Lord Teverson
Main Page: Lord Teverson (Liberal Democrat - Life peer)Infrastructure Bill [HL]
Lord Teverson Excerpts
Lord Deben (Con)
My Lords, I apologise for missing the first minute of the speech of the noble Lord, Lord Whitty. I support the amendment. It has always seemed to me that there is a need to find a way in which to make energy efficiency more attractive to politicians, and I think that the noble Lord may have discovered that mechanism. The trouble with politicians is that they like boys’ toys, and it is always better to build something big that you can point to, so that in your dotage—which of course none of us is anywhere near—you can say to your great-grandchildren, “I built that great monstrosity there; it was one of the reasons why I felt that I had done something”. I fear that that is quite deep in the psyche of politicians. It is always easier to build or make something and then to have something to point to. Very often, those are important activities, but it always means that energy efficiency is at the bottom of the pile.
When I was the Minister responsible in the Department of the Environment, there was a tendency to ensure that those who dealt with energy efficiency were perhaps not the most exciting of people—not perhaps as thrusting or pressing as those who dealt with the big projects. I am sure that that is no longer true and that now we have people of immense thrust, but it is important to give them some help and support. This amendment does that.
We have had today the welcome decision by the Government that the Committee on Climate Change was indeed right to say that there is no basis for changing the fourth carbon budget. So we know what we have to meet. In that circumstance, energy efficiency is a crucial part. Members of the Committee should refer to the document that the climate change committee presented to Parliament only last week—I declare an interest as its chairman. It is interesting that when we produced our review of climate change action over the past five years—it also looks forward—no one from the global warming body that opposes these things was present. Nobody was there to find out the facts. Nobody bothered to turn up. It is worth saying as often as possible that those who deny climate change or dismiss its importance rarely appear to listen to the facts. In that document we make it clear that in fact the Government have so far, with their partners, met their targets. That of course has been helped, if that is the right word, by the recession. Again, we should congratulate the Government on saying that they are not going to take advantage of that additional success by reducing the requirement in successive carbon budgets.
It is a good idea to say when Governments get things right, particularly if one is going to say something about getting it wrong. The bit they have got wrong is that we have not got the energy efficiency operation anywhere near where it has to be if we are to meet our budget. As my noble friend Lady Maddock rightly said, the Minister will find it difficult to accept this amendment here and now. However, perhaps I may end by saying why I hope she will make sure that it is accepted before the Bill is passed. By making the amendment part of our infrastructure programme, we give to it precisely that attraction—the big picture—which it lacks if we are talking about a whole series of small things, which is the point that my noble friend Lord Jenkin made and which the noble Lord, Lord Deighton, himself made in his recent intervention.
I very much hope, therefore, that my noble friend will accept that this issue is crucial to meeting our carbon budgets. Those budgets have been reaffirmed today. Would it not be a good thing to celebrate that reaffirmation by accepting in principle, if not in practice at this moment, that the amendment should be part of the Bill?
Lord Teverson (LD)
My Lords, my noble friend Lord Deben will be delighted to know that last week I quoted his report several times in this Grand Committee in relation to zero-carbon homes. There were some useful data there. Also in this Grand Committee last week I welcomed the report by DECC on energy investment. The DCLG Minister at that time, though helpful, was not so interested in it. However, I congratulate DECC on its work on this issue, together with the £45 billion in investment. As the noble Lord, Lord Whitty, said, there is a whole section about energy efficiency in the report. It is the final section, and it would be nice if it moved up to the top, but it is indicative that recognition of the importance of this area is increasing.
The report, whose language I really like, states:
“There are £45-£60 billion worth of … investment opportunities”
still to be had. That looks good and we think, “Great, we can do more”, but what it means is that there is still some £65 billion-worth of work yet to be done on energy efficiency in the UK.
I can see that the Government are going in the right direction on this, but it is important to hardwire these issues into the decision-making process. This amendment provides one of the ways of starting to do that.
Lord Cameron of Dillington (CB)
My Lords, in rising to support this amendment, I should first declare my interests as a farmer and landowner with renewable schemes on my property which I am involved with financially. I try to encourage others to get involved in such schemes as well. I want to talk in particular about the future of our housing infrastructure. I hope that a lot of new houses are going to be built over the next few years and it is therefore important to think about these issues at this stage. I want to take a particularly narrow line, which I hope the Committee will excuse.
It may be that my remarks would be better targeted at Amendment 95ZBB tabled by the noble Baroness, Lady Eaton, but I have only just come across it so I am not quite sure what it is all about. The difference between some of the continental housing developments I have seen in recent years and ours is the much greater frequency of community heating schemes in both rural areas and new build housing estates in towns. For some reason our developers seem to shy away from community schemes, preferring individual gas-fired boilers or, in rural areas, oil-fired boilers fitted in each and every house. That must be very inefficient. I know that we have the renewable heat incentive, but clearly it is not quite enough and it tends to be used in community buildings such as churches and village halls, as well as on farms and in factories so that the heating system can be linked to one or two houses. These are quite small schemes. Plugging a new estate of 400 or 500 houses into a community heat source is really quite rare.
Lord Teverson
It may be useful if I tell the noble Lord that the RHI is not applicable to new builds, and there is a distortion because of that. We do not see community heating systems in new builds because the RHI does not apply to them.
Lord Cameron of Dillington
I thank the noble Lord for that explanation, which certainly underlines the point I am trying to make. As I have said, I hope that lots of new housing estates are built over the next few years, so DECC and DCLG ought to look very carefully at this issue and consider how community heating schemes might be improved. The advantages are huge. For a start, they are much more efficient and thus would justify proper investment either in the new type of boiler that is required or in the overall management of the heat. In rural areas, for instance, it is often hard to justify piping gas into villages, which is obviously the cheapest form of heat, but it could be much more worth while in cases where there is a major community heating unit so that gas can be brought in to provide fuel for that one particular source of heat. That is certainly better for climate change than putting oil boilers into each and every house because that involves a huge waste of oil and energy.
Lord Teverson
This is a major step forward. It is a very positive step. I have sympathy with the amendment, but at least this enables us to get on and start down this road. If we find out how to make it work, we have opportunities to broaden it out. However, there is a question about why we are restricting it to the energy field. What about putting up a housing estate or a multiple retail store next door? The same argument applies.
Baroness Worthington
The difference is that we are going through something of a transformation from a situation where we have a limited number of generators dotted around the country, often in the most far-flung places, so that people do not have to engage with energy, and are shifting to a much more diverse, devolved and distributed system. Therefore, we have, as is widely acknowledged, political issues about managing that transition. That is the difference.
Lord Teverson
As I said, I am sympathetic and understand that. However, that is also true of other parts of the economy. and I am just making the point about how far one could extend the argument. I hope that we can prove that this works, although there is still quite a challenge, and I have an amendment on some bits of it later on. At this point, I just want to say that it is an excellent initiative and that at least we are on the first few steps of this process, even if we do not get perfection straightaway. I fully understand the points made by the noble Baroness, but this is a great start and we should get on with this, prove that it works and move on after that point.
Lord Cameron of Dillington
My Lords, I, too, support the idea of community involvement in projects. As I said in my Second Reading speech, I support Amendment 94AA in view of the possibility of local opposition causing projects to fail. Fracking is very controversial. It seems to me that if you could involve the local community in a fracking project in the same way as the Government are trying to do with renewables, it would be very beneficial.
Baroness Worthington
I thank the noble Baroness for that, and indeed it will be interesting to see what comes back from stakeholders and whether offshore generators will accept that this is a necessary provision. It feels like this is less about securing community engagement and more about trying to send a message along the lines of, “We know that renewables are really difficult and we are sorry. We will try to do something about them”. Anyway, I look forward to the debate on the next group of amendments.
Lord Teverson
I am absolutely fascinated by the political analysis because I see this as something completely different. I do not know whether what the noble Baroness is saying suggests that this is good or it is bad. I do not think that it is some sort of Conservative move to persuade electors. Let us be quite clear: certain parts of the coalition want to stop onshore wind in its tracks. That is not the case for the whole of the coalition, but for some, and this is not an answer to that. This is a way of making it a positive thing and moving forward the programme of changing some of the ways that it works. This does not seek to give up, it tries to make it something far more workable. There is no greater advocate of wind power in the countryside than I. I revel in the fact that I can see at least 50 turbines from my house, which luckily for me is on the top of a hill where it is windy—but without a turbine.
We know that certain people and communities are quite legitimately concerned about these issues, so this is a way of involving them and giving them part of the benefit of the schemes. I do not think that it is at all cynical. If we could push things further, I would do that as well, but even so the political analysis is wrong. It is a positive development and if it is successful, it will inevitably be rolled out more widely. I agree that there probably are issues around shale, possibly more around exploration than production, but again there is something cynical in this political analysis. We all understand where cynicism comes from, but in this instance it is absolutely wrong. I am not talking about the dynamics of the two political parties which make up the coalition, but the dynamics of the coalitions between different government departments, along with other things. As is the case in all of politics, it is a broad church. This is a solution that will start things off. I want to reject all this cynicism.
Baroness Worthington
I thank the noble Lord for attempting to reject my cynicism. We know that there is an issue with the coalition Government. We know that one department is pushing renewables while another department is calling all the renewables projects in and objecting to them. I do not think that I am being paranoid in saying that there is a problem in the signals being sent to investors in renewable energy projects. It is quite apparent in the statements being made by different Ministers.
Baroness Worthington
My Lords, this has been grouped with a similar amendment from the noble Lord, Lord Teverson. It concerns the one and only bit of finer detail that we see in these clauses. The Minister has just said that the Government did not want to do anything that prejudiced the findings of the task force and that they were having a consultation. A lot of helpful information has been provided, but if we are intent on not prejudicing the voluntary approach, the outcomes of the task force or the consultation and do not wish to bind ourselves with finer details, why do we see in this Bill a figure of 5% for the stake being taken in these projects? This amendment asks that question. I beg to move.
Lord Teverson
My Lords, I am rather encouraged that there has been some detail from the Government on this point, and I welcome it. However, I want to understand a little better why this particular percentage has been chosen. My noble friend the Minister held an excellent meeting with us to go through the principles of this part of the Bill. I thought that the figure of 5% must be a minimum amount, but it actually means that it cannot be exceeded. Once you work your way around the language in which the Bill is written, you see that it means the exact opposite of what you might have thought; that is, when the regulations are produced, the minimum percentage that a company must offer should be no more than 5%.
Amendment 94AH is a probing amendment and I am not saying that my suggestion is right, but what concerns me is that if we adopt the attitude—which I do—that it is essentially to put a backstop around the hope that the voluntary schemes work, as my noble friend Lord Jenkin has so strongly advocated, in the end we must make sure that if they do not work, there is a way of ensuring that this style of ownership of these projects can move forward. Yet what we have here, or at least as far I can see in theory, is a provision which will allow the regulations to provide that the minimum should be 0% or 1%. It seems to have the potential to undermine a scheme in that companies could offer very small amounts. I have tried to change the provision by suggesting some more sensible language for it. There should be a straightforward minimum of something like 5% and possibly a maximum of 25% in terms of what the Government’s recommendation should be. Again, I say this within the context that if the public do not want to take up the offer, they will not do so and the whole amount will not be taken up, so the percentage would not be so high.
On the other hand, I can see that allowing too high a percentage as a maximum, if it were taken up for certain kinds of renewable scheme, could involve a very large sum of money—well beyond the ability of a community to meet it. I think that this should be written down in a much more positive way so that we do not have something that must not exceed a minimum. We should have a minimum and a maximum. I have explained this incredibly badly and I should have worked it out before I started to speak, but I think that that is illustrative of how this part of the Bill is written. I apologise to the Committee.
It may not be possible for the Minister to respond to my next point in detail, but I shall ask her about it anyway. There are very strict rules indeed covering the ability of companies to sell shares in their organisation to unsophisticated investors. The Financial Conduct Authority has all sorts of rules around it. I would like to understand how the Government see that important financial legislation working in this instance so that it does not become too burdensome for the energy companies to offer such financial investment opportunities and high barriers are not put in place that would prevent members of the community from actually signing up. I am myself a member of a community energy scheme and it is terribly straightforward. I presume that there may be limits on this and I am interested in understanding how we are going to make sure that it will be something of which individual members of a community can take advantage. The regulatory burden should not be too burdensome on renewable energy companies; it should help them not to transgress against the various rules of financial conduct.
Lord Jenkin of Roding
I promise I am not going to try the patience of the Committee anything like as long as I did a few minutes ago. If one reads the passages in the draft report of the task force, it recommends a number of different methods by which financing could be organised. One is crowdfunding. That might be quite a good way to raise sufficient money to get the community involved. Perhaps it would not be the whole community or the BANANAs that the noble Lord, Lord Cameron, referred to, and we are all very familiar with them, but enough people for them to turn around and say “For heaven’s sake, shut up because we want this to go ahead”.
That report is quite interesting because financial circles see some difficulty of the sort that the noble Lord, Lord Cameron, has been describing, but this is particularly a case where the widest possible flexibility is needed. We want to see community involvement in infrastructure schemes of this sort, but we should not attempt to prescribe how that should happen. The noble Lord, Lord Cameron, clearly indicated that raising the percentage might offer considerable difficulties. It should be entirely free for a local community or investor to decide how it should be done. That can really only be done under a voluntary system.
Lord Teverson
My Lords, perhaps I may respond to the noble Lord, Lord Cameron, who raised some valid points, but they were over individual shareholdings, which is a separate issue, as opposed to a total collective shareholding. Further regulations could be made around maximum individual shareholdings or defining the control of those shareholdings. That is a fairly regular way in which to do this—aggregating some of these things if they are, for example, vexatious. I accept fully that there is a risk of individual shareholder activism but that is a separate issue to the community being able to have a significant or noticeable stake, as opposed to one that is, in smaller schemes, almost token.
Baroness Verma
My Lords, I again thank all noble Lords for their interventions. I should like to respond to the amendments that relate to Schedule 5, in particular the concern over the maximum size of stake that can be mandated through regulations, which is currently set at 5% of the total capital costs of the renewable electricity facility. I tried carefully to follow my noble friend Lord Teverson’s first intervention. I got slightly lost, so I will go back and read it in Hansard tomorrow.
Baroness Verma
If I do not respond to him today, perhaps I may respond after reading Hansard.
I should like to take this opportunity to explain—and I hope address the noble Lord’s concerns—why we have set the 5% cap and why I am resisting the approaches proposed by both amendments. I am also grateful to the noble Lord, Lord Cameron, for his intervention, which—although the noble Lord, Lord Teverson, suggested an alternative—shows the serious possibility for communities, if so minded, to be able to stop a renewable project by trying to obtain a stake bigger than 5%. Let me develop my argument a little further.
The key reason why a 5% cap has been set in the Bill is to provide certainty to developers now on the maximum size of offer that can be legislated for in the future. While the Government wholeheartedly support community investment in renewable electricity and want to see a substantial increase in shared ownership, it cannot be at the expense of investment in renewables. The 5% cap provides absolute clarity to industry on the upper limit on the size of stake it may be required to offer to communities. Although of course we would welcome developers voluntarily offering more, by contrast the approach taken by my noble friend Lord Teverson who proposed a wide range of between 5% and 25% of the total capital costs of development does not provide any meaningful degree of certainty for industry. As such it could risk deterring future investors in the renewables industry. The alternative approach proposed by the noble Baroness, Lady Worthington, similarly does not provide certainty to industry on the maximum size of stake that could be legislated for in the future, since it leaves this to be defined in secondary legislation.
This takes me on to my second point which is about retaining flexibility. I recognise that the key benefit of providing a range, as proposed by my noble friend Lord Teverson, is to retain future flexibility on the maximum size of offer that can be legislated for in the future. However, the approach that we have taken also provides a sufficient degree of flexibility. The 5% cap represents the maximum that could be required, and the actual amount set in secondary legislation could vary by technology. This is important. We need to bear in mind that the scope of the powers covers a greater than 10-fold range in project size. So a 5% mandatory offer to communities might be appropriate for smaller schemes that have a lower capital cost. However, for schemes with a higher capital cost it might be more realistic to set a lower limit, for example at 1% of total project capital costs.
That takes me on to the size of the stake. It is important, when setting the cap on what may be legislated for, that the amount of investment which may be raised by the community is taken into consideration. Based on this, we consider it likely that if a multi-million pound community stake were mandated, there could be insufficient demand for this within the community even if the geographical area were quite large. That is why we have enabled a cap that would allow the offer of a mandatory stake to be set anywhere up to 5%. This approach ensures that the maximum size of stake required can be broadly aligned with the amount of investment that may be raised by the community. By contrast, the approach proposed by my noble friend Lord Teverson implies that a mandatory stake could not be set any lower than 5%. This would mean that developers could be required to offer a larger amount to the community than could plausibly be financed, particularly for larger schemes with a very high capital cost. In addition, raising the threshold to 25% may have a similar effect. Furthermore, under the Companies Act 2006 a level of 25% of shareholder equity ownership has the potential to block a special resolution. The purpose of these provisions is not to mandate that the community has a controlling stake.
That is not to say that we should not encourage developers to offer a stake greater than 5%. I would like to emphasise that this Government would fully support developers choosing to offer more in circumstances where that is appropriate. However, we do not feel that it is right to mandate this size of offer to communities since it could have such fundamental implications for project financing. The position on a 5% cap is supported by RenewableUK, the trade association for wind, which described it as an “ambitious objective”. In respect of setting a higher limit it states that this, “would simply delay a developer’s ability to secure investment from institutional and other investors”.
My noble friend Lord Teverson asked about the rules set by the Financial Conduct Authority. While developers will be required to comply with all Financial Conduct Authority rules as they are set, it would be inappropriate to change or relax those rules as they provide important safeguards for individual investors. Having introduced some clarity in this area, I hope that the noble Baroness will feel able to withdraw her amendment.
Lord Teverson
I thank the Minister for that reply. Again, I apologise for having explained my amendment quite so badly. I accept the point about a special resolution within company law but that would require a block vote and I just do not see that happening. I think that it can be responded to by perhaps having in regulations a maximum individual shareholding. Also, it is not as if this is an IPO. If a certain number of shares are offered, it is not death for the company if they are not all taken up. They can be taken up by other investors, such as perhaps institutional investors. I do not see that as being a problem in this particular case. However, I understand that the numbers I have suggested are not exactly right, and indeed I welcome the fact that we are bringing this forward in any case. I will not press my amendment.
Baroness Worthington
I thank the noble Baroness for her response and all noble Lords who have contributed to the debate. Obviously the schedule to which these amendments apply provides quite a wide range of what a stake equals. It does not always mean that someone is taking shares in a company. It is not always going to be the case of a company owning the individual project. In fact, I am sure that what will be more common is very large companies having to create new instruments for individual projects, which will then enable the community to take part in them. I hope that the fears expressed by the noble Lord, Lord Cameron, would not be an issue of great concern in practice.
I still think that it is quite odd that in such an enabling piece of legislation which is meant to be a backstop for a voluntary approach, we have quite a prescriptive definition of the level of the stake. It is clear from the schedule that many other aspects of what that stake is are completely open and flexible on what might be included, and yet here we have the figure of 5%.
I am always nervous when I see numbers like that in primary legislation and I just hope that there will be sufficient flexibility so that it can be reviewed if necessary.
I do not want to reopen the debate, but the very fact that you need to create comfort and certainty for this class of investors in infrastructure indicates that this is not something that they are embracing with open arms—not because they do not want community involvement but because they fear that the Government’s approach is too limited and inflexible to give them the range of possibilities that they want. However, I am very happy, on the basis of the Minister’s response, to withdraw my amendment.