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Lord Ezra moved Amendment No. 192:

("( ) to facilitate the development of embedded generation"").

The noble Lord said: In moving Amendment No. 192, I shall speak also to Amendment No. 193. The purpose of these amendments is to add to the general duties of licensed electricity distributors. In the case of Amendment No. 192, it is to add the duty of

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facilitating the development of embedded generation to which the Minister referred in commenting on the last amendment.

Perhaps I may remind the Committee that embedded generation is small-scale generation, generally deriving from renewables or combined heat and power, which is too small to supply onto the national network and has to link up with local networks. It brings power and heat generation closer to communities and local industry. The successful development and growth of embedded generation helps to develop new environmentally-friendly technologies and services.

According to the DTI, the amount of embedded generation is likely to increase by an extra 8,000 to 10,000 megawatts over the next decade. By then, more than 25 per cent of generating capacity could come from this source. This is one of the most significant developments in electricity generation and distribution since the development of the National Grid. It reflects major technological change. Bringing the source of generation close to consumers could lead to big savings. Less electricity would be lost through long-distance transmission. Embedded generation technology is more flexible and less polluting. It changes altogether the electricity scene we have been used to in the post-war period, with mammoth power stations distant from their customers. Here we have a situation in which more and more power will be generated in smaller amounts close to the customer.

Embedded generation can usefully supplement the capacity of the grid in particular localities. The difficulty under the earlier system was that the capacity of the grid could be augmented only on a very large scale. Embedded generation introduces much greater flexibility, adding to capacity where it is needed.

In the latest report of the Royal Commission on Environmental Pollution, which was issued on 15th June, specific reference is made to the importance of embedded generation. The report states that:

    "The relatively small size of renewable energy plants generating electricity and local CHP plants does not fit easily with an electricity distribution and transmission network based on massive generators and highly centralised control".

That refers to the previous system. It goes on,

    "The national grid and the regional distribution systems need to become more favourable to small and very small environmentally friendly generators which sometimes need to import electricity. Regulatory policies will need to promote, and must not inhibit, this development. The government and the electricity supply industry must together devise a system which can handle a growing quantity of this embedded generation securely and efficiently".

I should like to read from the debate which took place yesterday on combined heat and power, when the Parliamentary Under-Secretary of State for the Environment, Transport and the Regions, Mr Chris Mullin, said,

    "We want to ensure that CHP and other embedded generation is treated on the same basis as conventional generation. We also want to ensure that it has fair access to the wider networks at fair prices, and that it is fairly rewarded for the benefits that it brings to the network through its "focus on local solutions on sustainable energy".--[Official Report, Commons, 20/6/00; col. 318.]

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In the light of this important development, I hope that the Government will seriously consider the amendment. Unless we have something like this on the face of the Bill, the need to secure fair and open access to the growing amounts of embedded generation will not be secured.

The related Amendment No. 193 deals with the more precise problem of net metering in the case of small, localised generation. The basis of net metering is that the same price is paid for any electricity received as is paid to the user for any electricity sent out. That would be particularly important for very small operations including, possibly, as the technology develops, operations on a domestic scale. So that too is an important aspect of the same problem. I beg to move.

Lord Jenkin of Roding: In the course of trying to begin to make myself familiar with the Royal Commission report--it is a formidable document and one which will repay a great deal of study--I too was impressed with the passages on the importance of this growing feature of our electricity supply, embedded energy.

The noble Lord, Lord Ezra, quoted one recommendation. I was particularly struck by the recommendation in paragraph 8.54, which says,

    "There appears to have been no research as yet into these problems";

that is, that it requires a much more sophisticated distribution network if it is going to take account both of the large generators and of a large number of small generators. But no research has been conducted either by the National Grid Company or by any other body. The paragraph continues,

    "We recommend that the government takes responsibility for promoting, and ensuring sufficient funding is available for research into technologies that solve the problems of controlling electricity networks in which there is a high proportion of embedded and intermittent generation, and into the economic and institutional issues that will need to be resolved".

My interest in this arises partly because we shall be coming, I hope shortly, to the question of renewable energy. Many renewable energy sources will qualify as embedded generation. I am astonished that there has been no research into the distribution consequences of the growth of embedded generation sources.

Baroness Sharp of Guildford: I support the amendment of my noble friend Lord Ezra, and pick up the same theme of the need to support the development of renewable sources of energy.

My noble friend mentioned, and we shall be debating later, the combined heat and power issues. I should like to mention another area which is growing fast, though not as fast in this country as it might; that is, small-scale solar power photovoltaics. In 1992 the Energy Technology Studies Unit (ETSU) produced a study which showed that, if units were suitably placed on roofs, two-thirds of the electricity in this country could be acquired from solar power.

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There is absolutely no incentive for households to make use of such new technologies when at the moment they are charged 6p to 7p per unit for electricity, and, if they offer it to the grid, they are offered 2.5p to 4p back for it. It is important therefore that the net metering issue is brought to light and considered.

The Americans are moving forward extremely fast in photovoltaic technology. Last year there was a 20 per cent increase in California in the use of photovoltaics and the Germans too have been introducing legislation to encourage it. This is a small amendment for which we are asking, but one that will provide a considerable incentive to help to develop the new technologies.

Baroness Buscombe: We on these Benches have difficulty in supporting these amendments. We feel that they undermine what is otherwise a completely neutral position.

Clause 49 imposes a simple obligation on the distributor who is, we must remember, the keeper of the monopoly distribution network. He is there to develop and maintain a system which is efficient, co-ordinated and economical, and to facilitate competition in supply and generation. Add anything else to that and we risk upsetting the balance. We therefore cannot support the amendments.

Lord McIntosh of Haringey: I hope it was clear from my opposition to Amendment No. 191, which the noble Baroness, Lady Buscombe, moved a few minutes ago, that we do not agree with the Opposition on this, but that we recognise the importance of small-scale--typically embedded--generation to renewables and to the electricity market more broadly, and of course of combined heat and power.

The Bill introduces changes to the regulatory structure of the electricity industry which will remove barriers to embedded generation, which Amendment No. 191 would have brought back again, and enable it to compete fairly on its own merits. That is the key to encouraging renewable and combined heat and power generation. For example, the separation of electricity supply and distribution, presently combined in the Public Electricity Suppliers, will change the way distribution systems are managed to the benefit of embedded generators. That is underpinned in the Bill by the explicit duty imposed on distributors to facilitate competition in generation, including embedded generation, as well as supply.

It is also supported by the draft distribution licence conditions which, for example, place system entry and exit points on an equal footing and introduce a power for the regulator to direct distributors to publish long-term development plans, as transmission licence holders are already required to do. In addition, distributors will be obliged to offer terms for connection to embedded generators--something which is not a feature of the present legislation.

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The aim is to put in place a framework so that embedded generators will be able to obtain full value for their energy output and any locational benefits they provide, and so that distribution companies will look at embedded generation on an equitable and transparent basis when considering any network augmentation.

The Government committed themselves to addressing any continuing problems relating to the operation of distributed generation and its connection to the distribution system that are identified by a new industry-wide working group chaired by Ofgem and involving DTI, DETR and representatives of the industry.

Given all those measures, we believe that, on the face of the Bill, in regulation, in licences and in every place where it is appropriate, we are taking practical steps to encourage embedded generation and we believe that that is more important and significant than the declaration which Amendment No. 192 would place on the face of the Bill. We believe that in practice it would not achieve anything that we are not already addressing.

I turn to Amendment No. 193 on net metering. I make it clear that the Bill does not rule out net metering. However, we think that it is wrong in principle to prescribe a system of net metering, since it would ignore the real difference in value between the electricity that a customer supplies to the network and that which he takes from it. Any such general obligation would imply a degree of cross-subsidisation, which would have to be paid for by other consumers.

It is, of course, open to electricity suppliers to offer net metering to their customers if they choose to do so. We understand that at least one company has already done this. We are glad about that and we welcome that initiative. But the way forward, from the point of view of the legislation, lies in the measures which benefit embedded generation, which I have already set out in some detail, and not in declarations of the sort provided by Amendment No. 193.

I hope that the noble Lord, Lord Ezra, and the noble Baroness, Lady Sharp, will recognise that we are on the same side and that the Government are taking the practical steps.

6.30 p.m.

Lord Beaumont of Whitley: I am delighted to hear that the Government are taking these important steps, which will become more important as further efficient methods of generation of renewable energy are made available. I particularly refer to the article in this week's edition of New Scientist about the new breakthrough in the production of wind generation, using much smaller wind generators and much better methods of transmitting power over longer distances.

Am I to understand from the Government that, in spite of their good intentions, they believe that these amendments would not only be superfluous but would in some way be deleterious to their aims? It appears to me that the inclusion of small-scale renewable

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generation through net metering does not in any way imply, as the Government seem to be saying, the forcible application of net metering on an obligatory basis at a particular rate. The inclusion of small-scale renewable generation through net metering would involve a considerable amount of discretion about how it is done. I might be persuaded by the Government that it is unnecessary, but I am not at all persuaded that it would be deleterious to their objectives. I find it very difficult to accept both apparently contradictory arguments at the same time.

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