass over the coming years.
Legally binding targets dictate that 15% of all of the UK’s energy must come from renewable sources by 2015. Renewable heat is intended to comprise a third of that overall target, which is why the domestic scheme will be so important when it is announced. Less than 2% of our total heat demand is met from renewables at present. That is forecast to rise to 12% in 2020, and the potential impact on air quality has been made clear by the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for Newbury (Richard Benyon). In answers to parliamentary questions earlier this year, he confirmed that biomass combustion will emit a projected 16.5 kilotons of coarse particles and 11.5 kilotons of fine particles over the next seven years. The impact to public health from the fine particle emissions alone is forecast to cost more than £215 million.
It is vital therefore that we ensure proper protections are in place, as more heat generators switch over to biomass from fossil fuels. Meeting our renewable targets
should not come at the price of increased risks to public health or our environment. Limited regulation is in place for installations smaller than 20 MW, so we welcome the aims behind the regulations. With that in mind, I do not intend to keep the Committee for too long.I would however like to press the Minister on some of the details. First, can I ask him about the proposed new limits: 30g/GJ for particulate matter, PM10, and 150g/GJ for nitrogen oxides? Could he please explain why those levels were chosen? These changes would require Ofgem to ensure generators are adhering to the limits through regular on-site visits. What estimate has his Department made of the number of installations that will fall under these limits over the coming years and whether Ofgem has the adequate resources to monitor them effectively? These new limits will help to meet air quality standards, but they will also lead to an estimated 10% to 15% increase in capital costs for biomass installations. Can he give an assurance that he is satisfied that this will not deter new providers from applying for the RHI or entering the market at all?
I should also like to ask about the Government’s consultation on these proposals. A number of respondents raised concerns that the limits would lead to some fuels being excluded. Those fuels include logs and other low-quality fuels with high moisture content. Can the Minister confirm whether this will be the case? Will the limits apply to all biomass technologies? More broadly, his Department is also consulting on proposals to increase tariffs for a number of technologies currently supported in the RHI scheme. Will the changes that he hopes to make today have any implications for that?
Finally, I should be grateful to the Minister if he clarified something for me. It concerns the impact assessment that his Department has produced for this proposal. I know from recent experience that he always takes great care in reading and reviewing these important documents, just as I do. Regrettably, there is an error in paragraph 62 on page 16. I am sure that he will remember it well from when he signed off the impact assessment at the beginning of June. It sets out the amount of carbon emission savings that the proposed change will deliver. The offending line reads:
“an additional 0.2 MtCO2 savings are expected”—
“2020 and 5.2MtC02 over the lifetime of the policy”.
That is a very important point, and I ask the Minister to explain what that sentence is supposed to say. When will these additional savings be delivered—in 2020, by 2020, before 2020, or even after 2020? I do hope that he will be able to enlighten us. I trust that he will provide sufficient assurances to allow us to support the SI today.
2.50 pm
Gregory Barker: First, let me reiterate points about the Government’s domestic RHI response. We intend to publish that before the House rises for the summer recess. That is our response to the consultation on the domestic scheme that we launched earlier in the year. That is intended to allow us to launch as planned the domestic scheme for the RHI in spring 2014.
The hon. Member for Liverpool, Wavertree asked a number of important questions about air quality and environmental safeguards. She started by asking why
we chose those particular numbers for emissions: a maximum of 30 grams particulate matter can be emitted per gigajoule net rated thermal input from biomass installations, and a maximum limit of 150 grams per gigajoule for nitrogen oxides. We consulted on a compliance regime for the previously announced emissions limits in July last year. The final regime forming part of these proposals reflects the responses to the consultation.The limits will apply to all solid biomass installations participating in the RHI, including combined heat and power installations that burn biomass. The limits will also apply to all new installations, specifically those with an accreditation date on or after the date at which the relevant regulations come into force. Once accredited, those installations will not be expected to comply with any future changes to emissions limits under the RHI. The RHI is intended significantly to increase the use of biomass for heat. Therefore, it is important that we have confidence in the emissions limits. I think the hon. Lady will find that they are broadly in line with what expert opinion suggested, and we took full note of the consultation.
The hon. Lady also asked whether some fuels will be excluded from the limits. Some fuels will find it harder to pass within the limits, but not to an important extent. Good air quality is key. Fuels that do not meet the requirements, I am afraid, should not be incentivised. We have to be absolutely clear. We will not create more renewable energy at the expense of greater pollution in the air.
The hon. Lady asked whether Ofgem had the resources effectively to police and monitor this effect. We are satisfied that Ofgem will have the resources to do that. Clearly, given that it is a new scheme—a world first, in fact—we will keep that under review in the years ahead. She also asked about the setting of the limits on emissions. The limits were agreed after considerable consultation with my colleagues at the Department for Environment, Food and Rural Affairs. DEFRA leads on the limits, and those limits will be reviewed in time, if they are found wanting. She also asked about the increase in capital costs. The capital costs of meeting standards are already factored into the biomass tariffs for the scheme. We do not think that will have an impact.
Finally, in response to the hon. Lady’s query about—I cannot remember the page number.
Luciana Berger: Page 16, paragraph 62 of the impact assessment.
Gregory Barker: I do not have that specific number to hand, but the hon. Lady raises a valid point. I apologise for that not being included. I will write to her and place a copy of my letter in Library, so that the whole Committee will know the figure that should be included.
Andrew Bridgen (North West Leicestershire) (Con): Will my right hon. Friend educate the Committee by giving some examples of the fuels that he would not expect to comply with the emissions targets and therefore not qualify for the renewable heat incentive?
Gregory Barker: Examples could be damp logs or certain types of non-efficient wood fuels—soft wood—that do not put out much heat but give off a lot of smoke. Straw is another one that could struggle to meet the emissions targets. Of course, the technology is evolving, so if it becomes cheaper to extract the pollutants, while still burning efficiently the feedstock, that may change over time. But the fuels will be specified on the emissions certificates for each technology, so the end user, whether industrial or commercial, will be under no misapprehension about what should be put into the burner and what should not. That should be clear.
I thank all Committee members for their patience. The regulations are necessary to allow the RHI scheme to evolve and achieve the increased take-up of renewable heat needed. A big change is needed for us to achieve our 2020 renewables target, and this scheme is a key part of achieving that. We are committed to doing everything that we can to make this a success. These regulations are another small step on that road to achieving our goals.