Scotland Bill

Lord Wallace of Tankerness Excerpts

Tuesday 19th January 2016 Lords Chamber

Moved by

[Lord Wallace of Tankerness]

65: Clause 58, page 67, line 21, after “electricity” insert “or heat”

[Lord Wallace of Tankerness (LD)]

My Lords, this group comprises a number of amendments relating to renewable energy. The background is not only proposals for devolution but obviously must be seen against what the Government have done with regard to the Energy Bill, or least what they had done until this House took out the provision relating to the acceleration of the closure of the renewable obligation for onshore wind.

The first set of amendments, Amendments 65, 66, 68, 70, 71 and 72, are concerned with renewable heat incentive schemes. The Smith commission, which of course is holy writ, states at paragraph 41:

“There will be a formal consultative role for the Scottish Government and the Scottish Parliament in designing renewables incentives and the strategic priorities set out in the Energy Strategy and Policy Statement to which OFGEM must have due regard. OFGEM will also lay its annual report and accounts before the Scottish Parliament and submit reports to, and appear before, committees of the Scottish Parliament”.

The initial amendments were intended to incorporate references to the renewable heat incentive schemes, whereas the clause as it stands relates only to renewable electricity incentive schemes. I was grateful to the Minister for writing to me on 1 December last to say that he did not think that this set of amendments was necessary. He indicated that heat was,

“not covered by any of the reservations in the Scotland Act 1998, and so should be treated as already devolved”.

He went on to say that, with specific regard to the renewable heat incentive,

“the Scottish Government already has a formal consultative role on both the domestic and non-domestic RHI schemes. Section 100 of the Energy Act 2008 states that for regulatory changes to RHI schemes, the Secretary of State for Energy and Climate Change”,

had certain obligations relating to the,

“competence of the Scottish Parliament”,

and the “consent of Scottish Ministers” but, where there was not a competence within the Scottish Parliament, he had a consultation requirement on Scottish Ministers. Having received the Minister’s letter, I decided that it was still better to leave these amendments in so that we could have on the record why renewable heat incentives were not included. I know that their omission has caused some concerns in the industry, but this makes it clear that there is nothing to stop the Smith commission recommendation being given full effect in that regard.

There is, however, an important issue with regard to Amendment 68B. On how many occasions in the course of our debates have we heard the Minister pray in aid, “This is what the Smith commission says and this is what we are delivering”? I am sure that the Smith commission was never intended to be a straitjacket, but that is sometimes how it appears. I shall repeat:

“There is to be a formal consultative role for the Scottish Government and the Scottish Parliament in designing renewables incentives and the strategic priorities set out in the Energy Strategy and Policy Statement to which OFGEM must have due regard”.

But look at what is in the Bill. It states in Clause 58:

“(1) The Secretary of State must consult the Scottish Ministers before—

(a) establishing a renewable electricity incentive scheme that applies in Scotland, or

(b) amending such a scheme as it relates to Scotland”.

Let us turn to the next two new subsections:

“(2) Subsection (1) does not apply to amendments that appear to the Secretary of State to be minor or made only for technical or administrative reasons”.

I am actually prepared to live with that. It is probably perfectly reasonable provided that not too wide an interpretation is made of “technical or administrative reasons”. But new subsection (3) goes on to say:

“(3) Subsection (1) does not require the Secretary of State to consult the Scottish Ministers about any levy in connection with a renewable electricity incentive scheme”.

Where in the Smith commission is that exception made? We have heard how important it is that we should stick rigidly to the commission, yet it does not make the exception that the Government seek to import into this provision.

Moreover, the Command Paper which was published almost exactly a year ago stated specifically that, in implementing paragraph 41 of the Smith commission agreement, a clause would be included in the Scotland Bill to,

“establish a broad duty on the Secretary of State to consult the Scottish Government on the design of new incentives to support renewable electricity generation, or the re-design of the existing incentive schemes … The duty will arise where the new incentive would apply in Scotland, or any re-design would affect the way an incentive operates in Scotland. It will apply to incentives that are both statutory and non-statutory in nature”.

If that had been translated into the legislation, it probably would have been fine. The paper was clear that the reference to existing incentive schemes included the renewables obligation and contracts for difference. There were no exemptions, yet exemptions have been added. The Government have to explain to the House why they are departing in a very material way from the recommendations of the Smith commission. Quite clearly, any levy in connection with the renewable electricity incentive scheme could put a coach and horses through what is given by new Section 90C(1), to be inserted into the Scotland Act 1998 under Clause 58. The Government may have a guilty conscience because they sought to bring about the early closure of the renewable obligation in relation to onshore wind and solar panels with precious little, if any, prior consultation with Scottish Ministers. Therefore, they are trying to cover their tracks by this rather niggardly exclusion that they have sought to put in. The Minister owes it to the House to explain why he has driven a coach and horses through that new subsection.

Again, I wrote to the Minister and asked about the consultation with Scottish Ministers. On 21 December, he helpfully responded saying that,

“similarly to the position on the Renewables Heat Incentive, we have not included a requirement to consult Scottish Ministers on the Strategy and Policy Statement … as the Energy Act 2013 already gives Scottish Ministers a clear formal consultative role in the development of the SPS. The process of designing the SPS requires two rounds of consultations where Scottish Ministers can provide their views on the draft document before it is designated. As legislation already exists to address paragraph 41 of the Smith Commission Agreement, no additional provisions have been included in the Scotland Bill”.

It provides us with a rather unusual situation. The Government are saying that something that was already in existence pre the Smith commission is being used to fulfil the recommendation of the Smith commission.

We must assume that the Smith commission was fully aware of what the pre-commission legislative position was because of things such as the British Transport Police. We have been assured that it knew all the implications of what was being proposed. We must assume that it knew the position under the Energy Act 2013.

[Lord McAvoy]

I am curious about things and about systems. Was there not any report back from the Liberal representatives on the Smith commission to the noble and learned Lord’s party?

[Lord Wallace of Tankerness]

I do not remember the precise detail of what went in when they came forward with this proposal but I presume—I give credit to those who were on the Smith commission, including the noble Lord’s own party members—that they did not seek to make a recommendation and that it already existed. I hope that the noble Lord would give due credit to the other members of the commission—the Labour members—that they would not have signed up to something that was already there. That is why I want the Minister to explain why he thinks that the Government’s interpretation of that recommendation is satisfied by something that was already in place. Can we not reasonably assume that those who were engaged in this were looking for something more? Indeed, Scottish Renewables is not satisfied that the legislation is sufficient. In an email to me, it said:

“If this recommendation is not to be carried forward through the Scotland Bill, we would like clarification about how any new or improved mechanism will be formalised outside of the primary legislation”.

We have to get some indication from the Government as to what more they are doing than what was already in place before the Smith commission sat.

I fully accept that Amendment 73A goes well beyond the Smith commission, so that probably bottoms it out before I even open my mouth. But there is an important point here as well. When the Smith commission was deliberating, it did not know that several months later the Government would pull the rug from under the onshore wind industry, not just in Scotland but throughout the United Kingdom, by bringing forward the date of closure of the renewables obligation. We are entitled to speculate that, if the Smith commission had deliberated after the announcement to accelerate the closure of the renewable obligation for onshore wind and solar, it may well have incorporated something along the lines of what we propose in Amendment 73A.

Amendment 73A says that:

“Within three months of the passing of this Act, the Secretary of State shall publish proposals to transfer to the Scottish Ministers powers on the awarding of contracts under Contracts for Difference and the setting of electricity feed-in tariffs in respect of electricity generation from renewable sources in Scotland”.

This is quite a major step, but it is very much within the Government’s ability to shape what kind of scheme they would bring forward. We propose this because there are a number of different ways of doing it. There could be a full set of powers through a suitable adaptation of the Energy Act 2013; the Government may wish to limit it to onshore wind to encourage electricity generation by onshore wind; or it could be done by an intergovernmental agreement on budget limits and a restriction on the power to set the strike price.

--- Later in debate ---

[Lord Dunlop]

The noble and learned Lord, Lord Wallace of Tankerness, is very interested in these energy schemes and very knowledgeable about them, and has spoken on other pieces of legislation in this connection. He raised a number of specific points in the debate. I am, of course, very happy to meet him to discuss those further.

Clause 58 creates a formal consultative role for the Scottish Ministers in the design of renewable electricity incentive schemes that will apply in Scotland. Our aim is to ensure the Scottish Ministers are able to comment on the design of new incentives to support renewable electricity generation that will apply in Scotland, or the redesign of existing schemes as they relate to Scotland. The new arrangement provides for a general duty to consult the Scottish Ministers on the design of incentive schemes for renewable electricity which will apply with respect to the existing schemes as they relate to Scotland, and any new schemes that will apply in Scotland.

The noble and learned Lord has tabled amendments that would extend the scope of Clause 58 to heat incentive schemes. We have exchanged correspondence and discussed it further. He has put on the record the response that I gave in my letter, so I will not repeat what he has already said. However, we believe that these amendments would duplicate existing regulations and are therefore unnecessary.

Amendment 67 seeks to amend Clause 58 to require the Secretary of State to consult the Scottish Parliament, in addition to consulting the Scottish Ministers, on renewable electricity incentive schemes, treating the Scottish Parliament as a conventional stakeholder rather than a legislative body. The amendment requires the Secretary of State for Energy and Climate Change to statutorily consult all 129 Members of the Scottish Parliament when making changes to renewable electricity incentive schemes. In our view, this would lead to overly complex and time-consuming consultations that would affect the smooth operation of renewables schemes. For example, were the Scottish Parliament in recess, this could delay the conclusion of a consultation, delaying the implementation of UK government policy. The Government consider the inclusion of consultation with the Scottish Ministers is appropriate. However, Members of the Scottish Parliament are already able to make their views known during public consultations.

Amendment 68B seeks to amend Clause 58 to require the Secretary of State for Energy and Climate Change to consult the Scottish Ministers on amendments to renewable electricity support schemes which are of a minor nature or are made only for technical or administrative reasons and to consult the Scottish Ministers about any levy in connection with a renewable electricity incentive scheme. The noble and learned Lord took on board the de minimis aspect of the first part of that. As drafted, Clause 58 excludes the requirement to consult the Scottish Ministers on minor, technical or administrative issues. In general, this exclusion will apply to changes unlikely to have a significant impact on generators or potential generators, such as making changes to references to technical documents, or making changes to an application procedure. This amendment would, therefore, lead to overly complex and time-consuming consultations that would affect the smooth operation of the schemes.

Amendment 69 also seeks to amend Clause 58 to require the Secretary of State for Energy and Climate Change to consult the Scottish Ministers about any levy in connection with a renewable electricity incentive scheme. I note what the noble and learned Lord said about that and I am very happy to discuss this further with him. Levies on particular companies—for example, electricity suppliers—are sometimes created to sit alongside renewable energy incentive schemes as a way of funding them. An example is the supplier obligation which requires electricity suppliers to pay for the contracts for difference scheme. Levies to fund renewable support schemes are considered to be a form of taxation and taxation is generally a reserved matter. Devolution of specific tax powers is dealt with elsewhere in the Smith commission agreement

[Lord Wallace of Tankerness]

I am grateful to the Minister for giving way. My first question is: where in the Smith agreement is provision made for such an exception? Secondly, even allowing for what he says— and I would want to read it and consult on whether it is a legitimate point—does the Minister not think this is drafted very widely? It says “any levy”, and could completely negate what is set out in subsection (1).

[Lord Dunlop]

As I have said, I am very happy to meet with the noble and learned Lord to discuss this specific point and I undertake to do so.

Similarly, Amendment 68A is also unnecessary as the phrase “a renewable electricity incentive scheme” would include a hydropower incentive scheme. I met and discussed this with the noble Lord, Lord Steel, last week. I put on record the importance of small-scale hydro installations. Some 500 of these have been built in Great Britain since the start of the feed-in tariff scheme in April 2010. These installations represent a doubling in the number of hydro sites across the country but a significantly smaller proportion in terms of capacity, as none of these new sites is above 2 megawatts in size. The majority of these are in Scotland, where hydro accounts for 16% of the capacity of all feed-in tariff installations, with solar on 44% and wind on 39%. Going forward, the tariffs should still offer sufficient incentive for well-sited installations, with an estimated return of 9.2%, based on costs supplied by the industry. It is therefore estimated that around 500 further installations could be installed in the next three and a quarter years, to April 2018-19.

Clause 58 ensures that Scottish Ministers will have a formal consultative role on contracts for difference, the renewables obligation and feed-in tariff schemes, all of which incentivise the deployment of hydropower. Therefore, we do not believe it necessary to make specific provision for any of these amendments within the Scotland Bill and I ask that this amendment not be moved.

Amendment 73 would duplicate existing arrangements. The Energy Act 2013 already gives Scottish Ministers a clear, formal consultative role in the development of the Ofgem strategy and policy statement, which gives them an opportunity to influence its content. Section 135 of the Act makes the Scottish Ministers “required consultees” on drafts of the statement and Section 134 also requires the Secretary of State to consult them on the action that she proposes to take following any review of the statement. The current strategy and policy statement arrangements give effect to the Smith agreement and therefore the amendment is unnecessary.

Amendment 73A seeks to introduce a new clause to transfer powers to the Scottish Ministers to award contracts under the contracts for difference scheme and to set the level of feed-in tariffs in respect of electricity generation from renewable sources in Scotland. Publishing such proposals, as well as the transfer of any such powers, goes well beyond the Smith commission recommendations, as the noble and learned Lord himself said, which relate to consulting on establishing and amending schemes that apply or relate to Scotland. In addition, both contracts for difference and feed-in tariffs are Great Britain-wide schemes and do not currently operate in a regionally specific way. This is linked to the fact that we have a GB-wide integrated energy system on which those schemes rely, which has been shown to work well over many years and from which all energy consumers benefit.

Scotland has more than proportionally benefited from financial support from all GB bill payers under current energy policies. Around 9% of the UK population is in Scotland, but we estimate that just over 20% of the support under the renewables obligation as a whole—around £760 million of the total—will go towards funding Scottish renewables projects. For feed-in tariffs, Scotland represents over 10% of the renewable electricity capacity installed to date, particularly in the wind and hydro sectors. In conclusion, I urge the noble and learned Lord not to move this amendment.

[Lord Wallace of Tankerness]

My Lords, I am very grateful to the Minister for his reply and I certainly appreciate his offer to discuss this. I very much hope it will be a productive discussion.

There are things here which merit further discussion. In particular, Scottish Renewables does not feel that the Bill has met the Smith commission proposal on consultation on Ofgem’s energy strategy and policy statement. Legislation might not be necessary, and I would be interested to pursue that with the Minister. Obviously, the Smith commission included the Deputy First Minister, who had overall ministerial responsibility for these matters during part of his time in office, so one assumes he felt that there was a need to go further than the Energy Act 2013.

I cannot say that I am surprised by the Minister’s response to the new clause proposed by Amendment 73A, but it is unfortunate because this is an opportunity to build on the Smith commission in the light of developments that have taken place since. I will take one point of issue with the Minister. He talked about the importance of the integrated UK market and I entirely agree—indeed, I made that point myself. He seemed to indicate that there was no room within that for regional variations. Perhaps he should get those who prepared his brief to ask what has been going on for the past seven, eight or nine years. The renewables obligations have been dealt with on a separate Scottish basis under executive devolution, and this has worked very well. Indeed, my noble friend Lord Stephen and I, and our successors in office, have been able to do some innovative and imaginative things with the ROCs, so the system would not fall apart if there was regional variation. I am disappointed, and perhaps on reflection, the Minister may think there is still a case for that.

I thank the Minister for his offer of a meeting, which I will certainly take up. I am appreciative of that. I beg leave to withdraw the amendment.

Amendment 65 withdrawn.