Feed-in Tariffs (Amendment) (No. 3) Order 2015

Viscount Hanworth Excerpts

Tuesday 2nd February 2016 Lords Chamber

Regrettably, the UK misses out on developing the knowledge and skills that will fit the UK for the low-carbon future. This is a sector in which job growth consistently outstripped the wider economy during the last Parliament. Regrettably, the Government are not supporting and encouraging its development. Investors need long-term policy targets. Regrettably, the measures before your Lordships’ House today are just the latest in a string of damaging short-term policy changes which put a whole industry in jeopardy and severely damage that investor confidence. We regret them emphatically.

[Viscount Hanworth (Lab)]

My Lords, the energy policy of this Government is in utter disarray. One can take no pleasure in their discomfort; the adverse effects will be felt by all of us in the immediate future and in the longer-term.

The Government ought to have taken a strategic approach to the supply of energy. The explanation of their failure to do so lies partly in their ideological tenets and partly in the mistaken lessons that they have drawn from a previous experience. The experience of denationalising the electricity industry has led them to believe that investment decisions could be left to the market. At the time of this denationalisation there were ample supplies of North Sea gas and the private companies were able to invest cheaply in gas-powered turbines for generating electricity. When these were placed alongside the existing conventional coal-fired power stations, there was an ample supply of generating capacity. With the decommissioning of the coal-fired power stations, this is no longer the case.

The Conservatives have come to believe that this experience provides a model for an energy policy. They have convinced themselves that a centrally directed strategic policy for energy provision is a thing of the past. They persist in believing that the private sector can be relied on to deliver a mixed portfolio of generating technologies. They imagine that in this way they can avoid the risk to government of choosing and pursuing an inappropriate technology.

The feed-in tariffs, which we are discussing today, became an important part of the laissez-faire approach when it was recognised that certain infant technologies might need some assistance. Households and small enterprises have been given incentives to pursue small-scale generation. The incentives consist of a pro rata payment for each kilowatt of electricity they generate, together with a so-called export tariff, which is supposedly tied to the amount of electricity that is fed into the grid. In the absence of a meter to determine how much electricity has been exported, it is assumed that 50% of the electricity generated by photovoltaic cells will be exported and that 75% of the electricity generated by wind turbines will be exported. The intention was gradually to reduce the financial support given to the infant industries via a process described as “degression”—a neologism unrecognised by most dictionaries.

Instead of a steady reduction in the support for small-scale generation, the Government have reacted to the success of the scheme and its consequent expense by proposing a step change in the support, which virtually abolishes it. Their reliance on a laissez-faire market-oriented policy has exposed the Government to the unintended consequence of a vigorous expansion of photovoltaic generation. There is now a significant industry devoted to the installation of the equipment and a major import bill to be paid to the suppliers of solar panels, who are predominantly the Chinese.

Why have the cuts been so drastic? The reason is that the expenditure in support of the feed-in tariff threatens to pre-empt too large a proportion of the expenditure allowed under the so-called levy control framework, which limits the expenditure on subsidies that are levied from consumer bills. The Government wish to devote these funds to other purposes, which are their support of nuclear power and fracking. However, by some quirk of European Union legislation that could easily be disregarded, the funds devoted to supporting infant enterprises under the levy control framework are accounted as government taxation and government expenditure. This is a matter of statistical classification, which would be regarded as unimportant were it not for the Government’s obsession with the nominal size of the budget and the budget deficit.

The effects of the withdrawal of support have been acknowledged in the Government’s own impact assessment. An infant industry will be threatened with extinction and many people will be thrown out of work.

The advent of photovoltaic electricity generation is important because of the manner in which it can stimulate further technological advances, as well as the way in which it promises to change consumer behaviour. The technology in question is that of smart metering, which will allow the price of electricity to be varied according to the level of demand, and which will inform the consumer accordingly. Consumers will become increasingly aware of the cost of grid-supplied electricity and of the desirability of avoiding its use during periods of peak demand. With smart metering, it should become self-evident to consumers that they should deploy energy -intensive electrical appliances only in off-peak periods.

The disarray of the Government’s energy policy, of which I spoke at the outset, is the result of their reliance on willing providers to undertake the required investment in electricity generating capacity. But there has been a dearth of willing providers. In consequence of their failure to invest, the large energy suppliers should bear the cost of maintaining the present feed-in tariffs.

The prospective investors in nuclear power are the nationalised and semi-nationalised energy corporations of two foreign countries; namely France and China. There are now doubts regarding the commitment of EDF, the French national electricity supplier, to build the nuclear power station at Hinkley Point. If the French withdraw from this project, it seems likely that the Chinese will do likewise. What then will remain of the Government’s energy policy? They will have to rely on increasingly expensive supplies of gas. Their ambition to derive ample supplies of gas by fracturing the ground under our feet appears to me an implausible one. The alternative supplies of gas, which are from the Middle East, the north Atlantic and Arctic Russia, are beset by geopolitical hazards. Moreover, if we are to rely on imported gas to satisfy our energy needs, it will not be possible to fulfil the commitment to staunch our emissions of greenhouse gases.

I strongly support these Motions, which oppose the cuts in the feed-in tariffs, and I call on the Government to think again.

[Lord Cavendish of Furness (Con)]

My Lords, I rise to oppose both these Motions, but especially that in the name of the noble Baroness, Lady Featherstone. I should perhaps declare an interest, in that I have been a beneficiary of feed-in tariffs, albeit not with solar.

Feed-in tariffs cost about £1 billion a year—last year it was £851 million—and most of that goes on solar. That is a considerable sum of money, and every penny of it is added to the bills of electricity consumers. I find it significant and surprising that speakers so far have spoken up for the producers rather than the consumers. Adding that money to consumers’ bills hits the poor harder and rewards the rich, because electricity makes up a bigger part of the expenditure of the poor. So it is a regressive transfer of money from the poor to the rich.

What are we getting in return for this expenditure? We get rooftop solar running at 10% load factor, which is less than 1% of final electricity consumption. That is a trivial trickle. Most of it is generated on a summer’s day, rather than on a winter’s night when it is most needed.

The Minister’s own department’s renewable energy planning database shows that the UK has already given planning permission for sufficient renewable energy capacity to overshoot the 110 terawatt-hours required to meet the 2020 target contribution for electricity. The overshoot, if it is built, would be about 35%, but there is no budget for that excess. The department reckons a budget overshoot of £1.5 billion is possible. However, some people calculate that it could easily be £2 billion and that the department is being conservative.

My final point is political. I have checked my party’s manifesto, and it seems to me that the Government’s actions are entirely consistent with it. I am therefore extremely sorry that the noble Baroness should choose quite soon in her career in your Lordships’ House to introduce a fatal Motion. A lot of people are increasingly being left with the feeling that these fatal Motions are not just discrediting your Lordships’ House—they are actually intended to discredit your Lordships’ House.