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My noble friend made a point about a cap, and I listened with great care to what the noble Lord, Lord Whitty, said. We have had a lot of evidence about it from a variety of organisations, but I have been impressed by the desire of many people to say, “Look, we are not dealing with a system that is competitive with the ROCs. It should be complementary”. At the right level of cap, the system will be complementary. If, on the other hand, the cap were placed too high or if, as the noble Lord, Lord Whitty, appeared to argue, there should be no cap, I fear that it would be seen as competitive with the ROCs and would undermine the confidence of the substantial number of investors who are contemplating investment in various renewable technologies and who are going to rely on the ROCs. The Government have recognised that and have given commitments to continue the ROCs system for many years ahead. However, like my noble friend Lady Wilcox, I believe that there must be a cap on the renewable tariffs in order to avoid the creation of a competitive system.

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Secondly, I want to endorse what has been said about the importance of heat. Subsection (7) of Amendment No. 5 makes it perfectly clear that renewable heat must be part of the system. The noble Lord, Lord Hunt of Kings Heath, was kind enough to meet us to discuss some of the amendments to the Bill. He said that today he would be listening to the views expressed in different parts of the House to ensure that when the Government frame their amendment they take account of these things. I say to him firmly that if the scheme does not take account of heat, there will be a great deal of disappointment. It should be able to do so because the technology exists. To try to limit it solely to electricity generation would be to narrow its scope too much: it should be capable also of dealing with gas. The noble Lord, Lord Whitty, mentioned digestion plants and so on. He is right in saying that the methane which comes off them is a renewable source. The cows go on for ever and that, too, should be encompassed within the scheme.

However, I am not entirely clear about how far the amendment goes. There has been confusion in my mind and I would like to believe that I am not the only one. We are talking about renewable tariffs, but there is the quite separate argument for other forms of microgeneration. As I have indicated in a number of debates over the years, I have always supported the view that in its right place and with the right framework, the encouragement of microgeneration must be an important part of the whole energy mix. We always talk about the energy mix, but microgeneration might not necessarily be renewable. I have received a letter from a manufacturer of plant that would clearly qualify for microgeneration. It is in a sense a combined heat and power and therefore might come within subsection (7) of the amendment.

However, there are other forms of microgeneration; for instance, the ordinary air heat pump. I am sure that I am not alone in that my swimming pool, in the days when I could afford one, was warmed by a heat pump and it was very economical. It used electricity so it was not a renewable source, but I have always believed that if one is going to try to encourage that sort of thing, particularly in rural areas where people are not connected to a gas supply, they should be able to use air compression pumps for both heating and hot water, and then feed surplus capacity into the grid. This is where we are continually talking about the need for feed-in tariffs.

I see this whole area as covering not just the wind pump and other renewable sources but a system that can provide for microgeneration, which will be an increasing part of the total mix. At the other end must of course be the major plants producing the base load—nuclear plants, combined cycle gas power and, as we have said earlier, perhaps coal, with carbon capture and storage—but a whole range of technologies is now available. I hope that the Government’s amendment will be wide enough to take account of these other technologies, which would require a proper feed-in tariff if they are to become economical. Their capital costs are often the major obstacle. If one can be assured that there will be a return for the surplus power or heat used, it is some recompense. The amendment must take in the whole of this. I support

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the view expressed around the House that heat must be an integral part of it. We look forward with great interest not only to hearing what the Minister says today but also, and perhaps more importantly, the amendment that he will bring forward at Third Reading.

I echo what my noble friend said from the Front Bench: please could we have it in time to be able to study it effectively, take advice and, if necessary, table amendments. It cannot just come in a day beforehand. We have had one or two instances of that in other cases, and it is rather embarrassing: you simply have to say to people, “Well, I’m sorry. You’re too late with your advice. We’ve debated this; it’s gone”. We must have enough time.

Lord Oxburgh: My Lords, I declare an interest as a non-executive director of Blue-NG and Falck Renewables. Perhaps I may give the Minister some information that he might not have: today could be a very important milestone in the evolution of the development of wind energy in this country, because, unless some technological gremlin has intervened, it will mark the becoming-operational of the 3,000th megawatt of wind-generated electricity. It will happen on Millennium Hill, which is a snow-capped hill in the southern highlands. I tried to get telephonic confirmation that that was okay, but I could not.

I agree with much of what the noble Baroness, Lady Wilcox, said in her introductory and eloquent speech on this matter. She made many of the important points, as did the noble Lords, Lord Whitty and Lord Jenkin. There has been serious neglect of heat, CHP and microgeneration in our policy so far and I am delighted that the new Secretary of State has recognised this. There are potentially significant savings of CO2 and energy to be had, and a potentially significant contribution to energy security, about which we really have to do something.

I shall make only two points in elaboration. We have to recognise that devising a fair, efficacious and cost-effective scheme for bringing in heat is a bit more difficult than the other aspects covered in the amendment. The Government will need time to reflect on it and get it right. It is terribly important that it be done, but it is even more important that it be done right. We have to recognise that it is a slightly more complex problem.

The point that I wish to make more emphatically relates to the relationship between the feed-in tariffs and ROCs. I have spoken in this House in support of feed-in tariffs and indeed supported them before the committee of the noble Lord, Lord Freeman. They are important, and a number of our neighbours have used them to support small-scale renewables on a scale that we have not seen in this country. However, we have to introduce them very carefully, for reasons which have been touched on, particularly by the noble Lord, Lord Jenkin.

Be they large-scale or small-scale, these new developments need investment. The amendment runs the risk, unless the Government are very careful, of shaking confidence in investment in medium-sized projects. I do not need to tell Members of this House how difficult is the investment environment at the moment, how difficult it is to raise money for new

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projects. People are looking for reasons for deferring. If the proposal went forward without a cap, it would introduce a significant element of uncertainty in so far as those who were contemplating lending to or investing in medium-sized projects in the feed-in tariff or ROC regime would find a good reason for deferring investment, which, above all, we do not want.

Industry will look for certainty. Certainty at an inappropriate level is almost better than nothing at all. It is important that, simply to maintain business confidence and the flow of investment for renewable energy projects on all scales, there be clear caps, whatever they may be, because business will tend to live with them. We must have certainty.

Baroness Gardner of Parkes: My Lords, it must be nearly 10 years since the noble Lord, Lord Whitty, answered many questions that I asked on combined heat and power, because the hospital of which I was chair was looking at introducing it. It was going to provide quite a saving to the hospital as well as greater efficiency. As I am no longer involved, I do not know what has happened, but there is a place in many of the country’s National Health Service establishments for schemes of this type.

Baroness Young of Old Scone: My Lords, perhaps I may support the amendment from a particular perspective, community microgeneration, which is one of the areas where we are not seeing any movement with the ROC system. I am rather less sanguine about the ROC system than the noble Lord, Lord Whitty: it remains to be seen whether it will deliver a great increase in renewable generation and have a real impact on smaller-scale generation. The ROC system appears extremely complicated and unattractive to community generation schemes, and has signally failed to be accessible to them. There is great capacity for community generation and, for that reason, I press the Minister to make sure that if there is a cap, as I think there should be, it will not set at a low level and will not cut out of the mix those middle-range schemes that are simply not being driven by the ROC system. They include a wide range of technologies: wind, biogas and even water. We need to make sure that whatever scheme the Government come forward with promotes the ability to set up community generation schemes.

My other point relates to the scale of our ambition for microgeneration. A study conducted for BERR showed that by 2050 30 to 40 per cent of the UK’s total electricity production could be achieved by microgeneration. Even with the best will in the world, the current proposals will not get us even a micromillimetre off the ground. I welcome the Government’s commitment to introducing the feed-in tariff amendment, but ask them not to put too tight a cap on it.

6.30 pm

Lord Redesdale: My Lords, I am glad that I waited for the noble Baroness, Lady Young of Old Scone, because she has put her finger on the issue about caps. We should perhaps not talk about caps as if they were anything but an artificial limit, because on renewables we are talking about 50 kilowatts. That was put in

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place as an arbitrary scale when renewables were pumping out very small amounts and 50 kilowatts was seen as unachievable. Now that we have microgeneration technologies that can achieve 50 kilowatts, that limit is seen as a problem because systems have been built around it. It seems ridiculous that regulation rather than what is actually achievable is leading to the design of renewable kit.

The noble Lord, Lord Oxburgh, made the interesting point that, if we were to threaten ROCs in the present climate, the whole big wind argument would be built on shaky ground. As we have seen, large companies can pull out: I found it disappointing when Shell pulled out of the London Array. The company made that decision for financial reasons, but it then shifted the investment to wind farms in America. It was still investing in renewables but, unfortunately, it seems that we have no system that makes that financially attractive here. We could go into the ROCs argument, but that is irrelevant to this amendment. The relevant point is that 50 kilowatts is a mandatory cap with no meaning, although if we are not to affect ROCs we have to work out what the top limit of such a cap could be. I know from the British Wind Energy Association that no big wind is being put in at less than 2.2 megawatts, so having the cap slightly below that would not affect ROCs in the slightest. There is no problem there.

This is where I find the issue interesting, because when we talk about this cap we have to start thinking about the technologies. On microgeneration, the Co-op tower that is covered in solar voltaics does not produce anything near a megawatt. We are thus being slightly aspirational if we have a high target, but there is no reason not to have one. If it is going to affect neither wind nor any investment decision, why should we not be talking about a high limit—a megawatt, a megawatt and a half, or two megawatts—on the caps? That is an issue for the Minister to think about, but it would be wrong of us not to be aspirational for microgeneration, because it needs every help that we can give. All of us who have spoken on microgeneration over a long period want it to take off. I am proud that in a house I am converting I have just put solar panels on my roof. It means that my utility room looks like the engine room of the Starship “Enterprise”, which is fantastic.

Lord Jenkin of Roding: My Lords, I apologise for interrupting the noble Lord when we were hearing interesting facts about his own development, but there is one problem that one should perhaps note. One has, again, heard the argument that, if the cap is set too high, so that it takes in not just the micro-range but the medium-range, as it were, of renewable or other generating technologies that would use the feed-in tariff, there could be considerable difficulties not so much within the major transmission networks but on the local distribution networks. There would be the problem of trying to maintain a balance, as they have to maintain the required output minute by minute. Has the noble Lord had the same information on that? Perhaps the Minister could deal with that when he replies.

Lord Redesdale: My Lords, the noble Lord, Lord Jenkin, makes an interesting and useful point, but it is irrelevant here. I say that not facetiously; I mean that

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it is irrelevant because no schemes can be put in place that would in any way affect the ROCs. We cannot create an industry over the next short period that will suddenly, within five to 10 years, flood the marketplace with technology that does not exist at the moment and is not ready to be built, although if such things did happen, I would think it fantastic. The other point is that the amendment talks about the Minister setting the cap by being technology specific, but I doubt that we will see another energy Bill come forward in the next few years to change that. We are talking about the situation on the ground in the next few years, so bringing forward a much higher cap as an incentive to develop these technologies has to be a good thing.

Lord Reay: My Lords, this is my first intervention on the Bill, although I have been involved in the Planning Bill, which deals with some overlapping issues. I declare a landowning interest in the south-west and north-west of the country. Taking up the point on cost raised by the noble Lord, Lord O’Neill, I wonder whether the Minister could say something when he introduces his amendment later on—if not tonight—about what the Government consider the cost might be and who will pay it. On government figures, the renewable energy obligation currently costs the electricity consumer £1.1 billion per annum. That figure will rise exponentially if the Government make rapid progress on reaching their renewable targets. Do the Government expect that the cost of the feed-in tariff could be of the same order of magnitude? Will the electricity consumer pay it and all associated costs exclusively? Will the costs include all those, for example, of the bureaucracy required to run the scheme and all those of providing the low-voltage grid, wherever that is required? What would that be expected to add to consumers’ electricity bills? I would be grateful if the noble Lord could consider those questions and reply to them at some stage.

Lord Teverson: My Lords, I have put my name to this amendment and I thank the noble Baroness for having pursued this subject so strongly. I believe that this has been shown to work practically, particularly in other parts of Europe. I was pleased by the change in government policy in the Statement last week but I, too, believe where we put the cap to be important. To my mind, that clearly involves all microgeneration projects, but the cap should also enable and encourage communities to come together to provide solutions that are less effectively produced or applied by individual houses or households. That is one key area. I absolutely agree with the point, which my noble friend Lord Redesdale put well, that there is a level below which commercial projects do not take place. Therefore, what is there to lose below that level?

I come back to the point about cost made by the noble Lord, Lord O’Neill. The extra cost to consumers is clearly significant, but it has taken considerable time to build up to that level. It is not unimportant, but in the first years of this scheme it will not be hugely significant.

There is a more important point here. One of the key motivations for having feed-in tariffs is to encourage people to invest and take part in this technology. Including many more people in renewable energy is

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not only good but, as has been shown in Germany—I looked at the figures some months ago—when you increase the volumes of these technologies, their cost comes down quite significantly. That has certainly been the case in the solar photovoltaic area. One of my hopes and aspirations for feed-in tariffs is that the cost will come down because of the much more widespread use of the technology. I recognise that, because of the present supply chain problems, the opposite could happen in the short term, but we have to look beyond that.

Certainly, heat needs to be included—the noble Lord, Lord Oxburgh, made an important contribution on the greater difficulty of that. But, again, heat is a good example of when this new form of tariff needs to be able to encourage community applications rather than just individual ones. That is more true of heat, which as we know accounts for a large proportion of total carbon emissions—some 47 per cent for the whole economy, although not all of that is available for the micro-sector, by a long way. But if we get this tariff right, we will be able to have community systems, which are particularly important with new-build and social housing.

Lord O'Neill of Clackmannan: My Lords, a number of the problems that people find in paying their bills is in operating the existing meters—unsmart as they are—and recognising what the charges are. If they were to have the added responsibility of running a power station in their kitchen, it would probably be even more difficult. Therefore, the case for communal small estate enterprises is strong. We should give greater incentivisation to that than to individual households, or it will just be another case of the middle class and others being subsidised by people who probably need this more and can afford it less.

Lord Teverson: My Lords, I agree with the noble Lord completely. The other matter, which we discussed earlier, is that through all these provisions, including smart meters, we will take away the need for pre-payment and the current discrimination against low-income families. I look forward to seeing the Government’s revised amendment for Third Reading as early as possible, as other noble Lords have said.

Lord Hunt of Chesterton: My Lords, it may be of interest to noble Lords to hear that just this afternoon we had a visiting delegation of three senators from Texas. When asked about feed-in tariffs—to put it in simple language, how far the clock goes backwards—they said that the clock on an individual farm or house producing electricity could go back only to zero. In other words, they can reduce their bill by producing electricity but cannot actually feed significant power in. The noble Lord, Lord Oxburgh, referred to having a simple rule, and that is a simple Texas rule—and, as we have just commented, Shell has moved from London to Texas. I am not advocating this necessarily, but that is a simple rule and surely we can find such a rule with incentives.

The role of community power is vital. We have already moved a long way in the UK in thinking about devolved and smaller-scale energy systems, and this should be part of it. But we need to ensure that there

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are still proper investments for people putting in small and medium-sized power systems, such as those in rivers, which are penalised at the moment by the 50-kilowatt rule. We need to have clear rules and I support the amendment.

6.45 pm

Lord Hunt of Kings Heath: My Lords, it has been an interesting debate. I assure noble Lords that careful note is being taken of their comments, although they are not entirely uniform, which reflects some of the difficult decisions that will have to be made in a short period of time. It is good that we will have the benefit of the Select Committee, which will I am sure be very helpful to us.

It was a great pleasure to repeat the Statement last Thursday when the Government’s view on feed-in tariffs was made clear, as well as our commitment to renewables and, of course, to the 80 per cent target by 2050. Those set an important context in which to discuss these amendments. Clearly the Government have listened to the debate in your Lordships’ House and the other place and listened to the many Members in both Houses who have argued so persuasively for a feed-in tariff mechanism for small carbon electricity generation. That is why we intend to bring forward at Third Reading an amendment to this Bill to support small-scale renewable generation.

The opposition amendments and today’s debate have given the Government much food for thought. I very much welcome the principles outlined in the amendment proposed by the noble Baroness, Lady Wilcox. There has also been considerable debate about heat. When we look at both those issues in detail, it is clear that we cannot incorporate both small-scale electricity and heat into one single mechanism, primarily because the heat market is very different from the electricity market. For those reasons, I shall address those areas separately in my wind-up speech tonight, although I assure the noble Lord, Lord Jenkin, that we understand the need for the amendment that we table at Third Reading to cover the heat sector.

On electricity, we are convinced of the need to introduce a feed-in tariff mechanism to reward the smaller producers of low-carbon electricity. Such a mechanism must incentivise the individual householder. More than that, however, schools, hospitals, community projects and businesses will play a role in our fight to reduce carbon emissions. It was a delight that the noble Baroness, Lady Gardner of Parkes, intervened on that important point. I assume that she was talking about the Royal Free when she mentioned her hospital. Of course, we also need a significant amount of investment in larger-scale renewables projects to meet the challenging targets that we have set and, clearly, to provide a substantial degree of energy.

Forecasts of modelling available to my department suggest that large-scale renewables will have to account for a significant part of the renewable electricity that we will need by 2020 to meet our targets. That is a generally accepted view in your Lordships’ House. So we have to maintain investor confidence in large-scale investment. The last thing we want to do is to take any action that might inhibit investment decisions at the

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moment and in the foreseeable future. That is why we want to retain the existing renewables obligation for large-scale renewable projects.

As the noble Lord, Lord Oxburgh, persuasively said, maintaining confidence is absolutely crucial, which is why we believe that clarity is best delivered by specifying an upper limit for feed-in tariffs in the Bill. I know that my noble friend Lord Whitty has reservations on that matter, although he has also accepted the general point about needing to maintain confidence in a renewables obligation. The question then is how we devise an effective scheme that is, as the noble Lord, Lord Oxburgh, says, fair and meets the need in maintaining confidence in the current system, albeit with the amendments that this Bill brings in, and in relation to the small-scale microgeneration projects that we so much wish to encourage.

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