Renewable Heat Incentive Scheme (Amendment) (No. 2) Regulations 2013

Lord Grantchester Excerpts

Wednesday 10th July 2013 Grand Committee

[Lord Teverson]

My Lords, I always find on these occasions that it is a great motivation to speak to a crowded House. I congratulate the Minister on her mastery of the subject. I did not even see her grasp for her water once, which is a tremendous start to the debate. I now understand the context of drying and cleaning. I could not quite work that out; I was thinking of washing machines, but it was clearly nothing to do with that.

This is a serious subject. As my noble friend said and as the Explanatory Memorandum sets out so well, heat is an important part of our energy usage in this country. It is an important part of decarbonising our energy requirements and meeting our 15% target by 2020. Starkly, as the Explanatory Memorandum says, we are now at something like 2% and we need to get that up to 12%. That is a big ask over the next few years and therefore I very much welcome this instrument.

There are bits of the regulations that I particularly like. One is the emphasis on air quality, which is really important in terms of solid biomass, and another is the flexibility that it gives to ensure that the scheme will be much more user-friendly than it is at the moment. The consultation showed that some of the metering requirements were difficult, and I congratulate the Government on taking that on board and trying to fix it in a very practical way. I shall come back to a couple of issues on that but, as I say, the air quality side is important as well. In my modest house I have two wood burners, and if the wind is in the wrong direction the air quality in my house is pretty bad with the solid biomass of the logs. However, that is not quite what this statutory instrument is about.

I wanted to ask the Minister about the domestic RHI but she has more or less answered that. I hope that the urgency on that continues because, apart from anything else, there has been a stalling of that industry in terms of waiting for the scheme to come along. It is very important to make sure that it starts now.

Coming back to the regulations and the Minister’s speech, she said that certain of these technologies have not met their potential with the RHI so far. What are those technologies? I particularly welcome deep geothermal technology as one of the things that the Government are starting to look at in terms of future moves on these schemes. That is excellent.

I should like to ask a question about Regulation 23. It refers to new Regulation 42A(3)(a), which states that,

“each length of piping which is 10 metres or less and situated outside a building is properly insulated”.

Although this document has technical depth, it says that the piping must be “properly insulated”, and we see that that is key when reading the document all the way through. I am surprised that there is not more of a specification there. I presume that there is an industrial definition of “properly insulated” but, to monitor and control the process, it would seem to be important to have a specification relating to the insulation. It is a term that I would like to understand.

When equipment is moved—again, I welcome this as part of the flexibility—does it have to be recertified or does it have so-called grandfather rights in its new situation?

My last question is on the impact. Paragraph 10.2 of the Explanatory Memorandum talks about air quality limits and states clearly that they will affect only people who are investing in the scheme. Does that mean that the air quality standards for an RHI installation are different from those for boilers otherwise—or are there air quality standards for these boilers otherwise? I should be very interested to understand whether there is a differentiation here and, if so, why, and how we move forward on that—or perhaps I have misread or misinterpreted that.

I am delighted to say that I have just completed a solar thermal installation on my house—at my own expense, obviously, as there is not a domestic RHI. I got it there just in time for the wonderful sunshine that we are having at the moment, and I am really enjoying free hot water. The more that British industry can do this, the better.

[Lord Grantchester]

I thank the Minister for her extensive introduction to the regulations. The RHI, launched in November 2011, is a key financial scheme focused on encouraging climate change mitigation and is especially relevant to off-grid businesses in rural areas which are dependent on heating oils.

On all sides of the House, renewable heat is recognised as an essential component of the UK’s long-term energy mix. In a debate on the order in the other place yesterday, the Minister there gave details regarding uptake of the scheme, which is very encouraging—indeed, the Minister here has mentioned some of those figures today.

However, I am concerned about the application of the degression system, whereby tariffs are reduced if one or other or both of two thresholds of expenditure are reached—namely, a technology-specific trigger where an imbalance in take-up between technologies occurs and a total trigger that puts an overall cap on spending. While I am not critical of there being an overall total trigger, I am nevertheless concerned that the total may be set rather low, and therefore I am concerned about its effect on applications. If, as of 1 June this year, a scheme payout to date of £13 million has resulted—as the Minister in the other place said yesterday and the noble Baroness has repeated here today—the degression system is already in action.

I am concerned that a tariff reduction of 5% at this early stage will discourage schemes coming forward. The Minister in the other place went on to say that £53.8 million is expected to be spent by this time next year. Will this result in further tariff reductions and does this total include the effect of degression? When an application is made under the scheme, when is it known at what level the tariff will be paid? While it is not specifically relevant to the regulations, it is nevertheless important to understand how the scheme has worked to date and how details of the degression payments are published in real time to applicants. Will the payment level be set at the time of an application and thereby not be affected by later uptake by further applicants?

The developments in the RHI that the Minister has outlined today are entirely to be welcomed. Meeting renewable energy targets should not come at the price of increased risks to public health or the environment. Several key outputs will be achieved. First, air quality will be protected through the introduction of emission limits for new biomass installations supported through the scheme. Secondly, the number of excessive, burdensome compliance requirements will be reduced, thereby increasing take-up; for example, by reducing the burdens associated with metering.

Thirdly, the relocation of accredited installations will be permitted, thereby allowing asset values to be maintained and the economic life of assets to be extended. The Explanatory Memorandum is commendable in its assessments, judging that the total resource cost increase will amount to about 8% over the lifetime of the policy, that additional testing and certification costs are likely to be largely immaterial and that Ofgem’s administrative costs be limited to 0.5% of total costs. Against this, the benefits are estimated to outweigh costs by the commendable margin of eight to one.

--- Later in debate ---

[Baroness Verma]

My Lords, I am grateful to my noble friend Lord Teverson and the noble Lord, Lord Grantchester, for their warm welcome to the regulations. I am also grateful for the quality, rather than the quantity, of the debate. In this House, the one thing that we do well is contribute with quality. A number of questions have been asked and I will try to go through them as much as I can. If there are any questions that I fail to answer today, I will undertake to write after reading Hansard.

My noble friend Lord Teverson asked what “properly insulated” means. I am advised that it means that it is a section of external piping that does not exceed the maximum permissible heat loss outlined in British Standard 5422. I am sure that means a lot more to the noble Lord, Lord Teverson, than it does to me. “Properly insulated” is defined in Regulation 3 of these regulations.

My noble friend also asked about relocation. I think that I referred to that in my opening remarks. However, I am quite happy to repeat myself if the noble Lord wishes me to. Basically, if any plant is relocated the participant will be entitled to the remainder of the existing tariff for the remainder of the tariff lifetime. The plant does not have to meet air quality requirements, for example, as it is not a new accreditation, provided that the original accreditation is provided.

My noble friend also asked whether air quality emissions limits will apply only to future installations. The RHI emissions limits in these regulations are more stringent than those that apply to the highest-emitting boilers currently in the market. As a result, we will be encouraging the use of lower-emitting boilers.

On the question of which technologies have not met their potential, the currently supported technologies that have been subject to the tariff review are large biomass—that is, with a capacity of over 1 megawatt—ground source heat pumps and solar thermal.

The noble Lord, Lord Grantchester, asked why we were using degression so early in the process. The deployment of medium biomass has exceeded the rate that we had expected when the tariff was originally set, which suggests that the tariff is higher than is necessary to incentivise installers. Therefore, we may be overcompensating further installations if we do not adjust our tariffs downwards. Although we encourage biomass through its size, we do not want to support one type of technology in particular when there are other technologies out there that may do as well and provide equal value for money—and it is value for money that we are really keen to get. I hope that that has answered the noble Lord’s question.

[Lord Grantchester]

I am listening very carefully to the noble Baroness. Following the wise words of the noble Lord, Lord Teverson, my concern is that it is quite a big ask to reach our limits by 2020. I am concerned that, if the degression totals are set too soon and too early, we may choke off from coming forward those who could potentially help to meet these quite stringent targets.

[Baroness Verma]

The difficulty is achieving a balance between value for money and ensuring that we meet our targets. However, as I said, I think that we are managing to provide some encouragement and there is a great deal of interest. What we do not want is for one energy source to have an unnecessary advantage over another.

My noble friend Lord Teverson asked about the limits on boilers outside the RHI scheme. There are no emission limits for boilers outside the scheme but other measures may apply—for example, where environmental permits are required or where a boiler is within a smoke-controlled area under the Clean Air Act.

The noble Lord, Lord Grantchester, asked some other questions but I may have to respond to him in writing because I am finding it slightly difficult to read the responses. However, I shall finish with a response that I can read concerning a question from the noble Lords, Lord Teverson and Lord Grantchester, on the urgency of the domestic scheme. Details of the domestic scheme will be announced before the Recess—that is, in a matter of a few days rather than months.

I hope that, on that note, noble Lords will support these regulations and I commend them to the Committee.