HL Deb 08 October 2003 vol 653 cc291-3

3.1 p.m.

Lord Jenkin of Roding asked Her Majesty's Government:

What action they propose to take in the light of the failure of TXU (UK) Ltd and Maverick Energy Ltd to comply with the renewables obligation by paying the £23.6 million due from them by 1st October.

Lord Davies of Oldham

My Lords, we shall be consulting industry on proposals to minimise the adverse impact of any future shortfall on the renewables market, our approach being on the basis that the industry will bear the risk of any electricity suppliers going into administration. We have re-emphasised our commitment to taking necessary legislative action, in particular to address the question of late payments. The TXU administrator estimates that advance interim payments may be in the order of 35 to 40 pence in the pound.

Lord Jenkin of Roding

My Lords, is that not a very complacent Answer? Is the Minister aware that confidence in the market for renewables obligation certificates has been severely shaken by the information that there will be a very big hole in the buy-out fund? Is he further aware that, since the Ofgem announcement in August, there has been virtually no trade whatever in fixed-price deals for renewables obligation certificates? Does that not bode very ill for the Government's policy on increased renewables investment? While that lack of confidence continues, there will be no such investment. The Government should take the matter a great deal more seriously.

Lord Davies of Oldham

My Lords, the Government are taking the matter seriously. We are involved in a review of the renewables obligation with regard to certain possible short-term emendations, which may assist the situation. The noble Lord will recognise that the Government remain fully committed to the renewables obligation. The next time an auction takes place, when we shall be able to measure the market, is for the Scottish renewables obligation on 21st October. We shall be able to look more accurately at the situation at that point.

Lord Ezra

My Lords, bearing in mind that only 1.7 per cent of electricity was generated from eligible renewable sources in 2002, which is well below target, is it not now becoming apparent that the Government have drawn the eligible list too narrowly? Is it not time for the situation to be reviewed? Those sources of energy that can contribute substantially to emissions reduction should be included, such as coal mine methane emissions and clean coal technology, which needs to be developed.

Lord Davies of Oldham

My Lords, as I have indicated on recent occasions to the noble Lord, the Government are open to that proposition and are looking at the ways in which they can extend the commitment to meeting the renewables target of 10 per cent. He is right that in the first year the performance was below what is required, but we regard the renewables target of 10 per cent as realistic. It is a significant target to reach by 2010. The noble Lord will recognise that, even by extending the range of possible contributors to the target, it is still overwhelmingly the case that the target will be reached only if we are able to enhance wind turbine production.

Lord Oxburgh

My Lords, is the Minister aware that banks and other financial institutions will not invest in the renewables sector while the apparent risks of losing money are as substantial as they appear to be?

Lord Davies of Oldham

My Lords, the noble Lord is right. That is a very realistic consideration that has to be taken into account. I indicated earlier that the Government take the matter very seriously. They will look at the matter in terms of the market position, when that becomes clear, and they are also prepared to consider short-term measures that may be effective in restoring confidence in the market, which is what we need to do.

Baroness Miller of Hendon

My Lords, is there not another aspect to the matter? Is it not the case that the surrender of the renewables obligation certificate to Ofgem for £30 each time is a contract between Ofgem and the suppliers? Following normal legal principles, Ofgem will have to find the repayment money, irrespective of its failure to recover the debts. That being so, what steps will the Government take to enable Ofgem to pay its legal and moral obligation and debts? If that is not done, there will be no further investment into renewable energy sources, especially not by the small investors.

Lord Davies of Oldham

My Lords, as I indicated in my original Answer, the responsibility is to be borne by the industry, which is aware of the risks when it undertakes its commitments and makes its contracts. This is quite a serious position—with the going into administration of TXU—and no one underestimates its significance. However, it is not for the Government to intervene in the market; it is for the market to assess the position and for the Government to see ways in which they can encourage the development of renewables. It is for the market to take the final decision.

The Earl of Mar and Kellie

My Lords, in view of the situation regarding renewables in Scotland and the huge hole in the buy-out fund, will the Scottish auction in 12 days' time really be viable?

Lord Davies of Oldham

My Lords, as I indicated, the Government's position is clear. The market is set up in terms that everybody understands, and is governed by laws and relationships. It is not for the Government to intervene in that market at present. As I said in response to the noble Lord, Lord Jenkin, we shall see what happens on 21st October, which is the first time that the issue will be tested in the market.