Renewable Heat Incentive Scheme (Amendment) Regulations 2014

Baroness Worthington Excerpts

Monday 12th May 2014 Grand Committee

Through learning the lessons of operating the scheme, we are able to refine the rules to give better clarity to participants and iron out any lumps and bumps, helping to ensure the smooth operation of the scheme. With these changes, the non-domestic RHI will be well placed to deliver our ambitious targets for renewable heat in the UK. With the domestic RHI showing early signs of success, we can hope to bring about a radical change in how we produce our heat in all aspects of our lives, developing an exciting market supporting thousands of jobs. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am very grateful to the Minister for her introduction to the regulations to be considered today. As we have spoken on the subject in the past, I reiterate our strong support for mechanisms to incentivise the uptake of renewable heat. Indeed, my Question in the House last week touched on that. We said that we would have a debate and here we are, so I am very grateful for this opportunity.

I have made these points in the past, so I will not spend too much time on them. We are very interested in the rates of deployment under the scheme and would like to see as much emphasis as possible from the Government on progress to date, an analysis of what could be done differently and how things can be improved to increase the rate of uptake. The time between now and 2020, when we face our renewables energy targets under the European renewables directive, will elapse quickly so it is important that we make good progress. As the noble Baroness pointed out, heat emissions account for 45% of our total energy system, so it is a hugely important area.

These regulations are welcome. There are many aspects of them which show that the Government are listening, having taken proper and due account of what stakeholders are feeding back, and have made appropriate changes. That is very welcome. Having said that, I still have a fundamental worry about the scheme being complex. Many elements are quite prescriptive. The schedules setting out all the budget elements per fuel type or per scale are complex. These sums of money are now being put into ever smaller parts, with digressions and various rules which are complex to understand. My fear is that if you are a small business or a company out there trying to build a business on the back of the regulations, they look very complex. My gut instinct is that markets thrive on simplicity, with the Government dictating outcomes and allowing the market to find the best solution. I recognise that in the renewable heat industry, we are dealing with a nascent market and it might need this kind of administratively controlled system to start it off, but I hope that we will hear from the Minister about the future support for renewable heat. Can we get to a slightly less administrated, inflexible system of budget management than we have and towards a broader, more market-based system, which it would benefit from? That is my first point.

The second general point is that in terms of value for money for the consumer, renewable heat provides some of the best and least costly options we have for decarbonising and diversifying our fuel mix. You can see that by looking at some of the pence per kilowatt hour tariff levels that have been set. Some of those technologies are very cost competitive with some of the renewables technologies that we are funding in the electricity sector.

In particular, that is true if we look at biomass. Not only do you find relatively cost-competitive rates at which you can deploy biomass—mainly commercially; I think that the domestic sector is slightly separate—you also save on fuel imports, because for every tonne of biomass that goes into an energy system, a large proportion of it can be converted into heat, whereas only roughly one-third of it can be converted into electricity. For biomass in particular, where there are some associated sustainability issues, it makes an awful lot of sense to ensure that your biomass goes into the heat network ahead and above of it going into the electricity network.

To what extent does DECC monitor the incentives that are in place and compare them against each other? What does the RHI biomass subsidy tell us compared to the subsidies being paid under the RO, the FITs and the CFDs that apply to electricity? Can we discuss whether those incentives are pointing in the right direction and whether we have the right incentives to deploy biomass in the most efficient way in both carbon and cost terms?

My other question is on the solar thermal element. The Minister mentioned that the cap of 10p per kilowatt hour has been maxed out for that technology but it is still less than the industry says it needs. I wonder about the rationale for setting the cap at 10p per kilowatt hour; it is probably somewhere in the literature and I apologise if I have not absorbed it. I would be interested to know whether some of the CFDs or feed-in tariffs that we are offering in electricity go beyond that 10p cap. If so, why are we capping heat but not electricity in the same way? I am curious about that.

I have one question about the changes to the way that projects will be accredited. The tariffs for CHP state that the rules will be relaxed to allow CHP units that have both fossil and biomass to be eligible. How do we then police that? We know that all our HI payments are on a deemed basis. If people have one unit that can fire on either fossil or biomass yet they get a deemed payment, what is the evaluation, monitoring and verification process and how will we police it to ensure that we do not create some kind of weird incentives there?

I have raised in the past my keen interest in bio-oils being used to replace heating oil. I think I am going to meet officials informally to talk that through; I mention it again because it is still a low-hanging fruit that we should explore having.

Those are my main points. I say again that the regulations are welcome. My questions are probing in nature and from a desire better to understand the regulations. I look forward to hearing the noble Baroness’s reply, and if she would care to meet on this topic subsequently, that would be great.

[Baroness Verma]

I am extremely grateful for the general support that the noble Baroness has given to the regulations. As she and I are both aware, given that the scheme is the first of its type in the world, there will be lessons to be learnt as we go in looking at how technologies respond and react to the work we are doing. As she rightly points out, renewable heat is really key to being able to manage some of the stresses that will be put on the power sector in the longer term.

To respond to one or two of the noble Baroness’s direct questions, she asked about the solar thermal element and the difference between the incentives there. The key, of course, is that to achieve our 2020 renewables target we have to be able to set tariffs to consider all technologies. The width of the question is about ensuring that all technologies are able to partake in there without distorting the market for any technology that wants to come in but cannot find space to be supported. Of course we have to work to value for money as well.