Renewable Heat Incentive Scheme (Amendment) Regulations 2012

Baroness Worthington Excerpts

Monday 23rd July 2012 Grand Committee

[Baroness Worthington]

I thank the Minister for introducing this statutory instrument. This is a policy that we support. We hope that the regulations will be quickly implemented. There has been a slight delay, so the sooner we can get on with it the better. I will start with a general comment on renewable heat. The atmosphere does not care where we make our carbon savings. It is incumbent on us as Governments to realise the most cost-effective savings. We have neglected carbon reductions in the heat sector for too long, so these are very important regulations to help start, from a very low base, an industry in renewable heat.

The noble Lord, Lord Teverson, asked a couple of questions that I will add to. It would be interesting to see what has come forward so far, and to hear from the department why the take-up has been relatively slow. The area has been neglected for many years, so perhaps it is just a question of starting up. However, there are some issues to do with the design of the instrument that may be holding back take-up. The first is the question that my noble friend Lord Whitty raised about the industry perceiving a lack of clarity or certainty. Annual budgets are not ideal. We strongly recommend the introduction of minimum three-year rolling budgets. It is clear in the documents before us that we will not exceed the budget this year. If anything, we will see a shortfall, even of the reduced budget. We are reducing the budget by £38 million and we are not likely even to spend that, and it therefore seems odd that we are focusing on a piece of legislation that is not really needed at the moment. What is needed is a much greater effort by the Government to promote the mechanism, and confidence in it so that we start to see an uptake.

I have a question about where the £38 million that has been saved is to be spent. I suspect that the Treasury will claw it back, but could the money not be used to help promote uptake in this sector? I have no doubt that the sector will contribute to the UK’s return to growth. The CBI’s recent report into the contribution that green energy makes to the UK’s growth was very well received and researched. It estimated that a third of growth is green, and I therefore see no reason for the Government not to put their efforts behind these sectors and new technologies that can help to reduce our trade deficit, boost our economy and employ people.

Although I did not want to go on for too long, there is another question around the future visibility of the budgets. I have spoken to a potential investor in a large energy-from-waste CHP plant who says that for such projects not knowing what the budget would be post-2015 simply means that it would not be possible to get sign-off on that project. The fact that there is no visibility at all of what the budget would be post-2015 will cause delay and prevent that potential investor making that investment. That issue needs to be addressed.

That is all I will say for now. This is an important sector. It is far more efficient to use renewable energy, particularly biomass. With such heat, you do not see two-thirds of the energy wasted up the chimney, as happens in a coal-fired electricity plant. This sector needs to be supported and we would like the Government to do more to make sure that there is a good uptake and that we hit those targets of 12% renewable energy in the heat sector. We support the regulations and look forward to the market developing over time.

[Lord Marland]

My Lords, I am, as always, grateful. It is a common theme among those of us who debate the energy sector that we agree on many things. I am grateful for that.

The noble Lord, Lord Teverson, compliments the Government on their foresight in this issue. He is a man of deep knowledge and insight. We are grateful for his words. He asked what he called a couple of questions that turned out to be three, but mathematics may not be the noble Lord’s strong suit. I should just point that out.

The most important and relevant thing here is that this RHI scheme is the first of its kind. That is just one, I should say to the noble Lord, Lord Teverson. There will therefore be an element of trial and error, and we will have to learn from the FITs situation and make sure that we have escape routes if the situation gets overheated. That is surely and simply good housekeeping in terms of the regulations. The noble Lord asked what the take-up of the scheme has been and what types of businesses have been involved. It was a rhetorical question because the noble Lord is closer to these industries than I am but, as he knows, a lot of people in agriculture are heavily committed. I understand that a company that makes umbrellas has taken up the scheme. A wide cross-section of people has done so. In order for noble Lords to go away with a heart full of hope, the statistics are that by 11 July, Ofgem had received 670 applications, of which it had accredited 128. Ofgem had rejected four—therefore, not too many. The breakdown is: 517 biomass, two biogas, 34 solar/thermal, three biomethane and 53 heat pump schemes. I hope that that adds up to 670.

The point is that it is not about money. It is not about whether the cost is £17 million, £38 million or £50 million, but about the number of schemes that are taken up. They could be small schemes, but I think that the figure of 670 represents a pretty good stab at things. We are hoping that 2,000 might be taken up.

I am sorry if the noble Lord, Lord Whitty, is forlorn, although he is also wise. He is quite right: carbon savings are critical and we must be committed to them. I applaud his comments about making use of heat wastage and coming up with plans that maximise heat so that we can convert. That is fundamental good housekeeping and we are committed to that.

He says that we should have a lacuna suite of measures, which is a bit lost on me, but we have room for explanation later. He makes the point that we can turn the tap off with a week’s notice. In fact, it is a month’s notice. We will advise people a month ahead that we are getting to the end of the spending year and that they should be prepared. That does not mean that they cannot apply for the following year, which is entirely acceptable.

I do not disagree with the noble Baroness, Lady Worthington, and the noble Lord, Lord Whitty, when they talk about having perhaps a rolling budget or a rolling figure, but before committing to that I would like to introduce them to some Ministers and officials at the Treasury. A day spent there will help them realise that that is not the type of thing towards which they will be disposed.

I thank the noble Baroness, Lady Worthington, for offering her support. It is important for government and for the energy industry that both parties are seen to be supporting the right things. I agree with her that what we do must be done with confidence and that we must send a clear message to the sector about we are doing. Learning from past mistakes and acting upon them send a clear message that we are listening and learning, and that we have seen how things go wrong and are acting upon them. That is what we are doing with this legislation.

[Baroness Worthington]

I understand the need to learn from mistakes. I take very seriously the Minister’s comments about the Treasury. It is apparent today in the newspapers that there is a divide within the coalition Government over the right way forward. When we think about how we hit our carbon targets, let us think about least cost but also look at what is happening and what is being supported by the market. These budgets are very small. Seventy million pounds is not a lot of money in the grand scheme of things. Growth potential is actually great. Instead of being rigidly attached to these budgets, let us have a rational discussion: if something is going well and carbon is being reduced, we should not be counting pennies and penny-pinching at the expense of an industry that has great growth potential. I urge that we do not get too obsessed by these small-scale budgets, but think about the bigger picture. If things here are succeeding that is good. We do not want to cut things off just because they are becoming successful.

[Lord Marland]

I am grateful to the noble Baroness, Lady Worthington. The reality is that in times of greater largesse these things would be considered, but we are not in such a time. We are in a very tight fiscal time. In such financial circumstances, the Treasury has to be careful and clear about what we spend annually. There is no conflict between the Treasury and our department about this. We understand the fiscal rigour that needs to be put into this mechanism. We are giving plenty of support to this take-up. As I indicated earlier, we are satisfied with the number of people who have taken this up, but in financial terms we have not had the take-up that we would have liked. In an ideal world we would have liked that. Unfortunately, at the moment the world is not ideal, but we continue to press on.