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Amendment No. 42 suggests that we include a provision to exclude a plant already receiving support under the renewables obligation. That is clearly an important consideration, but we intend to address the issue through an alternative route. The powers that the Secretary of State has under the Bill to make a renewables obligation order already contain provisions for excluding certain generating stations and we have the powers there to ensure that generators benefiting under the FIT scheme would not also receive support through the renewables obligation. I well understand the importance of that.

Amendment No. 43 concerns the distribution system. That important issue was raised on Report. It is demonstrative of the sort of complexities that introducing a feed-in tariff raises. Subsections (1) and (2)(b) of our new clause will address those issues by giving us the powers to modify distribution licences where we believe it necessary to do so.

The noble Lord, Lord De Mauley, asked an important question about the choice between the FIT scheme and the renewables obligation. Our current intention, which is subject to consultation, is that, to ensure minimum disruption and that investors refrain from delaying potential projects, microgenerators of less than 50 kilowatts currently supported under the RO will move to the new FIT mechanism. All eligible installations above that size that are installed between now and the introduction of the FIT scheme will have a one-time opportunity to move to that scheme. Individuals and organisations that install technologies between now and the introduction of FITs and which are eligible for the scheme will have the choice of the system that is most appropriate for them. That is our preliminary thinking and we will be advised by further consultation. It shows that some preliminary thought has been given to the matters that the noble Lord raised.

I hope that I have convinced noble Lords that we are committed to a feed-in tariff system. I have already said that, if all goes well, we are looking to 2010 for starters. We are looking for the best characteristics of feed-in tariff systems operated by other countries. We do not think that the precision called for in these amendments is required. I hope that I have reassured noble Lords that the Government are listening carefully to the points raised and that we are committed to having a proper scheme as soon as possible.

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4.45 pm

Lord De Mauley: My Lords, I am grateful to noble Lords who participated in this short debate. I am also grateful to the Minister, who started by saying that,

I gently say that my understanding of the process of parliamentary debate, however late in the day the Government might produce their amendments, is that it should move us from where we are to where we ought to be. Having said that, I do not intend to press these amendments today, although there is a need for further clarity and detail. We look to the Government and the Minister, in particular, to continue to work on these matters as the Act is implemented.

Lord Hunt of Kings Heath: My Lords, I will welcome the input of noble Lords into the consultation that will take place in this area and I am happy to discuss that with noble Lords.

Lord De Mauley: My Lords, I beg leave to withdraw the amendment,

Amendment No. 34, as an amendment to Amendment No. 29, by leave, withdrawn.

[Amendments Nos. 35 to 43, as amendments to Amendment No. 29, not moved.]

Lord Jenkin of Roding moved Amendment No. 44:

44: After Clause 40, line 62, leave out “3 megawatts” and insert “1 megawatt”

The noble Lord said: My Lords, I am sure the Minister and other noble Lords will recognise that in the past hour and a half, I have been exercising totally uncharacteristic reticence as I realise that an important debate is to follow this Third Reading of the Bill. It has been postponed once already and it is not fair on the noble Lords who will be taking part in the debate that we should waste time.

We now come to the question of the size of the cap. It was briefly referred to in previous debates. I start from the proposition that almost everybody recognises that there has to be a cap, an upper limit, on the amount of microgeneration that will be available to take advantage of this new clause and the regulations when they eventually emerge. My noble friend Lord De Mauley has just referred to the possibility of confusion and conflict with the renewable obligations system in certain circumstances. I listened with great care to what the Minister said right at the end of his speech before my noble friend replied. To my mind, it is enormously important that there should not be a conflict between the feed-in tariffs at the lower end of the scale and the ROCs, as I shall call them, for the rest.

Insufficient weight has been given hitherto to the enormous importance of a proper cap in not undermining investor confidence in the ROC system for what will always be the great majority of the quantity of power generated from renewable sources. That has been emphasised to me very forcefully by those who are investing, have invested and want to continue to invest in middling and larger-sized renewable generation.

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The issue is: where should the cap of the FITs be set? A wide spread of options faces the Government. At the lower end, some have been arguing that it should not be more than 50 kilowatts; that figure was mentioned in debate on Report and is still the Government’s figure, as referred to in the new clause, for certain combined heat and power plants. The noble Baroness, Lady Young of Old Scone, who will no doubt speak after me in a moment, has argued for a cap of 10 megawatts, which I should have thought is at the upper limit that anyone would want to consider. Today—not more than four hours ago—I received a substantial representation from a group of lobbyists who wanted a cap of 10 megawatts. I say in parenthesis that if people really want us to take notice of their views, please do not send those representations while one is in the middle of writing one’s speech and all the amendments are already on the Marshalled List. We are not well served by some of those groups.

I suspect that the Government's 3 megawatt cap is a sort of triangulation; it is somewhere between the extremes of those conflicting views. I have tabled the amendment to make the cap 1 megawatt. I have already been roundly abused within the confines of the House by a noble Lord who thought that I was trying to sabotage the whole scheme, but I assure the House that that is not the case. I am seeking by the amendment to give the Minister the opportunity to explain to the House what lies behind the Government’s thinking for the 3 megawatt cap.

I have received representations, as I am sure have many noble Lords, from a number of quarters. I start by asking: what is the aim of encouraging,

by offering consumers the chance of a return on their investment from being able to sell surplus power to the grid? I was very interested in what the noble Baroness, Lady Corston, said about her experience. That totally links with what I understand the provision is supposed to be about.

Larger investors already have the incentive to invest in renewables by the subsidy provided by the ROC system, and very attractive that subsidy has turned out to be. It is not a subsidy paid by the Government, as appeared in an article in the Times a couple weeks ago—one would have thought that the Times might have known better. As the Minister made clear a few moments ago, it is paid by consumers. It goes directly onto all our electricity bills, as will the cost of feed-in tariffs. We will all have to pay the cost of that; it will be reflected somehow in our bills.

ROCs are not a satisfactory incentive for consumers at the domestic or very small community level. It is clear that a combination of complex bureaucracy and the complexity of the system simply turns people off and they do not think that it is for them. To be fair, ROCs were not invented for them. They were invented to encourage what is happening or should be happening across the country to get renewable energy up and running. FITs are intended to fill this gap; that is, what could happen at the lower end of the scale where the ROC incentive is not effective. FITs are seen as an alternative for those who cannot or will not benefit

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from ROCs. I echo my noble friend’s point, to which the Minister replied. It should not be available as an alternative for investors who can and should claim ROCs.

A 3 megawatt cap on FITs would take them well into the sector where ROCs are already proving effective. I will not bother the House by reading it all, but Ofgem’s ROC accreditation list shows that one-quarter of projects—by project numbers—are already between 500 kilowatts and 3 megawatts. Of course, they are not all happening, but that is not because the ROCs are ineffective. It is for the reasons that were admirably rehearsed in our debate on Report, first, as regards planning and, secondly, as the noble Lord, Lord Oxburgh, said, as regards access to the grid. No doubt we shall be able to return to that in a few moments. Those obstacles prevent large numbers of projects for wind power, in particular, but also other forms of renewables, coming into effect. FITs will have no impact on that.

My noble friend Lord Reay was right to ask about planning. Of course, exactly the same things will happen, except, as the Minister made clear, at the very lowest level where many of these things will not require planning permission. I shall give three examples of ROCs which are attracting investment on a considerable scale and are below the 3 megawatt limit: a 2.75 megawatt wind turbine in Suffolk, which cost £4.4 million to build, and has annual revenues of £550,000; a 3 megawatt hydro turbine, with the water reservoir covering 16 square kilometres, was built at a cost of £3.5 million and generates revenues of £800,000; and a 2.5 megawatt capacity plant, which is based on 30,000 tonnes of waste per annum, generates 15,000 megawatt hours per annum and was built at a cost of £11.5 million, with revenues of nearly £2 million. By no stretch of language could these be described as small-scale renewable energy projects. They are certainly 1,000 miles from the type of domestic project referred to by the noble Baroness, Lady Corston, and miles from the sort of hospital or school projects talked about in this context. They are medium-sized commercial ventures, all of which are capable of benefiting from the ROCs, and many do. By making FITs available to investors of this size, the result will be to siphon off funds intended for the genuine, small community and domestic sector. We have always understood that that is what these FITs are primarily aimed at.

5 pm

Among the representations that I have had is one which I can only describe as a genuine cri de coeur, from a small firm called Good Energy which has raised with me what it sees as the threat of this proposal. In its letter it states:

“Good Energy is the UK’s first and only 100% renewable electricity supplier who supply electricity to homes and businesses across the UK ... In Good Energy’s view, the point of a feed-in tariff is to support micro-generation and encourage individuals to make a difference”.

That sentiment lies behind many of the speeches we have heard today. The letter continues:

“They are concerned that a 3MW limit is too high and supports commercial wind farm operators rather than focusing on supporting individuals—for example a full size onshore turbine averages 2.5MW. They also believe it undermines the Renewables Obligation ... Essentially, Good Energy believe that feed-in tariffs

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should be designed to encourage individuals to do their bit to fight climate change, not create a support mechanism for commercial enterprises”.

That is the function of the ROCs. I am in 100 per cent agreement with this company, a small firm which has been in the market for some time. It has put its finger very firmly on the point.

At the other end of the scale is the trade association that represents most of the major wind investors, the British Wind Energy Association. I have received a very good brief from the association which—at the risk of boring the House, but this is an important issue—I shall quote. It states:

“A stable, long-term policy environment is vital in order to stimulate the investment necessary for 2020”—

I see the Minister nodding his assent and I am grateful for that—

One has to remember that for many of the firms that are investing in large wind farms both onshore and offshore, the world is their oyster. They can do this elsewhere, and if they find that their arrangements are threatened as a result of the integrity of the ROC system being undermined, they will push off.

There is a third issue which the noble Lord will remember I raised on Report in the course of an intervention in a speech made by the noble Lord, Lord Teverson. I asked about the effect of the addition to local low-voltage distribution networks of a significant number of generators claiming FITs sized between 1 and 3 megawatts. Since then I have taken advice from the Energy Networks Association which represents the operators of the grid and of local distribution networks. It is a long report from which I shall quote only a couple of short passages. It states:

“The connection of multiple microgeneration units can have an adverse effect on network operation. The main issues that need to be considered include

variations in the power supply that can lead to equipment being switched off—

That is all spelt out in the report. In another paragraph the report states:

the electricity safety, quality and continuity regulations—

These are technical questions, and I am certainly not a technical man, but I read that as endorsing the anxiety I expressed on Report that if one has a surge of medium-sized feed-in tariff generators seeking access to the local networks, that will have a disruptive influence.

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I asked the Minister to look into that and he undertook to do so. I hope, therefore, that I will now get an answer.

The higher the cap, the bigger the project and the greater the risk. As this is a two-directional flow going both from the generators to the consumers and back from the consumers to the generators, it poses significant problems for the distribution network. As I said at the outset, the purpose of the amendment is to give the Minister an opportunity to explain his figure of 3 megawatts. What I have said seems to be, at first sight, powerful arguments for a figure somewhat lower than 3 megawatts. I have suggested 1 megawatt and I am assured that that figure would have the support of the British Wind Energy Association. I beg to move.

Baroness Young of Old Scone: My Lords, the Government must be happy because one amendment seeks to change the ceiling from 3 megawatts to 1 megawatt, and another seeks to change the 3 megawatts to 10 megawatts. That is always an admirable position for a Government to find themselves in because they can split the difference and demonstrate that they have come up with the right figure. I shall explain why I think it is not the right figure.

The noble Lord, Lord Jenkin, shares many of my objectives: a need for clarity for those involved in the ROC scheme and a need to promote investor confidence. On Report, the Minister stressed the need for investor confidence in the ROC system for larger-scale renewables—he used the words “larger-scale renewables” advisedly—and the noble Lord, Lord Whitty, rightly said that that works both ways and that there needs to be confidence for the small and medium-sized generators in another scheme which would suit their needs because it would be simpler and clearer. I would be sad if the Government, in adopting a 3 megawatt ceiling, boxed themselves in and left themselves with insufficient headroom in a market and a set of technologies that are moving quite rapidly.

Under their outline proposals the Government can set different tariff levels for individual technologies following consultation, and so the 10-megawatt ceiling should be seen as an envelope within which the whole scheme can happen. For many technologies, as they change their capacity over time, there could be a different set of conditions attached to taking part in the feed-in tariff. That would not destroy flexibility for the Government but it would give them headroom.

There has been a failure of the ROC system to incentivise investment in small to medium-size generation schemes. About 95 per cent of the wind capacity currently in the planning system is in developments larger than 10 megawatts. The renewables obligation is not incentivising adequately schemes under 10 megawatts.

If we look at other countries that have had advantageous feed-in tariff arrangements as well as other mechanisms, we see that Germany is in the enviable position of having 10 times more wind power than the UK despite the fact that we are a jolly sight windier. It is quite telling that somewhere between one-third and one-half of that power is under 10 megawatts. It is possible to have the best of both worlds, with significant investment in large-scale schemes

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as well as in small and medium-sized schemes. There is room for both, and we have to find a way of getting feed-in tariffs and ROCs to work together to deliver both. The ROC system is certainly not doing that for schemes between 3 megawatts and 10 megawatts at the moment.

At the moment we are not talking about single-house solutions such as sticking a windmill in your garden or on the side of your house. I always thought that putting one on the side of your house would probably mean that your house flew away rather than that you generated electricity. We are looking at the needs of communities and the needs of groups of farmers getting together. Some of the technologies are fairly small-scale at the moment but are rapidly increasing in the scale they are capable of in terms of on-site generation, low-cost housing, hospital on-site generation—a variety of areas where a single provider will not be well versed and well attuned in the ROCs issue and the way in which managing that system needs to take place. Those providers would be much more incentivised by the certainty of a feed-in tariff.

I have watched farmers struggle with anaerobic digestion systems. Some of the biggest farming companies in the country have trouble with it for a variety of reasons, as the noble Lord, Lord Jenkin, said, but the ROC scheme is not insignificant in that matter. You can imagine what small-scale farmers, who would still have the capacity for generating substantial amounts of electricity from anaerobic digestion, must feel in trying to pull off a development.

I take issue with the noble Lord’s description of these mid-range projects as “commercial ventures”. One would like to hope that they are commercial if that means they are not going to be loss-makers and a total flop, otherwise no one will invest in them at all. However, they are far from being commercial ventures by commercial energy companies; in most cases, they are concomitant to another activity being carried on at a community level by a very small-scale business.

I hope that the Government will not say that, as they cannot get agreement between the two amendments, that must mean that they are probably right. I hope they will take account of the fact that a number of responsible groups have got together in support of the 10-megawatt proposition, including several of the home building associations and the Energy Saving Trust.

I hope, too, that the Government will ponder on paragraph 155 of the good report by the noble Lord, Lord Freeman—who, alas, has just abandoned his slot. That paragraph, which examines the case for feed-in tariffs and recommends that system, says:

“Although the evidence we received in favour of feed-in tariffs anticipated that micro-generators would benefit most from such a system, we do not believe that the benefit of feed-in tariffs would be limited only to small-scale generation. Single site operators, community developments, affordable housing schemes and farmers will often want generation capacity above the micro-generation level. They are, however, unlikely to want to trade in the ROCs market with large energy companies. Such generators are likely to favour the certainty of a medium term feed-in tariff structure over the uncertainty of the RO. Therefore, we see potential for the RO and a feed-in tariff to work in parallel with generators choosing the most appropriate support scheme for their own needs”.

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I hope we can encourage the Government to ponder that recommendation from the committee and not box themselves in.

If the noble Lord, Lord Campbell-Savours, can wax lyrical about Woking, I hope I can wax lyrical about Willington, my local village, which, if we can get a feed-in tariff, I hope will ultimately generate its entire needs from local hydropower.

5.15 pm

Baroness Wilcox: My Lords, I am grateful to my noble friend Lord Jenkin and the noble Baroness, Lady Young of Old Scone, for tabling the amendments and giving us the opportunity to debate the 3 megawatt cap. Without doubt, the cap, both its existence and the level at which it is set, is one of the most controversial areas of the amendment, with strong feelings expressed, as we have heard, on both sides of the House. I hope that the Minister will be able to provide us with a proper explanation of how this level was chosen.

Lord Teverson: My Lords, we welcome the fact that the Government have put a higher cap in the Bill than we perhaps expected. On Report, the noble Lord, Lord Redesdale, saw the minimum cap as needing to be somewhere around 2.2 megawatts. It is clear that the level is written into the Bill as a maximum, which means that it could be set in practice at any level below that. It would provide some useful certainty to the industry, which the Minister is keen to be able to do, if the Government were able to show their hand a little more as to whether it is just a technical cap or whether it highlights the level that the Government are likely to impose. We would not be against a higher level of 10 megawatts, but we are pleased to see a realistic cap. The important thing is what is implemented.

Lord Hunt of Kings Heath: My Lords, this has been an interesting discussion, following on from our discussion on Report. The noble Lord, Lord Jenkin, suggested that a 3 megawatt limit could be described as triangulation. The noble Baroness, Lady Young, suggested that the Government would always be in a happy position responding to a debate where two very different amendments are proposed and the Government seem to be coming down the middle. Indeed, I am in that happy position.

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