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Lord Jenkin of Roding: My Lords, perhaps I may make the case for those amendments before the Minister speaks to them.
Lord Triesman: My Lords, I shall speak to my amendment and the noble Lord will have a place in the running order to speak to the other amendments. I do not wish to curtail his desire to do that. I was trying to be helpful about the whole group.
The government amendment would provide the Secretary of State with the power to adjust transmission charges for renewable generators within a single area shown to be of high renewable potential where there is evidence that an unadjusted transmission charge might have a material impact on the future renewable build.
The order, if made, could last for 10 years and would be reviewable after five years. The Government would use the power only if there is evidence that it is needed. It would be used to set a threshold and to set a discount on the difference between the threshold and the charge that would otherwise apply. Only renewable generators within the specified area would be eligible for the dispensation.
We tabled this amendment because we believe that it may be necessary to make provision for renewable generators facing the highest transmission charges in the outlying areas of Scotland where there is considerable renewable energy potential. Although the Government are committed to cost-reflecting charging, the fact that the renewables industry is not yet mature means that the impact of high transmission charges could be of concern. The amendment could help to ensure that the Government's renewable targets are not put in any jeopardy. I believe that many noble Lords will agree with us on this point. That was the intent behind Amendment No. 113ZL, which was tabled in Committee.
This may be the moment to pause to hear the noble Lord, Lord Jenkin. I shall then resume the sequence on the other amendments. Otherwise, we may get into a rather confused debate. I beg to move.
Lord Jenkin of Roding moved, as an amendment to Amendment No. 217H, Amendment No. 217HA,:
- Line 39, leave out subsections (7) and (8) and insert—
The noble Lord said: My Lords, in moving Amendment No. 217HA, I shall speak also to the other amendments in the group. I am most grateful to
We first heard of this new subsidy for high transmission costs for renewables in remote areas at the end of an otherwise long speech by the noble Lord, Lord Davies of Oldham, on 12 February. I have to say that from that moment it exploded into an issue of acrimonious public controversy. The Financial Times of 14 February, under the headline, "Regulator hits at subsidies for remote wind farms", stated:
Having seen that, I asked Ofgem for a copy of the full statement. I was sent it. I shall quote a couple of brief passages from it. It states:
At the time I said that I thought it was an almost unparalleled attack on the Government from a regulator. When we raised the issue after the February Recess, the noble Lord, Lord Whitty—I am sorry not to see him in his place—produced a surprising reaction. Although 10 days had elapsed since that first statement was issued, he said:
We then had a letter dated 17 March from the noble Lord, Lord Whitty, in which he explained what the amendment was about. First, he said, as the noble Lord, Lord Triesman, has said, there is an order-making power to "adjust"—that is a weasel word if ever there was one; what they mean is that it is going to "reduce"—the charges that are charged by transmission companies to renewable generators,
The second was that much of the detail—as the noble Lord, Lord Triesman, has said—as to how the calculation will be done is not to be included on the face of the Bill. So we have to wait for that. Thirdly, he said that,
So, one has to ask: why is Ofgem so bitterly opposed to what the Government are proposing here? I have a three-page note, but in the interests of trying to achieve our target for the next business, I shall summarise it in five short sentences. First, the transmission charges are and should remain cost reflective; that is to say, the charges should reflect the generators' use of the system.
Secondly, it says that it is important that new generators should face cost-reflective charges. It argues the basic economic arguments that there can then be trade-offs for different costs and benefits; for instance, environmental and economic objectives. A subsidy blunts these economic signals and distorts investment.
Thirdly, it argues that transmission companies estimate that they are already spending about £400 million over three years to accommodate growth in renewables. So, there is already a significant cost to consumers, perhaps of the order of £25 million that would be passed on in electricity charges to consumers. Fourthly, as a result of this DTI proposal, generators in the chosen area will not pay cost-reflective charges while other generators, including renewable generators outside the area, will pay.
Perhaps I may sum up the Ofgem argument as follows:
I find that a very persuasive case. It is the Ofgem case and it needs to be heard. It has one great advantage: cost-reflective charges are open and transparent. It is easy then to calculate what the cost is and how it is passed through to customers' bills.
For those reasons I must say that I was very tempted to oppose this new clause. However, I have also considered very carefully the defence given by the noble Lord, Lord Whitty, in Grand Committee, which has been reiterated by the noble Lord, Lord Triesman, this afternoon. The noble Lord, Lord Whitty, suggested that,
So, the case comes down to our old friend "transparency". If there is to be a subsidy, we must know in advance what it is going to cost; how the cost is to be borne and by whom; and what is the additional burden that will fall on consumers' Bills.
That brings me to my amendments. Amendment 217HA would omit subsections (7) and (8) of the Government's amendment, which are wholly inadequate for the purposes I have outlined. It would impose on the Government instead a duty to publish a draft scheme to include an impact statement about the costs that will be incurred and the impact of those costs on charges to consumers, and then to consult the people affected, including suppliers, on the draft scheme. The second paragraph of the amendment states that there should be an annual report on the ongoing costs, including the impact on consumers' charges. That seems to me to be the least that is required if we are to have transparency about the new subsidy.
Amendment No. 217J is probing: to ask whether the Government are really expecting to use the power only once; whether there will be only one area, the Highlands and Islands, and, if so, why.
I tabled Amendment No. 217K because I believe that this scheme must be subject to proper parliamentary approval and that that requires an affirmative, not a negative procedure. This is not a narrow technical issue, as was stated in the letter from the noble Lord, Lord Whitty, of 17 March. It is a major departure and, as such, when the scheme is proposed it should be subject to the affirmative procedure. I need not mention Amendment No. 217L, which has already been spoken to by my noble friend Lady Miller of Hendon.
This is a new and self-evidently controversial subsidy. Before we can accept the new clause, we must ensure transparency and consultation, especially on costs; we must ensure that there are regular statements about the cost to the consumer; we must safeguard confidential information; and the scheme must be subject to the affirmative procedure. I beg to move.
Lord Tombs: My Lords, I thank the noble Lord, Lord Jenkin, for introducing the amendment, with which I wholly agree. The government amendment would add a capital grant to a particular scheme, which is not what the renewables obligation is about,
I took particular exception to subsection (8) of the government amendment, which provides that consultation,
The Government obviously feel some unease, because they have tabled a sunset clause for 10 years and provided for a review at five years. The Minister is seeking to tread in areas in which he has little confidence and is using a sledgehammer to take the power to crack a hypothetical nut. If the nut exists, which is far from certain, it ought to be dealt with by proper consultation and by bringing a measure before the House. I support the amendment.
"( ) Before making an order under this section the Secretary of State must publish a draft of the scheme he is minded to establish, together with an impact assessment of the cost of the scheme including its impact on charges for electricity supplied to customers in Great Britain, and must consult such persons, including suppliers in Great Britain, as will be affected by the scheme.
( ) The Secretary of State must publish, for each year after the making of an order under this section, an annual report on the ongoing costs of the scheme established by the order, including the impact of those costs on the charges for electricity supplied to customers in Great Britain in that year."
"Ofgem, the energy regulator, has attacked government plans to subsidise transmission costs for wind farms in remote areas as 'unnecessary and misguided'".
"To amend the Energy Bill in this way is unnecessary and misguided. It would mean that renewable generators will pay less to transmit their electricity than traditional generators. A great deal is already being done to encourage renewable generation. The Renewables Obligation alone is worth about £45 extra for every megawatt hour of electricity produced. This is providing additional financial support of at least £485 million to the renewables industry this year alone".
It continues:
"There is no evidence that further investment in renewable sources of electricity would result from a further subsidy of this sort".
And then lower down it states:
"If the Government proceeds in this way it will represent an unwelcome move away from the principles of cost-reflective charging for transmitting generation".
"The row may have been very public, but until I came into the Room I was not aware of it".—[Official Report, 24/2/04; col. GC 56.]
I hope there are some red faces in the DTI. I fancy that it is one of the major crimes to send a Minister into a debate without having drawn his attention to hostile press criticism.
"within a single area shown to be of high renewable energy potential and where there is evidence indicating that unadjusted"—
that is to say, unreduced—
"transmission charges might materially impact on renewable generation build".
But the noble Lord went on to say:
"The costs resulting from such a scheme would be spread across GB supply companies".
That was his first point.
"we have not yet concluded on the definite need to exercise this provision, or the exact area to which any provision would relate".
Fourthly, he said,
"that the likely area will be the Highlands and Islands of Scotland".
Fifthly, he said that the order will be subject only to the negative resolution procedure,
"as the measure is technical in nature and relatively narrow in scope".
The fact that it has given rise to such vocal controversy in the press would seem hardly to justify that statement.
"With the RO set to generate subsidies in the range of £485 million this year there is no evidence that extra subsidy through capping transmission charges will lead to more investment. It risks promoting an inefficient and uneconomic electricity system".
"trade-offs between environmental and economic objectives are ultimately for government and for Parliament".—[Official Report, 1/3/04; col. GC 151.]
I also find that a persuasive argument.
4.30 p.m.
"that took place wholly or partly before the commencement of the section",
would suffice. That is wholly wrong for any scheme as dramatic as this. Unusually—for the first time in my experience—I agree with Ofgem. That may be as welcome to it as it is to me. It has it right: it is quite wrong to use such a device to further the ends of what would otherwise be uneconomic renewable development—uneconomic, that is, given the level of subsidy provided for all other forms of wind and other renewable generation.
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