Renewable Heat Incentive Scheme Regulations 2011

Lord Grantchester Excerpts

Tuesday 22nd November 2011 Grand Committee

[Lord Grantchester]

I thank the noble Baroness for her exposition and welcome her to her new role in the department. I apologise to the committee for my cold, and hope and trust that my splutterings will not make some of my remarks incoherent.

The Minister is correct that this is essentially a replay of the regulations debated in July, with two key alterations. While we will get to these in a moment, I also think it worth while to state at the outset that the Opposition continue in our broad support for the renewable heat incentive, continuing as it does the groundbreaking nature of the scheme set up in the previous Labour Administration. However, there have been delays of over a year, a dissipation of momentum and a reduction in ambition, with the two-tier introduction for businesses and households and changes to the technologies and tariffs eligible under the scheme. While adjustments must be made as there is a certain amount of learning on the job with such a new scheme, it is nevertheless important to provide continuity and schemes if investor confidence is to be maintained—a point sadly lacking regarding solar power and the feed-in tariff scheme, whereby the rate of return was cut from 12 per cent to 6 per cent at a stroke.

On that point, I shall ask the Minister the first of my queries today. Of the two changes made to the July regulations, the first involves a reduction in the tariff for large-scale biomass installations of more than 1 megawatt from 2.7 pence per kilowatt hour to 1.1 pence per kilowatt hour. This is a huge reduction, made in response to the European Commission, which judged that the tariff was too high and might lead to overcompensation for some installations in the technology band which would threaten the EU internal market level playing field. The Minister in the other place stated that this came as a considerable surprise to the department’s officials—as a bolt from the blue. Given that the subsidy has as one of its three main aims the payment of a rate of return of upfront investment of 12 per cent, where does that leave the return on a large biomass? Surely it is no longer 12 per cent. Is that 12 per cent return a level playing field across Europe, except of course solar, as stated earlier? How could the department have got it so wrong? Given that the department is in constant contact with stakeholders, can the Minister give the Committee an assessment from those conversations of the impact of this change? What effect will this have on our renewable targets?

That last question leads to some general remarks to which I hope that the Minister may be able to respond. At present, I understand that the current level of renewable heat is at 1.5 per cent; this instrument aims to increase it to 12 per cent by 2020. This is, indeed, some dramatic increase, more than has been experienced elsewhere in Europe. It demands leadership and commitment from the Government, not meddling and tinkering. Can the Minister confirm that the target will be met and that budgetary constraints do not overrule the 12 per cent rate of return policy?

In annex 1 to the memorandum, the department laid out the post-implementation review plan, which is scheduled to start in January 2014. The annex lists seven criteria to which the review will have regard when considering changes. My honourable colleague, Luciana Berger, MP for Liverpool, Wavertree, asked yesterday what criteria would trigger an early review. Is it satisfactory that the Minister in the other place responded that the answer would be provided in phase 2? Surely that needs to be stated with certainty upfront to investors if they are to have confidence that schemes will not be changed out of the blue. When affordability within the Government’s overall deficit reduction plans is stated in the annex as one of the criteria to which a review must have regard, is it not that the scheme will be under constant review? Could there be an addition of a further two criteria to this list—that the Government will have regard to, first, the employment impact and effect on growth of the industry impacted by any changes and, secondly, the effect on investors’ confidence when considering any changes brought about in consideration of other criteria? Does the Minister agree that good governance requires consistency of approach and responsible lead-in times to scheme changes?

The renewables sector is being challenged ever more critically in these times to have regard to value-for-money concerns, environmental impacts, sustainability, carbon emissions and so on. For example, there is no precondition that buildings or equipment be made energy-efficient first. Given that the Energy Bill has been enacted, could the Minister give the Committee any information on whether the review will be informed on the implementation from energy efficiency measures and what outcomes could be achieved?

It is applauded that the funding for this renewable heat-incentive scheme is to come through general taxation, which avoids the impact on consumers through increased prices, generally has regressive impacts on fuel policy and creates a better balance between energy use, climate change targets and emission reduction targets. It complements the commitment to promote the huge increase in the amount of energy that could be produced from food waste through anaerobic digestion. If this is to be the case regarding renewable heat, why could the same funding approach not also apply to feed-in tariffs, which were drastically curtailed because of the contribution that it required from consumers? Would general taxation not better match the big ambitions for the green sector?

While the concerns that I have outlined show that we wish to see improvements and an increase in momentum, I agree to the approval of the regulations.

--- Later in debate ---

[Baroness Stowell of Beeston]

I understand the point that the noble Baroness makes. However, the way in which we have constructed the scheme means that I would not expect the sort of change that we have experienced with the feed-in tariffs for solar PVs to be repeated in this context. We would ensure, through our mechanisms for cost control within the department, that we are monitoring progress very transparently and that we would avoid that kind of emergency change that she refers to. It is unnecessary to give a specific commitment on a timetable as such because of what I have said, but I absolutely understand and appreciate her point.

Turning to the points raised by my noble friend the Duke of Montrose about large-scale biomass, the renewables obligation certificates and RHI, it is possible for new projects to receive the renewables obligation for the electricity generated in a CHP plant and the RHI for heat generated by that plant. A plant cannot claim the higher awards for CHP under the RO and the RHI. Does that make sense to my noble friend? I am glad if it does. My noble friend also asked whether the Scottish Government could award ROCs. The decisions regarding the details of renewables obligations, including the setting of banding levels, are for the Scottish Government. A separate consultation on their support of renewables obligation certificates was published on 21 October.

[Lord Grantchester]

Perhaps I might detain the Committee for one extra moment. Could the noble Baroness consider the question of affordability? While understanding the situation that we are in—especially in the wider European context at the moment—nevertheless, I am concerned that affordability is put up as a criterion that may overrule all other aspects. Could she comment on the relative importance of affordability and say whether her department is moving in any way at all to pick winners and losers? Winners such as PV might provide more affordable success stories than other technologies that might, in terms of their overall rate of return, be worthy of being equally treated. Nevertheless, because of the extra costs involved in their technologies, they are unlikely to be as affordable as others. Can she comment more widely on the affordability criteria in the memorandum?