Lord Stephen
Main Page: Lord Stephen (Liberal Democrat - Life peer)
Lord Stephen
Lord Stephen
My Lords, in moving Amendment 55AK, I wish to speak also to Amendment 55AL, both of which stand in my name and that of the noble Baroness, Lady Worthington. In doing so, I refer to my entry in the Register of Interests.
This matter follows on from the discussion we have just had involving the noble Lord, Lord Whitty, who raised important issues to do with the transition from the renewables obligation to contracts for difference. It is not an understatement to say that there is huge concern in certain sections of the renewables industry about this issue. Those sections of the renewables industry are important as they will be relied on to deliver the very major increase in renewables generation that the Government are hoping to see by 2020, given the £110 billion of new investment and the huge increase in renewables capacity. For example, the latest renewables statistics talk about offshore renewables generation rising from 3 gigawatts today to 18 gigawatts in 2020. That is 15 gigawatts more in a difficult offshore environment. Taking early final investment decisions will be crucial to the construction and commissioning of that generation. The onshore figure of 6 gigawatts today, which is double that of offshore, rises to 13 gigawatts by 2020, which, again, is a very major increase.
One of the purposes of tabling these amendments is to help the Government to deliver their policy in this area given that they are clear that they want to deliver this increase in generation and want to provide certainty. Indeed, they have made helpful and supportive statements on these issues. Timing is very important here as regards secondary legislation. It was encouraging to hear the Minister talk about the consultation document that has just been published. However, that consultation will take time and then further time will be taken in making decisions. It is intended that these decisions will be implemented not through primary legislation but through secondary legislation. Because of that, and the uncertainty over the state aid issue, it will take some significant and powerful signals from the Government to ensure that the final investment decisions which are so crucial to achieving these targets are kept on track. That is the background to the matter. We must ensure that this transition from the renewables obligation to contracts for difference is as smooth as possible. I think many of us here would rather that it had all happened two, three or even more years ago so that it did not happen at exactly the same time as this huge growth in offshore renewables. However, we must make the best of the situation and do everything in our power to achieve these targets.
For projects accredited under the outgoing renewables obligation, there is uncertainty as to what will happen after 2027, when Ofgem will stop issuing ROCs. The Government have said that projects will see a “grandfathered transition” to a fixed price regime through to 2037, when all ROCs will finish. However, it is uncertain from the Bill whether all projects will be eligible for the new fixed price instrument, and whether the value will be equivalent to standard ROC payments. This leaves uncertainty regarding the value of existing RO projects and threatens the investment decisions being made presently. It is critical to the investors to whom I have referred, who are making decisions now or soon, that the policy intention to provide grandfathering is reflected in the Bill rather than in secondary legislation. It would be interesting to hear the Minister’s views on this point, but it may be as long as two years before there is clarity and certainty if the secondary legislation route is adopted.
My amendments to Clause 46 therefore aim to create the certainty required in regard to the entitlement and the value of certificates. My first amendment would set within the Bill the Government’s policy aim to give generators certainty over the incentive they receive. It aims to ensure that when making a certificate purchase order, the Secretary of State is guided by the principle of equivalence between the regimes, thereby providing continuity and certainty to generators by replicating the accreditation status and the banding arrangements of the RO.
My second amendment would remove subsection (8) from proposed new Section 32V. You have to turn quite a few pages from the beginning of Clause 46, but you only need to start reading that subsection on page 40 to see why it might start to strike fear into the hearts of investors because it authorises the Secretary of State to,
“review the banding provision at such intervals as are specified in or determined in accordance with the order, and … may authorise the Secretary of State to review the whole or any part of the banding provision at any time when the Secretary of State is satisfied that one or more of the specified conditions is satisfied”.
In other words, it gives wide discretion to the Secretary of State to change bandings and rates in a way which would make investors think of Spain rather than the United Kingdom. We want to remove that wording and find a way—the Government may have another way than the one I am suggesting today—of allowing investors to have confidence to do their internal rate of return calculations and to get clarity on the value they are creating by investing in projects over the next couple of years. That is it. It is as simple as that. It would risk current investment in technologies if developers were unable to have confidence that the rate of return and the rate of support they would get during the lifetime of the scheme could be relied upon.
These changes will ensure that we can continue to drive investment in renewables through the transition scheme to 2020, minimising any hiatus in investment before the contracts for difference regime is fully up and running. I beg to move.
Baroness Worthington
My Lords, I am grateful to the noble Lord, Lord Stephen, for tabling the amendments, to which I have added my name. We fully support them. As we have said previously, this Bill is a significant intervention and we need to ensure, where we can, a smooth transition from existing policies which have served us relatively well as we make the move into an unknown system. The amendments of the noble Lord, Lord Stephen, are designed to achieve that.
In this context, it is imperative that we do not breach the trust of the industry and the investors who put their money into projects by misinterpreting the term “grandfathering”, which is a clearly understood phrase. It means that if you invest in good faith, there will not be regulatory interventions to change the fundamental tenets of that investment. Unfortunately, the provisions in this section stretch the definition of grandfathering to breaking point.
We particularly support Amendment 55AL. As has been eloquently expressed, the words in the subsection will certainly strike terror into the hearts of investors. They are far too broad and enable changes to the fundamental facts on which an investment was based. It will damage investor confidence not only in relation to that one narrow aspect but more globally. We are asking many investors, entrepreneurial companies and the existing market players to work with this new system. I think that it can work, but if we start on the basis of regulatory uncertainty and not recognising and respecting grandfathering, we will start off on a very poor foot indeed. I think that I am right to say, although it may not have been directly in this context, that I have heard arguments played back by Ministers that have said that we cannot introduce emissions performance standards on to existing coal plant, because that would damage investor confidence. It would mean that people saw us as an unreliable place to invest. This aspect is actually far riskier than that, and I hope that the Minister can give us words of encouragement in relation to these two amendments, which are essential to get us off on the right foot with the Bill.
Lord Stephen
I very much welcome the words of my noble friend at the end of his remarks. They were most encouraging and I am sure will be welcomed by the industry. I hope that what he said about retaining the discretion to make changes can be further clarified in due course because the way that he explained it, as my noble friend Lord Teverson pointed out, could continue the fear in the hearts of the industry.
Surely the discretion to change must be about new schemes or future projects—for example, changes to the feed-in tariff related to new schemes; changes to the renewables obligation going from one ROC to 0.9 ROC were about new projects that would be commissioned after a particular date. Just to be clear, we are talking here about projects that will have been invested in, commissioned and generating before 2017. It must all happen before March 2017, unless such projects at the margin are eligible for the discretionary arrangements to which the noble Baroness referred.
That is the strong clarification that I would like to receive in terms of why this discretion is necessary. If I do not get that changed, I will continue to make the analogy with Spain, which was where the panic was created—and not just there but globally throughout the renewables sector. If any Government said, “We are committed to renewables but, by the way, this project that you invested in last year, where you committed funding and had bank commitments in place, is now going to be subject to a change in government support”, that is very bad news. If that were a possibility in terms of the grandfathering rights, they would not be grandfathering rights at all. It is as simple as that. However, on the basis of the strong reassurances that I received from the Minister at the end of his remarks, which I very much welcome, I am prepared to beg leave to withdraw the amendment.