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Energy Bill [HL]

8.32 p.m.

Further consideration of amendments on Report resumed after Clause 109.

Baroness Miller of Chilthorne Domer moved Amendment No. 195C:

Notwithstanding any statutory provision to the contrary, there are no numerical limits to the supply to domestic customers of—
(a) the use of private wire in Combined Heat and Power generation or renewable energy systems; and
(b) surplus power from public wires from local community sustainable energy systems."

The noble Baroness said: My Lords, in moving the amendment I shall speak also to Amendment No. 195D. The amendments seek to discover a little further than in Grand Committee why the Government feel they need to limit so strictly the community generation of power and the breaking down of barriers that that sector of power generation faces and to cover the issue of metering.

On the first issue it is perhaps unfortunate that the timing of the Bill's passage through your Lordships' House is in advance of two European sub-committees,

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one of which is examining climate change and the other issues related to Amendment No. 195C; the generation of power supplies by community organisations.

The sub-committee recently took evidence from Woking Borough Council about the difficulties it faced having brought in an innovative scheme to undertake the community generation of power, including combined heat and power, for the benefit of Woking residents. However, the council found that not only did it have to install a private wire system to supply its customers, but also that the use of the system was numerically strictly limited. When the report from the EU sub-committee is published, it will illustrate better than I can why the Government need to pay more attention to current restrictions and why they are detrimental to the Government's aims in this policy area. The first amendment therefore seeks to explore who benefits from the imposition of these strict, new limits.

The second amendment requires a wider explanation from the Government as to why they have not used the Bill to introduce the concept of net metering. In the wording of the amendment, I tried to explain that net metering involves both buying in from the National Grid and contributing to it, as one would with a micro-generation plant. Both activities should be at the same price. Currently, if you buy in from the National Grid that is set at one price, but generating and selling to the grid is at a severely disadvantaged price—several pence less per unit.

The effect is that individual householders have much less incentive to undertake more micro-generation. I appreciate that the renewables obligation will enable them to receive some cheque at the end of each year and that the Government grant aid for capital expenditure towards the purchase of items such as photovoltaics that would enable generation. Nevertheless, the fact that householders can sell into the grid only at such a reduced price must be a disincentive to taking responsibility for investing in and using renewable forms of energy. I should be glad to hear from the Government in whose interests are the restrictions and limitations that they have chosen to keep in place rather than using the Energy Bill to change the situation. I beg to move.

Lord Whitty: My Lords, on the second amendment, the Government have recently allowed small generators to be issued with renewable obligation certificates on the basis of their annual rather than monthly output. That helps anyone who has a small generator to gain a few ROCs every year. That will come into effect from 1 April and it will benefit householders, for instance, who have installed a photovoltaic frame in the roof of their house.

We have therefore taken some steps in trying to help, but simply to net off electricity ignores the fact that electricity is priced differently at different times of the day and that the way in which it would be calculated would not necessarily lead to a straightforward netting off. Indeed, it could lead to some distortion in the supply to

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the National Grid and the price paid to the small generator. The answer is not as simple as the amendment would suggest.

I understand that the first amendment, which is complex in its effect, is designed to help CHP. In relation to minimising the regulatory burden on small generators, we must ensure that the security of the system is not imperilled and we must also minimise the potential adverse effect on individual consumers. So when the noble Baroness asks in whose interests we act, it is in both of those interests—which, ultimately, is in the interests of consumers.

We undertook widespread public consultation on the class regimes for electricity exemptions until October 2001 and made significant changes. Although I understand that the balance may be argued about, it is a substantially better balance in that a private network operator may now distribute up to 2.5 megawatts of electricity to domestic customers, which may supply about 2,500 households, and an additional 1 megawatt may be provided where a generating station is embedded in the distribution system. Although the exemptions regime remains concerned with the security of the system and the protection of the consumer, that additional 1 megawatt for embedded generation is most likely to assist local CHP operations and will therefore benefit them as well.

The Government did not require, as some had recommended, that private networks provide all domestic customers with third party access—that is, access to the competitive market—but we took the view that the 2.5 megawatts, together with the 1 megawatt allowed for distribution from embedded generation, represented a level beyond which it would be inappropriate to deny access to that market. It is of course entirely open to any operator to supply a greater number of domestic customers, but it must do so, like any other domestic operator, under licence. Ofgem can then consider what licence conditions should apply.

However, the point that we reached in 2001, while maintaining security of supply and the interests of the consumer, provides some benefits to small generation and small CHP generation in particular. We are not convinced of the argument for going further than that at this stage.

Baroness Miller of Chilthorne Domer: My Lords, I thank the Minister for that reply and was certainly aware of the Government's move involving individual householders and the renewables obligation certificate, as I was in your Lordships' House leading from our Benches on the order last week. However, I still thank him for reminding the rest of the House about that move. Nevertheless, that is a welcome but small move that does not overcome the need for net metering. When the Government come to consider the issue more substantively, they will realise over the next few years that, if they are as truly interested in the outcome—that is, reducing carbon emissions to the atmosphere—as they say they are, they will increasingly find that individual households and communities acting together are the most powerful way to do so.

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Therefore, although I shall not press the amendments this evening, because they have not yet come of age, if you like, because they have not garnered support from the Conservative Benches either, it is in the power of the individual and individual communities to affect our future. So it is with regret that I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 195D not moved.]

8.45 p.m.

Lord Jenkin of Roding moved Amendment No. 196:

    Before Clause 110, insert the following new clause—


(1) For the purposes of promoting and developing the use of coal mine methane the Secretary of State shall within six months of the passing of this Act make regulations to establish a scheme, to be called a feed in tariff scheme, for the generation of electricity from coal mine methane.
(2) A feed in tariff scheme is a scheme whereby the Non-Fossil Purchasing Agency or such other body specified by regulations made pursuant to this section shall have a duty pursuant to those regulations to purchase electricity generated by means of coal mine methane.
(3) Regulations made pursuant to this section—
(a) shall include provisions that specify any price or prices at which the Non-Fossil Purchasing Agency or any other body specified by regulations shall purchase electricity pursuant to this section;
(b) may in particular specify any other body to which subsection (3) applies; and
(c) may contain such incidental or supplemental provisions as in the opinion of the Secretary of State are necessary to enable the operation of the feed in tariff scheme.
(4) Regulations made under this section are subject to the negative resolution procedure.
(5) In this section "coal mine methane" means methane from abandoned coal mines."

The noble Lord said: My Lords, the amendment stands in my name and that of several noble Lords in different parts of the House. We have discussed coal mine methane on several occasions in the House and had a good debate in Grand Committee, but I fear that I must remind the House what we are on about.

Coal mine methane is a hazardous gas. It escapes into the atmosphere from active and disused coal mines. Those emissions are the responsibility of government, which took over the liability for abandoned mines from British Coal when it was privatised in 1994. From now on, I shall talk about emissions from abandoned coal mines.

Coal mine methane has a global warming potential 23 times greater than carbon dioxide. That is to say that you would need to trap 23 times more carbon dioxide for each tonne of methane. Therefore, capturing this waste gas for generation cuts its global warming potential by over 100 per cent and saves nine times more CO2e—that is, CO2 equivalent—per kilowatt hour than wind power. It is a clean, strategic

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source of energy with the potential to contribute up to 450 megawatts of generation capacity by 2010. That would be the equivalent of hundreds of wind turbines.

In Grand Committee we moved an amendment to accord renewable obligation status to coal mine methane, on the grounds that we have hundreds of years of coal availability in this country from abandoned mines. That has already been said in the debate today. We need to avoid the seepage of methane into the atmosphere. In Grand Committee I mentioned Arkwright, a village in Derbyshire, that had to be evacuated because it became uninhabitable as a result of methane leaking into the atmosphere. Our other argument was that, as the Germans have given RO status, we should do so too.

The essence of the Government's reply was that coal mine methane is not a renewable—if all the coal were to be dissolved by microbiotic action that that would be the end of it. They said that methane is not a clean fuel and there would be some emissions from generating power from it. They argued that it is not measurable, and I shall return to that point later.

The strongest argument that the noble Lord, Lord Whitty, put forward was a familiar one that we have already debated today—that if they got help it would undermine long-term renewables objectives. That is absurd. I dealt with that earlier and am not going to do so again.

They went on to say that the Germans are doing this differently. In Committee on 1 March, the noble Lord, Lord Whitty, said that the Germans,

    "are doing it by means of a system which they refer to as a 'feed-in tariff', which results in favourable pricing of the methane connection into the system".

Later, he said:

    "The feed-in tariff is not state aid because effectively no money is foregone or provided to the coal mine methane sector. Therefore it does not fall foul of state obligations".

When the noble Lord, Lord Williams of Elvel, listened to the argument, he interposed:

    "I have listened very carefully to the debate and I feel that noble Lords opposite have a point. Why can we not do what the Germans do regardless of the renewables obligations?".—[Official Report, 1/3/04; col. GC 174.]

That is the question to which we return this evening. Amendment No. 196 is an effort to respond to the suggestion that the noble Lord, Lord Whitty, made on that occasion that we should do what we can in the way that Germans have to get round the issue of state aid provision.

Amendment No. 196 provides a power for the Government to make regulation for a scheme called a "feed-in tariff scheme". That is defined in subsection (2) thus:

    "the Non-Fossil Purchasing Agency shall have a duty . . . to purchase electricity",

from the coal mine methane operators.

So far that would follow the German model. However, I should offer an explanation of what is meant by a feed-in tariff: it sets the price at which a designated organisation is obliged—as we propose, by government regulation—to purchase electricity from a

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renewable or sustainable electricity generator. The purchaser could be the distribution network operator, the transportation grid operator or an independent agency. As I have already suggested, an example of the latter would be our own Non-Fossil Purchasing Agency (NFPA), which supervises the market in non-fossil fuel obligation contracts. The price at which the obligation would be exercised would encourage sustainable use of coal mine methane. It would be set for a fixed contract period, in order to be effective in building the industry and raising finance.

The Non-Fossil Purchasing Agency was set up to act as an agent through which electricity suppliers contracted collectively with renewables generators. It would be possible to have a separate coal mine methane purchasing agency, but we do not suggest that; we suggest that the existing body, the NFPA, should do that. The system would work in the same way as the German one does. The German experience is that creating a framework where a premium is paid for CMM capture allows private industry to build projects that mitigate huge amounts of methane. They do not require knowledge of the absolute quantities being emitted. The German Government have recognised that CMM emissions were a major global and local hazard, and that something had to be done about them.

During the debate on innovation, my noble friend Lady Byford referred to the other argument with which one has been faced. When she raised the issue, she was told by the noble Lord, Lord Sainsbury, that the amounts would be very small and therefore not worth doing. What are the facts? In 2003, member companies of the Association of Coal Mine Methane Operators captured 765,000 tonnes of CO2 equivalent—one divides that by 23 to get the tonnage of methane trapped. An equivalent 574 megawatts of wind turbines would be required to achieve the same output.

The noble Lord, Lord Sainsbury, was most woefully misinformed. I, and others, who have been meeting Ministers to discuss the subject for over two years, have formed the impression that, for reasons best known to themselves, Defra officials have steadfastly set themselves against any fresh support for CMM. In Grand Committee, they refused a renewables obligation. That is very well; we have moved on from that and taken the hint from what the noble Lord, Lord Whitty, said during the debate. We have opted for a variant of the German scheme and tabled an amendment that would introduce a feed-in tariff. It has worked well in Germany, and there is no reason why it would not work here using an adapted NFFO structure.

If all the effort expended by officials to prevent CMM development ever taking off in the UK could be put into finding a way of supporting the industry, surely a mechanism could be found. The methane is there; it is seeping into the atmosphere; it could be trapped, used and burnt to generate electricity. The idea that somehow one cannot give any more help to

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coal mine methane because it might frighten people off investing in wind power seems absolutely absurd. I beg to move.

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