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Lord Moynihan: I hesitate to follow the noble Lord and immediately declare an interest as president of the British Wind-Energy Association! I echo many of the comments that he made in the context of the opening remarks of the noble Lord, Lord Ezra. They were pertinent and worthy of support from all sides of the Committee. I accept that this clause, and indeed the Bill, deal directly with the scope of the fossil fuel levy as to the support that the levy provides for renewable energy. Nevertheless, I hope that the Committee will agree that, where the principle of hypothecation is concerned, the range of beneficiaries is worthy of brief comment,
I agree with the comments made regarding combined heat and power. It might be argued that, despite current government support for CHP technology, there is still insufficient will to provide the positive institutional framework required to promote widespread use of this technology. The development of CHP projects entails relatively high initial investment costs. Moreover, the construction of infrastructure necessary for the transport of heat is also costly. Investment in CHP projects is, to date, discretionary; and CHP technology is likely to be used only if a major energy user can justify the technology. Otherwise, while most companies will see CHP systems as desirable, they will be unable to utilise the technology without the benefit of special incentives.
Furthermore, initial capital investment costs may in some cases serve as a deterrent to sustainable exploitation.It is against that background and in the context of this clause and the Bill that I wish to propose a few short options for consideration by the Government to encourage CHP in the light of comments made by noble Lords on all sides of the Committee. They are, first, to consider low-interest, long-term government loan stock for investment in CHP projects; secondly, to look at a premium for CHP export electricity, achieved by means of an obligation placed upon licensed electricity suppliers and supported through either a levy on consumption (for example, through the mechanism of the non-fossil fuel obligation mentioned by the noble Lord, Lord Ezra) or by balancing tax advantages/allowances for such suppliers; thirdly, to look at increased writing down allowances for new capital investment in CHP plant; fourthly, to consider a rating advantage linked to the thermal efficiency of industrial sites with installed CHP capacity; fifthly, to consider a requirement on all major energy users to undertake a regular review of CHP economics as an on-going condition of their on-going environmental authorisations; and finally, to consider the introduction of regulations requiring all new industrial plant (including generation) to be designed and constructed with a view to maximum thermal efficiency, utilising the BATNEEC principle.
I should not wish to disappoint noble Lords by not mentioning wind energy. I believe that it has an exciting future and that the prominent place for it is likely to be in offshore United Kingdom waters. The high wind speeds in the offshore waters in the United Kingdom could be exploited very effectively. The majority of offshore wind energy projects are likely to be large by onshore standards. Therefore it is likely that a smaller number of projects will win non-fossil fuel obligation consent.
Given the smaller number of contracts, it is very important that successful projects are commissioned--not least to prove the noble Lord, Lord Howie of Troon, wrong--on the amount of electricity that could be generated by significant offshore wind farms. With this in mind, I would suggest that a stringent "will secure" test, possibly audited externally, is essential for offshore bids. I believe that, if one were to ask for more stringent criteria and thus treat offshore bids in a separate manner, it would make sense to create a separate offshore band in NFFO 5. Moreover, as these bids need more technical assessment, it might be sensible to allow more time between the announcement of NFFO 5 and the new offshore band, by creating, for example, an NFFO 5a or an NFFO 6 which would take place some three to six months later. This would have the added bonus of allowing the wind energy industry to draw up appropriate guidelines for offshore wind projects.
In conclusion on this clause, I believe that the current NFFO mechanism does little to address a key problem for the renewable energy industry as a whole, which is the fact that the industry is not compensated in price terms as a result of delivering electricity at the lower
voltage distribution network level. It may be that the liberalisation of the electricity market due in April of next year will help to ease this problem, but I hope that the Government will review the NFFO mechanism at this stage and bear this issue in mind.We are today discussing the future of the electricity sector, the need to maintain support for the renewables and how to develop a better support structure for CHP projects. I remain one of the strongest proponents, as noble Lords on both sides of the Chamber know, of the need for these important measures, not least to achieve the ambitious targets laid down by the Government, which I support and which I hope they will achieve. I hope that all Members of the House and others will assist the Government in finding measures to ensure that these targets can be delivered.
Lord Fraser of Carmyllie: Perhaps I may say to the noble Lord on the Government Front Bench, if he is not already aware of the fact, that we support the Bill and have nothing against this clause in particular. However, in view of the fact that the noble Lord, Lord Ezra, tried to put forward an amendment which failed to get past the Table, we should like to take this opportunity to indicate support in broad terms for the line that he wishes to see explored. We appreciate, of course, that if this were to be achieved fresh legislation in some form would doubtless be necessary.
We raised this matter at Second Reading. I am sure that noble Lords who participated then and perhaps others are aware that the exchanges that we had in your Lordships' House have attracted interest in the coal industry. I have received considerable correspondence from coal producers, anxious to see how this matter is to be taken forward.
I think their interest has become even keener in recent weeks. They had understood that this Government, perhaps instinctively, would like to show greater favour to coal than we did while in government. However, I think that, given a number of recent decisions allowing gas-fired power stations to proceed, there may be less confidence in the industry than there was on 1st May that that shift in policy will be delivered. It would be helpful to hear from the Government in the clearest of terms exactly what approach they propose to take in both the short term and the longer term with regard to the coal industry and the use of coal in our power stations.
The matter seems to me to have some urgency attached to it. The coal industry has a very crucial year or two ahead of it. More particularly, I think that the noble Lord, Lord Mason, will certainly be aware that one of the major generating companies in this country already has a proposal to seek to apply a clean-coal technology to a generating plant in the north of England. It is clear that if that is to proceed they will need to know at the earliest possible opportunity whether any support will be given to it, whether as a result of the proceeds of this levy or otherwise.
What is of most concern to the industry is its belief that if this opportunity is not taken--and clearly it cannot be taken--to extend the range in the next round
to include clean-coal technology, it might be as long as two years before fresh legislation would be introduced. I must say to the noble Lord, Lord Haskel, that my personal worry is that such a delay would be simply too long for those who are at the present time looking with some enthusiasm and real skill at what technology might be introduced.I understand why the noble Lord, Lord Ezra, withdrew his amendment and I shall not ask any of my noble friends to do anything other than listen to the Minister; but I hope, for the sake of the industry, that the Minister will be able to say in the clearest of terms what the Government's policy with regard to clean-coal technology is. At Second Reading he indicated that there was a review. I hope that that review is nearly over, if not already over, and that we shall shortly hear exactly what the Government propose.
Lord Haskel: I thank noble Lords for participating in this debate. I particularly thank the noble Lord, Lord Ezra, for his proposals. He has a long and distinguished record as a champion of the more efficient use of fuel and energy and I am grateful to him for explaining to us his hopes for extending the scope of the non-fossil fuel obligation. The fossil fuel levy could be used to support a wider range of promising technologies than is currently the case. As he said, he tried to put down an amendment so that we could discuss his proposals in the normal way but the House authorities decided that his amendment was outside the scope of the Bill before us. The reason for that is that the Bill deals solely with the collection of the fossil fuel levy, which is provided for by Section 33 of the Electricity Act. The amendment of the noble Lord, Lord Ezra, however, contained proposals for how the levy money should be spent. That is the subject of Section 32 of the Electricity Act. I respect the decision of the House authorities, who have acted in their impartial way, and we all have to accept their decision.
However, I must tell Members of the Committee that I am disappointed by that decision. The Government are very sympathetic to the intentions underlying the proposals which the noble Lord, Lord Ezra, explained to the Committee today. Yes, the Government have proposed a challenging target for a 20 per cent. reduction in carbon dioxide emissions by 2010 and I am sure that further progress on reducing other greenhouse gases will result from the Kyoto conference on climate change. The noble Lord, Lord Ezra, made the point very well: swift action is needed, as many noble Lords pointed out, if the Government are to achieve these goals. I agree.
However, the Government have not been idle on these issues. We have commissioned work to develop a strategy on how the limited financial and other resources available can be harnessed most effectively to meet these testing targets. The Minister for Science, Energy and Industry instituted as a matter of priority an examination of the options for harnessing clean-coal technology for power generation. As my noble friend Lord Mason said, this is a new and promising technology which has enormous potential worldwide. Here in the UK we recognise the importance of ensuring
that all the diverse fuels available to us, including coal, are able to compete in ways which are consistent with our environmental targets.The review will examine the merits of supporting demonstration projects, as well as R&D, via support mechanisms such as NFFO-type schemes, tax incentives, grants and other subsidies. The review is expected to be completed in November. An announcement will be made about the outcome of the review when Ministers have had time to consider the review's recommendations.
As part of the review the Department is contributing to a £100,000 study by industry and universities as part of the Foresight exercise to prepare a detailed R&D strategy and technology targets for clean coal and power generation.
The DTI is also undertaking a review of new and renewable technology. The review will examine what would be needed to achieve 10 per cent. of electricity generation from renewable sources by the year 2010. That is a major initiative and represents a step change.
The Department of the Environment, Transport and the Regions is undertaking a review of support for combined heat and power. A high level marketing campaign on combined heat and power, endorsed by the CBI, has been launched. The Deputy Prime Minister has written to industry leaders asking them to review the potential for combined heat and power. That is being followed up by conference on 22nd October. The Government are also considering further planning policy guidance on CHP which might be useful. The capital receipts initiative and the public/private partnership task force show the way forward for new opportunities for combined heat and power.
I turn to the question of renewables. The Minister for Science, Energy and Industry announced on 6th June in another place that the Government proposed to undertake a new and strong drive to develop renewable energy sources. The NFFO has been used to stimulate an initial market for renewable sources of energy. That is something which we have supported.
Projects contracted under NFFO 1 and NFFO 2 are generating about 324 megawatts of electricity at an annual cost to the fossil fuel levy of about £105 million. NFFO 1 and NFFO 2 contracts end during 1998, at which time their cost to the levy will fall to zero. Projects contracted under NFFO 3, made in 1994, are now being commissioned and the cost to the levy will rise from its current figure to about £4 million a year for 98 megawatts of generating capacity. Projects contracted under NFFO 4, made in 1997, will be commissioned in due course.
Gross expenditure in 1996-97 on the Government's new and renewable energy programme was £16.8 million. The support is used for a range of activities, including raising awareness, research and development and removing international barriers.
The noble Lord, Lord Mason, spoke about the future of the coal industry. It is not the Government's intention to subsidise the coal industry; nor will we tolerate subsidies paid elsewhere which distort the market against UK producers. That is why we have complained
to the European Commission about the high levels of state aid paid in both Germany and Spain. So far, our initiatives have led to the closure of one subsidised anthracite producer in Germany who was selling anthracite into the UK market at below production cost. The Commission has opened an investigation into that and has now written to the German Government in strong terms asking them to explain that aspect of their aid regime. The DTI will also write to the Commission on the issue of steam coal subsidies in Germany. Recently, the DTI complained to the Commission about the state aid paid to Spanish coal producers.
There is a lot of work going on. We must look to the advice we receive as a result of all that work. I can assure the noble Lord, Lord Ezra, and other noble Lords who have spoken on this matter that the Government will not be slow to act when we have received that advice. I can assure noble Lords that if it means legislation, we shall legislate. If we must legislate early, we shall legislate the moment parliamentary time permits. I hope that the noble Lord, Lord Ezra, is content with those assurances.
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