Fuel: Electricity Supply Licences

Baroness Smith of Basildon Excerpts

Thursday 14th July 2011 Lords Chamber

I regret that the route that this Government have taken to achieve a laudable objective has so abused the trust that people have placed in the Government’s word. They have missed the opportunities to create a new industry and instead put an imposition on the consumer which is much higher than it needs to be to achieve the level of electricity generation that we would have from solar as a result of the subsidies. I do not think that there is any going back; Governments rarely back-track on this sort of thing. I am not urging the Government to spend more money on solar. However, they should sit down with the industry and make a proper assessment, first and most urgently, of how distributed generation should work under the EMR—they have got that wrong and have an opportunity to set it right. Secondly, they should make a proper assessment of their response to the real prospect that solar will achieve grid parity within the lifetime of this Government and the next; and how, under those circumstances, we are to have in this country our share of a great new industry rather than just being importers. I beg to move.

[Baroness Smith of Basildon]

My Lords, one of the great fallacies of this debate about the changes that the Government intend to make to the feed-in tariff scheme is how it has been characterised as being between the Government, who say that they recognise that the scheme needed to be changed, and those who argued that no change was necessary whatever the financial implications. I lay that to rest at the very beginning of this debate. One of the reasons for my Motion today is that we consider the Government's projections to be flawed in that no one expects or is asking for the scheme to be left exactly as it is. The Solar Trade Association, Friends of the Earth, Low Carbon Group and others are all calling for cuts to be made in line with falling costs and a faster degression rate, so that the level of tariffs reduces faster over time.

It has not been fully understood that feed-in tariffs are designed as a pump-primer for the industry, to get it going. They would not add significant capacity in the early years but are really a building block to get a much faster-growing industry, as we have for example seen in Germany. For the same reasons, feed-in tariffs should not be seen as a permanent subsidy. The speed, the scale and the way in which the changes have been made is hugely damaging to investor confidence across the renewables sector, as the noble Lord, Lord Lucas, also outlined.

The purpose of the tariffs when they were brought in by the previous Labour Government was to encourage solar as part of the energy mix that is needed in this country to help achieve energy security, to help meet our renewables targets and to open up green energy generation to businesses, communities and householders. The consultation that the Government undertook on their proposed changes could have been a real opportunity for them to work with the industry to address its concerns. However, the consultation was only six weeks long, whereas the Government code of practice states that consultations should normally last 12 weeks or longer. Furthermore, 81 per cent of respondents opposed the Government’s plans and made alternative suggestions, but not a single change was made.

The consultation divided the market as being above or below 50 kilowatts, thus not only making the large-scale solar farms to which the Minister will no doubt refer unviable, but also community schemes and business and industry projects. The scheme was originally designed to incentivise projects up to 5 megawatts. The Secretary of State, Chris Huhne, has expressed his view that we do not leave our energy future to the exclusive preserve of the big six energy companies. Given the recent price hikes, I am sure that many of your Lordships would agree with that assessment. However, is the Minister aware that capping the scheme at 50 kilowatts is exactly what the energy companies lobbied for in the first place?

On the purpose of the Government’s changes, when the Government announced their consultation it was clear that this was a financial decision. The Government saw that there was increased interest in large-scale solar farms, particularly at the rate at which the tariff was set and with the significant fall of around 30 per cent in capital costs. That had not been anticipated by the department’s modelling, as undertaken prior to their introduction. Therefore, the Government consulted on proposals to reduce tariffs for solar developments of more than 50 kilowatts by 38 per cent to 42 per cent; for projects of more than 150 kilowatts by 50 per cent; and for projects of more than 250 kilowatts or any stand-alone installation of any size by nearly 70 per cent. That makes those larger developments and stand-alone developments unviable, which was clearly the Government’s intention. The Government’s argument is that these costs would have been too high if the industry had carried on growing at the same rate and, for the money involved, it would not have had enough capacity to make the investment cost-effective.

I understand that the Government want to avoid oversubsidising solar power. Capital costs have fallen so that is not an unreasonable objective. It is one that the industry fully understands. However, it would be helpful if the Minister could tell us what other options were considered to address the issue. Did the noble Lord consider any other tariff rates that would have reduced the costs but not choked off investment? Given that the costs are met not by government tax and spend but by the consumer—we are mindful of the need to keep prices down for the consumer—what estimate has the Minister made of the costs to an individual household over the next 10 or 20 years? I do not mean an estimate of the costs as though there were no changes at all. Most of us agree that some change was required and any analysis must take that into account. I see him frowning at me at this point. It is quite a tall order, so I am happy for him to write to me about this. However, those answers may go some way towards understanding the Government’s approach to this issue.

--- Later in debate ---

That probably covers most of the ground covered by the debate, apart from the question asked by my noble friend Lord Teverson about whether a review of ROCs could be considered. Obviously I am not going to prejudge the review on ROCs that we are having, but of course at any time convenient to him I am prepared to listen to him and discuss this. We are only too aware of the impact on jobs, but in focusing on the jobs we want to create by putting our shoulder behind a number of the other industries, we feel that we can achieve our very substantial aspiration on jobs.

[Baroness Smith of Basildon]

I am grateful to the noble Lord for his explanation. I can assure him that I do not agree with what he is doing, which is why I tabled the Motion today. I asked him another specific question about what options were being considered other than the two all or nothing questions that he has spoken about today. He has not answered that or my other questions. If he cannot answer today, I would be very grateful if he could write to me.

[Lord Marland]

My Lords, I can answer that straightaway. Let me make it clear that we considered every option. A whole magnitude of options are put forward in reviews and consultations with industry, so of course we considered other options. However, the option that was actually put to us, largely by industry, suggested that the contribution of FITs was going to be even more expensive than it is now, and I am afraid that that was an option that we were not going to embark upon.

In closing, I see no real sense in the feed-in tariff at the level that it was. We have made the right and brave decision. It is a decision to support the consumer, which is obviously a priority for the noble Lord, Lord Whitty. It saves consumers from a vast increase in bills on a form of electricity generation that is not really going to impact on the importance and size of the problem ahead of us.