Draft Renewables Obligation Closure etc. (Amendment) Order 2016

Andrea Leadsom Excerpts

Wednesday 2nd March 2016 General Committees

[The Minister of State, Department of Energy and Climate Change (Andrea Leadsom)]

I beg to move,

That the Committee has considered the draft Renewables Obligation Closure Etc. (Amendment) Order 2016.

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

The draft order closes the renewables obligation 12 months early to solar PV generating stations at 5 MW and below from 1 April 2016. It will apply to new generating stations and to existing stations that wish to add additional capacity up to the 5 MW threshold.

Solar PV is an important part of the low-carbon energy portfolio. It has seen strong growth in recent years, due in no small part to support from the renewables obligation and the feed-in tariff schemes. In many ways that progress is excellent news, making a valuable contribution to our renewable electricity generation. The amount of deployment, however, has also raised concerns about its impact on the levy control framework, the budget that caps the amount of support paid for through consumers’ energy bills. I am sure hon. Members agree that the Government need to act responsibly when there is a risk of exceeding such a budget. We have therefore introduced a number of measures to deal with the projected over-allocation of renewable energy subsidies. In those measures we have aimed to strike the right balance between the interests of consumers and the interests of developers.

This time last year we were considering a similar order relating to the early closure of the renewables obligation scheme to large solar farms, those over 5 MW in size. Solar farms at that large scale were deploying much faster than previously expected. We were rightly concerned about the impact that that speed of deployment could have on the levy control framework. At the time it was decided not to extend the closure to projects at 5 MW or below, because the evidence suggested that the smaller schemes posed less of a risk to the levy control framework.

Hon. Members will recall, however, that in the debate last year it was made clear that the deployment of smaller scale projects would be closely monitored. If deployment were shown to be growing more rapidly than could be afforded, measures would be considered to protect the framework. The monitoring revealed that, if we did not act, up to four times more new solar capacity would be eligible for support this year and next under the renewables obligation than we had previously estimated, over the lifetime of the projects costing in the range of between £1.2 billion and £2 billion, in real terms at 2011-12 prices. I am sure the Committee agrees that in such circumstances the need for further action is essential.

In taking the action to complete the early closure of the RO to solar, we have aimed to strike the right balance between protecting bill payers and protecting developers who have made significant investments. That is why the draft order makes provision for a number of grace periods which mirror those offered as part of the large-scale closure. Stakeholders have welcomed that consistency.

One of the grace periods proposed was designed to protect developers that could show a significant financial commitment had been made on or before the date the proposals were announced. That required evidence that a planning application had been made, among other things. During the consultation, however, we received evidence that some developers were submitting invalid planning applications just to meet the deadline. We have therefore clarified the policy intent of the planning application requirement so that it is in line with what is considered a valid application in planning legislation throughout Great Britain.

When we closed the renewables obligation early to large-scale solar farms last year, we saw a rush of projects accrediting to beat the closure date. More than 1.5 GW of solar were accredited in March 2015 alone, covering an area equivalent to about 5,000 football pitches. This time around, because we had evidence to suggest that the costs of solar PV had fallen further and faster than previously anticipated, we proposed excluding new solar projects from our grandfathering policy if they did not meet the significant financial commitment criteria. That was necessary to avoid locking in possible overcompensation in the event of a similar rush of projects accrediting before the closure date. The change in policy will mean that if a banding review were to determine a lower level of support, projects that are not grandfathered would not maintain their level of support. That proposal was unpopular with developers, but it is necessary as a cost control measure.

We confirmed that change in policy last December, and at the same time we started to consult on the results of the banding review. We are currently considering the consultation responses. Subject to the outcome of that process, changes will be implemented later this year through a separate amendment to the Renewables Obligation Order 2015.

Our analysis indicates that the early closure proposed in the order will save between £60 million and £100 million a year from consumer bills. Total solar deployment under the levy control framework subsidy regimes will reach 12.8 GW by 2020, following the closure and the action taken in the recent feed-in tariff review. The electricity market reform delivery plan is our best estimate of what we need to hit our 2020 target and sets out an intention to deploy between 10 GW and 12 GW. So even with these changes, we are on track to exceed that range, which further underlines the need to take action to prevent further solar deployment under the scheme.

We have taken the opportunity in the order to remove an inconsistency between the Renewables Obligation Closure Order 2014 and article 91 of the Renewables Obligation Order 2015, which was drawn to our attention by stakeholders. We are making a technical amendment to make it clear that an operator of an offshore wind station benefiting from a closure grace period can apply to Ofgem for registration of offshore wind turbines until 31 March 2018. That does not change the policy intention.

The Government are committed to combating climate change, but in the most cost-effective way for bill payers. By summer 2015, the costs imposed on bill payers associated with support for renewable and low-carbon electricity generation were forecast to reach £9.1 billion in 2021, significantly above the target of £7.6 billion. If the costs reached that level, they would need to be met through increases in consumer bills. It is therefore absolutely right that we have looked at ways to protect value for money and affordability under the levy control framework. I hope hon. Members will agree that on balance, the approach we have taken is the right one. We are closing a demand-led scheme and taking action on overcompensation, while still allowing solar to be deployed under the revised feed-in tariff scheme. That will ensure that solar PV is supported in a way that offers better value for money for consumers. I commend the draft order to the House.

--- Later in debate ---

[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.

--- Later in debate ---

[Andrea Leadsom]

I have to say I am getting sick and tired of the barrage of complaints from Opposition Members on one day about the end to subsidies— at a time when subsidies are no longer necessary at the level they were—and the next day or the next week about fuel poverty, with Members throwing stones at the Government for not doing enough to reduce bills to consumers. They cannot have it both ways. They need to decide. Do they want subsidies to continue, regardless of the impact on bills?

The hon. Member for Southampton, Test, the Chairman of the Select Committee, the hon. Member for Na h-Eileanan an Iar, and others, including the hon. Member for Aberdeen South, complain about fuel poverty and about the effort to avoid the impact on consumer bills—they say it is only a pound, it is only £60 million, it is only £100 million, it is only £2 billion over 20 years. Why is that worth saving? Because the Government’s policy is to be the consumer champion and to ensure we decarbonise at the lowest cost.

[Mr MacNeil]

Will the Minister give way?

[Andrea Leadsom]

No, the hon. Gentleman has had his say so many times and I am sick and tired of it. He needs to stop peddling that argument. The point of the Government’s policy is to support consumers and to decarbonise at the lowest price. We absolutely support subsidies for renewables. They have been so successful and their costs have come down so much. We have carefully consulted, and we have concluded that they no longer need the subsidies at the rate they were receiving them at and that the potential impact on consumer bills of continuing with subsidies at that rate is too great. That is the end of it. Those are the facts. I am sorry that Opposition Members want to play politics with that but we are on the side of the consumer.

The hon. Member for Southampton, Test specifically asked about the eligibility date and why we chose 22 July 2015. That is the date on which we announced the proposals and the grace period was designed to align with that. The significant financial investment grace period is designed to protect those who made such commitments before we proposed to bring forward the RO closure date for solar PV. Moving the date to enable other less advanced projects to meet the eligibility criteria would increase the risk of more projects deploying at greater cost to the LCF. We have tried to strike the right balance between the public interest, including protecting consumer bills and ensuring the right mix of energy, and the interests of solar developers and the wider industry.

The other thing I will say to Opposition Members is that, since our changes to the feed-in tariff, deployment has continued in the solar sector. They like to speak as if no subsidy somehow means that no solar or renewable projects are coming forward. That is blatantly not the case. A significant and decent amount of renewables are still coming forward. Under the Government’s policy, we believe that the feed-in tariff will enable up to another 1.1 GW of new solar installations between now and 2020, protecting the consumer while protecting and supporting the industry.

The hon. Member for Great Grimsby asked about job losses. The consultation period suggested that up to 23,000 jobs will continue to be supported by subsidy and, potentially, many others without subsidy. We are aware that large-scale solar projects are coming forward without subsidy, so it is simply not true to say, as she did, that there are thousands of job losses and that there will be thousands more. There is no evidence for that.

Other hon. Members asked about the LCF transparency. I will make a further point about that. We have been clear that we do not break down published information on components of LCF spend, because of the potential disclosure of commercially confidential information. In certain sites, that has to be the case and has to remain so.

Other hon. Members talked about our impact assessment not having sufficient data points. I can tell the Committee that there were 55,000 responses to the feed-in tariff review and, from that, we gained about 5,000 extra data points from which we were clearly able to target that policy to continue to support renewables, so it is simply not the case that the draft order has been ill-thought-through or that it is not seeking to strike a balance between the interests of the consumer and the interests of the industry.

We are confident in our policy on renewables. Those industries are superb and great British success stories. Hon. Members will be aware that 99% of all solar installations have taken place since 2010, when the Conservative-led coalition Government came to office. Today, still, the vast majority of solar deployments has taken place under a Conservative Government.

In answer to the specific point about nuclear made by the hon. Member for Aberdeen South, he must realise that solar and nuclear are not directly comparable. Solar is not dispatchable; it provides electricity when the sun is shining. Nuclear is dispatchable; as the hon. Gentleman is aware, most days we get 19% or 20% of our electricity, day in, day out, from dispatchable, reliable nuclear electricity. That cannot be the case from solar.

[Callum McCaig]

I accept that, but will the Minister likewise accept the point that I made, which is that if we are to be serious about storage, with investment and a proper mechanism for it to happen, solar can do that and, arguably, at a similar cost to nuclear, if not cheaper?

[Andrea Leadsom]

The hon. Gentleman did not make that point, but I entirely agree. As he well knows, in the Department we are looking closely at what exactly we can do to bring forward more storage. He also mentioned that nuclear in Scandinavia is asking not to be brought forward because it cannot compete with renewables. As he knows, what is meant there is hydroelectricity, which is dispatchable, so he makes my point for me. We cannot compare intermittent technologies with dispatchable electricity—it is simply not relevant to our discussion.

I thank members of the Committee for their contributions to this debate. It is very important to make it clear on the record that this Government are on the side of consumers. We will absolutely keep the lights on and decarbonise at the lowest cost to consumers, keeping the balance right between the interests of consumers and of developers.

[Mr MacNeil]

Will the Minister give way?

[Andrea Leadsom]

I will give way one last time.

--- Later in debate ---

[Mr MacNeil]

Does the hon. Lady agree that present-day consumers have benefited from past investment in renewables?

[Andrea Leadsom]

I absolutely agree. As I have just said, 99% of all solar installations have taken place since 2010. This Government have done more to promote renewables than any other Government ever in the UK. Some £52 billion has been spent on the renewables sector since 2010. I absolutely agree. We utterly support this sector and we are keen to continue to do more for it, but not at any price and not at subsidy levels that harm consumers and are not needed by the industry.

In conclusion, this order achieves a balance between the interests of consumers and the interests of developers. The grace periods will make sure that significant financial commitments are protected.

Question put.