MICROGENERATION

HC Deb 13 July 2004 vol 423 cc1283-319

'(1) The Secretary of State—

1. (a) must prepare a strategy for the promotion of microgeneration in Great Britain; and
2. (b) may from time to time revise it.

(2) The Secretary of State—

1. (a) must publish the strategy within 18 months after the commencement of this section; and
2. (b) if he revises it, must publish the revised strategy.

(3) In preparing or revising the strategy, the Secretary of State must consider the contribution that is capable of being made by microgeneration to—

1. (a) cutting emissions of greenhouse gases in Great Britain;
2. (b) reducing the number of people living in fuel poverty in Great Britain;
3. (c) reducing the demands on transmission systems and distribution systems situated in Great Britain;
4. (d) reducing the need for those systems to be modified;
5. (e) enhancing the availability of electricity and heat for consumers in Great Britain.

(4) Before preparing or revising the strategy, the Secretary of State must consult such persons appearing to him to represent the producers and suppliers of plant used for microgeneration, and such other persons, as he considers appropriate.

(5) The Secretary of State must take reasonable steps to secure the implementation of the strategy in the form in which it has most recently been published.

(6) For the purposes of this section "microgeneration" means the use for the generation of electricity or the production of heat of any plant—

1. (a) which in generating electricity or (as the case may be) producing heat. relies wholly or mainly on a source of energy or a technology mentioned in subsection (7); and
2. (b) the capacity of which to generate electricity or (as the case may be) to produce heat does not exceed the capacity mentioned in subsection (8).

(7) Those sources of energy and technologies are—

1. (a) biomass;
2. (b) biofuels;
3. (c) fuel cells;
4. (d) photovoltaics;
5. (e) water (including waves and tides);
6. (f) wind:
7. (g) solar power;
8. (h) geothermal sources;
9. (i) combined heat and power systems;
10. (j) other sources of energy and technologies for the generation of electricity or the production of heat, the use of which would. in the opinion of the Secretary of State, cut emissions of greenhouse gases in Great Britain.

(8) That capacity is—

1. (a) in relation to the generation of electricity, 50 kilowatts;
2. (b) in relation to the production of heat, 45 kilowatts thermal.

(9) In this section—

"consumers" includes both existing and future consumers;

"distribution system" anti "transmission system" have the same meanings as in Part 1 of the 1989 Act;

"fuel poverty" has the same meaning as in section 1 of the Sustainable Energy Act 2003 (c. 30);

"greenhouse gases" means—

1. (a) carbon dioxide;
2. (b) methane;
3. (c) nitrous oxide;
4. (d) hydrofluorocarbons;
5. (e) perfluorocarbons;
6. (f) sulphur hexafluoride;

"plant" includes any equipment, apparatus or appliance.'.—[Mr. Timms.]

Brought up, and read the First time.

1.50 pm

The Minister for Energy, E-Commerce and Postal Services (Mr. Stephen Timms)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to discuss the following: New clause 2—Annual report on energy efficiency— 'The Secretary of State shall publish in such form as he sees fit an annual report setting out what steps he has taken and proposes to take to secure carbon savings from domestic energy efficiency of 5MtC per annum by 2010 and a further 4MtC per annum by 2020.'.

New clause 3—Duties relating to energy efficiency and carbon savings— (1) 'It shall be the duty of the Secretary of State to—

1. (a) promote energy efficiency generally; and
2. (b) in particular, implement energy efficiency measures that will—
1. (i) assist with the achievement of carbon savings from domestic energy efficiency by 2010 over and above the 4.2MtC savings specified in the Energy Efficiency Implementation Plan; and
2. (ii) achieve carbon savings of 5MtC by 2010 from energy efficiency in the domestic sector.

(2) Action taken pursuant to this section shall be commenced as soon as is reasonably practicable. (3) In this section. the "Energy Efficiency Implementation Plan" is the document entitled "Energy Efficiency The Government's Plan for Action" published by the Department for Environment, Food and Rural Affairs in April 2004 (Cm 6168).'.

New clause 6—Amendment of Sustainable Energy Act 2003— '(1) After section 2 of the Sustainable Energy Act 2003 there is inserted— 2A Energy Efficiency of Residential Accommodation: UK Policy Goal (1) For the purposes of this section the 'UK policy goal' is the amount of carbon savings from energy efficiency of residential accommodation specified by this section. (2) Subject to subsection (5) below the UK policy goal for energy efficiency of residential accommodation shall be the achievement of 5MtC savings by 2010 and a further 4MtC savings by 2020. (3) The energy efficiency aim set pursuant to section 2 of this Act shall be the achievement of such pet tentage of carbon savings of the UK policy goal that in the opinion of the Secretary of State ought to be delivered by measures relating to England. (4) Where an aim has been set pursuant to section 2 of this Act that does not reflect the percentage of the UK policy goal to be delivered by measures relating to England, then within six months that aim shall be changed in order to reflect that percentage and the Secretary of State must take reasonable steps to achieve that changed aim. (5) The Secretary of State may at any time designate an increase in the UK policy goal and any such designation must be published in such manner as the Secretary of State deems appropriate and in such case any aim set pursuant to section 2 of this Act shall be reviewed and if necessary amended to reflect the percentage of the new goal that in the opinion of the Secretary of State ought to be delivered by measures relating to England. (6) The Secretary of State shall report annually to Parliament on steps that he has taken and proposes to take to assist with the achievement of the UK policy goal. In this section 'residential accommodation' has the meaning given by section 2(9) above. (2) After section 9(3) of the Sustainable Energy Act 2003 there is inserted— (3A) Section 2A(1), (2), (5), (6) and (7) extends to England, Wales, Scotland and Northern Ireland. (3B) Section 2A(3) and (4) extends to England only.".'.

New clause 19—Renewable heat obligation— (1) 'For the purpose of encouraging the generation of renewable heat in order to reduce carbon dioxide emissions, provide employment in UK agriculture and improve energy security, the Secretary of State may, by order impose on each supplier of fossil heating fuels falling within a specified description (a "designated heating fuel supplier") an obligation to do what is set out in subsection (3). (2) The descriptions of heat supplier upon which an order may impose the renewable heat obligation are those supplying fossil heating fuels—

1. (a) in Great Britain;
2. (b) in England and Wales; or
3. (c) in Scotland,

excluding such categories of supplier (if any) as are specified. (3) Subject to the provisions of this section the renewable heat obligation is that the designated heating fuel supplier must, before a specified day (or before each of several specified days, or before a specified day in each year), produce to the Authority evidence of a specified kind showing—

1. (a) that it has supplied to customers in Great Britain during a specified period such amount of heat generated by using renewable heat sources as is specified in relation to such a supplier; or
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2. (b) that another heating fuel supplier has done so (or that two or more others have done so); or
3. (c) that, between them, they have done so.

(4) If the order applies only to fossil heating fuels suppliers in part of Great Britain, it may specify that the only heat supplied which counts towards discharging the renewable heat obligation is heat supplied to customers in that part of Great Britain. (5) Evidence of the supply of renewable heat may not be produced more than once in relation to the same heat. (6) In the case of heat generated partly by renewable sources and partly by fossil fuel, only the proportion attributable to the renewable sources can count towards discharging the renewable heat obligation. (7) Before making an order, the Secretary of State must consult—

1. (a) the Authority;
2. (b) the Council;
3. (c) the fossil heating fuels suppliers to whom the proposed order would apply;
4. (d) the generators of heat from renewable sources; and
5. (e) such other persons, if any, as he considers appropriate.

(8) In this section— fossil heating fuels" means coal, substances produced directly or indirectly from coal, lignite, natural gas, crude liquid petroleum, or petroleum products sold for the purposes of generating heat energy; natural gas" and "petroleum products" have the same meanings as in the Energy Act 1976; renewable heat sources" means metered sources of heat energy other than fossil fuel or nuclear fuel, but includes biodegradable waste; specified" means specified in the order. (9) An order under this section shall not be made unless a draft of the instrument containing it has been laid before, and approved by a resolution of, each House of Parliament. (10) The order may provide for the Authority to issue from time to time, in accordance with such criteria (if any) as are specified in the order, a certificate to the operator of a renewable heat installation or to a renewable heat supplier. (11) A certificate is to certify—

1. (a) that the operator of a renewable heat installation or in the case of a renewable heat supplier, a renewable heat installation specified in the certificate, has generated from renewable sources the amount of heat stated in the certificate; and
2. (b) that it has been supplied to customers in Great Britain (or the part of Great Britain stated in the certificate).

(12) If a heat supplier produces a certificate to the Authority, it is to count for the purposes of subsection (3) as sufficient evidence of the facts certified. (13) The order may provide that instead of producing evidence under subsection (3), an electricity supplier may discharge (in whole or in part) its renewable obligation (or its obligation in relation to a particular period) by making a payment to the Authority. (14) The order may make provision—

1. (a) as to the sum which for the purposes of subsection (12) is to correspond to the supply of a given amount of heat;
2. (b) for different such sums in relation to different periods;
3. (c) for different such sums in relation to heat generated in different ways specified in the order and
4. (d) for any such sum to be adjusted from time to time for inflation by a method specified in the order (which may refer to a specified scale or index or to other specified data of any description, including such a scale or index or such data in a form not current when the order was made, but in a subsequent form attributable to revision or any other cause and taking effect afterwards).

(15) The Authority must pay the amounts received to renewable heat suppliers in accordance with a system of allocation specified in the order. (16) The system of allocation specified in the order may provide for payments to specified categories of renewable heat supplier only.'.

New clause 20—Electricity to be exempted when determining electricity supplied—

'In section 32A of the 1989 Act, after subsection (1)(h), insert— (i) that electricity generated by a generating station producing a heating or cooling effect in association with electricity shall not count towards the amount of electricity supplied by an electricity supplier that is subject to the obligation.".'.

New clause 21—Further amendment of the 1989 Act relating to combined heat and power—

'In section 32A of the 1989 Act, after subsection (1), insert— (1A) For the purpose of securing that the amount of electricity generated under the obligation is not reduced by the exercise of powers contained in subsection (1)(i), the Secretary shall have the additional power to vary an order under section 32 so as to vary the obligation requirement, based on either the previous calendar year's production of electricity generated by the combined heat and power process or else by his estimate of that which will be produced by the same process in the current year.".'.

Government amendment No. 1

Amendment No. 20, in page 64, clause 81, leave out lines 2 to 24 and insert— '(1) The main duties of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as "the Authority") in carrying out their respective functions under this Part are—

1. (a) to protect the interests of consumers in relation to electricity conveyed by distribution systems, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the generation, transmission, distribution or supply of electricity or the provision or use of electricity interconnectors;
2. (b) to carry out their respective functions under this Part in the manner which he or it considers is best calculated to further the duty set out in paragraph (a), having regard to—
   1. (i) the need to secure that all reasonable demands for electricity are met, and
   2. (ii) the need to secure that licence holders are able to finance the activities which are the subject of obligations imposed by or under this Part, the Utilities Act 2000 or Part 3 or 4 of the Energy Act 2004; and
3. to ensure that there is no detriment to the promotion of—
   1. (i)renewable energy, and
   2. (ii)sustainable development.'.

Government amendments Nos. 2, 13, 14 and 8 to 10.

Mr. Timms

I hope that we will he able to make brisk progress to cover the topics before us. I shall begin by speaking to new clause 4 and the Government amendments in the group, and I hope to catch your eye later, Mr. Deputy Speaker, to speak to amendments and new clauses tabled by other hon. Members.

There is no doubt that microgeneration has an important role to play in reducing greenhouse gas emissions. As the Under-Secretary of State for Trade and Industry, my hon. Friend the Member for Edinburgh, South (Nigel Griffiths) said in Committee, we are already supporting microgeneration to the tune of £35 million through our funding of the major photovoltaic demonstration programme and the clear skies initiative, which provide grants towards the cost of residential or community renewables projects. The distributed generation co-ordination group, which was established by the Department of Trade and Industry and the Office of Gas and Electricity Markets, already specifically examines the integration of microgeneration. We have recently legislated to make it easier for small renewables generators to receive renewables obligation certificates so that they may benefit from such arrangements.

The clause on a strategy for microgeneration that was originally proposed in the other place caused us some difficulties. For example, the inclusion of a duty to set specific targets for the small-scale generation of electricity could have conflicted with other commitments in the White Paper. However, it is clear that there would be distinct benefits if we were to have a clear strategy for microgeneration. Lord Ezra, among others, put it to me that a legal duty to establish a strategy would give confidence to the industry and potential investors, and I accepted that argument before I tabled new clause 4. The provision will impose a clear duty on the Government to publish a strategy on microgeneration within 18 months of its commencement and then to take steps to ensure its implementation.

Government amendment No. 10 is a consequential amendment that will ensure that the microgeneration strategy does not cover Northern Ireland, given that energy is a devolved matter. However, we will remain in close touch with Northern Ireland colleagues as we take the work forward.

On Government amendments Nos. 1, 8 and 9, I do not think that there is much difference between the intention of several Members of this House and the other place and what the Government want to deliver. The aim of the original draft of clause 81 and amendment No. 20, which was tabled by my hon. Friend the Member for Brighton, Kemptown (Dr. Turner), was to ensure that there was a commitment to the development of renewable energy sources and to the principles of sustainable development. I agree with those aims, but if clause 81 remained in the Bill—even as amended by amendment No. 20—it would cause serious problems.

When we published the Green Paper "A Fair Deal for Consumers" in 1998, we made it clear that protecting the interests of consumers would be at the core of independent economic utility regulation, and that was reaffirmed in the Utilities Act 2000. Clause 81 represents a drastic move away from that principle, so it would not be appropriate to adopt it without the minimum requirements of consultation and a full regulatory impact assessment. I argue that Ofgem's current principal objective provides the right balance between existing and future consumers while maintaining the competitive position of the industry. One problem is that clause 81 would he likely to lead to higher electricity prices, which would increase the problem of fuel poverty. Alan Asher, the chief executive of Energywatch, said that the clause would have grave consequences for consumers. We have delivered a long-term framework that will allow investments to be made with confidence, including those in renewable energy.

Brian White (Milton Keynes, North-East) (Lab)

My hon. Friend is aware that regulators primarily look at the face of statutes rather than at their detail. Given that there have been problems with sustainable development in certain parts of the industry, how does he intend to address such regulatory barriers?

Mr. Timms

I suggest to my hon. Friend that Ofgem is starting to address effectively the challenges of sustainable development in precisely the way in which all of us would wish. That is happening under the arrangements that we have in place, and I shall say a little more about those in a moment.

Clause 81 specifically addresses renewables, but we have a strong and effective renewables policy in place. The renewables obligation is incentivising unprecedented investment in the sector. The British Wind Energy Association estimates that some 350 MW of capacity will be built this year, which is more than three times as much as last year. More than 2,000 MW of wind generation projects have already received consent, and a recent Ernst and Young report ranked the UK as the place with the most potential to invest in new wind energy capacity, and as the second country out of 17 for renewables investment as a whole. The policies that we have in place are delivering the results that we all want to achieve.

The commitment in clause 81 on sustainable development that my hon. Friend underlines is already built into existing energy legislation, which is demonstrated by what is happening at the moment. Both my right hon. Friend the Secretary of State and Ofgem must have regard to environmental matters when carrying out their functions under part I of the Electricity Act 1989. In practice, Ofgem produces regulatory impact assessments for key proposals, including assessments of any impact on the environment. It publishes an annual environmental action plan, and "helping protect the environment" is one of the seven themes of its new corporate strategy. We can see progress made on the social aspects of sustainable development by examining Ofgem's annual social action plan. Ofgem is actively taking forward its brief on environmental and social,concerns, so I put it to the House that a sustainable development commitment already exists.

Mr. Robert Key (Salisbury) (Con)

I am grateful to the Minister for giving way on the question of Ofgem's environmental concerns. An it dependent panel of environmental experts has been established to guide Ofgem's green agenda. The environmental advisory group is made up of policy experts from government, industry and green groups to advise the regulator on the priorities for its work in relation to the environment. However, I was surprised to learn that the nuclear industry, the electricity generator that produces a quarter of our electricity—the most environmentally friendly electricity because it is carbon free—is not part of that green committee. Why not?

Mr. Timms

The hon. Gentleman helpfully—from my point of view—underlines the strength of Ofgem's commitment to address the issues seriously. We all recognise that the nuclear industry produces a substantial amount of carbon-free electricity, which represents a valuable contribution. Of course, there is a question whether we will have new nuclear capacity in the future, and I know that that topic is close to the hon. Gentleman's heart. I say to him, as the Prime Minister said to the Liaison Committee last week, that there are serious barriers to address. We must consider the economics of new nuclear power and whether people will be prepared to invest in it. Some major issues on nuclear waste also need to be addressed. I welcome the fact that Ofgem has put in place the advisory group to which the hon. Gentleman referred.

Mr. Michael Weir (Angus) (SNP)

Will the Minister give way?

2 pm

Mr. Timms

I think that I need to make a little progress, particularly in view of the points made by the hon. the Member for Banff and Buchan (Mr. Salmond) about the need for us to be brisk.

Government amendments Nos. 8 and 9 are consequential amendments that are necessary following the deletion of clause 81. Both amendments reinsert parts of other clauses that were deleted in Committee as a result of the introduction of clause 81.

Government amendment No. 2 ensures that the annual reports to be produced under the Sustainable Energy Act 2003, for which my hon. Friend the Member for Milton Keynes, North-East was responsible, cover the implementation of the technologies specified, as well as progress made in research and development. That captures the intent of the amendment tabled by my hon. Friend the Member for Brighton, Kemptown in Committee. There has been a slight change from his original wording—he mentioned deployment—in respect of the phrase "bringing into use", which was included as a result of legal advice. I hope that he will agree that the meaning remains the same.

Government amendments Nos. 13 and 14 are important amendments that seek to improve investor confidence in the renewables market by taking further steps to reduce the impact of a future shortfall in the renewables obligation buy-out fund. During the passage of the Bill, there has been some debate about whether the moves now represented in the amendments can be made. In Committee, we agreed to consider an amendment on this issue tabled by the hon. Member for Hazel Grove (Mr. Stunell). As I said at the time, the case for mutualisation or recovering some or all of a shortfall after it had arisen has been made here and in another place. We have listened to those arguments and taken account of developments in the market, some of which have strengthened the case for mutualisation in recent months.

I should make it clear that while our amendments go further than the existing provisions in clause 116 in reducing the impact of a supplier shortfall, I am under no illusion that they will remove the risk of a shortfall altogether. The renewables obligation is a market mechanism. There is inevitably an element of risk as companies can and do fail. What we want to achieve is a balance between reducing the risk and impact of shortfalls and not placing undue additional burdens on consumers or adversely affecting competition.

Mr. Andrew Stunell (Hazel Grove) (LD)

I thank the Minister for tabling the amendments. Is he entirely satisfied that the mechanics that they set out will deliver the benefit that he asserts they will? There seem to be some technical problems, about which I have received representations, and I would be grateful for his reassurance on that point.

Mr. Timms

I think that the amendments deal with those issues, and if the hon. Gentleman wants to put to me a detailed point about mechanics, I shall be happy to look at it.

The amendments need to be seen as part of a set of measures to address the problem of supplier defaults, sitting alongside the measures already set out in clause 116 to address reductions in the length of obligation periods and impose surcharges on late payments. Together, those provisions are a sensible response to the problem of supplier default, and a balanced one that provides a measure of protection for the buy-out fund at an acceptable cost to consumers.

Mr. David Drew (Stroud) (Lab/Co-op)

Does my hon. Friend accept that one of the problems during the period of default of a major supplier is that the administration process may not prioritise the renewables obligation certificate? Will he talk to his friends in the Department to ensure that we clarify the situation with regard to the administrative process, with particular regard to this aspect of energy production?

Mr. Timms

I shall be happy to talk to my officials along those lines, although I am not sure whether anything further can be done on that front. I pay tribute to my hon. Friend, who has followed the matter with close interest and raised it frequently with me. I think that he will welcome the steps taken in the amendments as an effective response to the problem.

In broad terms, Government amendment No. 13 gives the Secretary of State power to introduce an order requiring licensed suppliers to make additional payments following a shortfall. A number of detailed issues will need to be addressed, such as how the payments are assessed, when the suppliers need to make them and over what period and at what level they need to be made. Perhaps the issue that my hon. Friend has just mentioned will also arise. Those will all be the subject of a statutory consultation exercise later this year, before the detailed changes to the renewables obligation can be made. The amendments enable us to introduce mutualisation to recover part or all of a shortfall, and so give some additional confidence to the renewables market.

I hope that the House will welcome those amendments, and the other Government amendments and new clause.

Mr. Laurence Robertson (Tewkesbury) (Con)

It is a pleasure to follow the Minister in speaking to the amendments.

The Bill was greatly improved by Members of the other place and was the subject of interesting debate in Committee. It started off as a necessary and functional Bill when the Government introduced it into another place, but their lordships greatly improved it by introducing a number of measures that went beyond the original content. One of those measures was a clause relating to microgeneration.

It would indeed be a useful step forward if every household in Britain could generate electricity as well as use it, particularly if they could do so from renewable sources. Such electricity could be used as it was generated or sent to the grid for use by business at that time. The household could perhaps draw other electricity later in the day when it needed to do so.

Obtaining maximum benefit from such an arrangement would probably require a change in building regulations. Although their lordships' amendment did not go so far as to make such a suggestion, it was very useful in that it sought to require the Government to produce a strategy on microgeneration—a strategy that could perhaps include an intention to amend building regulations to require all new houses to be fitted with solar panels, for example.

Their lordships' amendment also included a requirement for the Government actually to set targets for microgeneration. I understand that the Government have varied the amendment slightly and are saying that specific targets for microgeneration would cut unhelpfully across other commitments in the energy White Paper relating to renewables and combined heat and power. That is their reason for attempting to change the original Lords amendment. I think that that is a little unfortunate, because I do not see how that could happen. In many ways, those strategies are very different. However, we are where we are, and given that new clause 4 is the only one available for the House to consider today, we will support it.

I should like to spend a little time speaking to new clauses 20 and 21, however, which were tabled in my name and those of my hon. Friends. New clause 20 attempts to put back into the Bill another amendment that was made in another place, introducing a clause that attempts to increase the use of combined heat and power—a process that is more efficient than other forms of generation, because it uses the surplus heat that is used for generation in the first place.

In respect of a number of combined heat and power, proposals, planning permission has been obtained, but nothing has yet been built, and a number of CHP plants are running at below capacity. I understand that is the case because there is a lack of confidence and investment in generation at the moment, which is a general problem that must be addressed. However, given that we all want to cut emissions and that it is recognised, certainly by the Opposition, that there may be a problem with security of supply in the medium term due to that lack of investment, a greater contribution from CHP would be very good news indeed. The Government must have recognised that that was the case when they set the CHP target of 10 GW by 2010, but the industry is apparently on course to realise between only 7 and 8 GW by that date unless something is done to help it along. That is what new clause 20 is all about.

My discussions with the Combined Heat and Power Association have led me to believe that excluding CHP from the renewables obligation calculation would in fact provide sufficient encouragement to the industry, enabling it to have a more realistic chance of reaching the Government's own targets. In Committee, however, the Government had the original clause removed, basically because they claimed that removing CHP from the renewables obligation calculation would have an adverse impact on the use of renewables. The CHPA disputes that fact. New clause 21 would give the Secretary of State the power to amend the renewables obligation target if necessary, based on the previous year's or the present year's CHP Production, to counter any possible adverse effects on renewables. That is complicated, but I am sure that the House is with me.

I accept that that arrangement could cause a seesawing of production from each source, but that is unlikely once the investment in each has been made. It would move us along towards cutting our emissions, again in the way that the Government say that they want to do; otherwise, we may have a problem in meeting the emissions targets by making the cuts in emissions that we all want. Renewables, which we all support, are struggling along, and most commentators feel that the 2010 and 2015 targets are challenging, to say the least. Over the next 20 years, the nuclear industry will be reduced to providing just 2 percent. of our electricity generation from its present output of 22 per cent., unless there are extensions or new build. Even if renewables entirely replaced nuclear—and there has to be a big question mark over that—we would have gone absolutely nowhere on cutting carbon emissions, because, as the Minister acknowledged, nuclear emits no carbon. That point is frequently made by my hon. Friend the Member for Salisbury (Mr. Key).

Combined heat and power can make a contribution in that situation. However. the Government seem to be saying, "Carbon emissions bad, no carbon emissions good." That is true, but surely lower carbon emissions, as with CHP, represent a move in the right direction. It is wrong to say that because it is not a zero-carbon process it should not be encouraged, because if it emits less carbon, it is better than those methods which produce much carbon.

I am disappointed that the Government chose to strike out the help and encouragement that we are trying to give to the CHP industry. If they believe that our amendments were and are imperfect, I regret that they did not and have not proposed their own, nor have they proposed any form of assistance to the CHP industry. That will be a great disappointment to it.

I should like to give encouragement to the Labour Members who, in Committee, proposed the amendment on clause 81, which deals with they principal objective to promote renewable energy. I have no intention of stealing their thunder by speaking against Government amendment No. 1, which seeks to undo all their good work, but I assure them that if they oppose that amendment and force a vote, they will find us in the same Lobby.[Interruption.] I remind Labour Members that we won that vote in Committee, so there is all to play for.

On the new clauses relating to the renewables obligation, we support moves to strengthen the security of the obligation in terms of moneys paid in, or due to be paid in, and we recognise the Government's attempts to achieve that through new clauses 13 and 14. Although, like Liberal Democrat Members, we have one or two concerns, we recognise the need to improve that obligation and accept that the Government are doing their best to move in the right direction in that respect.

I do not intend to say much about new clauses 2 and 3, which deal with energy efficiency. Indeed, I should like to draw attention to the fact, almost as a point of order, Mr. Deputy Speaker, that this morning we were informed that my hon. Friend the Member for Vale of York (Miss McIntosh) would be able to move those new clauses, but it subsequently turned out that that advice was incorrect. I regret that, because she would have spoken with far more eloquence and knowledge than I could possibly muster.

Mr. Deputy Speaker

Order. The hon. Gentleman appears to be combining a point of order with his speech. It is for Front Benchers to decide which Front-Bench spokesmen will deal with the debate—it is not a matter for the Chair.

Mr. Robertson

I was advised only this morning, Mr. Deputy Speaker, that two Members could speak from the Front Bench on this particular group of amendments—probably because it comprises such a broad range of amendments and new clauses. That advice turned out to be wrong, but I will not detain the House any further on the matter.

2.15 pm

If my hon. Friend had spoken, her main point would have been that we are puzzled as to why a Government who love setting targets have removed their very targets relating to household energy efficiency. Will the Minister explain that about-turn?

We support the clause requiring the Government to produce and implement a microgeneration strategy, although we regret the slight weakening of its original proposal. Will the Minister explain why the Government are opposed to the amendments relating to combined heat and power? If he intends to say that the amendments are imperfect, what strategy will the Government develop to help the CHP industry to contribute to the clean and efficient generation of electricity, and how they will move that industry forward to give it the confidence that its representatives say that it needs?

Brian White

The amendments reflect key debates in Committee on a range of subjects. New clause 6 tries to take forward the issue of energy efficiency in relation to debate on the old clause 3, as it came from the House of Lords. It would establish the concept of a policy goal across the United Kingdom, an aim that differs slightly from that of the Sustainable Energy Act 2003.

The Tory amendments put me a position that I do not much like. I must have forgotten the first rule of politics, which is never to trust a Tory promise. What is worse, that allows my Whips to say, "I told you so." I suppose that lessons are always worth reinforcing. What saddens me about the amendments and the incompetence with which they were moved is that, as was amply demonstrated, the Conservatives see the matter as one for point scoring, not one of taking forward a serious issue. As for the hon. Member for Tewkesbury (Mr. Robertson) trying to tempt us to vote with the Tories, any chance of my doing that went out the window with his opening speech. I shall try to touch on some of the real issues involved in energy efficiency, combined heat and power, and the way in which renewables and micro-generation need to develop.

When we originally discussed the energy White Paper, the then Minister, my right hon. Friend the Member for Cunninghame, North (Mr. Wilson), cited 20 per cent. as the contribution that could be made by energy efficiency. That translated into 5 megatons of carbon savings, but we are now talking about 4.2 megatons, or about 16 per cent., of savings. The White Paper said that residential energy efficiency was the cheapest, cleanest and safest way to achieve CO₂ emission reductions. It seems absurd to reduce our key target for achieving our carbon-saving objective. Surely we should be setting challenging targets, not reducing them. That has an impact on the energy efficiency savings industry, which sees it as one of the key things that it can take to the market in developing its investment strategies, as was made clear in a letter to the Prime Minister on 11 May, in which the industry stated: we cannot stress highly enough the seriousness of the blow dealt to the energy efficiency industry by this…reversal of Government policy"— the reduction from 5 megatons to 4.2 megatons. The letter continues: This has caused a major crisis of confidence. How do we ensure that the industry makes investment, that we do not repeat the mistakes of the past and that the industry can move forward? I question the figures on which the Minister has based his judgment about the 4.2 megatons.

The Energy Savings Trust, which had worked on the figures for some months, gave evidence to the Environmental Audit Committee on 25 May, stating: We were involved in developing the Plan … we …did not have the final decision and we do not agree with it. It gives several reasons for that, and I am sure that the Minister has examined the evidence. The trust claims that some matters were not taken into account, such as a recurring annual saving. Several other measures were not factored into the plan.

I stress that I appreciate that the Minister has to take the flak, I understand that the Department wants to do as much as possible for energy efficiency, and I thank him for his work since Committee. However, many people support a challenging aspiration. They say that the key way in which to achieve our carbon savings is through energy efficiency. I hope that our debate will allow the Minister to take the matter forward and work with the industry to ensure that savings from the residential energy efficiency sector can be more than the proposed 5 megatons.

Government amendment No. 1 would remove clause 81. In an intervention, I asked the Minister how he intended to implement something that was not on the face of the Bill. There is a problem, which applies to several independent regulators. How can we square Government policy with the role of an independent regulator? Bryan Carsberg, the first telecoms regulator, said that the regulator would always go back to the statute book. That constitutes the regulators' terms of reference. If a provision is not on the statute book, a barrier is created.

What happened to combined heat and power after the introduction of the new electricity trading arrangements is an important indicator of the impact that a regulator can have. Those events could be repeated. I understand that the Minister wants to ensure that they are not, but the regulatory framework that could allow that to happen still exists.

The problems in the renewables industry do not arise because the companies are not viable or because they do not do good work, but because of the regulatory hurdles that it has to overcome. The Sustainable Energy Act 2003, which introduced regulatory impact assessments into Ofgem's work, has improved matters. At a meeting of the Liaison Committee, the Prime Minister said: We believe we will meet the target for renewables, but it is challenging and I think that there is a need, as we are doing, to step up investment in renewables…and it is one of the issues that we will be raising in the context of our G8 chairmanship next year…This requires an awful lot of investment in research and development. He is right that a step change is required, and for that to happen, we must remove some existing barriers. One such is Ofgem's terms of reference. I appreciate that the Minister has to ensure, in removing clause 81, that the barriers are not replicated.

We need to ensure that there is a public awareness campaign for energy efficiency. We need to build capacity in the industry and to stimulate uptake. Those are important issues but they all come back to the way in which Ofgem interacts with Government policy. We have given Ofwat a sustainable development duty, but it does not apply to Ofgem. The question of whether environmental issues are at the heart of government needs to be answered in the context of regulators' duties. If we are adequately to tackle sustainability, consistency should apply to water, electricity and all the other regulators. As the Government remove clause 81, I urge them to consider the way in which we remove regulatory barriers.

We have a history of targets for combined heat and power. Representatives of the industry have been to see the Minister, and there is a crisis of confidence about investment, including in micro combined heat and power. In Committee, the Minister made several comments, with which I shall deal shortly. First, though, I thank him for being prepared to meet industry representatives and for the meetings that he has held since Committee. They have been helpful, and I place my thanks on the record.

In Committee, the Minister said that removing the renewables obligation on CHP would mean an impact of less than 0.3 MW. The Combined Heat and Power Association said that more than 2,000 MW of CHP plant is currently on hold and that much of it could be realised if such a provision was in place. If we are not to introduce such an exemption, it is incumbent on us to find other mechanisms to ensure that the CHP industry can move forward.

Many hon. Members wish to speak, and we have already heard a point of order on that. I shall therefore be brief. We need to ensure that the energy efficiency, CHP and renewables industries have open-door access to the Minister. The key players in each industry are the same. Their investment decisions will determine whether we are successful. It is immaterial whether the amendments are successful. What matters is the Government's interaction with the industry. I urge the Minister to accept that dialogue with the industry on microgeneration, the renewables obligation and energy efficiency is critical and needs to be taken forward.

Norman Baker (Lewes) (LD)

I acknowledge that the Bill is a better measure than some of us might have dared to hope. That is partly because it was well scrutinised in Committee by members of all parties, including Labour Back-Bench Members, such as the hon. Member for Milton Keynes, North-East (Brian White). In addition, the Government have listened to several points, and some Government amendments reflect our discussions in Committee. Those of us who art ready to criticise the Government regularly for failing to listen should give credit when there is evidence that they have listened. That is not to say that the Government amendments are perfect, that everything will be hunky dory or that energy efficiency, combined heat and power and renewables will take off like a jet liner, but it is to say that the Minister and his colleagues are willing to understand the arguments. I want to put that on the record.

Government new clause 4 on microgeneration is welcome. Although it does not go as far as some of us would like, it is a step in the right direction. I am worried that we are not maximising opportunities for microgeneration. For example, we have not yet found a method of ensuring that the million meters that are replaced each year are two-way meters so that net metering is maximised. The Minister knows that British Gas has mothballed micro CHP design because it cannot envisage a market for the project. There are problems with microgeneration but we are making some progress.

We have not made sufficient progress on energy efficiency. Hon. Members of all parties are disappointed by the downgrading of targets. The Minister was prepared to endorse in Committee the reduction in expected energy efficiency saving; from the domestic sector. When he was challenged, he said that the industrial sector was run rather better and that the Government did not worry too much about the matter. That response was complacent and inappropriate because his point should be perceived as an extra gain rather than a substitute. I fear that he is getting into the position of identifying what is happening in the market and subsequently setting a target to reflect reality rather than setting a target that requires a change of policy. That is a fundamental mistake when it comes to something as powerful and important as energy efficiency. After all, there is a drastic need to reduce carbon emissions in this country as well as globally.

The 20 per cent. target for carbon emissions to which the Government are adhering is very challenging, and I regret that we do not appear to be able to meet it. The Minister will be aware that, in the six years since his Government came to power, we have seen a net reduction in carbon emissions of only 0.2 per cent., so it is difficult to imagine that we can achieve 20 per cent. from such a low base. One way for the Minister to get there, if he tries hard, is to use energy efficiency to its maximum capacity. To do that, we need to set challenging targets.

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Energy efficiency is the best of the options. It is clearly better than fossil fuel burning. It is also better than nuclear power, which the hon. Member for Salisbury (Mr. Key) promotes so assiduously. Nuclear power has a number of downsides, which we might discuss later. Energy efficiency is even better than renewable generation, because that, too, has downsides, as Conservative Members in particular are keen to point out whenever the opportunity presents itself. Energy efficiency and conservation seem to offer a wonderful solution, because they reduce the amount of energy consumed. The Minister ought to be championing those causes, but I do not think that he is.

I am disappointed that the target has been downgraded, and if the House votes today on any of the amendments that seek to reinstate a higher one, my colleagues and I will be happy to support them. I would say to the hon. Member for Milton Keynes, North-East that we would do that on the basis of sensible policy rather than on the basis of point scoring. He would acknowledge that that is where we are coming from, at least on this issue. I would like to put it on the record, by the way, that I have signed his new clause and the one tabled by the Conservatives, both of which point in the same direction. We are happy to secure energy efficiency gains, wherever they come from, and we are prepared to have some very odd bedfellows in order to achieve the target that we want.

New clause 19 appears, mistakenly, in the amendment paper to have been tabled by the hon. Member for Angus (Mr. Weir). It was in fact tabled only by my hon. Friend the Member for Hazel Grove (Mr. Stunell) and me, although I am delighted that the hon. Gentleman has joined us. I do not really mind whose name the new clause is in, provided that the Government accept it. It is our proposal for a renewable heat obligation, which is a serious matter. The Minister will know that energy for heat makes up approximately one third of the UK's demand for energy. The Government recognise the contribution of renewable heating systems to the UK's climate change programme but having recognised it, they have not introduced a dedicated policy to support the low-cost, proven carbon abatement option. That shows a gap in their energy strategy.

Perhaps the Minister will have recognised by now that we are collectively trying to turn the Bill—which is actually a nuclear bail-out Bill with some wind energy tacked on—into a proper, sustainable, comprehensive energy Bill. We have made some progress on that, and new clause 19 would go further. The Minister will be aware that the case for extending the concept of the renewable obligation to include renewable heat and creating similar incentives for industry to those operating in the electricity industry was put forward by the Royal Commission on Environmental Pollution, in its May 2004 report on biomass as a renewable energy source. Page 39 of that report states: It has become clear to us that the most obvious gap in the current support schemes is the lack of any mechanism for supporting the generation of renewable heat energy comparable, for example, to the renewable obligation scheme for renewable electricity. We recommend that the Government introduce such a support mechanism. The new clause gives voice to the commission's recommendation, and I hope that the Government will therefore be minded to support it, or at least to tell us how they intend to take forward that proposition.

It is not enough to allow the market to fill the gap. There is a proper role for markets. Indeed, these days, there is considerable consensus across all three parties—or perhaps all four or five—on the role of the market in energy. That debate, which was quite lively 10 or 15 years ago, has largely dissipated. However, there is an issue over the extent to which Government policy should drive markets or set down the railway lines along which they travel. There was some discussion about that in Committee between the hon. Members for Southampton, Test (Dr. Whitehead) and for Milton Keynes, North-East, myself and others.

If the Minister wants renewable heat to play a significant role in the Government's energy policy, which I suspect he does, he will have to do rather more than he has done so far, because it is not happening in any meaningful way. The Government need to intervene, at least to set the framework in which things can happen. In regard to the operation of CHP plant, the year after the new electricity trading arrangements— NETA—were introduced, CHP output fell by 15 per cent., and 2002 saw the first fall in CHP capacity since the electricity sector was privatised. Indeed, many people believe that NETA continues adversely to affect the operation of CHP plant, and little has been done to overcome that. That is a serious issue, and I hope that the Government will address it.

The Minister referred earlier to Ofgem's duties and responsibilities —they are two different things. He picked up a point made by the hon. Member for Milton Keynes, North-East about what the duties should be, and whether they should be put into legislation. I concur with the view that something set down in legislation does not carry the same weight as guidance, speeches by Ministers or comments on television and radio programmes. We need something about this issue in the legislation. If some provisions are included in the legislation and others are not, it will be natural for Ofgem, or any regulator, to interpret those two kinds of provisions in different ways.

In the electricity legislation, there is a duty on Ofgem to look after consumers. Indeed, in its whole history, Ofgem has operated in the way the legislation established it to do. I am not criticising that in any way. Ofgem was established to liberalise markets and to drive down the price of electricity. That is what it was set up to do and, by and large, that is what it has done. While those outcomes are not undesirable, however, it has never had a primary duty to act in a sustainable way.

There has been so much criticism of Ofgem from so many quarters for failing to act in a sustainable way that it is now, belatedly, identifying ways of doing so. It has moved in that regard, and I do not wish to pretend that it has not. However, unless the legislation contains a primary duty to take sustainability into account that is of equal weight to Ofgem's requirement to act in the interests of consumers, it will not give the same weight to that duty. I believe that hon. Members would like it to accept such a primary duty and, frankly, it should be required of it if we arc to have an energy policy based on sustainable outcomes that optimises energy efficiency and seeks to reduce consumption in a sustainable way, and to drive forms of energy that are less polluting and environmentally damaging than those on which we currently rely for the majority of our energy needs. Will the Minister think again about how we can get Ofgem not only to recognise this issue but to put it on the same level as some of the other activities with which it has been charged by existing Acts of Parliament?

I welcome the fact that the Government have listened to some of the points raised in Committee. I believe that they did so partly because those points were well put, and also—I hope that I can say this without sounding patronising—because Labour MPs were able to articulate sensible policy points without being disloyal to their Government. I think that that sharpened minds at the Department of Trade and Industry. We have a better Bill as a consequence, and better amendments before us today, but there are still gaps. More work is needed on energy efficiency, and I hope that the Minister will return to the Ofgem issue in some form.

Mr. Brian Wilson (Cunninghame, North) (Lab)

I will speak briefly, because I very much endorse the points made at the opening of these proceedings on the need to make time for a full discussion of the last group of amendments later on. It would be scandalous were there not time left for discussion of those important issues.

Briefly, I Want to support the new clause on microgeneration. In doing so, I declare a relevant, however, is to allow the largest number of individuals to participate directly in the growth of renewable energy, and want to participate in it, and every petition against renewable energy and every petition against renewable energy opens with the preamble, "While I am in favour of renewable energy in priniciple…" What we want is an opportunity for people to participate in practice.

Perhaps it would be easier to introduce a large number of small renewable energy units than it is proving to be to get a relatively small number of very large renewable energy units. The references in today's debate to combined heat and power offer a timely warning: setting targets, commissioning reports, and doing all the mechanistic things to show good intent are easy, but they do not in themselves deliver a single watt of electricity. While the targets for CHP were more ambitious than those for renewables—which is not widely realised, because they were expressed in quantity terms rather than percentage terms—when I was in the job that the Minister for Energy, E-Commerce and Postal Services now holds, the actual performance was going down rather than up. Setting targets is not much good in itself. For any of those things to be effective and to be implemented, they must be carried through on a cross-government basis. Every propeller must turn in the same direction if there is to be delivery as opposed to fine words and poor outcomes.

In commending my hon. Friend for the new clause on microgeneration, I want to raise one issue, which is crucial to delivery of the good intentions —planning. Unless something is done on a radical scale, and rapidly, about planning, it will end up in the same impasse in which so much else in relation to renewable energy is currently languishing. What is needed, whether people want to install wind, solar or any other micro-units in their homes, is some simplified, teneralised planning procedure on the same principle as that for satellite dishes. We need a general permitted development order rather than the absurd situation in which local authorities must deal with every application on an individual basis, making the whole process unwieldy and unviable.

I cannot resist returning to a story in relation to the protestations of the hon. Member for Lewes (Norman Baker). In a similar debate, I remember drawing attention, in a ministerial capacity, to the antics of Lewes district council, of which he has some knowledge. While the Liberal Democrats were marching round the country preaching higher renewables targets, Lewes district council, under Liberal Democrat control, was busily turning down applications for solar panels in people's houses on the grounds that they were unsightly. I believe that the council mended its ways subsequently.

Norman Baker

I am grateful to the right hon. Gentleman for raising that issue while I am in the Chamber. When that application first came in, I wrote to the Government for advice on it. I wrote to the Department of Trade and Industry and the Office of the Deputy Prime Minister about what advice the Government could give to local authorities. The Government refused to say that local authorities should give permission to such applications. That advice was passed on to Lewes district council. He ought to examine ministerial advice before he attacks a particular council.

Mr. Wilson

I think that the hon. Gentleman is confused. I do not want to get into that argument, but my precise point is that if it is left to individual councils to make individual decisions, the result will be the sort of ideological confusion displayed by his local council. There must be some general principle. Government must be more proactive in giving guidance to local authorities to make that happen, rather than leaving it to the foibles of individual local authorities. As a follow-through to the welcome new clause, there must be rapid communication with the ODPM.

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To reinforce that point, someone who had written to the ODPM about the installation of small windmills received the following reply: I believe that the issue at stake is whether their design would require planning permission or whether it would fall within the remit of 'permitted development rights'. This is not something on which ODPM can advise you. Such a decision could, ultimately, only be made in the courts, but in the first place it would be a decision for the local planning authority, taking into account the location, size and surroundings of the proposed siting, together with the Government's planning and energy policies encouraging the use of renewables. If that is to be the approach, we can have as many targets and as many reports back as we want, but in practice not very much will happen.

All that I ask for is a logical follow-through from the good will that has been expressed by the Minister today. Let us make this happen so that millions of people can participate directly in renewable energy.

Mr. Key

It is a particular pleasure to follow the right hon. Member for Cunninghame, North (Mr. Wilson), whom I had the pleasure of shadowing when he was a Minister, and we rarely disagreed about anything. Of course, that may be the reason why he is no longer the Minister. It is also a pleasure to have the current Minister here today—

Mr. Wilson

Has the hon. Gentleman considered the possibility that it is also the reason why he is no longer shadowing anyone?

Mr. Key

The right hon. Gentleman is very kind, and we go back a long way.

The present holder of the office, however, has helped us in admirable ways through the passage of this Bill, but it is nevertheless good to hear the common sense being spoken by the right hon. Gentleman. Of course, he is right about planning. For all sorts of reasons, it was a great disappointment to me that the Government produced a Green Paper on planning that looked as if it was going to move forward, and within months, all the things that would take us forward had been abandoned and taken out of the original proposals.

I want to support Government new clause 4, for the reasons that my hon. Friend the Member for Tewkesbury (Mr. Robertson) has suggested, and his new clauses 2 and 3. I feel that combined heat and power has been neglected for far too long. I have thought that for a very long time, and I have been disappointed that the Government have not seemed to know quite what they are doing about it. It must be some four years since I visited the combined heat and power plant at Slough estates, for example. Since then, the situation has steadily deteriorated. If we see what is happening on the ground on such an estate, and if we listen to the day-to-day problems in relation to the sources of fuel, rules and regulations, and different tax levels depending on what waste is being burned on a particular day, we realise that it is not being addressed seriously.

I was therefore particularly sorry, but by no means surprised, to read inHansard this morning, in a written answer, in a section on combined heat and power, at column 878W, that the study on combined heat and power potential due for release in January 2004 will be published shortly. Come on—January 2004 was the date when we were told that it would be published, and it still has not happened. In the same section, there is a question from a Member asking whether the Secretary of State will publish details of the Combined Heat and Power Quality Improvement Programme mentioned in the CHP Strategy.

The DEFRA Minister replied: In common with the other measures set out in the strategy that have not yet been implemented, this programme is currently in development."—[Official Report, 12 July 2004; Vol. 423, c. 878W.] Here we are, in the closing stages of the Energy Bill, and the Government have simply not decided what to do about combined heat and power. I regret that very much, because it is extremely important.

I also want to support new clause 19. There was an interesting little dispute earlier—a little flurry. The Liberal Democrats showed a bit of amour propre, feeling that their new clause had been pinched by a Scottish Member. There is a lot of thinking behind it, from Friends of the Earth among others. If Friends of the Earth think that the Liberal Democrats can deliver anything at all in terms of energy policy, they are making a sad mistake—but of course they do not think that, so they are not making a sad mistake.

Many good Conservatives in my constituency support a number of Friends of the Earth's objectives. I just wish that Friends of the Earth would go a step further. Go the extra mile, Friends of the Earth, and admit that we cannot reach our emissions targets over the next 20 years unless we embrace a new generation of nuclear power. It cannot be done: there can be no argument about that. Come on, Friends of the Earth, get real. Then we can make some progress instead of sniping from the sidelines.

What I like about new clause 19 is the provision relating to employment in the United Kingdom's agriculture industry. That is hugely important, especially in constituencies like mine. Opportunities for the rural economy would be revolutionised if our farmers could produce crops for energy, not just for fuel, subject to the vagaries of the international markets. That would also make a real contribution to the energy security of our country.

Heat accounts for roughly a third of our demand for energy, and renewable heat is a low-cost way of reducing carbon emissions. Currently, however, it receives no dedicated support in the marketplace. There is no doubt that energy policy in this country is skewed in all sorts of ways, not least because we do not have a carbon tax. I do not think we believe in a carbon tax, but in my opinion we should reconsider. One reason for the imbalance is that energy policy supports renewable sources of electricity, but not of heat. As I have said, a third of our demand is for heat.

We are a long way from our national climate change target. Emissions levels since 1997 have remained virtually unchanged. Renewable heat is a low-cost form of carbon abatement. Under the climate change levy, tax on heating fuels is a third of that on electricity, 0.15p per unit compared with 0.43p. That implies that the buyout price of a unit of renewable heat would be only a third of that for renewable electricity—£10 per megawatt hour. The Government could achieve carbon savings at minimal cost to the consumer and to industry. The new clause is an enabling provision which does not appear to commit the Government to any action, but maximises the legislative opportunity provided by the Bill. The results of consultations on renewable heat could be quickly enacted by means of secondary legislation.

Sources of renewable heat use proven technologies and can be quickly deployed. They include wood-fuelled boilers, biogas, solar thermal and ground source heat pumps. I am particularly keen on the latter. We have heard nothing about them during the Bill's passage so far, but we need only cross the English channel to see them being developed on the continent. There are one or two exceptions in this country: I believe that Leicester is using ground source heat pumps in municipal developments, and other towns may be doing the same.

Dr. Alan Whitehead (Southampton, Test) (Lab)

The hon. Gentleman may wish to visit Southampton and see the geothermal energy project at work.

Mr. Key

I am delighted to hear that that is happening in Southampton, which is just down the road from Salisbury. Such technology, however, is having a minimal impact, and not many people know about it.

Unlike, for example, direct solar panels on roofs, ground source energy is already there. As we have seen in Canada, heat can be extracted from soil whose temperature is below freezing. It is a remarkable technology, and we should take it more seriously. Long-term investment is required, but it is certainly a possibility. We need this enabling legislation, which is supported in recent reports including one from the Royal Commission on Environmental Pollution. Page 39 of "Biomass as a Renewable Energy Source", published in May, states: It has become clear to us that the most obvious gap in current support schemes is the lack of any mechanism for supporting the generation of renewable heat energy, comparable for example to the Renewables Obligation scheme for renewable electricity. We recommend that the government introduce such a support mechanism. The Department for Environment, Food and Rural Affairs commissioned a report from Ilex Energy Consulting in December 2003. That report, entitled "Policy Mechanisms to Support Biomass-Generated Heat", states: Ilex recommends that the government focus on the option that appears to be the most effective in terms of delivering significant quantities of renewable energy at least cost. In Ilex's view this would be some form or obligation mechanism with tradable certificates similar to the existing Renewables Obligation. Those strike me as pretty good reasons for supporting new clause 19.

In the spirit of the national interest rather than party policy, I am prepared to support new clause 19, which I find interesting. Above all, however, I hope that the message sent during the closing stages of the Bill's progress will be that we must all get real, and stop sniping at each other about whether we are greener than the next man or woman. That is not really relevant. We need to get together, and conclude that of equal value in tackling the problems of global warming are nuclear energy and renewables of all kinds, including tidal movements. If we could make some progress, even at this late stage, it would be very welcome to our constituents.

Dr. Desmond Turner (Brighton, Kemptown) (Lab)

I thank my hon. Friend the Minister for accepting the principle of my amendment in Committee and incorporating the progress on deployment of renewable energy in his reports relating to the Sustainable Energy Act 2003.

There is no disagreement between the Government and me—and, probably, many other Members—on what we want done to encourage the use of renewable energy. We want to ensure that there is a stable, friendly environment in which investment in renewable energy can take place and that investors can feel confident that that environment will continue for some time. We are talking about long-term investments that carry high risks, apart from regulation. We want that to be absolutely clear.

It is one thing to have an environment that is suitable for investment in wind power, as we currently have, but if we are to achieve our renewable energy targets we desperately need to use other technologies, notably our marine technologies the risks of whose initial deployment will be very much higher, and hence the challenges to investors will be very much higher as well.

The message that I receive from serious players in the energy market—not just people in sandals—is that investors regard Britain as a difficult market for investment in renewable energy. Their greatest concern is a political one, involving the regulator. That is probably very much coloured by the history of the regulator. I am glad to note that, since Ofgem's reconstitution last autumn, it has been an entirely different animal, behaving in an entirely different way. It has been taking serious note of the guidance issued by the Minister. A disjunction still exists between what the legislation states is required from the regulator, what the Government are asking the regulator to do and what the regulator currently does. That is fine, so long as the relationship between the Government and the regulator is good, and that they both agree and work to the same agenda. Sadly, such a relationship cannot be agreed for all eternity. In my view, it is common sense to bring the statutory duties of the regulator—clause 81 couples the regulator with the Secretary of Sate, so the regulator would not act on its own—into line with future objectives.

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I freely admit that clause 81's drafting goes too far, because it makes renewable energy the sole primary purpose. The regulator responded to clause 81 by saying, "Ah, if you are going to make that my prime duty, I will do nothing else and the market will pay", despite the fact that clause 81 states that the change should occur with due regard to other factors such as competition, consumer protection and security of supply, which are also part of the regulator's duties. The primary duties stated on the face of the Bill are important and the regulator cannot get away from them. Amendment No. 20 attempts to get round that problem by maintaining the current primary duty of the regulator and associating it with security of supply and the protection of sustainable energy, which it makes primary duties too.

The DTI helpfully provided me with its technical analysis of my amendment, which it does not agree with, although one would not expect it to. It points out that the amendment relegates consumer protection from being the principal duty to being one of a number of duties, but I think that that is sensible. What do we mean by consumer protection? We are all consumers and, as a consumer, I want not only the cheapest possible unit of electricity, but to be sure that the lights will not go out, so I am concerned about the security of supply, which is also a matter of consumer protection. I also want protection from climate change, which is a long-term consideration and the ultimate in consumer protection.

Brian White

Does my hon. Friend know that the Communications Act 2003 recognises the difference between a consumer and a citizen and that the Water Act 2003 recognises the role of sustainable development as distinct from consumer protection?

Dr. Turner

I was not aware of that detail, but I am grateful to my hon. Friend for pointing it out, because it makes sense and provides a precedent for amendment No. 20.

I am happy for clause 81, in its current form, to go—I will not oppose the Government amendment to delete it—but I hope that the Government will think seriously about the principles behind amendment No. 20. As it happens, DTI officials also pointed out that having a number of similarly weighted duties would make it difficult for the regulator to balance priorities, but the Government and the regulator must balance priorities anyway—if they did not do so, we would return to the situation under the previous regulator, when market prices dominated everything to the detriment of renewable energy and combined heat and power. The balancing act is inevitable and we cannot get away from it. We must get the semantics right and the Electricity Act 1989 must be amended.

Officials also pointed out a technical drafting flaw in my amendment, and they are right, which is a slight problem, so I will not take up the invitation of the hon. Member for Tewkesbury (Mr. Robertson) to set off a rebellion. However, I know that my hon. Friend the Minister agrees with me on the intentions behind regulation and I earnestly hope that he will undertake to re-examine the regulator's current statutory duties and make it clear to market investors that they can invest with confidence in the regulator. Investors will have enough problems in financing the development of new technologies to a commercial level and in moving the technology into the harsh marine environment, so let us make sure that neither Government policy nor the regulator's interpretation of Government policy is ever allowed to form a barrier to them.

Mr. Richard Page (South-West Hertfordshire) (Con)

I shall start by taking up the point made by the hon. Member for Banff and Buchan (Mr. Salmond), who spoke about the time available on Report. The 11 Government new clauses, plus two Government amendments that are long enough to be clauses, are unacceptable and should be considered in Committee. This important Bill has been through a gestation process in a Department, a Green Paper, the other place and here, so the amount of material in front of us today is not right. However, given the Government's power and huge majority, I shall get on with the few points that I intended to make in the first place and not delay the House long, otherwise the fears of the hon. Gentleman will be realised.

I welcome new clause 4, which clarifies the purpose of a microgeneration strategy and provides a clear definition. I want to discuss the removal of the duty on the Secretary of State to impose targets. In a letter to members of the Committee on 28 June, the Minister for Energy, E-Commerce and Postal Services stated that the removal of targets constituted the only fundamental difference from the original clause"— clause 120. I must delicately point out that one or two more fundamental changes have also occurred. Why has the time scale for the publication of a strategy been extended to 18 months? Surely the Government have had long enough—I mentioned the process earlier—to implement the strategy. Why can the strategy not be published in one year rather than 18 months? It is up to the Government to explain why a longer period is needed.

The definition of "micro-generation" in clause 129 applied to the generation of energy by means of equipment installed in or for use by a single unit or a small number of units of office or residential accommodation. To judge by the comments already made today, it seems that such a provision is basically welcomed and encouraged. The new definition in new clause 4 relies on the definition of specific sources or technologies of a set capacity, as set out in subsections (7) and (8).

Such an approach is much wider, and it might apply, or come to apply, to units of office or residential accommodation that are well above the size envisaged in the original clause. Is that a deliberate or accidental move? The Government have changed so much of the Bill that it would not surprise me if they wanted to make further changes. Either way, is the consequence that might flow from that approach desirable?

My hon. Friend the Member for Tewkesbury (Mr. Robertson) and the hon. Member for Milton Keynes, North-East (Brian White) touched on targets. All of us in Committee, excluding, of course, the Minister and his loyal Parliamentary Private Secretary—and perhaps the hon. Member for Milton Keynes, North-East, who might want to be a PPS one day—felt that we should have targets and milestones through which we can measure how we are getting on. I understand the Government's worry. The House will remember that, when they took office, they produced targets as if they were going out of style. There were targets for this, that and the other; indeed, every single Department had them. Most were missed, leading to subsequent embarrassment, so I can understand why the Government are running away from the idea of ever having a target again.

I shall not transgress into the territory of the short debate that will take place on new clause 5 and security of supply, but if we do not get that issue right, we could face blackouts or brownouts. My hon. Friend the Member for Salisbury (Mr. Key) said that we have got to get together and look at all possible sources of energy, so that we can supply the needs of this nation and he is absolutely right. I hesitate to say that I am as enthusiastic a supporter of nuclear energy as he is—I am more of a political coward than him. He is bigger than me, so he can batter his way through; I might get bounced around a little. That said, I am with him, in that this Government are displaying enormous cowardice by not coming forward with a nuclear strategy.

As night follows day, I cannot see how this country can get by and meet its energy demands without having a nuclear strategy at some point. I wish that we did not need one, but the reality is that we do. If someone asked me whether I would rather have a power station belching out smoke or a nuclear power station, I know which I would choose and I know which is more detrimental to our health. Some of the environmental groups that have been mentioned are being less than honest in their proposals. They simply are not recognising the realities.

I want to finish by touching on combined heat and power plants, which have already been mentioned. As this House learned when the Utilities Act 2000 went through, for some reason, the exports of electricity from CHP plants were included in the renewables obligation structure. I do not know whether that was deliberate or an oversight, but it has had a hugely detrimental effect on CHP plants. In effect, one low-carbon technology—CHP— is facing an additional cost burden to support another low-carbon technology, which is predominantly wind power. As we all know, an amendment was introduced in the House of Lords that the Minister then wiped out with a cavalier flick of his hand in Committee. As a result, we are now without any form of support for CHP.

The CHP industry has advised the Government that, in the past couple of years, we have fallen some 2,000 MWe short of the target of 10,000 MWe. The Government do not want targets, and if such shortfalls are going to happen in other fields of energy generation, I can understand why, because they would be hugely embarrassing. We are talking about a 20 per cent. drop compared with the original figure. That decline has led to an extremely difficult period for the industry. Even the DTI's own statistics show that CHP capacity and output have fallen.

3.15 pm

I shall not go through all the reasons why CHP is a good thing, because other Members have done so. The Government's own drive to install CHP has stalled, and action is needed now to rebuild confidence and to get things going again. I welcome new clause 4 and the consequences flowing from it, but I am sorry to learn that the Minister is running away from targets. We need targets to know where we are and to measure what we have to do if we do riot meet them. When the right hon. Member for Cunning tame, North (Mr. Wilson) was a Minister, he was an enthusiastic advocate of a target of 10 per cent. renewable; by 2010, but he always fell a little short in terms of how that would be achieved. We have taken a small step—and I mean a small one—towards achieving that target, but I am desperately worried that there will be a shortfall. I do not want the people of this country to experience blackouts or to run short of power. It is up to the Government to ensure that they have targets, so that we know where we are, where we are going and what we need to put right.

Ms Joan Walley (Stoke-on-Trent, North) (Lab)

It is always a pleasure to follow the hon. Member for South-West Hertfordshire (Mr. Page). He and I go back a long way, but I should point out that I do not share his conviction concerning a nuclear future. I want the Government to do everything that they can with renewables and energy efficiency, so that we can get to where we need to be. The Bill, and the new clauses and amendments that we are discussing, which were quite controversial in Committee, are all about security of supply. We must take the right act ion now to get us to where we need to be. We must avoid going down the nuclear route, and ensure that we have what we need when we need it.

The amendments and new clauses before us deal with perhaps the most complex and central issue of our time: how to provide the energy that we need. As was pointed out, there was a rebellion in Committee—we do not want another one this afternoon—but the Minister has listened to many of the arguments, It has been pointed out that the debate seems now to be about semantics rather than anything else; I hope that that is so, and that we are showing that this is an ongoing issue and campaign. We need to get the legislation right. We need to provide the tools to achieve the necessary investment in renewables, so that we get the energy policy that we actually need.

The debates in Committee centred on two main themes: residential energy efficiency, and the power of the regulator. The Government rejected a residential energy efficiency target, clause 3 was withdrawn, and there was a vote on clause 81. Many of us felt that that was a way of dealing with an issue that should have been dealt with in a more up-front way through clause 3. The most important point is that it is possible that existing carbon savings are simply not being counted. There was a great deal of frustration among many members of the Committee, including hon. Friends who are far more conversant with these issues than me, that the carbon savings had not been properly counted. In Committee it seemed wrong to go for a lesser target than that which we already had.

That is why I support my hon. Friend the Member for Milton Keynes, North-East (Brian White) as he continues to try to drive the agenda forward. He has tabled new clause 6, which deals with a policy goal. I do not mind whether something is a "target" or a "policy goal", but I do mind that we should have a Minister who aspires to make the carbon savings that we really need.

Mention has already been made of evidence given to the Environmental Audit Committee. We heard, for example, from the Energy Saving Trust and it is clear from its evidence that savings have been made, but are simply not being counted. There may be a role for the Sustainable Development Commission working with officials from the Department of Trade and Industry and, by that means, we could reach the stage that we should have reached in respect of energy efficiency. I believe that 5 megaton of carbon savings is absolutely on the cards, and we could achieve It quickly. I hope that in further discussions in the other place and in the Minister's ongoing policy work—I do not mean only when he speaks on the "Today" programme, defending his policy so admirably at whatever time in the morning—the necessary action will be taken forward. We want the Minister to make the carbon savings that we absolutely need and ensure the security of energy supply that we also absolutely need.

The role of the regulator is important. New people are responsible for the regulator's work and we may never go back to the days of Clare Spottiswoode, when we were categorically told that there was no way that environmental sustainability issues could be taken into account. It may not be necessary to have everything built into the legislation, and I hope that the Minister can provide us with an assurance that a change of direction has already taken place. The Sustainable Development Commission, under the chairmanship of Jonathon Porritt, could be more actively involved in ensuring that the regulators are conversant with the way in which the new duties have been spelled out in respect of the Government's and the Minister's long-term objectives.

The Deputy Prime Minister made a statement earlier today in which he referred to the new programme of house building across the country, which I believe that hon. Members on both sides of the House support. The extent of new house building and modernisation and investment in our existing housing stock will make it more important than ever that we have joined-up thinking across government. We need to ensure that we consider the impact of the energy systems in new residential properties, which could be significant in terms of carbon emissions. We need to promote joined-up thinking through the Green Ministers Sub-Committee and we need much tighter regulations from the Office of the Deputy Prime Minister on energy efficiency. We might then be able to start to deliver some of the policy goals set out in the new clause proposed by my hon. Friend the Member for Milton Keynes, North-East.

I believe that the Government have an opportunity to drive this agenda further forward. The thrust of legislation on energy efficiency and renewables is right. I welcome the provisions on microgeneration, which will also help. The day-to-day implementation will be crucial and the devil will be in the detail of how we get to where we want to be in respect of averting global warming and meeting the Government's Kyoto commitments. The Prime Minister has pledged himself to meeting them and will speak at the G8 talks next year. I hope that our consensual debate means that progress will be made on those most important issues.

Mr. Weir

I shall be brief in the vain hope that we might reach the last set of amendments in due course, but I should like to make a few points about this important group of amending provisions. I support new clause 6 and new clause 19—despite its proprietorial implications, as pointed out by the hon. Member for Lewes (Norman Baker).

New clause 19 is, in fact, supported not only by Friends of the Earth, which the hon. Member for Salisbury (Mr. Key) mentioned, but by the National Farmers Union, Slough Heat and Power, the Renewable Power Association and many others. They all support it because it deals with an issue that is vital to rural as well as urban areas. The renewable heat obligation provides the opportunity for biomass to contribute to our energy mix, which could be important for our farming communities as they look for new work to replace traditional work whose economic importance is not as great as it used to be. It also provides an opportunity for the forestry industry in Scotland, for example, to have an outlet for much of its produce.

I have already said that I support Government new clause 4, though I am slightly disappointed that its terms have been watered down. We debated an earlier draft in Committee, and I prefer the original wording. Microgeneration could be important in rural areas of Scotland where there is considerable interest in it, particularly on the part of those who have very expensive oil-fired central heating. Microgeneration provides an opportunity for replacing that fuel with a renewable source of energy, which would help many of our rural areas. It will become a very popular option if clauses 176 and 177 are passed in their present form and it will impact on many areas of Scotland.

I want to deal briefly with the regulator, particularly Ofgem, which the hon. Members for Milton Keynes, North-East (Brian White) and for Brighton, Kemptown (Dr. Turner) mentioned. I strongly agree that some guidance should be given to the regulator about how best to interact with Government policy, although I do not share the view expressed about the supposed improvement in Ofgem. My hon. Friend the Member for Banff and Buchan (Mr. Salmond) and I met representatives of Ofgem yesterday and, frankly, I was shocked at the fact that they did not seem to take any cognisance whatever of Government policy on renewable energy. Ofgem's entire raison d' être seemed to be to deal with markets and with what it saw as consumer protection. It did not take into account anything to do with renewable energy. In its calculations it did not seem to take into account what the Government are trying to achieve—an increasing element of renewable energy in our energy mix, which we all support.

That is a serious defect. By passing the Bill in its present form without addressing that problem, we are in danger of making it worse. We are all going forward together, across parties even, towards a renewable future, yet we may find it being sabotaged by the regulator, which is operating on an entirely different agenda. That is a serious matter, which the Government need to address. If they do not, the renewable future may go down the tubes very quickly.

3.30 pm

Mr. Colin Challen (Morley and Rothwell) (Lab)

I am pleased to say that through the Bill, the Government seek to deliver power to the people. I always knew they would. New clause 4 puts that into practice. Microgeneration will give people at a local level or an individual level a high degree of control over their sources of energy supply. It is good not to be dependent on a supply industry that has under-invested. The grid, allegedly, is on its last pylons, if not its last legs. We are told continually that power stations do not have the necessary capacity and that we may face another winter blackout crisis. We do not want a Californian situation in this country. That points to one good reason why we should give more control over these matters to people in their communities, just as is beginning to happen in Germany.

The hon. Member for South-West Hertfordshire (Mr. Page) asked why the period of consultation should last 18 months. He was given a good response to that from my right hon. Friend the Member for Cunninghame, North (Mr. Wilson) and my hon. Friend the Member for Stoke-on-Trent North (Ms Walley), who said that there are clear issues that the Office of the Deputy Prime Minister must grapple with. There are also issues that the Department for Environment, Food and Rural Affairs must address. I urge my hon. Friend the Minister to ensure that the consultation that flows from the clause is extremely thorough and that it is carried out in partnership with those two Departments, so that the impact of the clause on the announcements that we heard today from the Deputy Prime Minister is taken on board by the Office of the Deputy Prime Minister.

I am concerned that that may not be the case. There is a great enthusiasm to build as many houses as we can get for the price that we are prepared to set. We should examine ways of funding environmental improvements. The Barker review suggested a windfall tax on sales of land for housing, which is not a bad idea. We might also consider a windfall tax on the profits of house builders, and we could Government hypothecate those amounts to improving the environment. I hope that the consultation that floes from the new clause will examine such proposals.

Microgeneration offers a great opportunity for the Department of Trade and Industry to show that the United Kingdom plc has a new manufacturing base and a new manufacturing strategy. If we get that right, there will be enormous markets—for example, in the developing world, where small and remote communities would benefit enormously from cheaper solar power. There are, of course, many different ways of trapping solar energy. If we can develop it in this country, we will have a potential export industry of a high order. That would help our manufacturing plant.

The week before last, with other members of the Environmental Audit Committee, I visited Aberdeen, which is known as an energy town, second only to Houston. People in the oil and engineering industries there are looking for new ways of developing what they see as a declining industry. When we discuss new alternative technologies, it is important that we recognise that we are not necessarily against those in the existing energy and engineering industries—we could work with them.

I thoroughly support new clause 6. It represents the other side of the coin to the sentiment about power to the people. If people can generate their own power through microgeneration, it makes sense that they should not have to generate so much energy. Energy efficiency, the other side of the coin, is known as the fifth fuel. I am a little perturbed by the reduction of the target from 5 to 4.2 megatons.

In that context, my hon. Friend the Member for Milton Keynes, North-East (Brian White) referred to a memorandum and evidence to the Environmental Audit Committee from the Energy Saving Trust. On the same day, 24 May, we also had before us representatives of the Carbon Trust, which was set up a few years earlier. It deals with the industrial and commercial side of energy saving, whereas the Energy Saving Trust is more concerned with the domestic side.

I was interested to note that the Carbon Trust said that the energy efficiency implementation plan would leave a gap to 2010 of around 4m tonnes of CO²…assuming the 20 per cent. goal is applied specifically to the business and public sectors. Clearly, this gap could still be closed by ramping-up existing measures and introducing new ones. This should be a key issue for the review of the CCP later this year. I hope that that approach also applies to domestic energy efficiency. Both the trusts to which I have referred believe that a lot more could be done, but they would say that, wouldn't they? However, I tend to agree with them—a lot more could be done.

We heard in Committee that the shortfall on the domestic energy front could be made up, and exceeded, in the commercial and industrial sectors. If so, I do not see why the same approach cannot be adopted for domestic energy. Why does one sector have to be downgraded, and the other upgraded? Industry and commerce obviously contribute a great deal in terms of carbon emissions, but the many hon. Members in receipt of this week's report from the Confederation of British Industry will know that that body is worried that environmental measures could make business uncompetitive. That is a very valid concern.

The very noble cause of reducing fuel poverty is at the centre of Government strategy. The DEFRA chapter of the 2004 spending review talks about the environment, and shows that it is fuel poverty that drives the policy on energy efficiency in the domestic market. That is very worthwhile, but what happens when everyone is released from fuel poverty? Will there be an end to grants for insulation, the Warm Front programme, and the rest of it? Clearly, there needs to be a greater emphasis on environmental need. We should not concentrate solely on fuel poverty.

I shall end with a brief comment in support of amendment No. 20. The EAC heard from the UK World Business Council for Sustainable Development that it was in favour of inserting a tighter requirement on the regulator. It wanted to use the phrase "sustainable development", and I noted that my hon. Friend the Member for Brighton, Kemptown (Dr. Turner) spoke earlier about "renewable energy". Those may be narrow definitions, but any reference merely to "the environment" can mean so many different things that it could mean nothing at all. I hope that the Government will listen to the intent behind the amendment, and act on it in some way.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)

The hon. Member for Morley and Rothwell (Mr. Challen) will be very popular in Aberdeen city. He recognised that it is an energy city, and not just an oil and gas city Aberdeen has been trying to rebrand itself and move away from the traditional industries that grew up there because of the resources in the North sea. As the hon. Gentleman said, the aim is to get the skills available in the energy industry transferred into the new and growing renewables sector, and to build a manufacturing base that will support that sector.

I want to speak in support of new clause 19. I shall be brief: the final group of amendments to be considered today also significantly affects Scotland, and I want to make sure that there is time to discuss those proposals.

In his introductory remarks, the Minister mentioned the Government's clear skies initiative. I wrote to the Secretary of State to pass on concerns expressed by a constituent of mine about the problems of accreditation for that scheme. That letter was passed to the Minister by the Secretary of State, so I hope that he will make sure that the problems are dealt with.

New clause 19 is important to my constituency. I represent a large, rural area, in which few communities are on the gas main. The heating alternatives for domestic dwellings and businesses rely on carbon-emitting fuels such as oil, coal and liquefied petroleum gas. The Government should welcome any move to replace those direct heat sources with renewable sources as a way to achieve their Kyoto commitments, and to reduce this country's carbon emissions.

In my constituency, one possible renewable source of heat comes from the rural community—the farming industry or, as the hon. Member for Angus (Mr. Weir) said, the forestry industry. Managed forests lock up carbon during the growing cycle, which is then used as fuel during the harvesting cycle. The process then repeats itself over the generations. However, many of our forests are reaching a point of maturity where they desperately need to be thinned. The problem is that there is no economic outlet for the wood taken during thinning. If we do not thin the forests now, we will not be thanked by later generations, as the forests that we leave to them for harvesting will be of much lower quality. Any measure that underpins the market for thinnings will help to boost the forestry industry. Obviously, those thinnings could be an ideal fuel for a biomass plant providing heating for a district or for industry.

Aberdeenshire council has been working hard to promote in the community the use of biomass as a renewable fuel and has come up against the argument from potential users that a renewable obligation might well be the tipping point that would make them take up that energy. It is important for the Minister to say how he plans to take forward what is in new clause 19, which seems to be the best way to encourage that form of substitution of carbon and advance that policy. District heating schemes are being considered for communities. As other hon. Members have said, the technology exists to use the fuel; it is not an unproven technology. It is simply a question of stacking up the economics properly. A level playing field needs to be created with other forms of renewable energy. If the fuel is used to generate electricity, it gets some element of renewable recognition, but where it is used just to produce heat there is no recognition of the valuable contribution that it can make to reducing our carbon dioxide emissions.

Mr. Timms

We have had a good debate on this series of amendments and new clauses. I welcome the support expressed for new clause 4 by a number of hon. Members, including my predecessor, my right hon. Friend the Member for Cunninghame, North (Mr. Wilson), who made an important point about addressing planning issues for microgeneration within the strategy. He will know that the updated renewables planning policy statement, PPS22, is due to be published by my right hon. Friend the Deputy Prime Minister shortly, but microgeneration will raise some new planning issues that we will need to consider in the context of that work.

Mr. Wilson

I am grateful for my hon. Friend's comments. Does he think that it will be possible within the time scale to incorporate the microgeneration issues into the report from the ODPM? I am slightly alarmed at the thought that it will take 18 months to get around to those issues. Surely if there is a sense of national urgency about all this, we could make rapid progress on microgeneration planning issues as well as on those that are more familiar.

Mr. Timms

I cannot give my right hon. Friend an assurance that those issues will be fully addressed in the imminent document from the Deputy Prime Minister, but he is right to say that we will need to address them in the context of the strategy. If we can make progress more quickly on that part of the work, we will certainly do so. I take on board his point about the urgency of making headway.

New clauses 2, 3 and 6 relate to energy efficiency. I recognise that there has been some disappointment that the Government's published aim of delivering annual savings of 4.2 million tonnes of carbon from households by 2010 is at the low end of what was indicated in the White Paper. I use that form of words because it has been said that the target has been reduced, and that is not the case. There was no target in the White Paper, but an indication that we thought that around 5 million tonnes—that was the expression used—of carbon could be saved from households. As I said in Committee, in my book "around five" means somewhere between four and six and the figure has come out at 4.2. The overall saving from energy efficiency was set out in the White Paper as 10 million tonnes—5 million from households and 5 million from industry. We are confident that we can deliver 12 million tonnes, with a substantially greater contribution from industry and 4.2 million tonnes from households. I have had the opportunity to meet the Association for the Conservation of Energy to discuss the issues, as I said in Committee that I would.

I cannot recognise the point that my hon. Friend the Member for Milton Keynes, North-East (Brian White) made about the crisis of confidence in the industry. We propose a doubling of the market for domestic insulation— cavity wall insulation. That is a huge boost to the industry; it can plan with great confidence for a big expansion. I accept that it is not quite such an enormous expansion as might once have been thought, but it is big, and the industry can be confident about its prospects.

We will review our energy efficiency aims in the household sector both, as my hon. Friend the Member for Morley and Rothwell (Mr. Challen) said, through the review of the climate change programme commencing later this year and through the 2007 review of the aim that was announced in the action plan. We will also look to maximise the cost-effective contribution from energy efficiency. I agree with my hon. Friend the Member for Milton Keynes, North-East who expressed the hope that we can go further than we have committed ourselves to doing at this stage. However, until those reviews take place, it would not be right to change the present aims.

3.45 pm

Miss Anne McIntosh (Vale of York) (Con)

Does the Minister accept that the residential efficiency aims were changed not by his Department but by the Department for Environment, Food and Rural Affairs in the energy efficiency implementation plan? I do not know whether the two Departments have some history on that issue that the Minister might like to share with us. When does he intend to introduce the statutory requirement in the commercial sector?

Mr. Timms

The hon. Lady is right to say that DEFRA takes the lead on energy efficiency. However, as I am sure she has noticed, the two Departments work closely, and there is no difference between us on the issue. I do not agree that the figure of 4.2 tonnes is a change from "around 5 tonnes". It is simply a clarification of what the White Paper said.

The hon. Member for Lewes (Norman Baker) made a point about the importance of consumer behaviour, and I agree. We are working through the Energy Saving Trust to address the question of consumer behaviour. With marketing and communication specialists, we are considering how to take forward a new climate communications programme to draw to people's attention how significant a contribution they can make to achieving the objectives that are important to all of us. Our aims are challenging and will require concerted effort from all involved, and if we can increase them at a later stage, we will use our planned reviews to do so.

I wish to make the point to the hon. Member for Lewes that the Government remain firmly committed to our domestic target of a 20 per cent. reduction in carbon dioxide emissions by 2010. He suggested that that was not the case, but it certainly is. Clause 82 already imposes a requirement to report on "things done" for the purpose of achieving the energy efficiency aims designated under the Sustainable Energy Act 2003. That removes the need to have a separate report, as the amendment suggests.

New clause 19 addresses the issue of a renewable heat obligation, and we have had some interesting discussion of that point. It is an interesting idea and an important issue that we also discussed in Committee. Introducing such a measure, even in the permissive way in which new clause 19 is helpfully drafted, would be rash, given the little time that we have had to give it the serious consideration it deserves. We first need to do some serious analytical work, and we will. I shall meet representatives of several interested parties, including Friends of the Earth, which has rightly been mentioned, to hear how their ideas for renewable heat are evolving.

An obligation approach, as proposed by the hon. Member for Hazel Grove (Mr. Stunell)—I am pleased to see that he is in his place—may prove to be the best way forward. The Royal Commission on Environmental Pollution has referred to that approach, but other options need to be examined, too. We would need to examine the costs of a support scheme to the consumer and the impact on other policies to tackle fuel poverty. If we excluded the domestic sector from such a scheme, we would need to consider the administrative costs and whether they would be justified for the limited market that would be left. We would need to consider whether such a scheme would represent good value in terms of the carbon savings; the implications for the heating fuel supply industry; and whether the obligation should be placed on those who sell heat or those who supply fossil fuels for heating. All those issues can be resolved.

The question of renewable heat was also raised last month by the European Commission in its communication to the Council and the European Parliament on the share of renewable energy in the EU. The Commission noted that there is no legislation in place at European level to address renewable heat production at present, and that renewable energy in heating has grown slowly over the last seven years. The Commission has yet to come up with proposals on how that issue can best be tackled.

I very much welcome the fact that we have held discussions and the wide support that has been expressed in the debate, and I am grateful to the hon. Gentleman for airing the matter again today.

Mr. Stunell

The Minister is expert in giving us calm, warming words on these matters but what is he actually planning to do? He has set out a list of questions that need to be answered, but what does he intend to do and when?

Mr. Timms

I shall attempt to calm and reassure the hon. Gentleman. We shall take forward the analytical work that is needed to address all t he questions that I have raised. As I am sure he agrees, those questions are serious, and we need answers before we can make headway. In addition, I shall meet those, such as Friends of the Earth and others, who have drawn particular attention to the importance of the matter. I agree that it is important and that we need to make headway, but we also need to do more analytical work before we can determine precisely the right way forward, or indeed the time scale for making progress. I hope that the hon. Gentleman feels reassured on that point—as on many others—by my answer.

Sir Robert Smith

Will the Minister give way?

Mr. Timms

I really need to make some headway, given the points that have been made, rightly, about other matters on our agenda this afternoon.

On new clauses 20 and 21, I realise the importance of addressing the current problems for combined heat and power, but we need to do so in a way that does not undermine other objectives. As we have said both in the House and in Committee, we mug not undermine what we all want to achieve on renewables, and that would be the problem under the new clauses. It is not just I who says so: as I mentioned in Committee, I have received representations from the Renewable Power Association, the British Wind Energy Association and the Association of Electricity Producers expressing their concern. Centrica plans to invest £750 million in renewables projects and sees the proposals in the new clauses as undermining the ROC market which is still in its infancy". I appreciate that new clause 21 would attempt to make up for the loss on the renewables side, but it would introduce a range of uncertainties that do not exist at present, and that would be unhelpful. There is a real danger of moving the goalposts, thereby undermining the confidence that is so essential for delivering what we want across the range, especially on renewables.

Mr. Laurence Robertson

As I acknowledged earlier, the Minister makes a good point when he suggests that the new clauses are somewhat less than perfect, but will he make some proposals about how we can encourage the CHP industry? Although it is not carbon-free, it is certainly more efficient than many other traditional forms of electricity generation.

Mr. Timms

I agree. Several of my hors. Friends have made the same points about the importance of CHP and its benefits, and the significantly greater potential of its contribution. We set the ambitious target of more than doubling the amount of installed CHP capacity by 2010. Currently, it looks as though we are heading for 8.5 GW capacity rather than the 10 GW that was our target, so I agree that we need to address the shortfall. However, we need to find ways of doing so that do not undermine other objectives so I am especially grateful to my hon. Friend the Member for Southampton, Test (Dr. Whitehead) for his interesting suggestion in Committee that a possible means of providing further support for CHP would be a mechanism that he described as being like a fixed-rate mortgage, whereby the Government would guarantee a certain level of spark spread for CHP. Spark spread, as the House will know, is the difference between the price paid for gas and the price obtained for electricity generated.

Yesterday, my hon. Friend my noble Friend Lord Whitty and I attended a meeting with representatives of the Combined Heat and Power Association and others from the industry, and we had a good discussion of my hon. Friend's idea. Of course, at this stage, we have not been able to undertake any analysis of the practical and cost implications, but those at yesterday's meeting, including the association, agreed that that very interesting idea might give us a way to increase the attractiveness of investing in CHP without putting at risk other energy policy objectives. So we will work with the industry to consider whether we could move in the direction suggested by my hon. Friend. We also need to work with the industry to consider other options in case that one does not work out in the way that is hoped, so that we can produce proposals in support of CHP that are demonstrated to be cost effective and that do not undermine other policy objectives. I hope that that dialogue will be fruitful. My hon. Friend made an appropriate point about the importance of our success.

My hon. Friend the Member for Brighton, Kemptown (Dr. Turner) spoke to amendment No. 20, and I am grateful to him for making a number of points, including his acknowledgement of some technical difficulties with the drafting. By deleting the current principal objective for Ofgem and putting in place a number of similarly weighted duties, the amendment would in practice make it very difficult for the regulator to work out how to prioritise its work and balance its duties. The current set of duties strikes a careful balance between a number of different objectives and was arrived at after much consideration and consultation. I certainly would not want to change those duties without, as a minimum, doing a similar amount of work and ensuring that there was a wide understanding and acceptance of the change that was being made. The current principal objective of protecting the interests of consumers is well understood and welcomed by all stakeholders, and we should not delete it.

In amendment No. 20, there is a particular difficulty with the phrase to ensure that there is no detriment to the promotion of". The strength and inflexibility of that phrase could cause some difficulty in making our energy markets work for the good of consumers and UK competitiveness. However, I hear what hon. Members, including a number of my hon. Friends, have said about the importance of sustainable development to Ofgem's work. Of course, guidance is already in place. I welcome the fact that, for example, my hon. Friend recognises that Ofgem is now seen to deliver effectively on those priorities, but I have noted the strength of feeling that my hon. Friends have expressed on that point.

On the basis of the explanation and assurances that I have given, I hope that the House will feel able to agree to new clause 4 and the associated Government amendments and that hon. Members will not press to a vote the other amendments and new clauses in this group.

Question put and agreed to.

Clause read a Second time, and added to the Bill.