Renewable Heat Incentive Scheme (Amendment) Regulations 2012

Lord Whitty Excerpts

Monday 23rd July 2012 Grand Committee

[Lord Teverson]

My Lords, I welcome the foresight that these regulations bring. We certainly do not want a repeat of the solar PV issue, where we had a lot of changes at very short notice and a lot of confidence went out of the market. I note yet again that we remind ourselves that some 12% of heating needs to become renewable to meet our 2020 target, as the Minister said. Heating is a largely unrecognised but major part of our energy consumption, in households in particular, and has to be decarbonised by 2050. The irony of this is that, as the Explanatory Memorandum states, at the moment we have, if anything, underdemand for this initiative. Given those targets, it is quite important that we move it forward quickly.

I have some questions for the Minister. First, why does he think that the scheme has been relatively slow so far? I know that there is a learning curve and it is still relatively young. Can he give us some idea of the types of scheme that have been approved so that we can understand them a little more? Do the Government have plans to stimulate these schemes if demand remains low? Lastly, will he give us a view, even at this early stage, of what lessons have been learnt for rolling out this scheme for domestic RHI, to which we all look forward very much?

[Lord Whitty]

My Lords, I have two quick points, one of which is fairly forlorn. The Minister referred to the ambition to raise the level of renewable heat to 12% from its current level of 2%. I commend and support that objective—it is right that we should give special provision for renewably sourced heat—but the overall objective is, of course, carbon saving. An awful lot of fossil-fuel-generated heat or dual-fuel heat is currently going to waste. It really ought to be part of the Government’s strategy, perhaps at a lower rate than the subsidy for renewable heat, to ensure that we maximise the use of the heat that is generated from fossil fuel, because the more widespread and efficient use of CHP and trigeneration will achieve larger carbon savings than the current targets for renewable-based heat. That is not to say that we should not do what the noble Lord is suggesting and which these regulations seek to implement, but there seems to be a lacuna—if you can have a lacuna in a suite of measures—in this respect.

With regard to the regulations before us, the Minister said that he has learnt from the FITs experience, and to some extent he has, but in these regulations and in what, at a quick read, is proposed in the consultation paper, I am not sure about giving much confidence or certainty to the market. Certainly, the Government are not avoiding sudden changes of policy. A week’s notice of the budget running out is likely to put off not only people who have gone some way through the process but those who are likely to apply the following year.

It has always seemed that annual budgets, no doubt imposed by the Treasury, are the department’s main problem. Under the solar energy part of FITs, in retrospect the take-up was too fast and the level of subsidy too high. However, as the noble Lord, Lord Teverson, said, the take-up of these RHI provisions has not been as great as the Government wanted. It would surely be better to manage the market according to a total amount rather than an annual budget, so that things would not be stopped half way through development because the budget has run out. Instead, the budget should be brought forward if it has been overspent or carried over into the following year if it has been underspent. That could be linked to the expected take-up.

The current mechanism has an annual budget that stops projects that might otherwise take off within the aggregate budget—for example, over the CSR period. There can also be overshoots, as happened with solar power. Once again the outcome was to cause uncertainty in the industry and to stop projects that were on line under existing rules and which had qualified under the regulations. This scheme is falling into the same category, although probably with less disastrous effect. If we are to maximise and smooth over the take-up of a new technology, we need to provide some degree of certainty over a minimum of two or three years rather than have a cut-off point with an annual budget.

In the medium term it would not cost the Treasury any more but it might make Treasury accountants a bit nervous. In terms of the objectives here, if we cannot have at least a three-year budget run in which we do not stop projects half way through their development, we will not achieve our objectives. I hope that the outcome of the consultation process produces something like that for the period starting in 2013. This does not do that and could put off a number of worthwhile projects.