Renewable Heat Incentive (Amendment to the Energy Act 2008) Regulations 2011

Lord Teverson Excerpts

Tuesday 12th July 2011 Grand Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

My Lords, there are two sets of regulations before you. The first sets out the details of the renewable heat incentive, which will allow the scheme to start operating. The second enables an amendment to Section 100 of the Energy Act, the primary legislation which underpins the renewable heat incentive. This change relates to our treatment of bioenergy, which I will speak about in more detail later. As with similar financial support schemes the RHI is subject to state aid clearance, which we hope to receive in the next few weeks.

The RHI regulations set out our commitment to provide 20 years’ financial support to eligible renewable generators of heat. This means support for technologies such as solar thermal, biomass boilers, ground-source heat pumps and geothermal, to name a few. The full list of technologies supported and the levels of support are set out in the regulations. These are calculated to bridge the financial gap between the cost of conventional and renewable heat systems. Once in the scheme the level of support for participants will be fixed, changing each year only with inflation. Support under the RHI will be available for renewable heat installations in England, Wales and Scotland through these regulations. However, I am pleased that provisions in the Energy Bill will now allow the Northern Ireland Executive to introduce their own RHI in future.

The RHI represents a serious investment in our future. It will provide financial support to a wide range of technologies and set us on a path towards rapid change. By the end of the decade, we will see 500,000 jobs created in the renewables industry with the RHI stimulating £7.5 billion of capital investment. Once introduced, the RHI will be available to renewable heat generators in the industrial, commercial, public, not-for-profit and community sectors. We want to see a broad range of businesses and organisations take the opportunity that the RHI offers to change the way they generate heat—for example, with businesses such as restaurants or supermarkets using food waste to generate biogas.

Ofgem will deliver the RHI on behalf of DECC. It has significant experience in delivering schemes which provide financial support to renewable energy generators already delivering the renewables obligation and feed-in tariffs. Generators will need to apply to Ofgem to be accredited under the scheme, and the processes they need to undertake are set out in guidance recently published for consultation on their website.

Because Ofgem has experience in delivering similar schemes, it will build on experience and existing structures, such as IT systems, to ensure that the RHI operates as effectively as possible. I am pleased that, subject to parliamentary approval of these regulations, Ofgem will be ready to receive applications for the scheme from 30 September this year.

To receive a payment under the scheme generators will need to commit to undertake certain ongoing obligations—for example, providing meter readings in order to receive their quarterly RHI payments, maintaining equipment and, in the case of biomass installations, providing information on a number of sustainability issues. This is part of a range of measures to ensure the integrity of the scheme. In addition, for small and medium-sized plants, both installers and the equipment to be installed will need to be certified under the microgeneration certification scheme or an equivalent.

I would now like to turn to bioenergy. The second set of regulations amends Section 100 of the Energy Act 2008. This amendment does three things. First, it amends the definition of biogas so that, as well as including anaerobic digestion, it will now also include advanced conversion technologies such as gasification and pyrolysis. The second change prevents the use of peat as biomass fuel. The third corrects a previous omission by adding biogas to the list of eligible sources of energy. These are important changes, as we believe that bioenergy is critical to meeting our renewable energy targets. We expect it to contribute over half of the over sevenfold predicted increase in renewable heat by 2020.

However, we are also aware of concerns that the increasing use of biomass raises, particularly with regard to issues around sustainability and air quality. In the RHI regulations we have addressed these concerns by including sustainability reporting criteria from the outset of the RHI, and will use existing legislation to cover restrictions on air quality for large-scale biomass. For installations below 20 MWth we will introduce emission limits in our RHI legislation when phase 2 of the scheme is implemented.

Finally, I would like to set out our position on the funding of this scheme. Last October, as part of the coalition Government’s spending review, we announced £860 million of funding for the RHI scheme to 2014. We have listened to feedback that previous proposals to fund the scheme through a levy on fossil-fuel suppliers would be unworkable, so instead the scheme will be funded through general taxation.

Therefore I commend these regulations to the Committee.

[Lord Teverson]

I naturally welcome these regulations. The renewable heat initiative is pretty unique worldwide. The concept was introduced by the previous Government and has been taken on wholeheartedly by the present Government. It is an excellent example of decarbonising the economy. We think that most carbon emissions are around electricity generation, but that only constitutes around half of emissions. That means that our targets for 2020, of 15 per cent of energy being renewable, are tough to meet. That is well illustrated in the Explanatory Memorandum by the fact that the proportion of renewable heat, currently estimated at 1.5 per cent, must rise to 12 per cent by 2020. Given the fact that part of the scheme will be implemented only next year, this is a tall order—but I am sure that it can be met.

I also congratulate DECC on its negotiations with the Treasury, in which it managed to get £860 million-worth of direct taxation at a time when the public accounts are very tight and difficult. I am sure that those of us who argue on green issues would wish for even more, but it is a large and realistic figure and I am very pleased to see it.

I was slightly disappointed by the fact that a domestic RHI scheme will not come in until 2012. I understand that a pilot scheme for domestic RHI starts this year. I would be interested to understand more about how it will help the successful introduction of the full domestic scheme next year.

Finally, my one area of slight regret, inevitably, is characteristic of a market intervention such as this, great though it is. The fact that we have not been able to implement it earlier—I see all the obstacles and why it has not been possible—means that we face the irony of a number of ground heat pump businesses, for example, going out of business while people put off decisions to invest in renewable energy until the incentives come through. Regrettably, there is a generic inevitability about these schemes when people realise that there will be a subsidy but not yet. I very much welcome the RHI and hope that it will have a very successful career not just up to 2020 but well beyond.

[The Duke of Montrose]

My Lords, after the description given by the Minister I almost think that I need to declare an interest, if for no other reason than that I have a livestock production business. I thought that the present measures were largely to do with commercial production. I also have a small restaurant which, as he said, is possibly in line for a renewable heat incentive grant.

I was reassured by what the Minister said about peat. When I saw that peat was mentioned in the second instrument, I thought that the Government were going to bring it into the definition of biomass. However, it is excluded, which fits in with the other measures that people have taken regarding peat.

Noble Lords will be aware that renewable energy was the subject of a statutory instrument early on in the sequence of devolution legislation for Scotland. The term at that point largely meant wind, solar and marine energy. The Minister described all the other forms of renewable energy that this measure covers. One can presume only that we are now into a further application of renewable energy. Taking the definition used of necessity, renewable heat is now part of the devolution arrangements. All the production systems benefit from financial subsidy. I hope that the Minister will confirm that renewable heat will also receive incentives from Her Majesty's Treasury, even when it is north of the border. This will be a great help to the Scottish Administration's ambition to replace all their atomic power generation with renewable energy sources.

Further to that, and in parallel with the regulation that brings the construction of plants and facilities for coal production within the powers of the planning regulations of the Scottish Government, even though coal is not a devolved matter, I presume that the construction and provision of plant for the production of renewable heat will be subject to Scottish control, even though the measures in the Bill are retained within the United Kingdom.