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The question arises about negative or affirmative procedures for the parliamentary approval of the many orders and regulations to be made under these government amendments. Almost all the clauses in the Bill that provide for parliamentary scrutiny of subordinate legislation use the negative procedure. There are four exceptions in the Bill: Clause 13, about the enforcement of licensing and the regime for the importation and storage of gas; Clause 27, exactly the same for CO2; Clause 42, about the funded decommissioning schemes for nuclear operators; and Clause 59, which gives the Secretary of State power to modify Clause 42. All those powers require an affirmative resolution by both Houses.

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Almost all the government amendments will be subject to the negative procedure, except for the powers taken in the new schedule proposed by the Government. As noble Lords may have noticed, the Secretary of State’s power under the schedule to create by order new licensable activities in relation to smart metering will be subject to the affirmative procedure. That seems to me to be entirely right because this is a wholly new and very large operation. As the noble Lord said, a vast operation will be required. They are subject to affirmative procedures because the power has been taken under the gas and electricity Acts; and because these are amendments to those Acts, the affirmative procedure already required in relation to such powers will apply to this one. That appears to be almost automatic. However, the clauses that deal with regulations providing for competitive tendering processes for the award of licences for smart metering require the negative procedure. I do not understand why that should be so.

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There is no question but that this tendering and some of the models that the Government are going to consider will have very considerable intellectual property value. They will give enormous power and a financial benefit to the companies that are successful in tendering for smart meters. They will be dealing with this under the umbrella of what will be the largest home-visiting programme since the conversion of all households to North Sea gas. I am old enough to remember when that happened, and it was an astonishing operation. This will be on the same sort of scale. As the award of the contract will have substantial IP value, it seems important enough to require an affirmative resolution of both Houses. We all know that that is a more effective form of scrutiny than the negative resolution. Perhaps the Minister can explain why the amendment gives the affirmative procedure for some clauses but the negative procedure for others. I look forward to his answer.

Lord De Mauley: My Lords, I am glad to have an opportunity to welcome once again the Government’s change of heart on the rollout of smart meters. However, I have some sympathy for my noble friend’s amendments requiring that the regulations defining the details of the competition be subject to affirmative resolution. We have had debates earlier in the Bill’s passage on another government competition, and despite the precedent of handling larger projects than this behind the scenes, a general concern that the Government might be somewhat lukewarm in their support for this technology, as shown by the time it has taken us to get to this stage, does argue the need for increased transparency and scrutiny.

Lord Davies of Oldham: My Lords, I am grateful to both noble Lords who contributed to the debate. The last contribution was brief and to the point. I hear what the noble Lord says about transparency, but he can scarcely berate the Government by saying that this is yet another indication of the Government changing their mind. Governments should be flexible and responsive to parliamentary debate, and it is what we are usually enjoined to do. The Government have clearly done so

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on several occasions during the Bill’s passage, including this one, but the noble Lord seems to suggest that they are somehow not fulfilling their duty. I contest that.

As ever, the noble Lord, Lord Jenkin, has a case which he has deployed very ably. We have taken due cognisance of it. As I think he recognised in his remarks on his amendment, the Government have already taken significant steps to ensure that Parliament has an opportunity to examine the details of a smart metering rollout as we move forward. We have, for example, taken the unusual step of making the licence modification powers which will be the central element in mandating smart meters for all households subject to parliamentary scrutiny. Such powers would not normally carry additional scrutiny procedures; but it is a reflection of the broad theme of the noble Lord’s case that this is a massive task and that it impacts on every household in the United Kingdom.

The Government have also taken steps to ensure an appropriate level of parliamentary scrutiny in the new clauses that they tabled at Third Reading. The government amendments enable the Secretary of State by order to create new licensable activities in connection with smart meters or the related communications infrastructure. As the noble Lord, Lord Jenkin, recognised, that order will be subject to affirmative resolution and will therefore need to be debated and to receive the approval of both Houses. It will contain the detail of what activities are being made licensable and the conditions of those licences. In effect, the Government will set out in detail within that order the market model selected to underpin a smart meter rollout. For that reason we believe it right to provide for affirmative parliamentary scrutiny of that crucial aspect of the legislation.

The regulations for the process of awarding the license, which the noble Lord covered in his amendment, are procedural in nature and subsidiary to the issues of substance contained in the affirmative order. The regulations will set out in detail the competitive tendering process—specifying, for example, the time periods in which licence applications must be made—and will be largely technical in nature. It would be very unusual for them to be subject to the affirmative procedure, as the noble Lord suggests. The clause is very similar to Section 6C of the Electricity Act, which concerns regulations for awarding offshore transmission licences by competitive tender. Those regulations are subject to the negative resolution procedure.

The amendments we have tabled ensure that we can deliver a wide range of market-model options in order to deliver a successful rollout of smart meters to the domestic sector. The level of parliamentary scrutiny within these smart metering clauses already goes somewhat beyond what might normally be expected for these kinds of powers, and the scrutiny procedures are rightly focused on the most important elements of the powers, which are subject to the affirmative procedure. I listened carefully to what the noble Lord, Lord Jenkin, contended on his amendments, which we have not yet reached. I hope he believes that we have had sufficient debate to enable him not to move them when the time arrives. The Government have thought carefully about this

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issue. When we eventually rollout smart meters, we have an affirmative order for the crucial part of this important concept for the whole nation.

On Question, amendment agreed to.

Lord Davies of Oldham moved Amendment No. 59:

59: After Clause 89, insert the following new Clause—

“Costs connected with making an offer of connection

(1) Section 16A of the Electricity Act 1989 (c. 29) (procedure for requiring a connection) is amended as follows.

(2) After subsection (4) insert—

“(4A) The Secretary of State may, after consulting the Authority, make provision by regulations for the purpose of entitling an electricity distributor to require a person requiring a connection in pursuance of section 16(1) to pay connection offer expenses to such extent as is reasonable in all the circumstances.

(4B) In this section “connection offer expenses” means expenses which—

(a) are of a kind specified by the regulations, and

(b) have been reasonably incurred by the electricity distributor.

(4C) Regulations under subsection (4A) may specify—

(a) circumstances in which an electricity distributor may not require the payment of connection offer expenses by virtue of the regulations;

(b) the manner in which expenses reasonably incurred by an electricity distributor are to be calculated for the purposes of subsection (4B)(b).”

(3) In subsection (5) for “and any information” to “connection” substitute “, any information requested under subsection (3) and any amount payable by virtue of subsection (4A) to the distributor by the person requiring the connection, the distributor shall give to that person”.”

On Question, amendment agreed to.

Lord Hunt of Kings Heath moved Amendment No. 60:

60: After Clause 90, insert the following new Clause—

“Renewable heat incentives

(1) The Secretary of State may make regulations—

(a) establishing a scheme to facilitate and encourage renewable generation of heat, and

(b) about the administration and financing of the scheme.

(2) Regulations under this section may, in particular—

(a) make provision for the Secretary of State or the Authority to make payments, or to require designated fossil fuel suppliers to make payments, in specified circumstances, to—

(i) the owner of plant used or intended to be used for the renewable generation of heat, whether or not the owner is also operating or intending to operate the plant;

(ii) a producer of biogas or biomethane;

(iii) a producer of biofuel for generating heat;

(b) make provision about the calculation of such payments;

(c) make provision about the circumstances in which such payments may be recovered;

(d) require designated fossil fuel suppliers to provide specified information to the Secretary of State or the Authority;

(e) require the payment of a levy by designated fossil fuel suppliers to the Secretary of State or the Authority;

(f) make provision about the calculation of the levy;

(g) make provision for payments to fossil fuel suppliers in specified circumstances;

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(h) make provision about the enforcement of obligations imposed by or by virtue of the regulations (which may include a power for the Secretary of State or the Authority to impose financial penalties);

(i) confer functions on the Secretary of State or the Authority, or both.

(3) In this section—

“Authority” means the Gas and Electricity Markets Authority;

“biofuel” means liquid or gaseous fuel which is produced wholly from biomass;

“biogas” means gas produced by the anaerobic conversion of organic matter;

“biomass” means material, other than fossil fuel, which is, or is derived directly or indirectly from, plant matter, animal matter, fungi or algae;

“biomethane” means biogas which is suitable for conveyance through pipes to premises in accordance with a licence under section 7 of the Gas Act 1986 (c. 44) (gas transporter licences);

“designated fossil fuel suppliers” means—

(a) if the regulations so provide, a specified class of fossil fuel suppliers, and

(b) in any other case, all fossil fuel suppliers;

“fossil fuel” means—

(a) coal;

(b) lignite;

(c) natural gas (within the meaning of the Energy Act 1976 (c. 76));

(d) crude liquid petroleum;

(e) petroleum products (within the meaning of that Act);

(f) any substance produced directly or indirectly from a substance mentioned in paragraphs (a) to (e);

“fossil fuel supplier” means a person who supplies fossil fuel to consumers for the purpose of generating heat;

“owner”, in relation to any plant which is the subject of a hire purchase agreement, a conditional sale agreement or any agreement of a similar nature, means the person in possession of the plant under that agreement;

“plant” includes any equipment, apparatus or appliance;

“renewable generation of heat” means the generation of heat by means of a source of energy or technology mentioned in subsection (4).

(4) The sources of energy and technologies are—

(a) biomass;

(b) biofuels;

(c) fuel cells;

(d) water (including waves and tides);

(e) solar power;

(f) geothermal sources;

(g) heat from air, water or the ground;

(h) combined heat and power systems (but only if the system’s source of energy is a renewable source within the meaning given by section 32M of the Electricity Act 1989 (c. 29)).

(5) Regulations may—

(a) modify the list of sources of energy and technologies in subsection (4);

(b) modify the definition of “biogas” or “biomass” in subsection (3).

(6) Regulations may make provision, for the purposes of subsection (2)(a)(iii) and the definition of “fossil fuel supplier”, specifying that particular activities do or do not constitute generating heat.

(7) Before making regulations under this section which extend to Scotland, the Secretary of State must—

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(a) if the regulations contain any provision which would be within the legislative competence of the Scottish Parliament if it were contained in an Act of that Parliament, obtain the consent of the Scottish Ministers;

(b) in any other case, consult the Scottish Ministers.”

The noble Lord said: My Lords, this is the final group. On Report, we promised to bring an amendment to incentivise renewable heat. This is it. We know that the current renewable heat sector is very small, and we accept that financial support is necessary. The powers in this clause allow the Secretary of State to establish a financial support mechanism for renewable heat: the renewable heat incentive. Noble Lords will know that this was a possible option in the Government’s consultation on the renewable energy strategy. The noble Lord, Lord Reay, is not here to take me to task for anticipating the outcome of the consultation by tabling this amendment, but, as with the FIT scheme, this is a strong response to the debate in both Houses.

Under this initiative, owners of plant for the generation of renewable heat will be entitled to receive financial support. This could entail a set rate for each unit of renewable heat energy that they produce. Renewable heat opportunities will exist at all levels from large-scale industrial sites down to households; all scales will be eligible for support. In some cases—for example, producers of biogas and biomethane—the RHI power is structured to reward the production of those renewable fuels rather than the generation of renewable heat itself. To achieve the deployment of the large amounts of renewable heat required by 2020, it is expected that a contribution from a range of different renewable heat technologies will be needed.

As the different technologies will require varying rates of support to attract investment, it is expected that the level of support provided by the RHI will be specific to a group of technologies. We intend to introduce a banded system similar to that brought forward in the context of the renewables obligation. Payments under the heat incentive will be funded by a levy on designated suppliers of fossil fuel for heat; and powers to require the payment of such a levy are included in the amendment.

The levy will be placed on certain fossil fuel suppliers designated in secondary legislation which are supplying fossil fuel for the purpose of generating heat. The scheme will be administered by Ofgem. Necessarily, there is a great deal of flexibility in my amendment. Even more than in the FIT scheme, an awful lot of work is required in this area. Inevitably, we need flexibility, but I think that this meets the requirements of noble Lords and the other place and I commend it to the House. I beg to move.

[Amendments Nos. 61 and 62, as amendments to Amendment No. 60, not moved.]

Baroness Wilcox moved, as an amendment to Amendment No. 60, Amendment No. 63:

63: After Clause 90, line 52, at end insert—

““exempted fossil fuel supplies” means, if the regulations so provide, fossil fuels supplied—

(a) to a specified class of consumer, and

(b) for a specified purpose;”

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The noble Baroness said: My Lords, I thank the Minister for introducing the amendment. As welcome as it is that the Government have realised the importance that heat will play in reaching our renewables target, and as much as I am glad that they have taken the opportunity that the Bill presents to ensure that they can quickly introduce the necessary scheme, I hope that such vague provisions will not become usual practice. It is therefore critical that the Minister gives this House as much detail as possible, even on this last set of amendments, on how the renewable heat incentive scheme will operate, and will commit to participating fully in both meaningful consultation with and detailed reporting to this House on the Government's intentions as they develop.

My amendments are designed to clear up one concern that has already been raised by an outside stakeholder as a result of the drafting of the provision. Can the Minister confirm that the provisions will not necessarily impose the levy on fossil-fuel powered CHP plants? Of course, renewable heat production is the primary target of the provision, and rightly so, but it would be extremely counterproductive if the rush in which the amendment has been produced causes the unintended consequence of damaging the development of a technology that has the potential to be so helpful in reducing our carbon emissions, enhancing our energy security and lowering our energy costs.

I am also interested in probing the provisions on where heat pumps fall. Do they allow for the payment to be made to producers of heat through that technology; if not, why not? Finally, I again ask for as much detail as possible on the implementation timetable of the scheme. Speed is of course of the essence, and I look forward to hearing the Minister's response. I beg to move.

6.15 pm

Lord Teverson: My Lords, I welcome the government amendment. As we are all aware from the Climate Change Bill and this Bill, heating accounts for about half of energy consumption in this country and 47 per cent of carbon emissions, and half of that energy and carbon emission is from the domestic sector. I should like to explore that area a little more with the Minister, because, as the White Paper stated last year, only 1 per cent of that sector is currently renewable. To meet the targets that we are being set in Europe, major challenges have to be met through that sector as much as through energy generation.

I shall return to some of the issues that the noble Baroness raised, but I congratulate the Minister on listing as a source geothermal energy. That is very positive and perhaps covers heat pumps, which are often powered in that way. Given the very distributed nature of the domestic heat sector, we can all understand how it could work on a large scale with the equivalent of renewables obligation certificates; but with small scale, which is much more prominent in this type of energy use, what we do about, for instance, my two wood-burning stoves? What do we do about the 80,000 solar water-heating installations nationally? A lot of the 49 per cent is generated by very small domestic or

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small business installations. I find it difficult to understand how that will work—not that I in any way want to put the Government off taking on that challenge.

I, too, raise the issue of combined heat and power, because that has played a big part in the Government’s energy strategy. CHP can save up to 25 per cent of CO2 emissions—there is quite a broad range depending on the individual installation—but most of it is fossil-fuel based and is less efficient than if it was producing heat alone, so there is naturally a potential discrimination against that important sector, which I know we all want to be successful. I would be very interested to hear from the Minister how the department will ensure that the two strategies will not conflict.

Lord Hunt of Kings Heath: My Lords, I thank noble Lords for their interesting comments. I cannot apologise for the vague provisions, but I understand why noble Lords would like some more information on how we will go forward. In a sense, that is the hardest information to share with noble Lords tonight.

To start with, I reassure noble Lords that we see the renewable heat incentive as an important measure and, therefore, want to introduce it as soon as possible. On FIT, I have already said that we hope to start by 2010, although I cannot guarantee that. I cannot say the same about the renewable heat incentive, but I can say that we intend to set out a more robust timetable in the new year. The noble Lord, Lord Teverson, has already raised one or two complex issues. As the noble Lord, Lord Oxburgh, said on Report, it is important that we get it right. It is unwise for me to go any further in terms of providing a timetable.

The noble Lord, Lord Teverson, is quite right about small applications. I reiterate that under the heat incentive scheme that we will produce we want a set rate for each unit of renewable heat energy produced. We expect those opportunities to exist at all scales, from large industrial sites down to the smallest household level, with all scales eligible to receive support. He goes on to ask whether I can tell him some more about some of the practical issues. No, but I acknowledge that he is right: clearly there are practical issues that we will have to work through over the next few months.

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