Draft Renewables Obligation Closure etc. (Amendment) Order 2016

Alan Whitehead Excerpts

Wednesday 2nd March 2016 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship this afternoon, Mrs Gillan.

As the Minister set out, the effect of the order will be to close access to the renewables obligation for solar arrays of under 5 MW by March 2016. It represents another early closure of the RO, alongside the one for onshore wind and, as she mentioned, the previous one relating to larger solar. One might add that reining back renewables is another perverse, sudden policy intervention. As she mentioned, the category of solar in question eventually proved rather successful. If the solar industry at the sub-5 MW level had been as unsuccessful as, say, the green deal, perhaps the closure would never have happened. Perhaps that is not a terribly good example to use, because of course the green deal has been scrapped as well, on the grounds that it was unsuccessful.

To understand how sudden and random the intervention was, we need only look at the supporting documentation for the statutory instrument, from which we can see that the consultation on the early closure, and the grace periods attached to it, which the Minister drew attention to, commenced on 22 July and closed on 2 September—just when everyone was on holiday; but perhaps that is beside the point.

The date of 22 July happened also to be the date on which projects that were not fully agreed, for example in the planning process, could make no further progress through grace periods. To show how random that turned out to be, I have a note from a leading UK solar company, telling me that the 22 July grace period qualification deadline was

“by definition was unknowable even 24 hours in advance”

of its being announced and that 22 July was the first time anyone in the industry knew about the date. The company had one project, which it was 95% ready to submit as a full planning application; but it did not intend to do so until about a week after the consultation was published.

When the 22 July consultation was published, with the grace period definition within it, the company scrambled within 24 hours to try to submit its project, but failed by one day. With one day’s notice it did quite well to fail by one day; but nevertheless it was still cut off, which means it has £1 million tied up in a project that may now not qualify for anything, solely on a technicality it could not control, despite the fact that the planning application was 100% valid and less than one day late.

Indeed, the process of consultation has been substantially criticised by the Secondary Legislation Scrutiny Committee in another place, which drew particular attention to the deficiencies in the consultation period and the difficulties caused, particularly with the sudden emergence of grace periods, for the industry as a whole.

The central justification for the policy lurch is also to be found in the supporting documents; as the Minister has also mentioned, it is to keep within the levy control framework, that half-mythical, half-real device that now hovers over most renewable deployment for the next 10 years—or should we say the next five years.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I did intend to intervene on the Minister about that, but is not it high time there was full transparency on the levy control framework, so that given the lurches and changes there have been in policy we could at least have some idea of what is underpinning this? There are investors in particular who have got quite nervous in the last while, with the possible pushing up of premiums they will have to borrow with to invest in the future.

[Dr Whitehead]

The hon. Gentleman has clearly, with a little long-sightedness, been looking over my notes, because that is exactly the point I need to emphasise now about the levy control framework. Although we think that the issue is about the next 10 years, as far as the deployment of renewables is concerned, we simply do not know in any detail what will happen to the levy control framework between 2020 and 2025, despite the fact that the Government have indicated that detail will be filled in at some stage. Obviously, that is a cause of continued consternation for those attempting to plan some sort of future for their longer-term projects.

We need to emphasise that many of these projects require a number of years to undertake, and therefore some form of guidance and certainty would be useful for projects that may be starting now and may not be operational and available for contracts for difference, if there are such things in the period between 2020 and 2025. It would be helpful if those companies had at least the assurance that they were not wasting their time by putting forward proposals for the future.

The impact assessment for the SI says in its opening lines:

“The proposed interventions intend to limit projected spending under the Renewables Obligation, while not harming projects that have already made significant financial commitments”—

which is not necessarily the case, as we have seen—

“This is to limit the impact on the LCF of significantly greater solar deployment than previously anticipated.”

Of course, we do not know the actual impact on the LCF of significantly greater solar deployment than previously anticipated because we do not know the effect of overspends within the LCF—that is, the LCF’s original projections for spending on solar and the overspend in terms of the variation from those original projections. We do not know that because apparently we are not to be trusted with that information. No variation figures have been published, nor are apparently likely to be.

Indeed, I have now asked three parliamentary questions on the effects of that variation, which is central to the impact assessment of this SI. On each occasion, I have been met in the answer with complete stonewalling, on frankly increasingly spurious grounds, on what those variation totals consist of. I am sure the Minister is aware of that issue, because it was she who signed off the answers to those questions on the future of the LCF variation.

It would be helpful for the passage of this debate if the Minister, perhaps by an intervention, gave me the actual sums for the variations over the period relating to solar. It would be even more helpful if she gave those relating to variations in her Department’s calculations as far as the LCF is concerned below 5 MW. We could then determine whether the variations in spending really had such an impact on the LCF that they caused this particular decision to come about, or whether they were of an order that would not have had much of a substantial impact on the LCF—as I suspect may be the case, though we do not know.

[Andrea Leadsom]

I am slightly offended to hear that the hon. Gentleman thinks I have ever stonewalled him in answer to a parliamentary question. I assure him that I always seek to reply as openly and fully as I can to parliamentary questions, and I take particular care with his.

In answer to the hon. Gentleman’s question, as I have already set out, this early closure is saving in the region of £60 million to £100 million per year on the levy control framework. In aggregate terms, with the rate of deployment that we were seeing in the smaller solar fields, the total cost over the lifetime of the up to 20-year subsidy could have been up to £2 billion—a fairly princely sum. He will also be aware that the levy control framework projections will be set out by the Office for Budget Responsibility in only a couple of weeks’ time, during its Budget assessment.

[Dr Whitehead]

I thank the Minister for that intervention. Frankly, the information she has provided the Committee with today is rather in line with the circumstances in which she felt she could respond to my parliamentary questions. I hope the Minister is not offended by any suggestion that she personally prevented me from getting the information that I requested. My point is that the levy control framework is now so opaque, in terms of its operation and its variations, that it affects proper scrutiny of how decisions have come about. That is not as a result of possible spending in the future but about variations in the past—what was originally thought to be the trajectory of the levy control framework and, as reported in the impact assessment, its actual trajectory in terms of overspending, and how that relates to subsets of that, in particular as we are discussing this afternoon, subsets of solar expenditure as they relate to sub-5 MW installations.

[Mr MacNeil]

Just picking up on the point about the LCF and the OBR, if the LCF is opaque, the OBR varies wildly in its estimates. In November 2014, the projected LCF spending was £6.25 billion in 2021, but by July 2015—eight months later—the forecast spending was £9.8 billion, a huge change of approximately 50% in the OBR’s projections. That further adds to the hon. Gentleman’s call for clarity and an end to the opacity.

[The Chair]

I remind colleagues that interventions should be brief.

[Dr Whitehead]

I thank the hon. Gentleman for his intervention, despite its length, which underlined the opacity of the levy control framework and the difficulty of getting to grips with what is really going on with those sums of money. We must also bear it in mind that those sums are not Treasury money. They are money from levies that will be raised from supply companies and passed on by, among others, the CfD counter-party body, which we discussed in a recent SI, to generators and, eventually, to bill payers. I mention that aspect of the LCF because the question we may want to ask this afternoon, in terms of the overall aspect of the levy control framework and how it relates to this particular level of solar deployment, is whether the projected effect on the levy control framework would actually be fatal to it or just a small aspect of it. We do not know, because we do not have the variation figures. Figures from the impact assessment suggest that the closure of the RO early for small solar of this range might put about £1, on average, on household bills—or £80 million per annum. While that is important for household bills, it looks to be—at first sight—a drop in the ocean for the entire LCF and, quite possibly, even within the boundaries of an adjustment of the LCF that the Department has available under the terms that it originally agreed.

There is a real question here, to which we will probably never know the answer because we do not have the proper information available. Was it necessary to do all this for just that result, especially when it is beginning to be established that solar deployment is—by moving the merit order on generators’ supply during the day—actually lowering prices to customers over the long term? Has the Minister analysed the impact on customers of that counter-indicator of the effect of solar on merit order? I suspect that if she did some work on that, she might find that the actual cost to customers, over time and in this context, would be close to nil.

We have some very good, immediate comparisons on customers’ bills to look at in the context of this afternoon’s debate. Just yesterday the Department published its proposals for capacity market reform and it has been estimated that, among other things, the new proposals will double the effect on customer bills of the previous capacity market arrangements—from £10 per annum on customer bills to over £20 per annum. That looks to me, at first sight, as though it will have a very substantial impact on the levy control framework, but of course the capacity payments, which do indeed filter through to customer bills in just the same way as levies do for renewables, are not within the LCF framework, or at least not as far as control totals are concerned. So it is official: you can whack up customer bills in a vain attempt to get some investors to invest in gas-fired power stations, with no evidence that it will actually happen, whereas when investors are seeking to invest in real solar power for the future, with the effect that I have described, it is necessary to stop that happening because it might affect the levy control framework.

This is a short-sighted, damaging measure, which never should have been considered in the first place. Solar is now on a good glidepath to no subsidy, perhaps in the next few years. To replace that glidepath with a cliff face in this way will surely kill the very technology that can, with some additional deployment, be of immense value to our energy plans for the future. That is why I am afraid we cannot support this measure today, and wish to divide on the matter.