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Lord Ezra moved Amendment No. 26:

("( ) to facilitate the achievement of the Government's national renewable energy targets, including small-scale renewable generation through net metering"").

The noble Lord said: My Lords, in moving this amendment in my name and that of the noble Lord, Lord Beaumont, I shall also speak to Amendment No. 27 in the name of my noble friend Lady Sharp and myself.

Amendment No. 26 proposes adding to the general duties of licence holders under Clause 50 on page 53 of the Bill to the effect that they should,

    "facilitate the achievement of the Government's national renewable energy targets, including small-scale renewable generation through net metering".

We debated these issues at some length at Committee stage. We sought to persuade the Government to introduce on the face of the Bill their precise renewable targets. However, the Government objected to that. It was felt that that was not the right place, even though the Government reaffirmed their determination that the targets should be achieved.

This amendment refers to that objective in more general terms, but at the same time seeks to emphasise the importance of achieving the Government's renewable targets. They are going to be very difficult targets to achieve. The more emphasis that is given to them the better. This seems to us to be the right place to do that. Therefore, I hope that with this more general wording the Government will be able to accept the amendment.

I turn now to Amendment No. 27, which deals with the problem of embedded generation. That is also a subject that we discussed at some length. It was agreed on all sides that embedded generation, which is local generation feeding into a local electricity distribution system, should be encouraged.

On 20th June there was an adjournment debate in another place on combined heat and power. In the course of that debate the Parliamentary Under-Secretary for the DETR, 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".--[Official Report, Commons, 20/6/00; col. 318.]

The amendment proposed follows precisely Mr Mullin's words and therefore I take it that it will be acceptable to the noble Lord. I beg to move.

Lord Beaumont of Whitley: My Lords, I would not like the fact that my name is attached to Amendment

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No. 26 but not to Amendment No. 27 to imply in any way that I do not support the noble Lord, Lord Ezra, and the noble Baroness, Lady Sharp, in their amendment. Both amendments are extremely important. It is always the Government's response that they do not want to add extra matter to the face of a Bill. It seems to me that in outlining the duty of an electricity distributor, which is what is done here, it is very important that at least the points outlined in Amendments Nos. 26 and 27 be added. There appears to be no doubt whatsoever that in suggesting these amendments we are suggesting that something should be put on the face of the Bill of which the Government approve and would like to see happen. The best way to do that is to put it on the face of the Bill so that any electricity distributor, looking at the Bill, knows that these measures are among his priorities. I very much support both amendments.

Baroness Sharp of Guildford: My Lords, I support both the amendment put forward by the noble Lord, Lord Beaumont, and my noble friend Lord Ezra and speak to Amendment No. 27 which is in my name and that of the noble Lord, Lord Ezra. I would like to say a word about the issue of embedded generation. It is clear, and there is a clear admission, that the new electricity generating arrangements disadvantage small generators of electricity yet, as we debated earlier, when we consider the interests of consumers it is not only current consumers but future ones with whom we are concerned. We know that unless we make a serious attempt to meet renewable targets future generations of consumers are going to be at a disadvantage. It is vitally important that we make a real effort to meet the targets.

Embedded generation, small-scale combined heat and power (CHP), small-scale solar panels, effective voltaics and so on, are all forms of energy generation which have great advantages. But they require encouragement. If we do not encourage them now we shall fail to develop the technology on a scale sufficient to enable it to be taken up by consumers. One of the great advantages of embedded generation is that electricity is generated close to its users; it does not incur the costs and losses of transmission. It is extremely important that there should be in the Bill powers and incentives to encourage this small-scale generation capacity so that future generations of consumers may benefit from it.

5 p.m.

Lord Currie of Marylebone: My Lords, in speaking to these two amendments I declare an interest as a member of the management board of Ofgem and a director of the solar energy group. I certainly support the objectives of the two amendments--we wish to promote embedded generation and renewables--but I have difficulties with them. The term "fair" in Amendment No. 27 is very subjective and open to widely differing interpretations. If one substituted more precise terms--such as "reasonable access" instead of "fair access" and "cost reflective prices"

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rather than "fair prices"--the amendment would be unnecessary because other aspects of the Bill cover the essential points.

Amendment No. 26 proposes net metering for renewables. Net metering is allowable under the Bill where it is appropriate, but not universally. It would be wrong to introduce general net metering for one simple reason: that is, that inflexible and unpredictable plant imposes substantial costs on the system which are ultimately passed on to the customer. The system operator has to take capacity off or put it on to the system in order to balance it and to maintain its integrity. That imposes costs.

It is important that we encourage both environmentally friendly generation, and flexible and predictable generation; better still, that we encourage environmentally friendly and flexible and predictable generation. Net metering eliminates an incentive for flexibility and predictability and will skew the nature of technical development in this area in the wrong direction.

It is worth noting that NETA has a number of special facilities for renewables which encourage small-scale renewable generation. In detail, these arrangements are very technical--I am not sure that they are fully understood--but they are carefully designed to encourage the emergence of aggregators, who will buy the inflexible and unpredictable part of output from small generators, pool those risks and therefore eliminate--or certainly substantially reduce--the discount that small, unpredictable generators will face. Those measures go quite a long way to meeting the concerns and overcoming the disadvantages. They are special arrangements; they go quite a long way towards promoting renewables without going as far as promoting net metering, which has quite substantial disadvantages.

Lord Beaumont of Whitley: My Lords, before the noble Lord sits down, he has noticed, has he not, the word "including"? There is no effort to make,

    "small-scale renewable generation through net metering"

a major item; it is merely one of the things included in the targets.

Lord Currie of Marylebone: My Lords, by including a specific mention one is giving it weight over and above other measures which are equally important in the promotion of renewables and embedded generation.

Lord McIntosh of Haringey: My Lords, it is true that these amendments go to the issue of the treatment of small-scale embedded generation within the electricity distribution networks. As the noble Lord, Lord Currie, has drawn out, the Government have recognised in drafting the Bill the importance of small-scale generation--typically, embedded generation--to the development of environmentally-friendly generation technologies, in particular renewables and combined heat and power.

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As I said in Committee--and as the noble Lord, Lord Currie, has confirmed--the Government have sought through the various provisions of the Bill to make sure that embedded generators get fair access to distribution systems so that they can compete in the generation market on level terms with conventional large-scale generation. I think it will be acknowledged that that was not the case before. That is why the Bill introduces changes to the regulatory structure of the electricity industry which will remove barriers to embedded generation and enable it to compete fairly on its merits. This is key to encouraging renewable and combined heat and power generation.

I should emphasise that this is a very significant shift in the regulatory framework, working to the benefit of embedded generation. Even though it is difficult to understand and to find in the Bill, it is important not to underestimate it. 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. This is underpinned in the Bill by the explicit duty imposed on distributors to facilitate competition in generation--including embedded generation--as well as in 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.

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 that distribution companies will look at embedded generation on an equitable and transparent basis when considering any network augmentation.

Furthermore, the Government are looking closely at any further practical difficulties faced by embedded generation. We have committed ourselves 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.

I hope that in the light of all this the noble Lords, Lord Beaumont and Lord Ezra, will accept that the Bill already does everything that they want and that Amendment No. 26 is unnecessary.

Let me be clear--as the noble Lord, Lord Currie, has been--the Bill does not rule out net metering. Indeed, the market is starting, as it should, to address this issue. At least one supply company has already offered a net metering package. The Government welcome this, but we cannot agree that we should introduce a provision which would, in effect--even

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with the word "including"--prescribe a system of net metering. This would ignore the difference in value between electricity that a customer supplies to the network and that which he takes from it. Any such general obligation would imply a degree of mandatory cross-subsidisation that would have to be paid for by other consumers.

Nor do we agree that legislation is the place for exhortations about this matter. Legislation is the place for strong, practical measures to make sure that the regulatory framework properly addresses embedded generation. That is what we have provided. Of course electricity suppliers can offer net metering to their customers if they choose, but from the point of view of the law and of this Bill the way forward lies in the measures to benefit embedded generation that I have described.

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