Renewable Heat Incentive Scheme (Amendment) Regulations 2013

Monday 25th March 2013 Grand Committee

Motion to Approve

15:51

Moved By

[Baroness Verma]

That the Grand Committee do report to the House that it has considered the Renewable Heat Incentive Scheme (Amendment) Regulations 2013.

Relevant document: 22nd Report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, it gives me great pleasure to open the debate on the Renewable Heat Incentive Scheme (Amendment) Regulations 2013.

The renewable heat incentive scheme is a world first, designed to improve the way in which we use energy in the UK. Since the scheme was launched in November 2011, more than 1,700 applications have been received to date, with about £25 million-worth of RHI payments expected to be paid out in this financial year. Installations that have already been accredited into this scheme have generated 118 gigawatt hours of heat.

The RHI is essential if we are to meet the UK’s legally binding target, as set by the renewable energy directive, of 15% of our energy coming from renewables by 2020. Heat has an important part to play in achieving this target and we are aiming for 12% of our total heat demand to come from renewables, increasing from less than 2% before the RHI opened, by this date.

Through the scheme we will continue to reduce our greenhouse gas emissions and begin the journey that we need to make towards our goal of eliminating greenhouse gas emissions from our buildings by 2050. Renewable energy generation is essential to our economic growth and energy security. It reduces our reliance on imported fossil fuels and helps keep the lights on and our energy bills down.

The RHI scheme is administered by Ofgem and provides financial tariff-based support for commercial, public sector, industrial and community renewable heating installations for 20 years. It has already supported technologies and fuel uses, including solid biomass, solar thermal, ground and water source heat pumps, biogas combustion, energy from waste and the injection of biomethane into the grid.

We have seen participation in the scheme across small businesses, industry, the public sector and community projects. RHI support is being given to the Meikleour Trust, a Scottish estate that installed a 500-kilowatt thermal biomass boiler to supply heat via a district heating system to a range of buildings. In addition, the RHI is expected to generate £300,000 per year in support for Overbrook Farm in Derbyshire as it replaces its old petroleum gas systems with biomass boilers. However, the RHI goes wider than this and is supporting installations in schools, dairy farms and other major retail outlets across Great Britain such as Sainsbury’s, which has invested extensively in renewable heat, including biomass and ground source heat pumps.

The RHI is funded by the taxpayer and must be financially sustainable. It must help to deliver renewable heat in the most cost-effective way. It must do so by avoiding rapid reductions to tariff levels, which can create market uncertainty and instability, neither of which will help us to achieve the goals that I have just outlined. We have learnt lessons from the feed-in tariff scheme in developing this current mechanism. It introduces flexible controls which will provide certainty to investors and, through it, we will see continued growth in renewable technologies, helping us to meet our renewables and carbon targets.

These regulations amend the Renewable Heat Incentive Scheme Regulations 2011. They will implement the outcome of a consultation, published last July, which sought views on the best way to control spending under the scheme until March 2015. The consultation attracted 100 responses from a wide range of stakeholders. The results are set out in the government response published on 27 February. More than 70% of respondents supported the proposed degression mechanism. The feedback on the design of the proposed degression has resulted in adjustments to the proposals that were set out, although the broad principles remain the same.

The regulations build on the foundations laid down for controlling spending introduced under the feed-in tariffs scheme, following the consultations that took place on that scheme in 2012. The framework for financial control of the renewable heat incentive scheme will therefore also be based on a system of degression. Degression is not a new word: it is used in economics to define a system which gradually reduces, by stages, a rate or specified sum. A system that sets out clearly how and when tariff levels may be reduced, and by how much, will undoubtedly provide greater certainty to the industry—and certainty is what industry tells us that it wants.

Let us also not underestimate the current level of public interest in how taxpayers’ money is spent. More than ever, we need to constrain spending within budgetary limits, and the regulations aim to do that. Simply put, degression will reduce existing tariff levels if uptake of renewable heat technologies is greater than we require to meet our renewables target. They will help to safeguard against the possibility of overspend and against the detrimental impact on the supply chain of a reduced budget next year that would be caused if we spent more than expected.

Last July, the Government introduced an interim, or stand-by, mechanism of budget control for the RHI while we developed a longer-term approach. Under the interim mechanism, the scheme would have been suspended had spending levels reached 97% of the budget limit, which in real terms meant if we had forecast spending to reach £67.9 million in 2012-13, against a budget of £70 million. The interim mechanism would therefore have temporarily closed the scheme’s doors to potential investors.

As it happens, the scheme was not suspended, with spending levels expected to reach £25 million during this financial year. Nevertheless, a more sustainable approach is needed to deliver the certainty to industry that I mentioned earlier.

I will gladly hold up my hands and accept that the regulations are not at first glance simple to understand. If I may, I will therefore attempt to summarise the main features of the degression scheme. At its simplest, degression will mean that tariffs available to new applicants may be gradually reduced, but only if uptake of the various technologies supported under the RHI is greater than has been forecast. This will be done by monitoring uptake on a quarterly basis against a series of expenditure limits, listed in the schedule to the regulations, to which I will refer as triggers. The reason why I use this term is that if those limits are hit, they will trigger a fixed reduction to tariff levels. Monthly updates on progress towards all triggers will be published online so that stakeholders can readily access them, and one month’s notice will be given before any reductions are made to the tariffs for new applicants.

The key aspects of degression of which noble Lords should be aware are as follows. Those who are already in receipt of RHI support will not be affected by any future reduction to the tariff levels taking place as a result of degression. Applicants to the RHI scheme will receive existing, that is non-degressed, tariffs, if the date of accreditation for their installation, or date of registration for a biomethane producer, is before any new tariffs came into effect for the full 20 years.

The system includes a rule which means that degression will not be activated for a particular quarter—so tariffs will not be reduced—if total expenditure in any quarter is estimated to be equal to or lower than 50% of what we expected it to be at that point. In that way, the Government intend to avoid reducing tariff levels if only a few technologies are performing well and contributing towards heat targets. Where total expenditure is more than 50%, the regulations prescribe the assessment that government must make to determine whether degression has been activated, and whether any tariffs should be reduced and by how much.

16:00

There are two types of trigger which apply: a total trigger and triggers for each technology supported by the scheme. All triggers are measured in pounds spent, as this goes to the very heart of what budget management looks to control.

The total trigger ensures that overall spending levels for the non-domestic scheme are protected. Fixed annual budgets, which cannot be exceeded, have already been set for the four years of this spending review period. The total trigger has been set based on the combined estimated uptake of all of the technologies supported by the non-domestic RHI scheme. It is the estimated cost of support needed for that part of the scheme’s contribution to the heat portion of the Government’s 2020 renewables target as set by the renewables directive. Monitoring uptake will take place on a quarterly basis, and the annual total trigger has been split into quarterly amounts which are shown in the schedule to these regulations.

The reason for having separate technology-specific triggers is to prevent one technology dominating the RHI market. If there were only a total trigger in place, market forces would ultimately determine which technology deployed well, which could easily force out technologies which have a role to play in the UK in the longer term. The Government wish to encourage uptake across all the technologies supported by the scheme, hence the need for technology triggers. Once again, these triggers, which are based on projected market uptake, have also been split into quarterly amounts as shown in the schedule to the regulations.

The tariff triggers—tariffs are for each technology and, in some cases, different sizes of the same technology—are based on the deployment levels that we were expecting when the scheme was launched, but have been increased by a proportionate amount above these levels. The Government’s intention is to build greater flexibility into the system, and this approach recognises that what happens in practice may differ from projections. This flexibility is possible because we also have the total trigger. The precise level of scaling for tariff triggers depends on expected levels of uptake. For most of the technologies where forecasts indicate good levels of potential uptake, triggers have been at levels that are 50% higher than these. Conversely, where uptake forecasts are low, triggers have been set at 5% of the value of the total trigger to ensure plenty of scope for deployment to increase without triggering degression.

It is vital that we avoid overreduction of tariffs, as this could easily undermine the renewable heat market. The level of reductions to individual tariffs will commence at a rate of 5% initially if the triggers are hit. However, the regulations allow reductions to increase by up to 20%. These higher levels would be needed only if any earlier reductions had not been successful in bringing deployment levels back into line with estimates. If the total trigger is also hit, tariffs for all technologies that are exceeding their estimated deployment levels will be reduced by a further 5%—I am sure noble Lords are all keeping up.

I should like to address other issues, which may go some way to answering some of the questions which noble Lords may have on aspects of the RHI scheme. I trust that this will smooth the way for a focused debate on the changes that the regulations introduce.

At the same time as consulting on proposals for budget management, the Government sought evidence on the link between uncertainty and deployment of renewable heat. They suggested a possible solution through enhanced preliminary accreditation, which is in essence a form of tariff guarantee. We have subsequently announced that we will not implement this proposal at this time but will continue to work with stakeholders to determine how greater certainty can be provided. The Government recognise that projects with long lead-in times will have greater uncertainty as to future tariff levels when investment decisions are taken, which in turn can affect the cost of project finance and viability of schemes. However, we have not yet identified cost-effective ways of managing the risks associated with tariff guarantees, which can be gamed, encouraging speculative applications and significantly increasing the cost of the scheme. We need to find ways of unlocking the investment needed at an acceptable cost to the public and we will therefore continue to work with industry throughout 2013 to achieve this.

The Government have recently announced measures in two key areas: sustainability requirements for the use of solid biomass and biogas for heating, including air quality controls; and simplification of the current metering requirements.

On biomass sustainability, we will improve performance by introducing sustainability requirements for all existing and new installations using solid biomass as a feedstock. This means that to be eligible for the RHI, biomass installations of all sizes will be required to demonstrate, either through reporting or sourcing from an approved supplier, that their biomass meets greenhouse gas emissions criteria from April 2014 and land criteria from no later than April 2015. The standards will apply to existing RHI biomass installations and new applicants to the scheme. We have already announced this policy and intend to bring forward the regulatory amendments later in the year.

As well as ensuring that biomass fuel is sustainable, the Government want to ensure that the by-products of its combustion are controlled. Good air quality is vital to human health and the Government are committed to controlling emissions throughout the UK. Emissions limits will therefore apply to solid biomass installations, including combined heat and power installations which burn biomass. The limits will apply to all new installations accredited from the date the regulations come into force. Before these limits can be introduced, European state aid approval is required and the policy and compliance regime have to be published for a minimum period as part of the technical standards directive. Subject to approval, these requirements will be brought forward as draft regulations for debate by this House and in the other place as soon as the processes permit.

The Government will simplify metering requirements to introduce more flexibility and to avoid redundant meters being installed. This is designed to reduce costs to applicants and Ofgem without compromising on the accuracy of measuring heat. It is expected that the changes will come into force in autumn 2013.

It is important to improve and develop the RHI policy and its evidence base, learning from earlier implementation to keep delivery focused. The Government have therefore rightly consulted on expanding the non-domestic scheme and on introducing a domestic RHI to ensure that the market for renewable heat can grow further.

The Government will publish their response to earlier September consultations, Renewable Heat Incentive: Air to Water Heat Pumps and Energy from Waste and Renewable Heat Incentive: Expanding the Non Domestic Scheme, later this year and will be providing confirmation shortly about exactly when this will happen. The Government continue to welcome evidence on other suitable technologies which could be supported under the RHI.

Noble Lords may be aware that the Government announced earlier this year that they will be reviewing tariff levels across all technologies and plan to publish proposals in spring this year. This is in part due to calls received from stakeholders that the time may be right for such a review.

The renewables market remains in its infancy and, since the Government launched the RHI scheme, fresh evidence continues to become available which rightly needs to be taken into account. In addition to the review of tariffs that will take place this year, the Government will also review the non-domestic RHI scheme and its tariffs in 2014 and 2017. Early parameters for these reviews were set out in the Government’s February response to the July 2012 consultation. The exact scope of this year’s review of tariffs will be refined in due course. Any changes to tariffs as a result of the review will be subject to Parliament and state aid approval, but it is the Government’s intention that, where tariffs increase as a result of this year’s review, installations accredited from 21 January 2013 will benefit from any increase once the new tariffs come into force.

I know that some noble Lords will have significant interest in the timetable for introducing a domestic RHI scheme. The Government published a detailed and wide-ranging consultation, which closed last December, and will make an announcement as soon as possible. It is imperative that the final proposals deliver cost-effective and sustainable support for a scheme that is, above all, operable. I am sure noble Lords can appreciate that, with more than 400 responses received, there have been a number of challenging and complex questions.

Lastly, but certainly not least, I wish to address an issue that may be on the minds of some noble Lords: that is, the scheme delivering on its intended aims. Let us not pretend for a moment that the targets we must achieve are anything but challenging, but it is right to challenge ourselves on such an important issue. The scheme itself is 16 months old and still in its infancy. Since November 2011, the application rate has been relatively steady and we are seeing accreditations across all technologies. Interest in the scheme is extensive, with Ofgem receiving more than 2,000 calls per month on average and more accreditations taking place than ever before.

I have already outlined how we strive continually to improve the scheme and how we have consulted on improvements and extensions. We are working towards achieving a significant increase in uptake to ensure that we remain firmly committed to meeting our 2020 target for renewable heat. The changes that I have set out apply to England, Wales and Scotland. There are complementary measures in place for Northern Ireland, which has its own RHI scheme. As required by the Energy Act 2008, consent to the regulations has been obtained from Scottish Ministers.

In concluding, the measures contained in these regulations are good for taxpayers—who pay for the RHI—and for investors in renewable heat technologies. The RHI must deliver renewable heat in the most cost-effective manner and the mechanism being introduced through these regulations will ensure that we have long-term budget management mechanisms in place which will provide clarity and assurance about how we will manage the budget. As I have said, the renewables market is in its infancy, and there is uncertainty about how it will develop and respond to the RHI. With improvements and extensions now under way, we plan to achieve a significant increase in uptake to ensure that we are on track to meet our 2020 target for renewable heat. I firmly believe that the RHI scheme will deliver on its objectives and I commend these regulations to the Committee.

[Baroness Worthington]

My Lords, in this freezing cold, it is nice to talk about heat being released. As for these regulations, if there was a competition for the most inscrutable, least easy-to-follow set of regulations, these would surely be a contender. Can anyone honestly say they have read all these documents and fully understood them? I have spoken to the trade association, the Renewable Energy Association, and its expert who tracks this in great detail said he finds it almost impossible to follow. What hope do the rest of us have? I shall endeavour to work out what is happening here.

The bigger picture is that these regulations broadly aim to introduce a system for what to do in the event of overspend, so that the department can manage its budgets. The RHI as a policy differs from the electricity market because funds made available for this support mechanism come from the public purse—the taxpayer—not via the market. Therefore, the Treasury takes a keen interest. I can understand that, and the desire to stay within budget is of course laudable. However, to what extent is this really necessary? These are hugely complicated regulations, which, I am afraid, potentially undermine investor certainty, despite what the Minister has said. How needed are they?

In reality, as the noble Baroness has indicated, this policy remains drastically underspent. If anything, we should concentrate on how to boost uptake, not worry about paranoid penny-pinching in the event of overspend. The operational budget under the cost control mechanism is around £70 million for the current financial year and estimates of committed spend are only around £25 million. That is slightly more than a third of the budget spent, so two-thirds are unspent. The curious fact about this policy is that any underspend simply returns to the Treasury. It is not carried over to help the industry, but simply disappears into the Treasury. It is not even clear if it will come back to the taxpayer; it is not good for the taxpayer, but good for the Treasury.

That £70 million is already a reduction on the estimated budget of £133 million that was first put forward, so this policy is not in danger of overdelivering and overspending, but of underdelivering. Our target for renewable heat is around 12% of heat. This, it is said, can make a contribution to our legally binding 15% renewable energy target in 2020. We are currently at only a few percentage points and starting from a very low base. Where do we currently stand on the percentage of heat coming from renewable sources, and are we getting any more on track? The last data that I saw for 2011 showed that we were already off our proposed trajectory.

16:15

I am very pleased to hear about proposed reviews of the tariff levels, because it is only in those reviews that we can make adjustments to increase the tariffs. This statutory instrument is all about degression and reducing the tariff rates, but if we see that the policy as a whole is underdelivering, what are we going to do? How are we going to introduce more incentives or better target them? I should like some words of assurance that it will be through the review process that we address the current underdelivery.

The reason for degression is to prevent a stop-start market—again, a laudable aim—but the bigger picture is that the whole policy is stop-start. It runs out in 2015. Under the comprehensive spending review, the budget has been made available only until 1 April 2015. What happens after that? I should like reassurance that the scheme will continue and be open to new applicants. Otherwise, we are in danger of all this time and effort being spent on something that is completely stop-start and provides no certainty for investors. The proposals will introduce no fewer than eight degressionary reviews in the coming two years, but post-2015 there is no certainty about what happens next.

That is particularly important because it disadvantages larger projects, which have longer time horizons and planning periods. Those projects are the most cost-effective. I am thinking here of the larger-scale biomass schemes, which are much more cost-effective than some of the smaller ones, but they need time to plan. We already have only two years of visibility and certainty for the scheme. That must be addressed. The noble Baroness made some comments about being open to talk to the industry about that. I urge her to do that because it makes no sense to disadvantage the most cost-effective projects.

As the noble Baroness will know, the industry has proposed a solution of tariff guarantees, whereby you book your place on a tariff ahead and then have two years in which to get your scheme up and running. The industry feels that that is a fair system. It notes that it is already in use in the small-scale feed-in tariffs, so the Government have used that mechanism before. It is being considered for the CFD—the contracts for difference. Are the Government still considering that? The noble Baroness mentioned that she is talking to stakeholders, but could we have a little more detail on that proposal?

The SI contains two annexes which, compared to the rest of the document, are quite easy to understand, but are nevertheless very complicated. Annexe B sets out technology-specific budgets for when a degression trigger will be reached. Those are separate pots of cash for different types of technology but also for different scales of project.

I keep asking myself whether this level of disaggregation and micromanagement is necessary. I can understand why certain technology purveyors might want protection for their industry, but is it really necessary to separate biomass tariffs into two or three different levels? Once you get above a scale of, say, 100 kilowatts, and into the 100 kilowatt to 1 megawatt band, the same suppliers are involved. Can we have less micromanagement and slightly more aggregation, please? It always makes me smile when I hear a Conservative Minister talking about how market-led forces are not a good thing. We should be embracing the market and listening to what it tells us. That is a way to get to a good, cost-competitive system.

I am especially concerned about the splitting up of cash, because it is all based on models. We all know that models cannot predict the future; they are at best a guess of what will happen. Already, we have evidence that those models are out of step with reality. It was predicted that biomass would take up to half of the budget but so far it has taken 92%. Heat pumps were predicted to take up to one-third of the budget; they have taken only 1% of it. The modelling was an attempt to guess what would happen with very little information, starting with almost nothing, and obviously got it wrong. The way in which people are responding to the system is not as predicted. Yet we have rigid budgets—per technology, per scale of technology—that seem to be out of step with reality.

I should like some reassurances that we will perhaps move away from this micromanagement and heavy-handed, very complicated regulatory process to something more akin to a market-based system. That has to be the future and I want to hear more about how we will get there. Some concessions have been made on the workability of the proposals. An important one is that if the overall market is underperforming by more than a half it will not be degressed. If we carry on with the woeful underspend that we have at the moment there will be no degressions. That is welcome but the 50% cut-off is probably too low. I say that because there is a plausible scenario in which a certain technology could be degressed even with a very large underspend. I can give an example of small biomass. Small-scale biomass has been more successful than we thought; it has taken up more of the budget to date. If the same number of new small biomass boilers as we accredited this year are accredited next year, that new money, plus the legacy money, will exceed its degressionary trigger. That will be a success and will just about take the underspend over the 50% threshold. There is the situation in which one very successful deployment seems to make the whole scheme succeed, even though it is just over half in terms of spending, and then it has a degression. That is crazy; we are capping the one thing that is helping to deliver on targets at a point when we need to be boosting uptakes. I want to hear more from the Minister about how to prevent these perverse effects.

I shall say a few words on the RHI in general. It is a good scheme and we support it. There is no doubt that it could provide credibly cost-efficient sources of carbon reduction and boost jobs and investment into the UK which are much needed. I was going to talk a little about trying to compare the costs of the RHI with other support mechanisms because it bears good comparison. On offshore wind, we are preparing to spend in excess of £150 or £180 per tonne of carbon abated. That seems a lot but it is a very important industry. I mention that very high number because when we look at the costs per CO₂ tonne abated in the RHI, it compares incredibly favourably. When looking at large biomass projects of more than a megawatt, the costs per tonne abated—this is based on assumptions that it is displacing gas—are as low as £30 per tonne of CO₂. That is to be celebrated. We should be putting more money into that. Even when we reduce to medium-scale biomass projects, it comes in at around £120 per tonne of CO₂. That is pretty comparable to the cost of carbon abated by offshore wind.

Those are the sorts of things that we should be celebrating, which raises an important question. When we focus on the minutiae of this statutory instrument and the cost savings and penny-pinching, are we missing the bigger picture? We have a fledgling industry showing that it can start to make progress. It needs support but it will not need support for ever. Carbon prices will eventually mean that it can stand on its own two feet, but at the moment it needs support. Where is the flexibility in the Government’s thinking, by saying, “Hey, you know what, this is a winner? These technologies are delivering and we need to be thinking about giving them more money, not trying to penny-pinch and pulling money away from them, because they are succeeding”? I know that everyone has had their fingers burned with PV. Everyone knows that by the time it was introduced things had moved on and prices had crashed. We do not want a repeat of that, but are we now in danger of overkill in the sense of overreaction to an industry that will deliver good benefits into the future?

I shall not delay the Committee for too long but I have a couple of points to end on. I am encouraged to hear that we are to get some clarity on the domestic scheme. That is very important. The Minister said that it would happen “as soon as possible” but if we could have a more exact timeline, that would be helpful.

In all this, we need to look again at liquid biofuels. I know that they are currently excluded but I see no reason why they should be. Displacing oil with liquid biofuels would be very good and cost-effective, especially if you could simply reuse the existing infrastructure, displacing oil with oil. That has to be cost-effective and the carbon intensity gain would be so much better. Therefore, I should like to hear something about that.

I shall leave matters there and simply say that the Treasury is obviously very keen to make sure that we do not overspend. However, in this case, it seems that it is making quite a bit of money out of this system, and this SI seems to focus on entirely the wrong end of the problem. We have an underspend, not an overspend, problem and I should like the great minds of the Treasury to be applied to how we can hit our targets rather than constantly fretting about what, in the grand scheme of things, is a very small amount of money.

[Baroness Verma]

My Lords, I am pleased that the noble Baroness was able to follow very closely what I must admit was a very complex issue. She has raised a number of questions. I shall attempt to answer as many as I can but, if I fail to answer them all, we will write to her.

The noble Baroness must accept that this Government have been prepared to look at what is good for both consumers and the industry. That is why these reviews are important. I make no apologies for the fact that if in my own role in the department I feel that something needs to be revisited, I am very happy to do so. With these technologies being in their infancy, it is only right that we go over the issues. I am not dogmatic in my approach and would rather review a matter several times to get it right.

Perhaps the noble Baroness slightly missed the point that this Government are incredibly supportive of renewables being part of our energy mix. I have stood at the Dispatch Box on several occasions and have said that it is very important for our energy security that we have a range of energy mixes.

I shall attempt to respond to some of the questions that the noble Baroness raised. She must recognise that when we are using taxpayers’ money, we need the right balance between certainty, value for money and clarity for investment, and we need to respond to the market. We do not want to disadvantage any technology in the scheme of things, so when the noble Baroness says that we have many triggers for degression, it is also important to see that some technologies have reached a further stage of development than others. We do not want to exclude or disadvantage some of those that will have a longer lead time. Therefore, it may well be that there are a lot of triggers for a range of technologies, but I would rather be in that position at the moment than to disadvantage any technology that may need a longer lead time.

The noble Baroness asked why the number of applications was so low. I think that is an unfair comment. By and large, take-up has been relatively steady. Applications for non-domestic RHI may appear low but a greater interest is beginning to be shown. It is right that we address the issues behind the low take-up, and therefore this engagement with industry and other stakeholders is really important. I absolutely agree with the noble Baroness that that is crucial to the debate but she also asked whether degression would put investors off. I absolutely think that it will not. Adopting such measures places much greater certainty in the hands of investors. We have learnt from other schemes not to repeat those mistakes again. We have tried to put mechanisms into place that support the longer-term aim of what we are trying to deliver. Of course, we still have plenty of learning to do. There is no doubt that we have to put our hands up to the fact that we may not have got it exactly right, but at least we are going in the right direction.

16:30

[Baroness Worthington]

I do not dispute that. Having some clarity is important for investors, but these are incredibly complicated proposals. Investors are simple folk. They want a clear plan and to know how much money they will get in return. In this system quite a lot of risks are involved. They have to carry the costs of all the preparatory work before they receive their money from Ofgem and if a policy cannot be explained in a few minutes, investors will get bored and go elsewhere. That is my concern.

[Baroness Verma]

I very much take that point on board. Much of where we have reached has come from talking to industry and stakeholders, so they are part of the journey towards making these recommendations. So, point taken, but some of these things are incredibly complicated. However one tries to simplify them, they will still have a degree of complexity about them.

The noble Baroness asked why budget management was necessary. There is a degree of uncertainty about how the market will respond over time, so it is right to be prepared for unexpected changes in the uptake that may arise. The noble Baroness also raised the point that budgets are not flexible, and spending less than the allocated budget in one year does not permit that underspend to be transferred to future years. It is about balancing what we need to do—which is in line with what the Treasury expects us to do—with ensuring that, as we hope, the uptake will not lead to as big an underspend as in the past, given that we are putting in place these mechanisms to encourage better uptake.

The noble Baroness asked what will happen after 2015. The Government’s policy on this was published in February in response to the July consultation and was cleared across all government departments. It will remain open to new applicants until 2020. The spending review commencing in June will provide a chance to set the scheme’s budget beyond 2014-15. The noble Baroness asked about booking tariffs and guarantees and referred to the EPA. We do not propose to bring forward the EPA at this time, but recognise that there are arguments for introducing measures to improve certainty, even though these can be difficult to evidence. We intend to monitor the introduction of degression and other planned improvements to the scheme. We will continue to work with industry and stakeholders to improve our evidence base, then see what other options may be available to us.

The noble Baroness asked about biomass. It is true that biomass accounts for the majority of the applications and accreditations on this scheme. However, we want to see more deployment across a fuller range of technologies supported by the scheme. This is why we continually review the scope, so that—as I said before—we do not exclude some of the technologies that have longer lead-in times or are still at early development stages.

I must respond to two more questions. The noble Baroness asked why the mechanism was necessary. It has been supported by 77% of the respondents we spoke to as being the most appropriate mechanism. As I said, they are on side with us. I completely understand the complexity of it, but we need to be able to provide them with clarity and they are supportive, so I think we are in the right space. Needless to say, that does not mean there is no room for improvement.

The noble Baroness also asked why it is necessary to separate the tariffs. I touched on that. There are different technologies and different tariffs. That is important and it is to ensure that one technology does not have an undue advantage over other technologies.

The noble Baroness rightly asked questions about the complexity of the scheme; we do not underestimate that. However, I hope that the regulations debated today will ensure that RHI continues to drive forward renewable heat deployment, which is what we all want, and is the most cost-effective way of doing so for the taxpayer. I have taken on board many of the points made by the noble Baroness; I shall read Hansard carefully to see whether there are any that I have missed. None the less, I hope that I have her support in commending the regulations to the Committee.

[Baroness Worthington]

My Lords, I thank the Minister for her responses. I am very impressed. I asked a lot of questions and I think she covered most of them, although there are a few outstanding, particularly on liquid biofuels and associated things. However, she acknowledged the complexity of the main matter before us and argued the need to provide certainty around the technologies. That is fine in the early stages but at some point we have to start backing winners. The targets that have been set for us are challenging. There is only so long that you can flog a dead horse. There are some technologies which, for whatever reason it may be—be it non-market barriers or there being no appetite for them—you just cannot get deployed, whereas there are others which seem to hit a sweet spot, where there are lots of reasons why people like them and, suddenly, off they go. Those are the things that you can build a business around. They can give you great potential for investment and, one hopes, lead to exports. It is great that we are trying to nurture as many technologies as possible, but that cannot be the case for ever. These reviews are important but, please, let us not have too many of them. A good, solid review after a certain time is the right way forward. Let us try to get back on track.

Perhaps the Minister could write to me on how we are doing in terms of our trajectory. I worry that, while we have this very slow start, we will have to go into a very steep curve to reach that 12% target and that discussions with the Treasury will become ever more difficult. If the Minister could let us know how we are doing, that would be great.

Motion agreed.