Fuel: Electricity Supply Licences

Lord Teverson Excerpts

Thursday 14th July 2011 Lords Chamber

[Lord Spicer]

My Lords, I had not meant to intervene in this debate. In fact, I am breaking the habit of the past 25 years, since I was the Minister responsible for taking the Electricity Bill through Parliament. I also declare an interest as president of the Association of Electricity Producers.

I just want to enter two notes of caution about what has been said. Of course, renewables and solar are a good thing—nobody doubts that—but they are also expensive, as has been admitted by the noble Lord, Lord Whitty. They also require, certainly when talking about wind power, heavy extra capacity. Therefore, on capacity grounds and on price grounds above all, whatever we say about renewables—I hope that we will say positive things—we have to be realistic. One thing that worries me about the present situation is that we set targets that turn out to be unrealistic. Oil power and carbon-related fuels will be necessary. We will have to have either carbon-free coal or oil-fired power stations to a very great extent in the future. We had better recognise that, otherwise we will be another £200 billion behind in investment.

[Lord Teverson]

My Lords, as I have said on other occasions, I am pleased about the way in which DECC has managed to negotiate very positively with the Treasury over its budget, even in the areas of private taxation that are reflected in private energy Bills, and how the overall programme for renewables has started to move ahead. I also sympathise in many ways with the Government’s priority to make sure that as many people as possible are involved in the renewables industry so that households that want to fit solar PV to their houses, or SMEs solar PV to their business premises, can do that. Both those things are positive.

Having said that, the difficulties caused to the industry by this major change in policy over a short period of time have been very great. I understand and agree with my noble friend Lord Lucas on this. As many Members of the House will know, I come from Cornwall. I represent an electoral division there that as we speak is constructing a 5 megawatt facility to make sure that it can throw the switch before midnight on 31 July. I do not know whether any electricity will flow then: presumably it will, in order to come in before the tariff changes. In Cornwall, about half a dozen sites will hit the grid before the deadline arrives.

It is clear that a very large number of investors wanted to come into this field. Some were opportunists—which is not necessarily a bad thing, because we are trying to work with the market—but there was a basis to enable a number of new renewable energy companies that genuinely held the values of decarbonising our economy to start, work and gain ground in order to be part of that decentralised electricity-generating system that so many of us in the House want to see. Those business starts and the growth of micro-businesses into medium-sized businesses can no longer happen. The amount of investment, for example to secure planning permissions, was very great.

I accept that not all the schemes should have gone ahead. Planning permissions were extremely easy to obtain because people did not object to them as they do to a number of other renewable technologies. However, now the momentum has stopped in its tracks. I very much regret that. The particular practical difficulty is that even where too many of the larger schemes would have been very onerous, there were a number of community schemes, too, that have come to a halt or will not be fulfilled.

Two days ago, as well as receiving the electrical market review, we saw the UK Renewable Energy Roadmap, which I very much welcome. On the whole it is an excellent document. However, perhaps it is illustrative that chapter 3, “Actions”, names the technologies of onshore wind, offshore wind, marine energy, biomass electricity, biomass heat, ground source heat pumps and air source heat pumps—I am very pleased to see those there—and renewable energy in transport, which we sometimes forget about but which is of equal importance.

Solar PV is nowhere in that list. The document includes a case study of solar PV and states:

“The Government believes that solar PV could potentially have a role to play in larger-scale UK renewables deployment in the future”.

That is a very iffy assessment of solar PV. I am very aware, as we have seen today and during part of this week, that the UK is not the best country in the world for solar PV. However, there is no doubt that the technology is potentially useful. The costs are expected to come down very significantly in future. The initial FIT rate was too high and provided too great a return, but it has come down so much that it has acted as a veto on the industry. As a result, the green jobs that all of us want to see have been postponed or might not happen as they might have done.

The document goes on to say that the Government encourage solar PV on a large scale as part of the ROCs regime. Will the Minister say whether there is a way forward there for large-scale PV? The renewable obligations review is due in the next few weeks. The Government have cut out the higher FIT rates. Could they over a temporary period fix a higher ROC rate for solar PV so that we could again encourage investment in this industry? When the costs come down we can reduce the ROC rate, as we would do with any other technology.

Will the Minister tell us how many ROC schemes there are on solar PV at the moment? I do not know whether there are many. I would be interested to know what the scale of demand is at the minute. I think there is a good future for solar PV in this country. We want to encourage it for jobs and growth, and I would like it to be a larger part of the jigsaw of the renewable road map for the future.

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

My Lords, I welcome this debate. It is important that we discuss these issues and get clarity on them. I hope I am going to do that in response. I have received a very good letter from the chairman of the British Photovoltaic Association in conjunction with the director of the Combined Heat and Power Association, the chief executive of the Anaerobic Digestion and Biogas Association and the chief executive of the building council for sustainable energy. They say a number of things, including: “Those highly dependent on the previous tariff of photovoltaic levels are now few in number in comparison with the sizeable and growing industry for other parts of the feed-in tariff”. They also give a word of warning and, “urge people not to reopen the Government’s decision at this stage. It would cause lasting, and we believe irreparable, damage. This would apply not just to solar PV but also to the vibrant and growing activity of small and medium-sized wind, aerobic digestion and microchip”. Finally, they say: “We would urge you to oppose any attempts to overturn the Government’s decision implementation on 1 August”. I think that sets out the stall of the industry that we have consulted and discussed things with.

The noble Baroness said that it was a very short consultation. Of course it was a short consultation because the industry wants certainty. In government, we unfortunately have to make choices. We are in a situation of rising electricity and energy prices, and we have to make choices in order to prevent that. These are the questions we asked ourselves when getting to the point of making this decision. Do we consider that at a time of rising bills we should encourage the spending of £7 billion on solar PV? Does this represent value for money? Does it have a real impact on our demand for electricity, given that it produces under 0.1 per cent of our electricity supply? Even if everything worked as planned, by 2020 it would be only as much as 0.3 per cent of our energy supply. Like the noble Lord, Lord Teverson, who is so sound on all these subjects—even though I do not think he is in complete agreement with me, for a change, on this one—we asked ourselves whether we are best suited as a country, given that we need electricity in winter when we have narrow daylight hours, and whether this is the most effective way of creating electricity. Therefore, is this a core activity for the Government?

We also looked at some of the schemes that were being offered. I am sure this does not apply to my noble friend Lord Liverpool, but schemes were offering a 21.4 per cent return on investment guaranteed by government-backed FITs and were being sold to people as the greatest investment opportunity for a long time. There are many examples of that. The Government are concerned that people could be taken advantage of.

Similarly, did we think the support that we gave the schemes was fair? If you were putting up onshore wind you would get one ROC, if you were putting up offshore wind you would get two ROCs, and this feed-in tariff is the equivalent of over five ROCs. Is that fair and reasonable for the rest of the industry?

The noble Lord, Lord Lucas, criticised us for frivolous and unreliable decisions worthy of a third-world country. I emphasise that this is not retrospective. It does not apply to people who have installed this. I absolutely repudiate his suggestion that this is frivolous and unreliable. To suggest that we should push on with this regardless is frivolous and unreliable, which is why we have stopped it.