Baroness Worthington
Main Page: Baroness Worthington (Crossbench - Life peer)Energy Bill
Baroness Worthington Excerpts
Lord Teverson
My Lords, if there has one been theme since the Bill started its long route over the past couple of years to where it is now, it is that it is not decarbonisation that has been the subject of the big debate—although it is a bigger debate now, I admit—but access to the market and competition by a vibrant independent generating sector. I would not be as pessimistic as the noble Viscount when he says that this sector would be squeezed out altogether. However, we want to see not just a surviving independent sector—and I believe it would survive under the conditions that we have at the moment—but a vibrant and expanding sector where we see future competition growing. I do not think we have got there yet. Whether it was the Select Committee in the House of Commons that went through the draft Bill or our own committee under the noble Lord, Lord Oxburgh, the whole area of independent generator competition was a theme that was common to us both and a very strong one.
What concerns me is not that the Government do not understand that this is an issue. I think that they do and that they have done for some time. They have done a lot of work on this, and I am sure that the Minister will go through it. The Government are aware that this is an issue and have been working on it very hard. What concerns me is that, as far as this Bill and the amendments are concerned, we still seem to be in a position of “may” rather than “must”. Although we talk about this in all sorts of other areas and sometimes use it as a political ploy—sometimes trying to strengthen something that is legitimate as a “may”—in this area it prolongs the uncertainty of the market.
When the Bill started its long process back in 1910—I mean in 2010-11; it might seem like the last century but it clearly was not—we said we saw this as important. I thank the Minister for keeping us very much in touch with the Government’s thinking via her letters. In her letter of 22 July she quite rightly said:
“This is a key issue as independent renewable generators currently hold a significant pipeline of projects”.
We understand that but the point is that over this period it has always been that the ROCs would finish in 2017. That system gave a fair degree of certainty. We are now two or three years on in that process and it is only some three and a half years until that April 2017 deadline. By the time this Bill becomes an Act, as it surely will in whatever state, that will be down to three years. As the noble Baroness, Lady Liddell, said, these major investment projects take time, whether it is in planning permission, judicial review or all the other areas. By then we will be well into the post-2017 period. That is why it is important that the Bill firms up on that and why I am slightly concerned that it is still a “may” situation in these amendments.
Also, the Minister’s letter says:
“Whilst I believe that the introduction of the Contracts for Difference … will greatly improve conditions in this market, I appreciate that [we] may need to go further to support independent developers. This is why I have tabled amendments to allow the Government to further support independent developers if necessary”.
I understand that entirely and welcome the great clarity that the Minister has given in her correspondence to all our debates through this Bill—that has been exceedingly good. What concerns me is that the point has come where, as a Government—I point out to the noble Lord, Lord Cameron, that they are Liberal Democrat as well as Conservative—we need to come off the fence. We need to say, “Yes, this is not just a problem but one we understand needs to be fixed—and it will be in the legislation”. I am sure the Minister will assure us that by Report there will be a very strong indication of exactly how this is to be played out.
One unfortunate thing in this long process is the feeling that the auction system has partly been disregarded because of the pressure of the big six. That may be completely fallacious and wrong but that perception is there. That means that the perception remains that this market is not fully open to full competition for a generation into the future. We absolutely need to make sure that it is.
Baroness Worthington
My Lords, I am very grateful to the noble Lords who tabled amendments and spoke so eloquently to them this afternoon. Obviously, in this group we also have the Government’s own amendments, which share many aspects with the others.
The question of independent generators is crucial. As noble Lords have already said, this is an important sector and deserves to be treated with all due seriousness. The group of independent generators, which I am sure has been in contact with many noble Lords present, already represents 20% of the onshore wind capacity in the UK. According to Ofgem’s projections, independent generators are already responsible for 12% of renewable capacity and are expected to be responsible for between 35% and 50% going forward—something to which my noble friend Lord Hanworth alluded. This is not a small part of the market but a considerable part of it, and my noble friend Lady Liddell pointed to the reasons for this. The group represents the entrepreneurial energy developers in this country and it is that burgeoning sector that is providing jobs and investment for a green economy. I am not saying that the big six and other energy companies are not also participating but the entrepreneurs have shown great tenacity and appetite for engaging in a complicated market, but yet can succeed.
I should like to bring the Committee’s attention to the fact that last week economic statistics were produced that showed that the green sector in the UK grew in 2011-12 by 5% at a time when the rest of the economy was in a double-dip recession. The green sector is an important engine of growth for the country and we hope that that will continue.
Lord Deben
Did the noble Baroness also notice that the sector much outpaced every other part of the economy and was particularly strong in the United Kingdom, when compared with comparable economies? When the naysayers, who are not represented today—as they rarely have been in this Committee—talk about these matters, it would be good just to remind them that nowhere else in the economy is there development going on like this.
Baroness Worthington
I thank the noble Lord for his timely intervention. I could not agree more. It is a shame that those statistics were not trumpeted more. We would all feel very proud that that happened at a time when the rest of the economy was not doing so well. It was not just that there was good growth in that sector but it positively affected our balance of trade. There are very few sectors in which we can say we have a positive balance of trade with China, but in this sector we can. As the noble Lord alluded to, the global average rate of growth in this sector was only 4%, while we were at 4.8%. Tiny nation though we are, our growth in this sector is outstripping much larger nations. We are up in the top six countries in this sector. I am sorry that I am waxing lyrical slightly here but it is important. We are a nation of innovation and entrepreneurial spirit. We were the country that brought the Industrial Revolution to the world; let us not forget that. Let us hope that we will remain at the forefront of this industrial revolution. I know that that sounds like a grand introduction but it is pertinent to this part of the Bill. We really need to make sure that this sector is protected and that no unintended consequences are meted out to it as a result of the Bill.
Why is there an issue? It is probably fair to say that it was already emerging. The renewables obligation has been a good policy that has driven a lot of investment, but we were already hearing that independent generators were finding it difficult to secure power purchase agreements. At the heart of this issue is the problem, alluded to many times throughout our deliberations in Committee, of the vertical integration of the big six. There is no liquid, open competition in generation. We have an oligopolistic system of six vertically integrated companies that dominate. It will come as no surprise that on this side of the House we believe that the time has come to address that. We would have preferred to see genuine market reforms that required the selling of power into a competitive pool, which would be good for competition, liquidity, the independent generators and the consumer. We know that the Government are not yet there but we hope they will join us soon.
It is true that the Bill helps to make the case even stronger for splitting apart that vertical integration because we are moving into a system of contracts for difference. We are moving away from the arguments in favour of vertical integration, which are that you need it to secure finance and build new capacity, but when you have a CFD the argument is, by and large, weakened. There is also a big intervention in the capacity mechanism. The time is therefore coming, if not now then very soon, for the issue to be properly addressed.
I want to say a word about Amendment 55AGA, to which the noble Lord, Lord Roper, has spoken. These proposals, though welcome, come quite late in the day. As has been mentioned, we have known about this problem for two years and yet here we are addressing the issue on the eighth day in Committee and on the final stretch. I think it was the noble Lord, Lord Jenkin, who said that it feels as though we are making things up as we go along. I would not say that it was as bad as that but it does feel as though these measures have been considered quite hastily. Making this a negative resolution risks the ire of the Delegated Powers Committee, which has not yet had a chance to consider it, and we strongly urge acceptance of Amendment 55AGA in order that we may properly scrutinise this complex and rather late addition to the Bill.
I should have said at the start that I want to pay tribute to my colleague, Alan Whitehead, in the Commons, who helped raise this issue. I apologise on behalf of my noble friend Lord Grantchester, who was going to speak to the amendment. He cannot be in his place today but he wishes us every speed.
I have explained why there is an issue and, in the spirit of collaboration and seeking to make the Bill as strong as possible, I should perhaps now explain what I think the solutions are. First, we know that the industry wants to find a resolution to this issue. It is very keen to work with the Government and would like to have proper consultation with the department. It has been mentioned to us that the organised consultation process was slightly opaque. I know that five of the renewables trade associations, as a group, have written to the department requesting more clarity in the consultation process around the detail of these provisions. They are worried about communications not being consistent and they are worried about the timelines. They need reassurances from the department and a clearer process of involvement.
Further to the point made by the noble Baroness, Lady Liddell, this should also include investors, who are absolutely at the heart of the issue. Clause 44 is about facilitating investment and not about liquidity, which is dealt with in Clause 43. It is very important that the consultation process fully involves the investors who will be necessary to get these projects under way.
I have not spoken about the GPAM alternative. I am not sufficiently across the details to know whether the GPAM is a better option than the backstop power but the wording of the government amendment limits the options. At the moment, Clause 44 gives a broad power to do what is necessary. The government amendments would remove that flexibility and narrow it down to the PPA. The PPA may be the right answer but I am not certain that that narrowing down is a good idea. I have been critical of the breadth of some of the powers but in this case, given that it is still in development and that consultation is necessary, I urge the Government to keep open the option of making a different type of intervention if necessary. That would tweak the government amendment. It is important that we do not put all our eggs in a basket that is still being made when we are not quite sure whether it will work.
The industry itself can find solutions. The big six are obviously dominant but there are other players such as independent suppliers who can give PPAs. Unfortunately, the creditworthiness of those suppliers is an issue.
Baroness Liddell of Coatdyke
My noble friend is right to draw attention to the fact that there are a range of different institutions that one can talk to. For some of us, one of the easiest things to do would be to have a cup of tea with the noble Baroness, Lady Armstrong, who until two weeks ago was the chairman of a community energy company that has just fallen off the cliff because of the attitude of a major generator. She, of all people, can tell us the view of the independent generators about this period of uncertainty, which is having an impact on people even as we speak. It is a small pro bono operation that has been jeopardised by the attitude of a major generator.
Baroness Worthington
I thank the noble Baroness for alerting us to that. As I was saying, there is clearly an issue and a need for intervention. There are existing alternatives for the independent generators. Perhaps one thing that we need to explore is how we can strengthen those independent suppliers. Ecotricity was a very good example. It was set up to build wind farms but found that the way that it could build its business best was to have a supply arm creating its own form of vertical integration. It is a way of creating more liquidity and plurality in the market to help those independent suppliers to buy from the independent generators. That seems logical, so perhaps we can explore how those can be better balanced.
There are also aggregators in the market. One problem that independent generators face is that individually they do not have the capacity to employ traders. The big six all routinely employ traders for all sorts of reasons, and that gives them a massive market advantage from being able to enter the various markets themselves. Aggregation and the provision of grouped trading services is necessary to help to support suppliers. That is another area that we could look at in more detail to see whether something needs to be done to make it more effective.
Finally, if we find, once the Bill is passed and we are on the road towards a low-carbon economy, that independent generators are simply not getting PPAs, we must make sure that we are monitoring the situation closely. I hope that the authority will be given a clear direction to be listening and asking what is happening in the market following the Bill's enactment. I shall end on a hopeful note. If it then transpires that that there is insufficient liquidity and PPAs are not being granted, perhaps the authority will accept that it has not done enough to generate competition in generation.
Baroness Worthington
I do not think it will be too late. The reason I say that is independent generators, as we have just discussed, are already quite substantial players; they are receiving revenue as we speak. This is about their forward plans and the investment in the future. They will not go bankrupt because we are not doing anything to affect their current investment base. We can overegg the problem. I have stated myself how important I think they are, but I do not think that they are going to disappear or go bankrupt, because they all own projects today.
I was slightly thrown by that intervention. If we find that there is a problem: that the liquidity is not there and the PPAs are not forthcoming, that signals that we have a further market reform to bring forward, which must look seriously at the pooling of power and the creation of a genuinely competitive market. That would be the real solution for giving everybody a fair market within which to operate.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, the issue of competition and, in particular, the route to market for independent renewable generators has been referred to throughout the Bill’s passage in this House and in the other place, and the debate has been equally eloquent and balanced today. There is good reason for that. I agree with noble Lords: independent renewable generators have a significant pipeline of projects across the UK and bring essential competition, innovation and diversity to the energy market.
The Government recognise that in recent years it has become harder for independent renewable generators to secure power purchase agreements on bankable terms. We judge that several of the factors currently constraining the market will be resolved by the introduction of CFDs, but some issues may continue to limit competition for long-term PPAs after CFDs have been introduced.
My officials have worked very closely with industry to prepare the market for the CFDs. We have already established industry working groups to develop PPA structures that will be fit for purpose for the new market arrangements and a code of practice for those participating in the PPA market. Those will help new entrants and smaller generators to navigate the process of negotiating and securing PPAs. However, the Government have decided that it is necessary to provide further confidence for developers and investors by tabling amendments to the existing powers in the Bill.
I am very pleased to hear a welcome from noble Lords from across the Committee for the amendments. They will enable the establishment of a power purchase agreement scheme which could provide generators with access to an off-taker of last resort. This mechanism would be similar to that outlined in my noble friend’s Amendment 55AB. In the light of the Government’s amendments, I hope to reassure my noble friend and other noble Lords that these issues are being addressed.
Baroness Worthington
It is probably a question of our understanding more clearly how the price setting might be derived. Under government Amendment 55AF, two processes are set out in subsection (6). One is a process involving a determination and the other is by an auction or competitive process. I think that the noble Viscount was simply asking to insert a reference to current market prices. Perhaps a letter clarifying new subsection (6) would be helpful to everyone.
The government amendment removes some of the flexibility currently in the Bill by providing under Clause 44 that the backstop PPA is the only policy, whereas before it was broader. I reiterate the comment that, given that this is a moving piece, it might be sensible to retain a little flexibility.
Baroness Verma
I thank the noble Baroness for that. I recognise the concerns that noble Lords have rightly shown. We are keen to see greater competition and choice in the market. As I said, through the summer we will be looking at those issues in much more detail and working with stakeholders.
Further to that, I hope that my explanations have been persuasive enough for noble Lords not to press their amendments and to support the government amendments.
Baroness Worthington
Baroness Worthington
My Lords, today the Committee started with a discussion around transitional arrangements for renewables because of the grouping of the amendments, but the part of the Bill we are still debating includes reference to the contracts for difference and the detailed ways in which they will work. Clause 17 is interesting in that it gives the Secretary of State a power to set by order both a maximum amount of money that can be spent on contracts for difference and also, under subsection (4), a provision to include targets.
I have spoken both at Second Reading and in Committee about my concern that we are potentially entering into a great politicisation of energy policy with this Bill. We are, for good reason, proposing to move towards a much more administratively complex and centrally controlled system for allocating funds to low-carbon projects. There are reasons for that and we support the broad principle. However, the Government have been quite clear that this is a temporary transitional arrangement and supporting documents have referred to the fact that this will ultimately transition to a competitive system where, through technology and blind auctions, CFDs will be allocated in an administrative way with far less central control. Given that that is where we are trying to get to, I am concerned that we should not unnecessarily constrain this transitional period by a system of micromanagement which we are unlikely to get right.
The deletion of subsection (4) would remove the power to make targets for the means by which electricity is to be generated—that means the type of electricity generation—and remove the risk of the scale of generating capacity being unduly split up. The definition of “eligible generators” will be set by order. I think that that is correct. I do not see why you would want to have specific targets by scale.
Thirdly—and this is potentially the most worrying aspect—the Secretary of State may wish to make targets by geographical location. I am not saying that this is what would happen, but it is obvious that that holds the potential for a huge degree of politicisation of energy. If a Government are strong or weak in a particular region and wish to direct generating capacity into that area, for whatever reason, this would enable that to happen. We do not want to go back to the bad old days, whereby, to win a seat, you might want to boost a few jobs and put a power station there. That seems to be retrogressive. You could also lose your seat by doing that, it is true to say. It works both ways. However, I should be interested to hear the rationale from the Minister as to why geographic targets would be necessary. I am also nervous about undue micromanagement in terms of targets, sub-targets and sub-targets of sub-targets. We have had some experience of that already, with both the RHI and the FIT schemes having very targeted small allocations of pots of money to be spent on different types and scales of technology. Everyone with whom I speak in the industry is heartily sick of that, partly because it is almost inevitable that those targets will be wrong. The market finds the solutions according to its internal logic, and it is very difficult for civil servants to guess at that.
I am very nervous about the sub-division of the levy control framework into small, tight pockets of money where, if it is anything like the RHI and the FIT schemes, digressions will be introduced. If a certain type or scale of technology delivers, those digressions will hit and the market can be pulled away quite rapidly. We are seeing that with the solar feed-in tariffs at the moment. There is a great fear that, if the mid-size solar projects took off, they would immediately hit a digression and the market would disappear. Therefore, there is a very good reason to be nervous about micromanagement in this context.
Nor do I think that this measure can work in practice. The levy control framework is a seemingly fixed amount of money, but the levels of spend that will come through the CFD is not fixed, so you cannot estimate how much money will go to different projects until you know the difference between the reference price and the strike price, and that will come only with time. I am nervous about the levy control framework anyway, but I am even more nervous of one that is divided and sub-divided down into ever smaller pockets, because that will create a great deal of uncertainty in the market and has the potential to disadvantage rather than reward winners. Let us be honest—we want the market to uncover the most successful projects—the ones with the best chance of delivery. If, every time a sector or sub-division shows that it is being successful, it has its funding taken away or cut, that is not really a way to build an industry. That is why we have tabled the amendment. I admit that it is a probing amendment but this is a serious issue in relation to how CFDs will operate. I look forward to hearing the Minister’s comments.
Baroness Verma
My Lords, I thank the noble Baroness for her amendment. It seeks to remove Clause 17(4), which sets out a list of those things for which the Secretary of State might wish to set targets and which National Grid should take into account when allocating CFDs.
The Government intend to use CFD strike prices as the principal mechanism for bringing forward sufficient quantities of low-carbon generation under their electricity market reforms. Draft strike prices have now been published in the draft EMR delivery plan. The Government have also taken powers within Clause 17 to help to give effect to our wider objectives in meeting our 2020 renewables target, delivering a diversified generation mix and bringing forward new and innovative technologies.
The intention of including this subsection was to reassure industry and others about the aims of this clause and to provide some examples of how they might be used through the provision of a non-exhaustive list. Any such targets would be outlined in the final EMR delivery plan later this year, or in subsequent annual updates. As part of that, the Government might wish to set the targets in relation to the means by which electricity is generated to facilitate the development of marine and tidal or carbon capture and storage technologies—technologies with the potential to play a significant part in the UK’s generation mix in the longer term but which might otherwise be unable to compete on price with more mature technologies.
The Government have no current plans to set targets relating to the generating capacity of electricity generating stations. However, we might wish to do so in future if we believe that that is necessary to send a clear message to the supply chain to encourage investment in infrastructure supporting the delivery of a particular technology. The Government may wish to set geographic targets for a number of reasons. For example, we are considering whether renewables trading may be used to help to achieve our renewable and decarbonisation objectives, and setting geographical targets may support that.
It is important to make it clear that the Government do not intend to use that power to interfere with local planning decisions, and we have no current intention to use the power to restrict or require the allocation of CFDs in particular locations within or outside of the UK. We believe that the inclusion of the list within the clause promotes clarity and transparency, providing market participants and investors with additional information which helps them to make their investment decisions. Removal of the subsection may increase industry’s perception of risk, as it would appear to widen the scope of the clause. Industry feedback has been positive about the fact that we have sought to give strong indications of how we might use the power in the Bill, although it recognises that this is a non-exhaustive list. The users we have described are understood by industry.
I recognise the concerns of the noble Baroness, Lady Worthington, but I hope that the reassurances that I have given her will persuade her to withdraw her amendment.
Baroness Worthington
My Lords, I thank the noble Baroness for her response, which gives a degree of reassurance, certainly on the geographical location. I wonder whether a tighter wording might have allayed fears. If it is indeed to do with whether locations are outside or inside the UK, that is very different from a broad definition of geographical location.
I still have concerns about the need for the targets. Will they be legally enshrined in secondary legislation? If so, that seems slightly too restrictive. Perhaps people in the industry at the moment are reassured, but in a year or two, when parts of the levy control framework have already been used up and certain subsectors are feeling that their targets are too low, that sentiment could quickly change. I am just thinking of the bids that we have already had for the investment contracts. We already have a number of biomass conversions and a large number of offshore and onshore wind projects. What happens if more projects come later down the track when those bits of the targets have been used up?
I am just trying to think through how this will work in practice. I know that it is only a power that is being taken and that the Government may not necessarily use it, but I urge against too much micromanagement and too much setting of targets in secondary legislation. We may come to regret that; it may well push up the cost to consumers. The noble Baroness has spoken eloquently in favour of keeping costs low. The market will seek out the least-cost solution. I would be wary of too much intervention or of trying, as the noble Baroness mentioned, to support a particular supply chain or a particular technology. The more this comes naturally from the market, the more sustainable it will be. On that basis, I am happy to withdraw the amendment.
Lord Stephen
My Lords, in moving Amendment 55AK, I wish to speak also to Amendment 55AL, both of which stand in my name and that of the noble Baroness, Lady Worthington. In doing so, I refer to my entry in the Register of Interests.
This matter follows on from the discussion we have just had involving the noble Lord, Lord Whitty, who raised important issues to do with the transition from the renewables obligation to contracts for difference. It is not an understatement to say that there is huge concern in certain sections of the renewables industry about this issue. Those sections of the renewables industry are important as they will be relied on to deliver the very major increase in renewables generation that the Government are hoping to see by 2020, given the £110 billion of new investment and the huge increase in renewables capacity. For example, the latest renewables statistics talk about offshore renewables generation rising from 3 gigawatts today to 18 gigawatts in 2020. That is 15 gigawatts more in a difficult offshore environment. Taking early final investment decisions will be crucial to the construction and commissioning of that generation. The onshore figure of 6 gigawatts today, which is double that of offshore, rises to 13 gigawatts by 2020, which, again, is a very major increase.
One of the purposes of tabling these amendments is to help the Government to deliver their policy in this area given that they are clear that they want to deliver this increase in generation and want to provide certainty. Indeed, they have made helpful and supportive statements on these issues. Timing is very important here as regards secondary legislation. It was encouraging to hear the Minister talk about the consultation document that has just been published. However, that consultation will take time and then further time will be taken in making decisions. It is intended that these decisions will be implemented not through primary legislation but through secondary legislation. Because of that, and the uncertainty over the state aid issue, it will take some significant and powerful signals from the Government to ensure that the final investment decisions which are so crucial to achieving these targets are kept on track. That is the background to the matter. We must ensure that this transition from the renewables obligation to contracts for difference is as smooth as possible. I think many of us here would rather that it had all happened two, three or even more years ago so that it did not happen at exactly the same time as this huge growth in offshore renewables. However, we must make the best of the situation and do everything in our power to achieve these targets.
For projects accredited under the outgoing renewables obligation, there is uncertainty as to what will happen after 2027, when Ofgem will stop issuing ROCs. The Government have said that projects will see a “grandfathered transition” to a fixed price regime through to 2037, when all ROCs will finish. However, it is uncertain from the Bill whether all projects will be eligible for the new fixed price instrument, and whether the value will be equivalent to standard ROC payments. This leaves uncertainty regarding the value of existing RO projects and threatens the investment decisions being made presently. It is critical to the investors to whom I have referred, who are making decisions now or soon, that the policy intention to provide grandfathering is reflected in the Bill rather than in secondary legislation. It would be interesting to hear the Minister’s views on this point, but it may be as long as two years before there is clarity and certainty if the secondary legislation route is adopted.
My amendments to Clause 46 therefore aim to create the certainty required in regard to the entitlement and the value of certificates. My first amendment would set within the Bill the Government’s policy aim to give generators certainty over the incentive they receive. It aims to ensure that when making a certificate purchase order, the Secretary of State is guided by the principle of equivalence between the regimes, thereby providing continuity and certainty to generators by replicating the accreditation status and the banding arrangements of the RO.
My second amendment would remove subsection (8) from proposed new Section 32V. You have to turn quite a few pages from the beginning of Clause 46, but you only need to start reading that subsection on page 40 to see why it might start to strike fear into the hearts of investors because it authorises the Secretary of State to,
“review the banding provision at such intervals as are specified in or determined in accordance with the order, and … may authorise the Secretary of State to review the whole or any part of the banding provision at any time when the Secretary of State is satisfied that one or more of the specified conditions is satisfied”.
In other words, it gives wide discretion to the Secretary of State to change bandings and rates in a way which would make investors think of Spain rather than the United Kingdom. We want to remove that wording and find a way—the Government may have another way than the one I am suggesting today—of allowing investors to have confidence to do their internal rate of return calculations and to get clarity on the value they are creating by investing in projects over the next couple of years. That is it. It is as simple as that. It would risk current investment in technologies if developers were unable to have confidence that the rate of return and the rate of support they would get during the lifetime of the scheme could be relied upon.
These changes will ensure that we can continue to drive investment in renewables through the transition scheme to 2020, minimising any hiatus in investment before the contracts for difference regime is fully up and running. I beg to move.
Baroness Worthington
My Lords, I am grateful to the noble Lord, Lord Stephen, for tabling the amendments, to which I have added my name. We fully support them. As we have said previously, this Bill is a significant intervention and we need to ensure, where we can, a smooth transition from existing policies which have served us relatively well as we make the move into an unknown system. The amendments of the noble Lord, Lord Stephen, are designed to achieve that.
In this context, it is imperative that we do not breach the trust of the industry and the investors who put their money into projects by misinterpreting the term “grandfathering”, which is a clearly understood phrase. It means that if you invest in good faith, there will not be regulatory interventions to change the fundamental tenets of that investment. Unfortunately, the provisions in this section stretch the definition of grandfathering to breaking point.
We particularly support Amendment 55AL. As has been eloquently expressed, the words in the subsection will certainly strike terror into the hearts of investors. They are far too broad and enable changes to the fundamental facts on which an investment was based. It will damage investor confidence not only in relation to that one narrow aspect but more globally. We are asking many investors, entrepreneurial companies and the existing market players to work with this new system. I think that it can work, but if we start on the basis of regulatory uncertainty and not recognising and respecting grandfathering, we will start off on a very poor foot indeed. I think that I am right to say, although it may not have been directly in this context, that I have heard arguments played back by Ministers that have said that we cannot introduce emissions performance standards on to existing coal plant, because that would damage investor confidence. It would mean that people saw us as an unreliable place to invest. This aspect is actually far riskier than that, and I hope that the Minister can give us words of encouragement in relation to these two amendments, which are essential to get us off on the right foot with the Bill.
Lord Gardiner of Kimble
My Lords, I thank my noble friend and the noble Baroness for tabling these amendments, and for an illuminating, positive and helpful debate. In Committee, we can help to fine tune a Bill. My noble friend mentioned helping the Government; our duty is to help the nation to get this right. Certainty, trust and the smooth passage of transitional arrangements are certainly key.
Amendment 55AK inserts a requirement for the fixed-price certificate scheme to replicate the arrangements under the renewables obligation. The amendment aims to ensure that the fixed-price certificate scheme will be based upon and replace the RO, which is indeed our intention. I can confirm for my noble friend Lord Stephen that those generators that would otherwise qualify to receive renewables obligation certificates in 2027 and beyond will instead qualify for fixed-price certificates.
Clause 46 already mirrors much of the primary legislation for the RO to ensure that we are able to replicate the effect of the RO, so far as is appropriate. The differences from the RO are a result of the different ways in which the schemes operate; for example, the fact that the price of certificates will be fixed means that this will no longer be a market-based scheme. Amendment 55AL removes the provisions for both regular and ad hoc reviews of support levels under the fixed-price certificate scheme. The Government do not expect to make regular support-level changes under the fixed-price certificate scheme. However, I hope that noble Lords would accept that the Government must be able to respond to significant unexpected changes, such as major cost reductions or increases within a particular technology, so that we can deliver the generation we need for our renewables targets at value for money for consumers.
My noble friend mentioned secondary legislation. In the autumn of 2014, we intend to consult on the secondary legislation for the transition of the renewables obligation to a fixed-price certificate regime. We propose to bring forward this legislation in early 2015.