Renewable Heat Incentive (Amendment to the Energy Act 2008) Regulations 2011

Baroness Smith of Basildon Excerpts

Tuesday 12th July 2011 Grand Committee

[The Duke of Montrose]

My Lords, after the description given by the Minister I almost think that I need to declare an interest, if for no other reason than that I have a livestock production business. I thought that the present measures were largely to do with commercial production. I also have a small restaurant which, as he said, is possibly in line for a renewable heat incentive grant.

I was reassured by what the Minister said about peat. When I saw that peat was mentioned in the second instrument, I thought that the Government were going to bring it into the definition of biomass. However, it is excluded, which fits in with the other measures that people have taken regarding peat.

Noble Lords will be aware that renewable energy was the subject of a statutory instrument early on in the sequence of devolution legislation for Scotland. The term at that point largely meant wind, solar and marine energy. The Minister described all the other forms of renewable energy that this measure covers. One can presume only that we are now into a further application of renewable energy. Taking the definition used of necessity, renewable heat is now part of the devolution arrangements. All the production systems benefit from financial subsidy. I hope that the Minister will confirm that renewable heat will also receive incentives from Her Majesty's Treasury, even when it is north of the border. This will be a great help to the Scottish Administration's ambition to replace all their atomic power generation with renewable energy sources.

Further to that, and in parallel with the regulation that brings the construction of plants and facilities for coal production within the powers of the planning regulations of the Scottish Government, even though coal is not a devolved matter, I presume that the construction and provision of plant for the production of renewable heat will be subject to Scottish control, even though the measures in the Bill are retained within the United Kingdom.

[Baroness Smith of Basildon]

My Lords, I was relieved when the Minister came into the Room. Noble Lords of my age may recall a private detective on television called Eddie Shoestring, played by Trevor Eve. Just before he retreated to his programme, he slunk into his chair just in time. I congratulate the Minister on slinking into his chair just in time, given that we have some interesting business for his department before us today. I see that nobody remembers Eddie Shoestring except me.

I was encouraged by the Minister’s enthusiasm for these regulations. We share that support. I will raise three issues of which I have already given him notice. I have some questions and queries on which he may be able to satisfy me. First, on cost control, the Minister mentioned the level of budget. That is subdivided over four years: namely, £56 million in 2011-12, the first year, of which £15 million is, I understand, through renewable premium payments; then £133 million; then £251 million, rising to £424 million in the fourth and final year of 2014-15. Given that the renewable heat incentive is the policy to deliver 12 per cent of heat in the UK being renewable by 2010, will the Minister give an assurance that he considers that this budget is adequate to meet the target?

My main point is the lack of flexibility between those years. Am I correct in thinking that any money unspent or unallocated in one year cannot be rolled over into the next year but will be lost to the programme? It is quite a tall order, particularly for a programme of this kind, for any department to hit the exact budget year on year. Do the Government intend to install some kind of capped grant scheme with all the stop-go inability that that brings with it to plan ahead for a growing industry which the RHI was trying to avoid in the first place?

My worry is that not allowing some flexibility between the years will increase the difficulty of implementing a cost-control mechanism for the programme. It also creates considerable pressures regarding the accuracy of DECC’s modelling of the programme. We have seen already how the modelling on feed-in tariffs was said not to be accurate, and the same could occur in relation to this order. My biggest worry is that it would undermine industry confidence in the scheme. I have two requests for the Minister. First, will he consider allowing full flexibility between the years, although I appreciate that he may not get Treasury support in that? Or perhaps he could allow flexibility in terms of a percentage by which the budget has been underspent or overspent in one year. The budget could vary from year to year while keeping to the overall four-year budget.

Secondly, will he look at amalgamating the budget for the first two years into a single spending period? There is a strong case for that. When the CSR was published in October 2010, the renewable heat incentive was intended to start in June 2011. That start date has already slipped three months. It would be helpful if, alongside the Treasury, DECC could look again at how that money has been allocated between the financial years. The renewable heat premium payments that I mentioned—the interim payments keeping things going until the RHI is in place—are also included in that year one budget. So we can take out £15 million from that £56 million.

An announcement on that was due in May, which we still have not had, so there is less time available to spend the money. In his opening comments the Minister confirmed that the scheme will not start until 30 September—so it will not be for 12 months, but for six. Payments are made quarterly in arrears, which means that only projects that have been accredited by Ofgem by Christmas 2011 will be paid out of the year one budget—so we are now down to three months of the year one budget.

In addition, on a point that might not be quite so serious, and given that it will be the first application, where an application for accreditation to Ofgem does not have all the required information and has to go back again, the start date for the project will be the day on which the further details, not the initial details, were submitted. Projects of any complexity may not complete the process in time even if their first application is made before the end of December. If there is any minor error or mistake or information is left out, it will have to go through again. I think that the Minister will appreciate the problem and agree that that is not an unreasonable request if the scheme is to succeed and achieve its objectives. I have given the Minister notice but, if he wants to consider it further, I would be more than happy for him to come back to me in writing, rather than to rule it out now.

On a further matter, if I understand this issue correctly, the restriction is that the eligible waste is municipal waste only. Page 35 of the March 2011 policy document refers to using municipal waste, but it does not explain why it does not include commercial or industrial waste. I am aware of the balances between higher biomass—I am talking about waste with a biomass content of between 50 per cent and 89 per cent—but can he give me a reason for that exclusion? It would be helpful because Regulation 28(9) states:

“The participant may not generate heat using solid biomass contained in any waste other than municipal waste”.

--- Later in debate ---

[Lord Marland]

That is a debate for later. I think that the noble Duke roughly knew the direction of travel that I was coming from. However, we were interested to hear about his great estates and restaurant business. When I am up in that part of Scotland, I may pop in to sample the fare. The restaurant probably serves his beef. That would be excellent. We know that he is not involved in the peat business because he was very pleased that peat was excluded. I confirm that and thank him, as always, for his contribution.

I say to the noble Baroness, Lady Smith of Basildon, who described me as slinky, that it takes one to know one. As I have admired her slinky movements round the House, I am delighted to see that she is no longer impeded by having a foot in plaster and has her dancing shoes well and truly on. I thank her for giving me advance warning of some of her questions and for the great support on this subject. That is not surprising as the renewal heat incentive was kick-started by the previous Government and we are happy to take action on it.

The noble Baroness makes a very good point about the budget. She knows as well as I do that dealing with the Treasury is not always the easiest thing on earth. I am grateful to the noble Lord, Lord Teverson, for congratulating us on getting the money from the Treasury. We cannot push our luck too far with the Treasury, but I totally understand where the noble Baroness is coming from. Despite the fact that each year is a cut-off point, people who started after 1 July 2009 will now be able to apply for RHI—we are going back further. There is effectively a six-month period when we can backdate RHI into another financial year, provided that the relevant person has completed his accreditation. It may well have taken five or six months to process but we can backdate the funding to the date of accreditation which, of course, may go back to a previous year. I hope that that gives the noble Baroness hope that there is an element of flexibility, although not perhaps as much as she would like. Reluctantly, I occasionally have to say no to her—I know that she is not used to it—but that is as far as we can go. I wipe the sweat off my brow in relief at not having to go back and challenge the Treasury again on this difficult subject.

[Baroness Smith of Basildon]

I am sorry to interrupt but I seek clarification. My understanding is that it is the point at which all the information is submitted and accepted—if there were mistakes, it would have had to be resubmitted—that is the date of acceptance. Is the noble Lord now telling me that that is not the case and that the provision would be backdated to when a person first applied?

[Lord Marland]

No, I am merely saying that it can be backdated. Obviously, it may take time to process a person’s accreditation, and that accreditation may go into a subsequent year. If you complete your accreditation, and then it takes a while to process it, the backdating could go back to the year when the accreditation was first accepted.

I am, as always, happy to pick up comments later but I wish to move on to the subject of waste. We are slightly in the hands of Defra as regards its definition of “waste”. I am glad to say that Defra has recently extended the definition of “waste” to include a number of other types of waste. As was said earlier, the RHI supports some commercial waste. There are doubtless one or two that it does not but we have instructed Ofgem to look at this and to provide a pragmatic solution as regards other waste. Ofgem will be the arbiter of that. I hope that through this process we will embrace as much as possible because, after all, that is our intention. It is not our intention to exclude waste, it is our intention to make it available to as many as possible, and this is a clear way of doing that.

The noble Baroness mentioned Regulation 3(2). I confirm that it is not our intention to exclude chemical plants. The intention is to show that we will not support RHI for open-sided warehouses and similar locations, where it is like trying to heat fresh air. Again, we have instructed Ofgem to clarify this issue through the process. We hope that as we proceed, with further advice from the noble Baroness and her team, in the spirit of co-operation we will come up with a good proposal for the RHI. It is an excellent endeavour started by the previous Government, which we have happily brought into legislation. I therefore commend these regulations to the Committee.

Motion agreed.