Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Baroness Verma Excerpts

Tuesday 27th January 2015 Grand Committee

Moved by

[Baroness Verma]

That the Grand Committee do consider the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open the debate on the amendment regulations on the renewable heat incentive scheme. There are a number of amendments to cover today to both the domestic and the non-domestic RHI. These are the Renewable Heat Incentive Scheme (Amendment) Regulations 2015, the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015 and the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Before I explain the details of the amendments, I would like to update noble Lords on the progress of the RHI. The RHI is a key part of achieving the Government’s vision of the future of heating in the UK: a future with secure supplies of low-carbon and renewable heat at affordable prices. The scheme first opened in November 2011 to the non-domestic sector. Since its launch, some 7,000 installations have been accredited under the scheme. So far, the scheme has paid for 2 terawatt hours of generated renewable heat. In April last year, the scheme was opened to the domestic market and we have seen more than 20,000 accreditations since its launch. Across the two schemes, we anticipate that the RHI could support over 7 terawatt hours of renewable heat in 2015-16. The RHI supports a diverse range of technologies, but currently we are seeing the highest deployment from biomass.

The year 2014 was a busy one for the RHI scheme. I have already mentioned the launch of the domestic scheme. We introduced amendments in May 2014 to make the non-domestic scheme easier to access, more efficient and open to additional renewable technologies. We also conducted a review of the non-domestic scheme from which some of the changes I will be introducing today have evolved. We continue to evaluate the scheme to ensure both that it incentivises uptake and that scheme administration is effective and efficient. We also published our consultation and response on the review of the biomethane injection to grid tariff.

To recognise the importance of innovation and technology development, we gathered evidence to assess the case for new technologies, or innovations to existing technologies, being included in the RHI. Following this, we have now published our guidance setting out the evidence requirements for considering new technologies. We have listened to stakeholder concerns about investment certainty for large-scale renewable plants. In December last year, we published a position paper on the introduction of tariff guarantees for the non-domestic scheme. These plants can take a considerable time to come online and can be affected by the lack of a guarantee on the tariff that will be available when they complete. The published position paper sets out what the policy may look like if the work is continued in the next Parliament.

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[Baroness Worthington (Lab)]

My Lords, I, too, am grateful to the Minister for talking us through these regulations and for presenting a very clear and informative case for them. I have a number of questions relating to the regulations.

I notice that in the debate in the House of Commons, where these SIs were discussed previously, the Minister responding was a little loath to answer general questions about how the RHI is delivering against its targets. Specifically, when questions were asked about the budget, including the budget going forward, no clear answer came back. I therefore begin by reiterating those general questions to the Minister. Could she tell us when we might expect an update on how the RHI is doing in relation to where we need to be to hit our targets? Could she also give us a sense of when we might hear about how we are going in terms of the budget? Are we underspent or near to an overspend, and what are the budget projections going forward?

On the regulations, we certainly welcome, like the noble Lord, Lord Teverson, the introduction of sustainability criteria for biomass. It is a good idea, and it is very important that we restore the reputation of sustainable biomass. It is very easy to have one rotten apple in the barrel taint the perception of the whole system. It is important that we have transparent and robust information about sustainability and requirements on suppliers to meet those standards.

However, there is a point at which this ever increasing pressure to incorporate every single element of carbon emissions upstream on biomass is unique. It is not something that we do in other fuel supply chains. For example, gas is in the headlines a lot at the moment, and we hear debate about fracked gas versus LNG and versus gas coming from Russia, all of which have a different carbon intensity and carbon footprint, but that fuel supply chain is almost ignored and is not paid the same degree of attention. I understand why, but would just question when we might start to see a slightly more equal handling of fuel supply chains across the piece. Biomass certainly has a role to play in decarbonisation, but it should not be singled out. We ought to apply equal and fair treatment to all fuels, if we are going to pursue this very detailed accounting of upstream emissions.

I certainly welcome the list of suppliers and the department’s attempts to try to simplify this for both end-users and suppliers to ensure that the industry can get off to a good start.

I am also encouraged to hear from the Minister that she believes that biomethane injection to grid could be an important contributor to our renewable heat targets, but I am just curious to know to what extent biomethane is delivering. I imagine that we are now introducing tiered tariffs because there has been a relatively good uptake. What does the department now believe the potential for biomethane is? It would be very helpful to have it as the percentage of the total demand for renewable heat and gases, just so that we can get a sense of how we are doing and what the potential is. We expect that the RHI will uncover information about this market which, as has been said elsewhere, is a world first in terms of creating an open and widely applicable subsidy scheme for renewable heat. We would expect it to deliver quite interesting findings in terms of the least-cost options for decarbonisation. We simply have some curiosity as to where we see biomethane injection as we progress towards our targets.

We support the new powers to cause payments to be stopped and the interventions that are now possible. We have said this before in debates on the RHI. We remain concerned, and hope that the Government share our concern, that we must not see abuses of the RHI. We cannot afford negative headlines in the press about subsidies being abused or any wrongdoing, so it is important that the enforcement and sanctions parts of this intervention are got right. Why were these powers not originally included in the proposals? I am glad that they are there now, but I question why we had not thought through the need to do this earlier. I reiterate that I hope everyone in the department is fully aware of the need to ensure that, even if we take a slightly light-touch regulatory approach, we are very vigilant in ensuring that there is no potential for misuse of the funds, which are public funds in this case, not bill payers’ funds.

I have a question about the overall way we are going to move forward on the RHI. As we have seen from today’s discussions, this is now quite a complex policy area which has many triggers within it, including digressions and abilities to change different levels and to move technologies and bands. During the passage of the Infrastructure Bill through this House, an amendment was introduced by the Government that removed the need for an affirmative resolution for changes to some important parts of the RHI. At the time, I asked the Minister whether it would apply to tariffs and budgets applied to different technologies and whether it was appropriate. I am grateful to the Minister for writing to me on 17 November to confirm that moving from the affirmative resolution procedure to the negative resolution procedure would apply to tariffs for technologies. I reiterate my concern. I do not fully understand why it should be felt necessary to remove this part of the process which allows us to comment on statutory instruments and changes to statutory instruments. In her letter, the Minister said that it was to enable the Government to act quickly, but this is not a particularly slow process. It is an important part of the democratic process that ensures that we get proper scrutiny and an opportunity to question changes. It reassures the industry that due process will be applied to changes which will substantially affect plans for investment.

So again I ask: what is the real rationale for removing this important process? Perhaps it is for no other reason than that we will have fewer of these conversations, and that would be a great shame because I enjoy talking about the RHI. As the noble Lord, Lord Teverson, said, it is refreshing to be talking about something other than power when it comes to energy. I think we should maintain full scrutiny of these changes. This is a complex policy area, but it is an important one that we need to get right.

I am also slightly not reassured by the Minister’s statement that the Government will continue to “engage” properly with industry. I would like to hear a bit more about what engage properly with industry that means. I say that in the context of experience where, for example, on feed-in tariffs for solar, we saw very hastily introduced changes that were not properly consulted, and a great deal of bad feeling was created. If a change to the way we consider these SIs leads to anything like that in this market, it would be a great shame.

I would welcome the Minister’s comments on why we are moving away from the affirmative resolution procedure and, if they continue to pursue the negative resolution procedure, what the Government will do to ensure that they are properly listening to industry and engaging. Other than that, I am happy to support the regulations.

[Baroness Verma]

My Lords, I am extremely grateful to my noble friend Lord Teverson and the noble Baroness, Lady Worthington, for their support for the regulations. They have raised a number of questions. I shall endeavour to answer as many as I can, but if I miss out on any question, I shall write to them.

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[Baroness Worthington]

Perhaps I did not articulate my question clearly enough. What I was asking about was not equal treatment within the RHI, but equal treatment across the energy sector. Why do we take a full “well to wheel” approach or a full lifecycle approach to biomass, but not to fossil fuels which, let us be honest, are inherently less sustainable? We do not treat them equally with biomass. My point was a broader one than simply about the RHI.

[Baroness Verma]

I am extremely grateful to the noble Baroness for that clarification, and clearly I failed to recognise the question as she originally put it. I think that the response needs to be made in a fuller, more formal letter to her. These are detailed criteria going forward, and of course what I cannot do is look retrospectively at the energy sources we have already.

Going forward with the schemes that we have control over today, we need to make sure that they are as sustainable and environmentally friendly as they possibly can be. Where we may have had trade-offs in the past, we want to ensure that those are now reduced to a minimum so that we can look not only at value for money for the consumer, but also that we play an active role in environmental protection, which is absolutely right.

I suspect that I have missed a number of questions, but since inspiration is not coming from behind me at this moment, I must assume that we will write.

I shall conclude by saying to the noble Baroness and to my noble friend that the contributions made by these schemes rightly should be reviewed regularly so that we can ensure that we are achieving the best value that we can offer to consumers without burdening the new sector itself. We also need to listen carefully to those in the sector to ensure that we do not inadvertently put up barriers that hinder their progress. We want to see newer technologies entering the marketplace, so a balance needs to be struck between reducing support when a technology matures and no longer needs so much support and encouraging the emerging ones. The noble Baroness mentioned the solar industry. Frankly, that is now seen as a mature part of the sector which needs less support, and rightly so.

In thanking both noble Lords for their support, I commend these regulations to the Committee.

Motion agreed.