Lord Roper
Main Page: Lord Roper (Liberal Democrat - Life peer)
Lord Grantchester
My Lords, Amendment 55ALE would implement the recommendations of your Lordships’ Delegated Powers Committee. Noble Lords will forgive the slight sense of déjà vu with which we return to this subject but, as the Delegated Powers Committee highlighted, the scale and nature of the extensive powers this Bill affords to the Secretary of State are vast. That these powers are subject to annulment only and could require no parliamentary approval seems completely inappropriate in the most part. This amendment also extends the provision for parliamentary approval to the CFD counterparty as well as enforcement provisions and the oversight of consultations. When commenting on this section of the Bill, the Delegated Powers Committee notes that much of the provision for investment contracts mirror those that will implement the CFDs in Schedule 2. Therefore its recommendation is the same.
Paragraph 14 of the sixth report states:
“We re-iterate in the context of Schedule 2 the view we expressed in the final two sentences of paragraph 4 above about the importance of draft regulations being made available to the House in sufficient time before it embarks on the report stage of the Bill”.
Paragraph 15 states:
“We also consider that any regulations made under Part 2 of Schedule 2 should require the affirmative procedure, with the exception of those which make provision falling within paragraph 10 or 11, which should require the affirmative procedure on first exercise”.
Without repeating remarks made in Committee previously, it is clear that this is not an appropriate way to legislate. We are now on the final day in Committee on this Bill, which has already been passed in another place, and we still lack most of the detail to enable us to understand how the new landscape will work in practice. Parliament is being asked to approve little more than a framework for legislation that should guide investment in the energy market for many decades to come. I sense that the Government are keen to heed the advice of the Committee, and therefore ask the Minister to ensure that draft regulations, in particular for Part 2, are published in good time for this House to analyse them ahead of Report when we return after the Recess. I beg to move.
Lord Roper
My Lords, I support the noble Lord, Lord Grantchester, on this amendment. I believe that we have a responsibility on behalf of the House to follow the report of our Delegated Powers Committee. Although I was in some ways disappointed, in other ways I was relieved when I saw in the Forthcoming Business published this morning that we will not be reaching Report stage in the first three weeks after the Recess. That will give the Government time to have these regulations published and for the House to examine them carefully. I was worried that we would get them just before we came back without a proper opportunity for discussion. I would be very grateful to have reassurance from the Minister that the regulations will be available in good time for Report.
Baroness Verma
My Lords, I thank the noble Lord, Lord Grantchester, for his amendment which would implement the recommendations of the Delegated Powers and Regulatory Reform Committee. It would require that all regulations made using the powers in Schedule 2 should be made using the affirmative procedure, apart from regulations made under paragraphs 10 and 11 on the provision of information and advice. These would need to be made using the affirmative procedure the first time such regulations are made.
I welcome the Committee’s scrutiny of the Energy Bill. As I have previously mentioned, the Government are carefully considering the recommendations of the Delegated Powers Committee’s reports and will respond in due course. I reassure the Committee that throughout the Summer Recess, Ministers and officials will be working very hard to try to provide as much information on the regulations as soon as we can. We intend to consult from October on the detailed implementation of the EMR, which will give noble Lords an opportunity to scrutinise the detail ahead of Report. Further details of our plans for secondary legislation can be found in the memorandum we recently sent to the Delegated Powers and Regulatory Reform Committee. I hope that with this reassurance that we will be working extremely hard to try to satisfy not only him but the Members of the Committee the noble Lord will withdraw his amendment.
Lord Roper
“Domestic microhydro power
(1) Domestically based microhydro power shall be exempt from non-domestic rates.
(2) For the purposes of the section “domestically based microhydro power” is a single plant located within the curtelege of an owner or owner’s residential property with a plant capacity of up to and including 1250 kW.”
Lord Roper
My Lords, this amendment was originally tabled by the noble Lord, Lord Cameron, who very much regrets that he cannot be here today, and therefore I shall speak to it. He asked me first of all to make it clear that he is not personally involved in any microhydro scheme although in the west country where he comes from, and elsewhere in our countryside, a growing number of families and individuals are trying to make the best use of our many rivers, old mill leats and mill houses to create small amounts of renewable power both for themselves and their communities. Therefore, it seems odd that one part of government, DECC, should arrange a subsidy to encourage such investment through feed-in tariffs and ROCs, while another part of government, the Treasury, through the Valuation Office Agency, seeks to remove part of that subsidy.
The noble Lord, Lord Cameron, has set out nine reasons why microhydro should not be assessed for business rates and, with the Committee’s indulgence, I shall quickly go through them. Domestic hydro sites may be located on rivers that are able to provide much more power than the owners require for their own consumption. It is obviously in the interests of the nation that domestic owners be encouraged to generate as much power as their sites are able to provide and consume as little of their output as necessary, otherwise the potential benefit of their hydro plants’ contribution to the grid and the community as a whole is diminished.
Domestic owners do not want the complication of their residential property being designated as a business. There is already clear evidence of gaming around the capacity bands chosen for the feed-in tariff, and some owner-operators will perhaps downsize the scale of their investment to avoid non-domestic rates being levied, which, again, cannot be in the interest of the nation as a whole.
The Valuation Office Agency’s rating models have not been designed to accommodate domestic hydro plants, where there is no landlord, no tenant and no market rents to test the validity of the office’s assumptions. Indeed, its rating model and the DCLG legislation on non-domestic rates are insensitive to yearly variations in the weather. For example, the output from the run-of-river site may vary by more than 40% from one year to the next, depending on rainfall. There are no operating costs that an owner-occupier can cut to offset the consequential losses in revenue.
A site’s revenue will be reflected in the income of the owner and taxed accordingly, taking into account capital allowances for this very long-term investment. The approach of the Valuation Office Agency to calculating rateable value does not allow for the repayment of loans or the cost of borrowing and assumes that funding will be through equity, which, in the view of the noble Lord, Lord Cameron, is a ridiculous assumption for domestic microhydro. Non-domestic rates have been applied retrospectively, creating havoc and uncertainty for a number of domestic-scale financing plans. Indeed, according to evidence supplied by DECC, no allowance was made for non-domestic rates when the state subsidies were originally established.
A further example of the inflexibility of non-domestic rates means that when the subsidy ends, the drastic reduction in revenue—a reduction of 40% in the case of the renewables obligation and 75% for the feed-in tariff—will not be acknowledged or included in the calculations for rateable value until the five-yearly antecedent valuation date arrives. It will then be another two years before the adjusted rateable value comes into operation. Clearly, these two systems are incompatible. It is also worth pointing out that no other domestic renewables, for example photovoltaic solar panels, are charged business rates on the amount of power they export. This is a strange anomaly, and the noble Lord, Lord Cameron, was right to bring an amendment in these terms to the Committee. I look forward to hearing the response of my noble friend the Minister.
The Lord Bishop of Chester
My Lords, I very much support the amendment. This may well be the last time I speak in this Committee and I thank the Minister for the way in which she has conducted herself and for writing to me with answers to some previous questions that I raised.
In addition to the reasons which have been so clearly enunciated, I would like to inject into the discussion the issue of culture, because much of what we are about in energy policy in this country is working on a change of culture. It has become a fashionable word. The Second Reading of the Financial Services Bill was all about changing the culture of banking and financial services, and that is absolutely right. However, the same applies in the energy realm. The sort of installations that we are talking about are relatively small in themselves but speak more widely.
I will digress very slightly to a non-domestic instance. In Chester in the 1920s, the tram system was powered by a small hydroelectric plant on the River Dee. The University of Chester, where I am president of the council, is in the process of bringing that hydroelectric plant back into operation, partly to satisfy its obligations to HEFCE vis-à-vis its green credentials but also as a very reasonable project in itself. It will have a cultural impact in Chester quite beyond the actual electricity component of the project, and I think that the same will apply in the circumstances we are discussing.
There is something about hydroelectric power that goes with the grain of the countryside and nature rather better than windmills and some of the other things we are doing. We should do more to encourage local use of natural resources. If the projections about future rainfall are right, there will be even more rain flowing into our rivers to power these microhydro projects. Although I cannot comment on the precise terms of the amendment, it seems to me that the spirit of it is absolutely right at the present time.
Baroness Verma
My Lords, I am extremely grateful to my noble friend Lord Roper for moving the amendment on behalf of the noble Lord, Lord Cameron. I hope that I can address the points made by my noble friend and other noble Lords and assure him that the practice adopted for the assessment of these projects for non-domestic rates is fair and consistent.
Non-domestic rates, otherwise known as business rates, are a tax on properties that are not domestic and capable of beneficial occupation. Most onshore renewable generating power stations, such as hydro or wind plants, are non-domestic properties and, therefore, liable for business rates. The amendment would give a tax break from business rates for hydro plants with a capacity of 1.25 megawatts or less, provided they were on the operator’s domestic premises. It would mean that two otherwise similar plants would be treated differently for tax purposes merely because one was located next to the owner’s house. I do not think that that would be a fair outcome for this sector.
The amendment raises some good questions about when plants at domestic properties should be assessed for business rates. I hope that on that point I can offer the noble Lord some assurances that the business rates system operates fairly. The rating list is maintained by the Valuation Office Agency, which is responsible for deciding when an installation should be assessed for business rates and for assessing its rateable value. In this regard, the Valuation Office Agency acts independently of Ministers, and we cannot therefore intervene in its decisions. However, we are aware that during 2010-11 the VOA undertook a review of hydro projects to ensure that all facilities that should be considered non-domestic were assessed for business rates. In some cases, these installations were located in the grounds of what would otherwise have been domestic premises. Where a hydro facility is considered to be domestic—for example all installations under 10 kilowatts—it is included in the council tax assessment of the house. Larger installations may also be considered domestic if the output of the plant is being used to provide power to the living accommodation. However, other projects where the output is being sold to the grid are assessed separately for business rates. This means that the smallest domestic hydro projects, which in the main are used only to provide power to the owner’s home, are not caught by the business rates system. Only those larger projects, where more power is exported and sold to the grid, are assessed for business rates.
In the evaluation of larger hydro projects, I can assure my noble friend that the Valuation Office Agency’s model has been adopted specifically to deal with the lack of direct rental evidence. Renewable energy plants, such as wind farms, hydro schemes, PV installations and anaerobic digesters, are assessed using a receipts and expenditure method of valuation. This is because the value of such properties is very closely related to their trading position and their ability to make profits. The costs of generating power at an electricity generator and the earnings from the sale of that power are tangible evidence of assumed rental value. The model is also based on a fair and maintainable forward projection of output averaged over a number of years, and the figures used are derived from actual outputs received from occupiers. Additionally, a ceiling level of output equivalent to a 40% load factor has been applied to the model, even though some schemes generate at well in excess of this level. The model also allows for borrowing costs and is consistent with the general application of receipts and expenditure valuations. I hope that the noble Lord agrees that this is a fair approach to drawing the line for this tax and that it ensures consistency across the sector.
I should also point out that more than 500,000 businesses in England benefit from the small business rate relief scheme, and about a third of a million of them pay no rates at all. We anticipate that many domestically based hydro schemes will benefit from the small business rate relief scheme, provided the owner does not operate any other non-domestic premises. We have also given authorities powers to provide their own discounts, which they can use to provide further support for hydro projects. Should they do so, central government would meet 50% of the costs. In addition, the Government’s feed-in tariff scheme supports the deployment of hydro, and as the noble Lord will recall from earlier in our proceedings, we are planning to extend the scheme to 10 megawatts for community projects.
I hope that I have assured my noble friend that the non-domestic rating system is built on a reasonable set of rules, which decide fairly which projects should be assessed for business rates, and that we have taken steps to cut bills for small businesses. In the light of that, I hope that he will withdraw his amendment.
Lord Roper
My Lords, I am grateful to all noble Lords who have taken part in this short debate. I was particularly interested by the intervention of the right reverend Prelate. The role of communities in developing microgeneration, although slightly different from the case of houses, is quite important, and we have seen a number of other useful examples of this. I believe that it is a way of making an important contribution to renewables that does not necessarily have too many disagreeable environmental impacts, in spite of what the noble Lord, Lord Whitty, said in his intervention. From the points that he made, I now understand that this is an area where some more unintended consequences may occur; the impact on anglers and others was something to which I had not previously given full consideration.
I am also grateful to my noble friend the Minister for her full and detailed response, in which she explained the context of the non-domestic rating of microhydro. The noble Lord, Lord Cameron, will want to read the Minister’s reply. Although I wish to withdraw the amendment at this stage, he may wish to return to the issue on Report. I beg leave to withdraw the amendment.
Lord Roper
My Lords, I made a brief reference to voltage optimisation earlier in the Grand Committee’s proceedings. I referred to the very useful lunch organised by the noble Baroness, Lady Worthington, where a number of us were able to learn from members of the trade association what was being done. In the rather steep learning curve on the topic of energy that I have experienced over the last 12 months, that was one of the high points, given that not only has the UK been a pioneer with this technology, but it is very effective, both at the level of the large consumer and, in other ways, at that of social housing.
I will make one suggestion to the Minister, if I may. We discussed earlier the situation laid down in Clause 37 of a pilot scheme or schemes for electricity demand reduction and the possibility of the Government setting up or examining pilot schemes to see what could be done. It seems to me that voltage optimisation is one of the areas that could come under what we have already considered in Clause 37. I would be interested to know whether the Minister feels that there is any chance of considering it within that framework.
Lord Deben
My Lords, I am sorry not to have been able to be here earlier. I declare an interest, given that in the past I have assisted firms of this kind to try to get a wider application of their equipment. There are certain drawbacks with this, but what I find so interesting is that it is a particularly British problem. It is simply because we have gone along with a voltage that is out of line with that of other people. Given that everybody manufactures to a voltage that is common elsewhere, we have something that is less than optimal. That is all. If the system is less than optimal we waste significant amounts of energy and our equipment works less sensibly and wears out more quickly.
I do not to repeat what the Committee is perfectly well aware of but simply to say that this is another example of how much can be done in very simple and small ways, which all add up. One of the things that worries me about governments of all kinds—this is not a comment about the present or the previous Government—is that small things that add up do not get the same attention as big things that very often do not add up at all. There seems to be a kind of desire to do things people will take note of, rather than understand how much there is which, if we add it up, makes a huge difference.
I do not want to go over it all, but I am sure that there has been a significant saving of energy simply because kettles now show you how much water has been put in, so that you know what you need for a cup of tea and do not put in too much. All those simple mechanisms actually make a difference. The trouble is that people tend to laugh at them, because in themselves each one does not matter. If we had voltage optimisation as a built-in feature of every new home, for example, and if it was automatically offered in every circumstance, we would save a significant amount of energy.
I therefore hope my noble friend will be able to say that her department will concentrate on the small things that add up but which will not get headlines in the Guardian. That is the fact. Let us see if we can do some of that because it would certainly make a big difference to meeting our energy demands.