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Lord Jenkin of Roding: I have a few words to say and then I shall ask a question. I find the argument advanced by the noble Baroness, Lady Miller of Chilthorne Domer, very intriguing. I certainly had not spotted that there is a difference between Scotland and England. I shall be interested to hear the response to that.
I am sure that Ministers will recognise that there is a hole in the buy-out fund as a result of TXU and another company going into administration—it was some £23 million short. Due to the fossil fuel levy, a sum is building up and it was suggested that it should
be used for renewable energy. There you have a system that requires the money to be used for renewable energy. Why can that fossil fuel money not be used to fill the hole in the buy-out fund? When the issue first arose, we were told that that could not possibly be done. My question is why not? It seems that there is a perfectly valid use for it. As the noble Baroness, Lady Miller of Chilthorne Domer, said, it does not appear that it is being put to any other use. In a sense it is a hangover from the earlier system, before we moved to the present system and the renewables obligation. It was intended to encourage renewable energy. That was the proposal of the previous government and it was effective so far as it went. Why can it not be used for the hole in the buy-out fund?
Lord Triesman: I thank the noble Baroness, Lady Miller of Chilthorne Domer, for tabling the amendment about the use of sums raised by the fossil fuel levy. As far as I can, I shall try to answer other questions that have arisen, including the noble Lord, Lord Jenkin's, question. I was trying not to make a mistake in saying that, but there is an apostrophe S. It is a silent apostrophe, but there are now best-selling books written on such matters.
We appreciate what lies behind the amendment—it is a wish to promote renewable energy. We share that desire. However, we have already demonstrated that through our renewable energy policies and programmes and will continue to do so. We have only very recently legislated, through the Sustainable Energy Act, on the use of £60 million of the (England and Wales) fossil fuel levy surplus. Spending decisions will be decided in the 2004 spending review. The £60 million mainly for capital grants is intended to help drive forward renewables deployment and will be allocated over the next two financial years.
Some of the funding will be used to support offshore wind developments. As we have tried to persuade noble Lords during previous discussion on the Bill, these have an extremely important role to play in working towards the achievement of the 10 per cent renewables electricity target by 2010 so we shall be getting real added value for renewables from this funding.
I should like, if I may, to take a few moments to explain the Government's position more broadly. Clause 151 as proposed in the Government's Energy Bill allows Scottish Ministers to direct Ofgem to pay surplus Scottish fossil fuel levy moneys into the Scottish consolidated fund and to make provision in budget proposals to the Scottish Parliament that these sums are used to promote the use of renewable energy in Scotland.
Similar powers were obtained by the Secretary of State for Trade and Industry in respect of the fossil fuel levy fund in England and Wales through recent legislation—the Sustainable Energy Act 2003. However, the provisions in the Sustainable Energy Act cover only £60 million rather than all the funds. That, of course, is at the heart of the noble Baroness's
amendment. The amendment proposed by the noble Baroness would extend the provisions of Clause 151 to cover the total amount that might arise in both funds.The Scottish fossil fuel levy fund is based on a smaller number of contracts and is, in turn, of lower value overall than the England and Wales fund. The Scottish fund currently stands at just £3.8 million. I repeat the figures because the contrasts of magnitude are very significant for the purpose of the argument. I refer to £60 million in one case and £3.8 million in the other. It clearly would not make sense for there to be a limit on the amounts—£3.8 million being a relatively small sum in these circumstances—that Scottish Ministers could direct to be used for renewables. I was asked why should there be a difference between Scotland and England and Wales in that regard. The answer concerns the sheer magnitude of the sums involved. Sub-division of the smaller sum would scarcely be likely to be effective.
The England and Wales fund stands at around £112 million and there is now a £60 million limit on amounts that the Secretary of State can direct for use on renewables. I should like to point out that no decisions have been taken on the use of the remainder of the existing sums in the England and Wales levy fund apart from the need to keep a £30 million reserve. That is the only decision about the remaining balance that has been taken. There will be further additions to the fund from the future auction of NFFO ROCs. I understand that that is pronounced "noffo rocks". When I first read the term, I thought that it must be a heavy metal rock band, but it turns out to be much more benign than that. As I say, further additions to the fund from the future auction of NFFO ROCs are expected and consideration will be given to the use of future sums in the fossil fuel levy fund in due course.
I hope I have demonstrated that we are putting the £60 million from the fossil fuel levy surplus for England and Wales to good use. However, while we understand completely the sentiment behind the proposition that has been made, we cannot accept the amendment in this form.
The noble Lord, Lord Jenkin, also asked why we should not use the Sustainable Energy Act to bail out the buy-out fund, as it would restore confidence and thus restore the ROC price to former levels. Any such loan would soon be repaid in terms of higher ROC prices. As I think was said before, the Government do not have any plans to make good the shortfall since the renewables obligation is a market-driven mechanism. Government intervention in this way would inevitably intervene in the free market in ROCs, which might well have an adverse impact on confidence in the longer term.
There would also be issues concerning the precedent. In any event, our legal advice is that the provisions of the Sustainable Energy Act do not permit us to use it in this way. That may or may not be an answer from which noble Lords will take great comfort, but that is the answer. In the light of all the elements of my answer, I hope that the noble Baroness will feel able to withdraw the amendment.
7.15 p.m.
Baroness Byford: Before the noble Baroness does that, perhaps the Minister could answer a couple of questions. He said quite clearly that at the moment there is £60 million to be spent on renewable obligations but that the fund—if I am following the argument correctly, and I hope I am—currently stands at £112 million. Of that figure the Government have decided to put £30 million into reserve, which in my quick maths leaves £22 million spare before we have any money coming in from the option. I hope that my figures are followed through.
The Minister said that some of this money would go towards helping the offshore wind farm development. How much of that £60 million is it anticipated will go for that? Where or what other sources will go towards that? He said quite clearly that it was for a capital grant over the next two years. One complaint I have had about this Bill all the way through is that it does not deal with energy per se, it deals with a very limited aspect of energy, and particularly it deals with regard to offshore wind farms on the renewables side. There are many other worthy examples and businesses trying to set themselves up to use waste products from which to extract renewable energy.
We have talked before in Committee about the question of using tidal power. Perhaps this money can be used in a slightly more creative way to look at forms of renewables other than offshore wind farms. It would be a pity if it could not be used in that way. Wind farms are hugely costly as well. So I realise that the £60 million will soon get eaten up. But it would help, certainly from my point of view—I do not know about the noble Baroness, Lady Miller of Chilthorne Domer—if we could have a little more clarity on where the money is going. Is it just in an overall general pot? It would be an opportunity missed if we could not use it in a slightly broader way. Having read this particular part of the Bill, I did not see it clearly identified.
Lord Jenkin of Roding: I listened very carefully to what the noble Lord, Lord Triesman, said. In fact he answered a different question from the one that I asked. He answered the question by saying why should not part of the £60 million that had gone into the Sustainable Energy Act be used for the hole in the buy-out fund. I understand his answer, but that was not what I asked. I asked why should not any of the surplus from the fossil fuel levy be used for this purpose temporarily—as he suggested—as a loan which would then be repaid. Working out the sums in my head, no doubt inaccurately, of the £112 million, he is putting £30 million to reserve. That takes one down to £82 million. He has £60 million for the Sustainable Energy Act. He is therefore left with £22 million. Does the Committee know what the sum of the hole in the buy-out fund is? It is just over £22 million, so he has the money to do it without drawing on any of the £60 million at all.
As the Minister rightly said, the failure to pay on the part of one of the large contributors has undermined confidence in the renewables obligation certificates. As that has resulted in a fall in the value of the RO
certificates and a diminution of the incentive that the system is intended to offer—to produce more renewable energy—I should have thought that there was more to be said for the proposition of using the money to make a loan to help the fund out than the Minister perhaps allowed. Perhaps we might reflect on that.
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