HL Deb 12 February 2004 vol 656 cc533-90GC

(Eighth Day)

Thursday, 12 February 2004.

The Committee met at twenty past two of the clock.

[The Deputy Chairman of Committees (Lord Brougham and Vaux) in the Chair.]

The Deputy Chairman of Committees (Lord Brougham and Vaux)

We have delayed starting for the Statement in the House. Welcome to the eighth day in Grand Committee on the Energy Bill. Members of the Committee know the rules and I shall not read them out. Noble Lords stand up when speaking and there will be no Divisions.

Lord Carter moved Amendment No 113ZB: After Clause 104, insert the following new clause—


  1. (1) There shall be a renewable transport fuel obligation for the United Kingdom.
  2. (2) The obligation shall require all producers selling road transport fuel in the United Kingdom to show that over the course of a calendar year a specified proportion of such fuel was biofuel.
  3. (3) For the calendar year 2006 this proportion shall be 1 per cent by energy content and this proportion shall increase annually by 1 per cent until 2010.
  4. (4) Producers, blenders and other relevant companies and persons shall make such returns to Her Majesty's Customs and Excise as may reasonably be required to demonstrate compliance with the obligation both as to the amount of biofuel produced and used and the origin of the relevant feedstocks.
  5. (5) No fuel shall be recognised as a biofuel for the purpose of the obligation unless the carbon dioxide saving on a full life cycle analysis can be shown in the returns made under subsection (4) to be in excess of a 60 per cent improvement compared with the relevant fossil fuel comparator; and in the case of biodiesel this shall be ultra low sulphur diesel and for bioethanol it shall be ultra low sulphur petrol.
  6. (6) For the purpose of the obligation, biofuels shall be defined as fuels produced from biodegradeable fraction of agricultural products, wastes and residues (including vegetable and animal substances), forestry products and waste and the biodegradeable fraction of industrial and municipal waste."

The noble Lord said: In moving the amendment I declare a non-pecuniary interest as a vice-chairman of BABFO, the British Association for Biofuels & Oils. I am delighted that the president of BABFO, the noble Lord, Lord Palmer, has added his name to the amendment. I also pay tribute to Mr Peter Clery, the chairman of BABFO, whose energy and expertise has kept the issue of biofuels firmly on the policy agenda.

We calculate that at present biofuels cost more than fossil fuels, but there are five good reasons why a domestic biofuel industry would be a good gain for the UK. With the Committee's permission, I shall briefly rehearse those reasons.

"Liquid biofuels" is the generic term for biodiesel and bioethanol when used as a substitute for fossil diesel and petrol. These fuels cut CO2 emissions by between 55 and 80 per cent, depending on production techniques and by-product use, when compared with fossil diesel and petrol. A car running now on 100 per cent biodiesel manufactured to EU quality standard EN 14214 would meet the Government's targets for biofuels for at least the next 10 years.

I should add that before I joined the Government I was involved for 30 years with United Oilseeds Marketing, a major farm co-operative concerned with oil seeds. Some 15 years ago we sent a car that was fuelled entirely by rape oil from Land's End to John O'Groats, raising a large amount for charity on the way. As I have said, that was 15 years ago.

Secondly, biofuels increase the diversity of our fuel supplies. There is real value in supplying road fuel from our farmland rather than from the Middle East and Asia. Both strategic and balance of payments considerations are relevant. Within the 10-year timespan of the EU biofuels directive 2003/30/EC, we could provide at least 5 per cent—rising over time to 10 per cent—of our road fuel needs from our own rural resources. As oil supplies dwindle and become more expensive, it must make sense to put together the nucleus of a domestic biofuel industry. Home production would also help to keep down the costs of imports.

Thirdly, biofuels improve local air quality. While great strides have been made in improving the efficiency of vehicle engines, cleaner fuel will still have a major role to play as the technology of particle traps and catalytic converters are complementary to biofuels. Efforts are currently being made to ensure that all London taxis run on biofuels, but without further support this will not happen.

Fourthly, biofuels increase rural productivity. More than half a million hectares of farmland in the UK are idle under set aside. That half a million hectares could produce close to 1 million tonnes of biofuels annually. We have wheat exports of the order of 3 million tonnes a year. This tonnage could produce 1 million tonnes of bioethanol. Under the current review of the common agricultural policy, which we have heard about today, farmers will have a wider choice of cropping open to them. It is vital that the production of road fuels should be one of the realistic options.

Fifthly, biofuels conserve energy by leaving the finite fossil fuels in the ground and using current solar energy instead. Best practice, incorporating by-product straw for power generation, can yield a positive energy balance in excess of five to one.

When the Minister replies, I should be grateful if he would deal with each of the five arguments: a reduction of CO2 emissions; increased diversity and security of fuel supply; improvements in air quality; an increase in rural productivity; and the conservation of energy.

Given a fair fiscal and legislative position, British agriculture could produce annually 2 million tonnes of road fuel in fairly short order. There is wide public support for the concept of renewable green road transport fuel. Such fuels meet not only government targets but also public aspirations.

However, because of the cost differential to which I referred earlier, this desirable end can take place only with government intervention. The Treasury have already agreed to a 20p per litre rebate for biodiesel and a 20p per litre rebate for bioethanol is to be introduced in 2005. This is a welcome start. The biodiesel rebate has led to the build-up of a small industry, producing 25,000 tonnes per year using recycled vegetable oils and so-called recycled vegetable oils.

The establishment of a serious industry will depend on deploying the resources of mainstream agriculture. Industry experts have told me that something of the order of a further l0p per litre rebate—that is, up to 30p per litre—is needed for serious investment in bioethanol. A period of at least five years for such biofuel rebates is also a prerequisite and appropriate capital grants would clearly assist.

The road gas fuels, LPG and CNG, enjoy a rebate in the order of 40p per litre. Surely the environmentally superior biofuels deserve similar support, in whatever form it takes. A requirement that all fuel producers should include a given amount of biofuel in their total annual sales would ensure that the balance of support not provided by the Treasury is met by the ultimate fuel user. This amendment proposes a renewable transport fuel obligation that would achieve just that. There is a good precedent for this in the electricity renewable obligation.

The levels of biofuel inclusion suggested in the amendment would be set mindful of the EU guidelines of 2 per cent by the end of 2005 and 5.75 per cent by the end of 2010. We recognise that the UK has, sadly, been a slow starter compared with other EU members, and it will take a little time to get up to speed. We know that a renewable transport fuel obligation, ReTFO, is in line not only with the UK position, but also with EU plans for the implementation of the biofuels directive to which I have referred.

An obligation such as that proposed in this amendment would enable us to catch up, cut CO2, clean our airspace, have a new source of fuel and stimulate the rural economy. The ends are agreed; we are now talking about means. The Treasury has already agreed fuel duty rebates of 20p per litre for biofuels to be met out of general taxation. If we accept the principle that the polluter should pay, then the car and the lorry user should pick up the rest of the tab, along with the oil companies. That is exactly what this amendment seeks to do.

However, I am conscious that both the Treasury and the fuel buyer must be sure that they are receiving value for money. That is why there is a requirement in subsection (5) that carbon saving shall be demonstrated to be at least 60 per cent over the comparable fossil fuel. This will be straightforward for efficient British farmers, but may not be so easy for imports of uncertain provenance.

The obligation proposed by the amendment proposes would require all fuel companies selling road fuel in the UK also to sell each year a given amount of environmentally sound biofuel. A cost will be attached to this, but ultimately this is not met at the pumps. It will be met by shareholders in the oil companies who may well be willing to shoulder this small burden in the cause of a better environment for us all.

By July of this year, the UK must inform the EU of its plans for biofuel use for December 2005 and for the five following years. The obligation will be an ideal way to settle this matter as our Government could both set the figures and ensure compliance, yielding the consequent CO2 savings and other benefits I outlined earlier.

When my noble friend at the Dispatch Box replies, I am sure that he will mention the consultation to be undertaken by the Department of Transport. It would be helpful if the Committee could be told who will be doing the consultation, who will be consulted—will it be all the stakeholders, not just the oil companies?— and how long the consultation will take.

I sent the Minister a letter circulated by the director-general for energy and transport matters in the Commission setting out the EC position. Member states are free to require each fuel supply company to achieve a given proportion of biofuels in its annual sales in a member state's territory, without specifying how this should be achieved in terms of blending.

In my view there is a very strong argument for the obligation. This amendment may not be perfect in its drafting, but it sets the scene for the wider debate and, I hope, eventual acceptance by the Government. I hope too that the Minister will not say that this is the wrong Bill for introducing such a measure. The Long Title of the Bill includes the phrase: To make provision for the development, regulation and encouragement of the use of renewable energy sources". The amendment would fit nicely into Part 2 of the Bill which the Minister knows is helpfully headed, "Renewable Energy Sources". I beg to move.

2.30 p.m.

Lord Ezra

I support the amendment so ably moved by the noble Lord, Lord Carter, to which my name is added, along with that of the noble Lord, Lord Palmer. No doubt, the noble Lord will speak later. Transport should play an essential part in the whole energy policy of the Government. The expected growth in road transport over the years ahead means that we face a real problem of increased emissions. It is right that a whole variety of measures should be adopted to deal with that. Indeed, the Government have already taken the matter seriously.

Here is a precise proposition for injecting a proportion of biofuels into normal petroleum products. That is perfectly feasible. It would not cause any problems in the running of cars; it is practised widely in a number of other countries, and is the subject of an EU directive. The proposal before the Committee is entirely in line with the EU directive. In fact, it falls behind since it allows for the fact that we would be starting a bit later, giving us time to catch up.

The various arguments and reasons put forward by the noble Lord, Lord Carter, are compelling. He cited improvements in efficiency and air quality, and a reduction in emissions. The noble Lord's argument is so strong that I fail to see how anyone could object to it. Moreover, there is a wide consensus throughout the nations of Europe, America and Latin America that measures of this kind should be applied.

I very much hope that the Minister, whom I know has often dealt with the question of improving the energy efficiency of road transport, will give this a fair wind. As the noble Lord, Lord Carter, pointed out, if the wording is not precisely accurate, that is a matter that can be put right at a later stage. Today, we need an acceptance by the Government of what is involved in this amendment, which very closely follows the EU directive.

Lord Palmer

I agree with the noble Lord, Lord Ezra, that there are very compelling reasons why this amendment ought to be taken in principle on board by Her Majesty's Government. I congratulate the noble Lord, Lord Carter, on the comprehensive and succinct way in which he introduced the amendment.

I put my name to it because I believe today we really have the opportunity to make a major step forward in achieving our national aims of cutting CO2, improving local air quality, increasing the sources of supply of road fuel and boosting the productivity of our farming sector at an affordable cost. I would like to remind the Committee that I am the unpaid president of the British Association of Bio Fuels and Oils, more commonly known as BABFO.

This amendment for a renewal transport fuel obligation would achieve all these desirable ends. We are, as a nation, committed to cutting CO2 emissions. Road transport now accounts for about a quarter of UK CO2emissions. Using biofuels in substitution for fossil fuels cuts CO2 emissions by between 55 and 80 per cent on a full life-cycle basis, depending on the production systems and the use of by-products, including straw.

Biodiesel and bioethanol, on balance, produce fewer noxious tail-pipe emissions than fossil fuels. However, the excellent advances in engine technology mean that a combination of biofuels and these technologies can bring tail-pipe emissions down to between 50 and 70 per cent less than fossil fuels. That must be a very good thing.

The United Kingdom is moving towards a position of net imports of road fuels. World prices are also rising. Brent crude has been close to 30 dollars per barrel for some time. Political uncertainty in areas where we have to buy oil makes it only sensible to build a domestic industry from our own sustainable resources. I cannot think how many times I have mentioned in the Chamber that North Sea oil will not last for ever.

At a recent conference organised by BABFO, it was made clear that the UK could produce about 6 per cent of our road fuel from domestic assets by 2010 and as much as 10 per cent in the years thereafter. One of the most depressing facts to emerge from the conference was how much further advanced are other EC countries than the United Kingdom. All other major European countries have biofuel industries built on the logical position of favourable or zero taxation for clean, green and renewable bioethanol and biodiesel. For some incomprehensible reason, the Conservative government imposed the full mineral fuel tax on biofuels in 1993, until which time biofuels were tax-free. Meanwhile, our continental neighbours were developing their biofuel industries under a zero duty regime. The amendment would reverse that strange decision of 1993.

As the noble Lord, Lord Carter, mentioned, at present about 500,000 hectares of land lie idle under set aside. As a farmer, that is a scandalous waste of a national resource. A similar area of land has been arable and could be brought back into cultivation for fuel. Such a move would be a major nation gain in productivity, as the agricultural overhead costs relating to that land are effectively already being met by existing businesses. Such a productivity gain should be attractive to the Chancellor. The Treasury has already provided a 20p per litre rebate for biodiesel and the same is promised for bioethanol by 2005. However, that is not enough to provide the kick-start for the industry that we need, as biofuels cost about twice as much as fossil fuels before duty and VAT.

Under the proposed renewable transport fuel obligation, the extra cost would fall on the oil companies and the fuel user. At a 2 per cent level of biofuels, such an additional cost would be a minuscule 0.25p per litre at the pumps, after allowing for the existing Treasury subvention if, as industry states, a duty rebate of about 30p a litre is required for a viable biofuel industry.

The amendment would ensure that all the benefits that I have described would accrue to the nation as a matter of certainty. I commend the amendment to the Committee and hope that the noble Lord, Lord Whitty, will accept it. I have one final but perhaps vital thought. A tonne of fossil fuel not burned today is available for future use; but every tonne of biofuel not produced today is lost for ever.

Lord MacGregor of Pulham Market

I, too, support the new clause. As an intermittent attendee at the marathon sittings on the Bill, I shall be brief—not least because nearly all the points were made—admirably, if I may say so—in the opening speech of the noble Lord, Lord Carter.

I have been interested in the subject for a long time. I was Member of Parliament for the constituency of South Norfolk for 27 years. That was one of the major arable areas of the country—in particular, one of its major sugar beet growing areas. When I was Minister of Agriculture, Fisheries and Food in the late 1980s, I seriously considered the question of how much bioethanol could be used, because it seemed to me a much more attractive way to deal with surplus production than set aside which we had to introduce as the only way to reach agreement at EU level. I was unfortunately unable to hear the Minister's Statement today, although I caught his final few exchanges on the television. I could see from that that I would be unwise to comment today on any implications for the amendment, but the matter needs to be studied from an economic point of view.

I also declare an interest as a non-executive director of Associated British Foods, which owns British Sugar. When I was considering the matter, the economics just did not stack up, but since those early days, there have been several developments, which have already been referred to, especially the biofuels directive.

I want to make two points about the current situation. First, the 20p per litre rebate will not be sufficient to encourage people to move into the production of biodiesel and bioethanol. I was in the Treasury when we introduced the first rebate for unleaded fuel. Although we expected that rebate to have an impact, I do not think we realised how dramatic it would be in encouraging so many consumers to switch over to unleaded fuel—and all that that implied for fuel production.

But this is different. A rebate of 20p is insufficient, but even a rebate of 30p per litre, which I hope the Government will move to, would still not be sufficient to provide an incentive for consumers to change to using bioethanol. That is why this proposed clause is so relevant; something additional must be done in order to create a market—on top of the subsidy required to make it reasonably viable. That can be done with this new clause. I agree that, when we consider what has happened with the renewables obligation on electricity generation, it has set a precedent which could be followed here. So unlike the issue of unleaded fuel, one has to provide an additional incentive to make this viable and I believe that something along the lines of this proposed clause would do it.

Secondly, can the Minister spell out exactly what he envisages will be the timetable for the coming year? Given the current state of play, I am bothered about how we are going to meet the indicative target of 2 per cent biofuel provision by 2005. Other noble Lords have already referred to the fact that many EU countries are ahead of us. I cannot see how we shall meet the obligation by 2005 given that the inadequate reduction of 20p in fuel duty will not come in until that year. Moreover, I was told that the consultation document would be produced in early February, which has already passed. I fear that on the present timetable, with the Budget taking place on 17 March, we shall not make the changes unless the Chancellor makes an indicative statement over the summer, in time for 2005. There will be no incentive for industries like British Sugar and sugar beet growers themselves to respond unless the timetable is made much more clear.

I hope that the noble Lord will be able to tell us when the consultation document is to come out and give an indication of how the Government see us meeting the mid-2005 target.

Baroness Byford

I thank the noble Lord, Lord Carter, for putting forward the amendment so fully. The noble Lord, myself and others have taken part in debates in the Chamber on the issue of renewables. This amendment certainly gives us a chance to express those views more fully. The noble Lord himself said that the amendment may not be perfect. Probably that is right, but I hope that the Minister will not duck the issue by saying that the amendment is not absolutely correct. He is entitled to do so, but I hope that he does not. The noble Lord, Lord Carter, has put it very clearly for the Committee. Anyone who did not understand the position is now the wiser for listening to his words.

Last Monday we debated climate change issues. Again, I ask the Minister if he would be kind enough to answer the one or two questions I put to him then. At the time he did not have an opportunity to respond.

The whole question of road transport was raised. Obviously the figures are fairly horrendous. Emissions from transport doubled between 1970 and 2001 and are likely to continue to rise. No Member of the Committee would deny that. In July 2002 the biofuel industry requested a fuel duty reduction from the Government and were given a 20p per litre rebate. While that was welcome, the industry knew that it was insufficient. Are the Government going to consider whether more money may be forthcoming since that decision was taken? I hope that the Minister will be able to indicate in his response that that is the case.

For those noble Lords who did not hear the debate on Monday, I referred to Defra's Select Committee report of 21 January this year which warns that simply increasing the duty incentive may not be enough to encourage the development of the biofuel industry in the UK. Other noble Lords have reflected that concern. But it did point out—and I should like the Minister to address this—that an increase might lead to increased imports. I do not know what analysis has been made of that, but it is something that we need to know about. If it is so, what measures does the Minister propose to strengthen our home production? Those are real issues.

My noble friend Lord MacGregor indicated his interest through British Sugar, and I should remind the Committee of our family farming interests. In fact, we grow oil seed rape, so I declare an interest in that. We are very sympathetic to the amendment and, although there are bits of it that we should like to see better worded, that is an issue for another time.

I, too, would like to underline my sadness—and that of those who go round the land—of seeing so many acres idle. That is immoral; such land should produce food or something, and it is very sad that we still have so much set-aside land in our country. Here is a very good example of how we could make better use of that land. The case for the reduction of CO2emissions has been well made by the noble Lord, Lord Carter. However, as he pointed out, the amount offered by the Government is one for which everyone is grateful—I would not want the Minister to go away thinking that we are ungrateful for what is already there. However, it is not enough to kick-start the industry as is needed.

Other noble Lords have raised the question of our commitment to the EU directive, so I shall not go over the ground mentioned by the noble Lord, Lord Ezra. They are very real. My noble friend Lord MacGregor rightly asked how we would hit our target of a reduction of 2 per cent by 2005, and our longer-term targets, if we do not tackle the issue.

The Minister will not be surprised to hear me say, as I said at Second Reading, that I am disappointed that the Bill, although it is supposed to be about energy, refers very little to energy—especially not to renewables. I should have liked to table other amendments that considered other forms of renewables that ought to have been included in the Bill. Enough has been said, however—we need to move on—but I have real sympathy with this amendment and hope that the Minister responds favourably. There are important questions that need answering, and the balance of payments is one. The situation with set-aside land is horrendous. If we really want the industry to get on its feet, the Government must respond more actively. I look forward to the Minister's response.

2.45 p.m.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

I have great sympathy with the arguments put by my noble friend Lord Carter and other contributors to the debate. I even have some sympathy with the amendment itself.

The Government are committed to promoting the uptake of biofuels for road transport, as the noble Lord, Lord Ezra, and the noble Baroness, Lady Byford, said. Transport is one of the more intractable areas when trying to control the use of carbon fuels and carbon emissions. Very substantial improvements in fuel and motor efficiency have been overwhelmed by the greater volume of transport, which seems to be going on. It is therefore important that transport contributes towards our climate change objectives. Biofuels is clearly one of the few options in the short-to-medium term whereby transport could make such a contribution. It could also have some benefit, although relatively marginal, to air quality, as my noble friend Lord Carter said, and to agriculture and the rural economy.

The Government have already taken steps to promote the uptake of biofuels, including the 20p discount, which is not to be disparaged because it has mobilised some 2 million litres of biodiesel a month in the UK. Admittedly, most of that is waste fuel, which has its environmental benefits too but does not actually feed through to the agricultural side. Nevertheless, it makes a significant contribution to the environment. A similar reduction, as has been said, will be introduced for bioethanol from January 2005. One reason for delaying the cut for bioethanol was, precisely, the fear that we might simply provoke a huge increase in imports of bioethanol, which is available on the world market and is used quite widely in some countries.

When we compare ourselves with other countries where biofuels have made greater progress, it is important to recognise that although some countries have a nil tax rate for biofuels, our higher general taxation on fuels means that the differential between tax on biofuels as compared with that on carbon fuels is not very different from that in such countries—that includes the 20 pence discount. It cannot be entirely due to the fiscal signals that we are giving that we have got no further with biofuels.

That is why I am interested in the novel part of the amendment, referred to by the noble Lords, Lord Carter, Lord Palmer and Lord MacGregor, which would effectively provide a biofuels obligation for road transport, presumably operated by the fuel companies. The Government are considering that interesting proposition. It could offer an effective measure to promote further the uptake of renewable transport fuels in the UK, and to provide a market for the various areas of agriculture rightly looking for new markets, including the beet sugar sector.

However, we are not yet in a position to judge the viability of that. As the noble Lord, Lord MacGregor, said, we have not yet consulted on how to meet the proposals in the directive. Despite the letter to which my noble friend Lord Carter referred, it is not clear in what form such an obligation would be allowable under Community law. We have not yet adequately weighed the merits of such an obligation against other options to promote biofuels. We would also need to consider many details not covered by the amendment—for example, the necessary mechanisms; who would be responsible for regulating it; and who would bear the obligation—

Lord Ezra

I am surprised by the noble Lord's remark that it is unclear whether such an obligation would be consistent with Community law. The directive sets out three options that countries can apply to conform with it. Option 1 is to reduce fuel duty on biofuels, which is one of the proposals before us. Option 2 is to take the form of a formalised agreement between the Government and fuel suppliers for the latter to meet the target, either through the sale of pure biofuels or through blending. If that is not exactly what we are talking about, what could it be? In view of the directive, it is odd that the noble Lord should say that there could be difficulty in complying with Community law.

Lord Whitty

The difficulty is that, under Community law, there are also obligations to allow the free movement of fuels. Placing a mandatory requirement on companies to supply a certain amount of fuel with biofuel content, through blending, does not necessarily deliver the purpose. In order to deliver the purpose, one must make the matter mandatory. The reference that the noble Lord, Lord Ezra, read out referred to such provision by agreement with the fuel supplying industries. If one could not get that agreement, and therefore had to make it a mandatory matter, it is not entirely clear whether it would be covered by Community law in the light of the provision that we must not inhibit the free movement of goods by prohibiting one form of fuel in that way. It is possible that we can get round that, but it is not clear whether it could be done through the wording of the amendment or through what the Government have considered hitherto.

Lord Carter

The noble Lord will remember that the letter from which I quoted earlier stated that member states may not require that all fuels sold are blended biofuels, but we are not asking for that. They may not prevent companies from selling unblended fuels.

Lord Whitty

I suspect that we will need to call in my noble and learned friend at some point. The point I am making is that if you require a certain amount of fuels in the forecourt to be blended with biofuels, you are inhibiting the free movement of fuel, which otherwise meets environmental standards. There is a clear passage in the directive that states: The policy to promote the use of biofuels should not lead to the prohibition of movement of fuels which meet the harmonised environmental specifications". There could be a contradiction, and we must be careful about how we frame the proposition. The letter specifically refers to "agreement" and it is not always evident, at least in current discussions with the oil sector, whether there would be agreement. Therefore, one would be in different and potentially litigious territory. I put that on the table and hope that we can get around it, but we are not yet there and the amendment does not take us there.

Lord Carter

I do not want to labour the point, but only yesterday evening when I filled my car with diesel, I could choose between diesel and ultimate diesel. I loyally chose the ultimate diesel but there is already a choice at the pumps.

Lord Whitty

Yes, but having the choice at the pumps means that the supplier has made that choice himself and he believes that consumers such as the noble Lord, Lord Carter, who is a seriously good example, will make that choice. Were the oil companies to believe that neither of those were in their interests, we would need legislation to require them to make such provision.

I hope that if it appears viable to go down this road, we would have agreement and the issue of being in conflict would not arise. But if we were not in agreement, which the amendment implies, we would make it mandatory. We would then be in different territory.

I am not saying that we should not be in that territory, but if we are going there we need to be careful what we would do, to whom the obligation would apply and how we would regulate it. After all, the renewables obligation in the other sectors that we have discussed in Committee is not without its complications and hostility in certain circles. We know that such issues are not so straightforward.

I reiterate that the Government are not opposed to the approach in principle. We can see its attractions and we will pursue it in government discussions relating to it and to how we implement the biofuels directive. Some form of biofuels obligation may arise as one of the options in the consultation on that directive. In answer to the noble Lord, Lord MacGregor, the intention is to consult on the implementation of the directive this spring. That is code for "after the project". We will include in that consultation serious consideration of a biofuels obligation.

Baroness Byford

Following on from the question asked by my noble friend Lord MacGregor, the consultation will start after the Budget. Will it be the normal 12-week period, and how soon will the Government come forward with their response? Is there a timetable?

Lord Whitty

We must report to the commission by July on how we intend to implement the directive. In one sense, that can be provisional, but by July we must have a clear idea of what we are doing. It has yet to be decided whether the timetable will allow a normal 12-week consultation. Obviously, we want as wide a consultation as we can manage, but that might constrain us.

Baroness Carnegy of Lour

From the Statement that the Minister has just made in the House on the changes in farming subsidies, it is difficult to tell what the effect will be on the countryside and whether set-aside land—when it is not directly paid for—will disappear or become greater. If it is worthwhile growing biofuels on farms, there will be enormous new scope for farmers looking to get nearer to the market, which is what the Government want them to do. Although we are talking at the moment about fuel for motorcars and so forth, the agricultural side should not be under-emphasised in the discussion. The farming side cannot be unlinked from the policy. Does the Minister see new scope for the farming sector as a result of his Statement and what has just been said on the negotiations about biofuel?

3 p.m.

Lord Whitty

Yes, I do, potentially. It would be a market which is not seriously there at the moment for virgin produce. Therefore, it would be one option on the decoupled payment that farmers would be able to meet if the economics are right. The question of whether the economics are right is whether the market is there—there is argument about whether the 20p rebate motivates that market; whether there is an obligation—mandatory or agreed—that would help that market to be created; and whether there might be other measures to help that market to be created— possibly fiscal measures or possibly help to the capital side to the processors.

The noble Lord, Lord MacGregor, raised the issue of sugar, which is not covered by the current round of reforms to the CAP. None the less, at some point there will be a radical review of the sugar regime. Bioethanol, in particular, to replace petrol or to be blended with petrol, could be a significant option for farmers and sugar beet companies.

Lord Carter

I am extremely grateful to Members of the Committee who have taken part. I shall be brief in winding up because I know that there are other important amendments to be dealt with. There is an important point to remember. The Minister referred to the contribution that transport should provide in the reduction of CO2 emissions. I think that I am correct in saying that road transport is the only sector where CO2 emissions are increasing. In virtually all other sectors they are decreasing.

The noble Lord, Lord Palmer, referred to a conference held in January that the Minister attended. He made an extremely constructive contribution. It was clear from the proceedings at that conference, that the major oil companies which were there—namely, Shell, BP, Petroplus and Total—are interested in the biofuel potential in the UK.

For a long time we have known that we would have to start consultation in order to obtain the answer by July. I am puzzled at why it has taken so long to get started. What is the reason for the foot-dragging? Perhaps Members of the Committee who support the amendment should make it clear to the Minister that this is not just an excuse to promote an interesting debate. We really would like to amend the Bill and to ensure that this obligation is in it. I am sure that the Minister will understand the code in which I am speaking. If it would be helpful to have discussions between now and Report, obviously, we would be only too anxious to do so. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 113ZC: After Clause 104, insert the following new clause— "NEW LICENSING ARRANGEMENT FOR COMBINED HEAT AND POWER In section 32(5) of the 1989 Electricity Act (c. 29) (electricity from non-fossil fuel sources), at the end insert "and shall in particular apply to a generating station for the purpose of producing heating or a cooling effect in association with electricity".

The noble Baroness said: In moving Amendment No. 113ZC, I shall speak also to Amendments Nos. 113ZD and 113ZE. The amendments are intended to facilitate the incorporation of combined heat and power into the energy package that the Bill is intended to govern. As I have said elsewhere in debates on this Bill, CHP seems to have been put on a back burner by the Government. These three amendments do not require the Government to descend from the fence on which, at present, they are very firmly seated.

The amendments cover two important aspects of definition that the Government will have to deal with once they have finally found a policy on the subject.

Let me first explain Amendment No. 113ZC, which amends the definition in Section 32(5) of the Electricity Act 1989, which I read a moment ago. It does so by adding generating stations with CHP capacity to the definition of electricity from non-fossil fuel sources.

To operate in the UK electricity market, any generator above 5 megawatts of electricity required an electricity supply licence and above 50 megawatts of electricity must apply to the DTI for a generation licence. These licences bring about a wide range of responsibilities, many of which date back to the pre-privatisation days of the CEGB, and do not reflect the Government's drive for lighter handed regulation.

The DTI has previously offered the view that it would like to be able to have the ability to create separate categories of licence for CHP plant. This would then enable a regulatory regime more appropriate to customer-focused CHP plant to be created. If accepted, the Government should then also consider creating a similar approach for supply licences. This would then enable more local generation and supply to be developed, offering a highly cost-effective route to major carbon savings and the alleviation of fuel poverty.

Amendment No. 113ZD amends Section 62(8) of the Utilities Act 2000. IT does so by altering the definition of "renewable sources". First, it adds a definition of "electricity" by including the heat that is created by the generated generation of electricity. Secondly, it adds just five words to the definition of renewable sources contained in the Utilities Act. Those words are, including heat from renewable sources". The Government incorporated provisions in the Utilities Act 2000 to enable CHP to qualify for support under the new Energy Efficiency Commitment. The Government assured both Houses that by doing this it would enable them to introduce arrangements for CHP similar to that for renewables should market conditions require it. Such assurances were also given to the Commons Environment, Transport and Regional Affairs Select Committee.

I would like to quote from the Government's response to that committee's report on the Climate Change Programme in August 2000. It states: The Utilities Bill provides a power for the Government to secure additional use of CHP through obligations on energy supply or distribution utilities to encourage or support CHP development equivalent to the provisions for the promotion of electricity generation by renewables". The Minister of State for the Environment wrote to the Combined Heat and Power Association on 20 March 2000 regarding the Utilities Bill as follows: I can confirm that the new powers for Ministers to create obligations in relation to the promotion of energy efficiency could be used to create an obligation in relation to CHP. Clauses 58 and 79 would give Ministers the power to set an obligation in relation to specific technology, which could be CHP". In my view, nothing could be clearer than that. However, since the passage of the Act, Defra officials have asserted that the powers in the Utilities Act are now not sufficient. Amendment No. 113ZE is designed to give the Government the opportunity to restore the legal position to what they had previously asserted in their statement, which I have just quoted. If the Government are not willing to provide the further clarification of the legal position that the Ministers had previously adopted, contrary to what officials are saying, two questions will arise. First, what has changed since the Government promoted the advantages of the Utilities Act? Secondly, will they use the passage of the Energy Bill to create a definitive statutory legal power? This amendment provides precisely that.

Amendment No 132ZE would amend Section 70 of the Utilities Act 2000. Section 70 introduces substantial redrafting of Section 41 of the Electricity Act 1989. The contents of Section 41 and Section 70 are succinctly described in the margin note to both sections: Promotion of the efficient use by consumers of electricity". Subsection (9) of Section 70 of the Utilities Act gives the Secretary of State power to order promotion of supply of CHP power to premises. The amendment requires the Secretary of State to make such an order.

On reflection, the amendment, about which I wrote a week ago, might have been better and more simply drafted to avoid a possible conflict between the discretionary power to make such an order contained in the subsection and the imperative wording of the amendment. If the noble Lord accepts the principle of the amendment, I shall bring it back in a slightly different form at the next stage. I beg to move.

Lord Ezra

I support specifically what the noble Baroness said on Amendment No. 113ZD, on the addition of heat to the renewables obligation. As I am sure the Minister will recall, the Royal Commission on Environmental Pollution, in its seminal report of 2000, urged the Government to adopt a strategy for heat. That was ignored; there is no reference to such a strategy in the energy White Paper or subsequent deliberations. Yet waste heat represents the most important aspect of energy efficiency in the country. If we could make use of all waste heat, which mainly emanates from central power stations, the energy situation would be transformed. We should at least make a start. This amendment does that, so I hope very much that the Government will support it.

Baroness Miller of Chilthorne Domer

I support Amendment No. 113ZE in particular. There are a number of ways in which we might be able to amend the Bill to further the promotion of efficient use by electricity customers. The Bill contains nothing much about that at present. This is a very neat little amendment, which is also why I like it.

Lord Whitty

As we discussed on various amendments relating to CHP during the previous sitting, I recognise that CHP must be encouraged in various aspects of government policy. I regret to say that I do not think any of the amendments take the appropriate form.

In particular, Amendment No. 113ZC seems slightly bizarre. In effect, it says that CHP should receive special treatment under the exemptions regime to avoid the conditions of licensing. The conditions of licensing are intended primarily to deal with the security and safety of the electricity system. There is no obvious reason why CHP installations should be excluded from those requirements. The assumption of the Electricity Act 1989 is that all electricity generation should be licensed. I do not think that CHP should be excluded from that, however desirable it might be. I do not have sympathy with the amendment.

On Amendment No. 113ZD, we have had the argument about whether CHP should be under the renewables obligation. It purports to say that the heat from CHP should be counted as a renewable energy source. Some aspects of the treatment of heat benefits of CHP are not taken into account fully in the policy. In effect, the amendment would bring the whole of CHP into the renewables obligations. As I was saying the other day, the effect would be to displace renewables, because the amount of generating CHP is so substantial and would undermine the motivation to achieve targets for renewables without any benefit— and possibly a detriment—to the CO2 target. So that would not work as the noble Lord suggests and would have other by-products; for example, enabling certain wastes, such as plastics and tyres, to be treated as renewable under the obligation. That is stretching it a little far. Although CHP based on biofuels already counts as renewable, such waste should not be included.

Amendment No. 113ZE offers us a way to do something that we think we already have power to do. Legislation in that respect is not lacking; it is the present form of the CHP commitment that would not allow CHP to count within it. However, we are close to a decision on the next stage of the energy efficiency obligation, which will run from 2005–08. Whether or not we choose to use it, we have power under existing legislation to designate CHP as a component of that energy efficiency commitment, although it is not at present. So the amendment is unnecessary.

3.15 p.m.

Baroness Byford

Before my noble friend responds, the Minister said clearly at the start of his response that CHP needs to be encouraged, but then quickly dismissed all the amendments. I have two brief comments. First, the Minister said that he felt Amendment No. 113ZD was stretching the provision too far because it could be used to include plastic and tyres. If he has sympathy with the amendment but does not find it acceptable as drafted, will the Government reconsider it before Report and return with their thoughts or at least hold further discussion with my noble friend so that something may be proposed?

Secondly, on Amendment No. 113ZE, if I followed his words correctly, the Minister said that there is already power in legislation to do what my noble friend is trying to achieve. If so, can he direct me to where that power lies? He went on say that between 2005 and 2008, the Government would have the power. It is either there or it is not; I do not understand the different phraseology between his earlier comment that powers are already there and his later suggestion that the power would be there. I seek clarification before my noble friend responds.

Lord Whitty

I can clarify the latter point. I was saying that the power rests in the Electricity Act—of which I do not have a copy, so I cannot point to the exact provision. The Act would allow such designation, but the form of the current energy efficiency commitment does not include the use of CHP in that regard. A new energy efficiency commitment is being consulted on and discussed that will run from next year onwards. It is therefore already open to us under the Electricity Acts to include in a future energy efficiency commitment reference to CHP. That is the distinction.

On the noble Baroness's first comment, I have sympathy on the issue of how heat from CHP can be motivated and whether in one way or another it should qualify under the renewables obligation. The problem with the amendment as drafted is that it would go much more broadly than that. There are practical difficulties of how to designate heat in a renewables obligation. Clearly the Government will need to consider this issue but more in the context of the renewables obligation which, again, is scheduled to be reviewed in 2005–06. Certainly I can give a commitment that we will look at the role of heat in that context. However, I am not making a commitment that we will look at it in relation to the progress of the Bill.

Baroness Miller of Hendon

I thank the Minister for his reply. I also thank the noble Lord, Lord Ezra, for supporting my Amendment No. 113ZD and the noble Baroness, Lady Miller of Chilthorne Domer, for supporting my Amendment No. 113ZE. I also thank my noble friend Lady Byford for the questions she asked.

I thank the Minister for the commitment but I note that it is not in relation to the passage of the Bill. However, there is a commitment in general terms. It is interesting that, very often, the Government start by saying that they have a certain sympathy, but then they go on to destroy the amendments that one has tabled, telling one that they are no use. The Government do not come forward if they actually agree that something needs to be done.

The Government must surely know that at Second Reading many noble Lords mentioned the position of CHP and said that they would come back to that issue in Committee. The Government have not come back to it, so we do. We do not have the same drafting powers as the Government have at their disposal. When a Bill is going through the House—it is now in Committee—and we know that something needs to be done, it is not appropriate if nothing is done. If the Minister, and the Government behind the noble Lord, as it were, believe that there is some merit in doing something about CHP, so they should do it. They should bring it back for us to have a look at as well. I do not think this is appropriate.

The other point that I wished to make was not answered by the Minister. It relates to the confusion caused when a Minister of State for the environment wrote in regard to the Utilities Bill that he could confirm this, that and the other. But since it was enacted, Defra officials now say that the powers in the Utilities Act are not sufficient. I do not know what happens when a Minister says on one occasion that something can be done and then, subsequently, it cannot be done within the powers in the Act. The noble Lord has not given an answer. What is the position?

Lord Whitty

It is the same answer as the one I have just given to the noble Baroness. The Act allows us to do it but the current energy efficiency commitment does not allow us to do it. Therefore we have the legislative power to do it for the next energy efficiency commitment. It is not a legislative inhibition; it is the energy efficiency commitment itself.

Baroness Miller of Hendon

I thank the Minister for repeating the answer that he gave to my noble friend. When I heard what he said the first time, I was not sure that that could possibly be the situation. However, perhaps the Minister and the powers that be could put their thinking caps on and find some way in which there will be a power to do it. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 1I3ZD and 113ZE not moved.]

Baroness Miller of Chilthorne Domer moved Amendment No. 113ZF: After Clause 104, insert the following new clause— "INTERNATIONAL OBLIGATIONS ON CLIMATE CHANGE AND SUSTAINABLE DEVELOPMENT

  1. (1) The Gas Act 1986 (c. 44) is amended as follows.
  2. (2) In section 4AA (principal objective and general duties of Secretary of State and the Authority), at the end of subsection (2) insert—
  3. "(c) the need to promote technologies and measures designed to secure the United Kingdom's international obligation in relation to the United Nations International Convention on Climate Change and the principles of sustainable development."
  4. (3) The Electricity Act 1989 (c. 29) is amended as follows.
  5. (4) In section 3A (principal objective and general duties of Secretary of State and the Authority), at the end of subsection (2) insert—
  6. "(c) the need to promote technologies and measures designed to secure the United Kingdom's international obligation in relation to the United Nations International Convention on Climate Change and the principles of sustainable development.""

The noble Baroness said: The Bill amends the Gas Act 1986 and the Electricity Act 1989 but, save in the amendment that I am tabling, in no place is there recognition of change since 1986 and, indeed, 1989. The UK is now signed up to an international climate change obligation. This amendment seeks to recognise the fact that we have signed up to the UN international convention on climate change. It seeks to amend both the Acts so that that is recognised in both of them. I believe that it is important that, if we are not to have consolidated legislation for either gas or electricity, the Acts that the Bill is seeking to amend reflect the way the times have moved on. Therefore, I am tabling this amendment in the hope that the Government will recognise that not including such recognition weakens the position of the regulating authorities, on which I have tabled a separate amendment. I shall come back to that point under that amendment later on.

I believe that in our legislation we need very clear reference to what our obligations are so that the regulating bodies can have them clearly laid down as their prime policy objectives. Then we will not get, for example, into the situation when, under the new electricity trading arrangements, NETA—Which my noble friend Lord Ezra knows a lot more about than I do—the impact of the pursuit of competition objectives has a detrimental effect on the very environmental objectives that the low carbon economy was trying to achieve. It is with that sort of example in mind that I table this amendment. I beg to move.

Lord Ezra

In supporting my noble friend's amendment, I point out that at the time when we were talking about the setting up of Ofgem in previous legislation, there was much talk about its primary role. There was a good deal of discussion about whether environmental issues should figure in that primary role. What has happened since, as my noble friend has pointed out, has reinforced that view. This is not a question of introducing for the first time the fact that Ofgem should have to have regard to environmental issues, because that is already in the legislation. We are saying that this should be included as one of its primary obligations and objectives. That is why I support the amendment.

Baroness Carnegy of Lour

In his reply, will the Minister say whether obligations of this kind to international conventions can go into primary legislation? Do they do so from time to time? It seems to me that these convention obligations may change and it may be that we do not want them cast in concrete in primary legislation. I do not know. Of course, the spirit of the amendment is clear.

Baroness Miller of Chilthorne Domer

Before the Minster replies, if my introduction was not clear or if my amendment is wrong, I stand corrected, but my reading is that the amendment put an obligation on Ofgem to recognise what has happened through these international conventions. It does not try to enact anything in the international conventions themselves. It is laying an obligation on the regulatory body to recognise that they are now basic principles in our domestic situation.

Lord Whitty

I think that the noble Baroness's recent remarks are probably a correct interpretation of the amendment as it stands. It is not incorporating any of the international conventions into English law but is requiring having regard to them. However, it is in such general terms that it is very difficult to see what the obligation on Government and on Ofgem would be

The noble Lord, Lord Ezra, is correct to say that there has been debate over the years as to whether a specific objective for the regulator should be couched in environmental terms. The amendment refers to environmental technologies and measures. It is not clear whether that means that we should be backing particular technologies, taking particular measures or whether primarily the economic regulator responsibilities of Ofgem should be broadened. It is not clear what interpretation could be put on those words. The Utilities Act 2000 set out the general duties, and this relates to the general duties, and struck a very careful balance between the economic and environmental sides of the equation. In one respect at least, in relation to technologies, this would be changing that balance. I am not sure that there is a particularly clear case for so doing. While I fully recognise the importance of government policy encouraging a climate whereby new technologies to meet the environmental demands and challenges can come forward, I do not believe that chasing vague general obligations on the regulator in particular and the Government, too, as does the amendment, would enhance that situation.

3.30 p.m.

Baroness Miller of Chilthorne Domer

I thank the Minister for his reply. The Government do not appear to like the amendment either because it is too vague— I would welcome help to sharpen it up so that we have a provision that is acceptable to the Government—or because it goes too far down the environmental road and moves the regulator too far away from the competition mode. The Minister's reply has not elucidated which of those two objections the Government have.

One of the difficulties I am having throughout the Grand Committee is that while we do not vote we are stacking up a great deal of stuff for the Report stage. The Minister will appreciate that unless we have constructive discussions before that stage, it will be a long and difficult one. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 113ZG: After Clause 104, insert the following new clause— "CHAPTER 4 OPERATION OF RENEWABLES OBLIGATION TRANSFER OF LIABILITIES UNDER THE RENEWABLES OBLIGATION In section 32A of the 1989 Act (orders under section 32: supplementary), after subsection (3)(b) insert— (c) measures enabling the Secretary of State or the Authority to adjust the provision for any suppliers, which contract with each other for the transfer of electricity customers between them."

The noble Elaroness said: The obligation of each supplier under RO is related to the electricity it supplies to customers during an obligation period. The price it charges to those customers reflects the cost of providing renewable energy in respect of that obligation. Under the existing arrangements, it is possible that a supplier can agree to transfer a substantial portfolio of customers to another supplier without any requirement for the obligations under the RO to be transferred as well. This was a contributory factor to the £23 million deficit in the buy-out fund in the first year of the renewables obligation.

Shortly before going into administration, the supplier TXU sold a portfolio of customers to another supplier, but retained the obligation in respect of the electricity sold to those customers for the period before their transfer. It also sold all its ROCs, so had none to surrender at the end of the period, needing therefore to meet its full obligation by paying into the buy-out fund. By that stage, it was unable to meet this cash commitment.

Had this proposed power existed at that time, the Secretary of State could have ruled that the obligation on the acquiring party be increased to include the full period provision in respect of the transferring customers. The price would undoubtedly have been adjusted accordingly to the detriment of the eventual defaulter, but the buy-out fund would have been intact. The other ROC market participants would not have been adversely affected.

We have reason to believe that the Government may, in principle, support that message, so perhaps in reply the Minister might give me a little more encouragement than we have had until now. I beg to move.

Lord Williams of Elvel

In moving the amendment, the noble Baroness may not have observed the fact that Section 32 of the Electricity Act applies to England and Wales. There is therefore a Welsh problem, which I hope my noble friend will address.

Lord Tombs

I would have thought that this was an obvious fault which required adjustment. It should not be beyond the wit of man to limit the transferability of renewable obligation certificates.

Lord Davies of Oldham

I am sure that the noble Lord, Lord Tombs, is including the Government in the phrase "the wit of man" with regard to this amendment.

It is my happy stance today that I meet the noble Baroness, Lady Miller of Hendon, in her constructive mood. I appreciate the fact that the amendment was tabled against a background whereby, as we discussed in a previous sitting, we are in discussions with the industry about a range of solutions to the problems that have emerged since last autumn. I agree with the noble Baroness that the amendment has some merits to it, which she has articulated accurately. I bear in mind what my noble friend says about the inclusion of Wales, so I speak also to the Welsh position.

I want to reiterate what I said before, that we are still in discussion with the industry on the best way forward. We recognise the merits of the proposal. All Members of the Committee will recognise that the renewables buy-out fund is an extremely complex operation and that the precise wording of the amendment may not quite do, which is why I shall ask the noble Baroness to withdraw it. However, we want to consider very seriously the concept behind it, and we are in the process of discussing such a proposal. On the basis of that assurance, I hope that the noble Baroness will withdraw her amendment.

Baroness Miller of Hendon

I thank the Minister for his reply, and the other noble Lords who supported the amendment. I would be very happy to withdraw the amendment on the basis of the positive remarks that the Minister has made and with some assurance that the Government will bring something back before the Bill finishes its passage through the House. On that basis, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 113ZH: After Clause 104, insert the following new clause— "CHAPTER 4 OPERATION OF RENEWABLES OBLIGATION LATE PAYMENTS IN DISCHARGE OF RENEWABLES OBLIGATION In section 32C of the 1989 Act (payment as alternative to complying with order under section 32), after subsection (2)(d) insert— (e) for any such sum to be increased, if paid after the time specified in the order, by an amount to be calculated in a way specified in the order and proportionate to the sum payable and to the period by which the payment is late."

The noble Baroness said: In moving the amendment, I shall speak also to Amendment No. 146ZA, which is grouped with it.

The renewables obligation as originally drafted made no provision for the case where suppliers might submit any required payments into the buy-out fund after the due date. Amendments to the renewables obligation currently before Parliament cover the way in which late payments will now be handled. There remain, however, three anomalies, which this current proposal seeks to address. The late payment provisions might be seen to encourage delayed payments into the fund. The recipients of the moneys "recycled" through the fund are disadvantaged by the delayed payment. Any fine for late payment, which may be levied against suppliers for this breach of their licence conditions, does not go into the buy-out fund, and is therefore not recycled within the renewables industry.

The present proposal would therefore provide for a surcharge on late payments to be paid into the buy-out fund. The level of this surcharge is proposed at a specified level—perhaps 8 per cent per annum—above the Bank of England base rate, to act as a disincentive to late payment and to compensate the recipients of the recycled fund.

I remind your Lordships that as a precedent for this type of penalty, several million taxpayers are reported to be facing automatic fines for not having filed their self-assessment tax returns by 31 January, and will now be paying interest and penalties as well. Similar penalties and interest are levied in respect of late VAT returns, and the Companies Registry has an escalating level of penalties for late filing of documents, with the additional power to prosecute and to have directors barred from holding office. The latest addition to this automatic penalty regime is the new stamp duty land tax on property transactions, which came into force last October.

The payment of renewables obligations will probably involve payment of far more substantial sums than a private person's income tax, VAT for little businesses or the stamp duty on the average house. It is undoubtedly right that those due to pay the renewables obligation should have to find it more expensive to owe the money to the fund than to borrow it from their bankers. We believe that the DTI may have signalled some support for the measure.

Amendment No. 146ZA is extraordinarily long, and I do not know how many Members of the Committee will have actually read it. However, I hasten to assure noble Lords that my explanation is much simpler than its length suggests. The amendment would add yet another new clause to the Electricity Act 1989. The Act already had a new Clause 27 added by the Utilities Act 2000; it is that new section which now needs further amendment.

The amendments deal with penalties for late payment, as did my previous amendment. Paragraph (1) is merely introductory; paragraph (2) inserts a reference to the two new clauses before existing Clause 27F. The real meat of the amendment is to provide for two new clauses, Clauses 27G and 27 H. New Clause 27G would empower the Secretary of State to set up a regime of penalties for late payment. As I pointed out in the previous amendment, it must be made more expensive to default on renewable obligations than to borrow money from the bank to pay for them.

Members of the Committee will notice that the amendment provides the Secretary of State complete flexibility as to the nature of the penalties. For example, proposed subsection (2) would allow him to fix a sliding scale, varying according to the amount owing and the length of time it is overdue, and indeed any combination of the two. The clause would, however, require the Secretary of State to order penalties for late payment, because any period of grace is often regarded by a debtor as an interest-free loan, as anyone who has ever waited for a red notice before paying a utilities bill will confirm. I am certain that that does not apply to anyone in the Committee.

Proposed subsection (3) states that the provisions of subsections 27A(3) to 27A(9) apply to this new penalty regime as well as the other penalty regime imposed under Section 27. Those seven subsections are administrative provisions about the service of notices and so on. Proposed subsection (4) defines the sums received by the authority and any interest as "the Suppliers' Compensation Fund".

New Clause 27H directs what is to become of that compensation fund. Every six months, it would be divided between suppliers and generators who had met their own obligations but suffered a loss as a result of others' failure to pay what is due from them. Proposed subsection (3) would provide that if there were insufficient moneys in the compensation fund, the sum accumulated would be divided proportionately among the claimants. The subsection would give a short period of grace of 14 days after each six-monthly period to notify the authority of a loss for which a claim on the compensation fund was to be made. Proposed subsection (4) would limit the distribution to the actual amount of penalties received, and to the amount of losses suffered by the claimants. Any surplus of money in the compensation fund would be carried forward to a later period.

Finally, proposed subsection (5) would provide, as an alternative, for any surplus on the compensation fund to be applied in the same way as is provided in the Renewable Obligation Order 2003 in England and Wales and the identical Renewable Obligation (Scotland) Order 2003. That contains provisions similar to what this amendment proposes for any surplus. It would be open to the Secretary of State to decide whether the procedure in the new clause or in the statutory instrument was the most convenient. I beg to move.

3.45 p.m.

Lord Davies of Oldham

Again, we are grateful to the noble Baroness, Lady Miller of Hendon, for two further constructive approaches to our present difficulties. She will recognise that I accept the spirit of the amendments, although we shall need to examine them carefully to be sure that there are no unintended consequences regarding the working of the obligation. However, we see that there is constructive thought behind the amendments that may point to a way in which to deal with certain matters.

Amendment No. 113ZH provides a helpful deterrent against late payments, and also provides some compensation to those who hold certificates that, if late payments are made, additional money will be put into the fund to make up for the delay. Amendment No. 146ZA has a similar, although more wide-ranging effect. In themselves, neither amendment prevents a shortfall; instead, the amendments mitigate the consequences of such a shortfall. Amendment No. 113ZH is helpful, but it does not address the position whereby no payment is made at all due to the supplier's failure. However, it does help in making administrators see the renewables obligation as a greater priority than other debts, because of the potential shortfall, which was the burden of the noble Baroness's remarks. We shall consider carefully the interaction between those proposals and the existing enforcement regime backing up the renewables obligation, and take on board the concept behind them.

The wider proposal, Amendment No. 146ZA, addresses the position whereby no payment is made, or when any default by a supplier occurs. However, the Committee will recognise that it does not provide a complete answer to the problem. The existence of a regime for applying penalties and compensation will be effective only if there are sufficient assets in the defaulting supplier company to pay both the obligation commitment and the penalty payments. As with the other amendment, that may have the virtue of making the administrators of such a company accord a rather higher priority to making good any such defaults as soon as possible, as it would be in the interests of all creditors to do so. But again, that depends on there being assets available.

The amendment also has the benefit of ensuring that, if late payments are made, those payments go to the suppliers who have suffered losses. As was pointed out in a previous sitting, in the event of a shortfall, it is those suppliers who have provided renewables obligation certificates and therefore demonstrated their commitment to increasing the contribution of renewables who suffer when shortfalls occur. It is therefore only right that those suppliers should receive compensation when payments are finally made. The noble Baroness made that clear in her speech.

The amendment sets out a very detailed scheme for levying penalty and compensation payments. We shall need to examine that detail. We also need to consider the interaction of the amendment the other amendments in this group, which we are also agreeing to take into consideration, to avoid the problems of double jeopardy. In particular, we have some concerns about the imposition of both surcharges and interest on late payments. At first sight, that looks as if one might get hit twice for the same failure. Nevertheless, I welcome the amendment as a helpful and constructive contribution to addressing the problem of shortfalls in the renewables buy-out fund. The Government agree to consider it, and shall introduce our own amendments at Report stage.

Members of the Committee will recognise how complex the situation is, and that we must consider it very carefully to arrive at the proper solution to the situation without contradictions and working to the benefit of the objectives of the policy. It is the interaction between the amendments and what we aim to achieve that we shall need to examine carefully. On that basis, I hope that the noble Baroness will feel that I have replied positively to her amendments.

Baroness Miller of Hendon

I am completely bowled over by what the Minister has said as it is so different from what we have heard up until now. I understand that the Government will have to consider the amendments very carefully to ensure that they do not collide with one another and that people do not get charged twice and so on. However, the fact that he made those remarks highlights the difficulty in finding a solution.

The Minister will undoubtedly remember when in the previous sitting I gave the Committee the opportunity to discuss securitisation as opposed to mutualisation with a view to finding a way in which to deal with the buy-out fund, either upfront or, perhaps less satisfactorily, afterwards. I wanted to ensure that something was done to deal with the matter. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 113ZJ: After Clause 104, insert the following new clause—






In section 32C of the 1989 Act (orders under section 32: supplementary), after subsection (3) insert— ( ) Such system may offset against allocations to any supplier the amount of payments due from that supplier under subsection (2) but not received by the Authority."

The noble Baroness said: The renewables obligation calls for all sums paid in the buy-out fund to be repaid to the electricity suppliers. The system of repayment currently treats all suppliers similarly, whether or not they have made their due payments into the buy-out fund. That leaves the possibility that a supplier could be in default in respect of his payment into the buy-out fund but could still receive a recycled payment out of the fund. That could happen if the supplier had redeemed his ROCs but had not paid the buy-out fees for any shortfall in his obligation. In that circumstance, the amendment would provide for the authority to offset any amounts owing into the fund from the repayments that had been made. I beg to move.

Lord Davies of Oldham

I am in danger of overloading the sentiment; we see merit in this amendment also. I am in danger of repeating myself in praising the noble Baroness. I would not want to embarrass her by praising too much the skill with which she has drafted her amendments.

However, she will recognise the limitations of the proposal as it applies only in the circumstances in which the defaulting supplier has presented ROCs of greater value than the default. It therefore comes down to the question of assets again. Of course, that would not guard against major shortfalls. Nevertheless, it is a constructive proposal.

I shall put the amendment in the bundle—I can now give it that collective noun—along with several other amendments that we are prepared to consider seriously. After discussions with the industry, we shall produce government amendments which will take on board these constructive proposals, which will aid the discussions.

Baroness Miller of Hendon

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Ezra moved Amendment No.113ZJA: After Clause 104, insert the following new clause—





After section 32C of the 1989 Act there is inserted—


  1. (1) The Secretary of State may by order offer to each electricity supplier falling within a specified description, "designated electricity supplier", an incentive to do what is set out in subsection (3) (and that incentive is referred to in this section and sections 32E and 32F as the "sustainables incentive").
  2. (2) The descriptions of electricity supplier upon which an order may offer the sustainables incentive are those supplying electricity in—
    1. (a) England and Wales,
    2. (b) Scotland, or
    3. (c) Northern Ireland,
  3. excluding such categories of supplier (if any) as are specified.
  4. (3) Subject to the provisions of this section and sections 32E and 32F, the sustainables incentive is offered to designated electricity suppliers who, 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 the United Kingdom during a specified period an amount of sustainable electricity generated by using fossil fuel; or
    2. (b) that it has done so in respect of a proportion of an amount of electricity generated from fossil fuel.
  5. (4) If the order applies only to electricity suppliers in part of the United Kingdom, it may specify that the only electricity supplied which counts towards the sustainables incentive is electricity supplied to customers in that part of the United Kingdom.
  6. (5)Evidence of the supply of electricity may not be produced more than once in relation to the same electricity.
  7. (6)In the case of electricity generated by a generating station fuelled or driven partly by renewable sources and partly by fossil fuel, only the proportion attributable to the fossil fuel can count towards the sustainables incentive.
  8. (7)Before making an order, the Secretary of State must consult—
    1. (a) the Authority;
    2. (b)the council;
    3. (c) the electricity suppliers to whom the proposed order would apply;
    4. (d) the generators of sustainable electricity from fossil fuel; and
    5. (e) such other persons, if any, as he considers appropriate.
  9. (8) In this section—
  10. (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.""

The noble Lord said: In moving the amendment, I shall speak also to Amendments Nos. 113ZJB and 113ZJC in the prevailing atmosphere of co-operation which has suddenly emerged in our deliberations. I hope that it will spread to the amendment I am moving.

We are moving to a different subject—namely, that of coal—which has played historically a dominant role in the supply of energy in this country, although now it contributes much less. Its future prospects are, to say the least, uncertain. On the other hand, we are aware that we shall become increasingly dependent on imports of energy, particularly of gas and oil. However, coal represents still our most abundant indigenous source of energy. If it is to play a major role in the future of energy supply, it must conform with environmental requirements.

I could have moved a very simple amendment proposing that the new technologies for clean coal be advanced by the application of a kind of renewables obligation time limit. I did not table such a simple amendment because, based on previous discussions that we have had on the subject, I was convinced that the Government would reject it. Therefore the amendment now before the Grand Committee is more complex and flexible. It gives the Government greater room for manoeuvre but aims at the same objective— namely, to find a way in which coal, using new technologies, can make a major contribution to our energy requirements in future. The concept is one of sustainable energy and, in particular, sustainable electricity. The proposal is to devise a series of incentives to stimulate sustainable electricity from fossil fuel. Let me make it clear that sustainable electricity means that it is produced in such a way that it meets the requirements of the market and does so in an environmentally satisfactory manner.

The problem is the cost of applying the new technologies. This is allowed for in the series of amendments. The proposal is that there should be a system of sustainable certificates which would be issued when projects were put forward for using coal in an environmentally acceptable manner. That is not necessarily limited to one technology and that is the benefit of this amendment. For example, an ultra super critical boiler retrofit would reduce emissions of CO2 per unit of electricity and might receive sustainable certificates, at least to the extent that specific emissions fell below an historic baseline. That is using existing technology, but to achieve greater efficiency and reduced emissions.

Another generator might choose to build a new integrated gasification combined cycle—IGCC— power station, achieving significant emission reductions compared with producing the same electricity in an old coal-fired power station. Sustainable certificates might be awarded in that respect. Or an operator who chose to capture and store CO2 might be eligible for sustainable certificates for all the electricity produced. In other words, this provides a framework and a mechanism within which there could be encouragement for a whole range of ways in which coal in the future could be used efficiently, effectively and environmentally acceptably.

The matter is put forward for debate and discussion. In the atmosphere that has already been generated, I hope that it will be received accordingly. I beg to move.

Baroness Miller of Hendon

I find this group of amendments extremely interesting. They are trying to achieve what we have been trying to achieve for some time. The noble Lord was right in saying that he could have brought forward a simple amendment, proposing more incentives for clean-coal technology. However, as we have mentioned that so many times in debate, it seemed to the noble Lord, rightly, that it would not necessarily fall in receptive ears, even though we agree that we have a more receptive atmosphere in the Grand Committee—which is getting more charming by the moment.

The noble Lord has put forward alternatives and has offered to the Government a flexible system which they could take and find a way around. Ultimately, we must be concerned about the continued supply of electricity. We should not have problems with it. Coal can be made clean and it should be an option.

I say only to the noble Lord, Lord Ezra, that for mere mortals, like some of us, I greatly enjoyed his simple explanation of it all. On reading, it was difficult to understand exactly what was being proposed. I definitely support the principle of this group of amendments and I hope that the Minister will, too.

4 p.m.

Baroness Carnegy of Lour

Can the noble Lord, who knows so much about this subject, explain why he is using the word "sustainable"? I thought the whole idea of sustainable energy was that it came from a source that could not run out. Coal can run out. I know there is a great deal of coal that can be used—and the noble Lord says that we should use it—but I would not describe it as sustainable.

Lord Ezra

Perhaps I may answer that point now. "Sustainability" is used in the environmental sense; it is sustainable because it will remain environmentally acceptable. As to the issue of how long coal will last, it is a matter of indifference whether it is two centuries, three centuries, four centuries or five centuries. It depends on what depth of coal one wants to go to and what technologies for extracting it there are at the time. We are talking in terms of centuries. But "sustainability" is used in the environmental sense in these amendments.

Lord Tombs

I congratulate the noble Lord, Lord Ezra, on his ingenuity. The amendments seek to promote a will-of-the-wisp government policy on energy. If we had one of those we could have a meaningful discussion on this topic.

Lord Whitty

If the noble Baroness, Lady Miller, believes that the Committee is getting jollier, I should tell her that we have some way to go.

I am afraid that I shall have to put a slight damper on the ingenious proposal of the noble Lord, Lord Ezra. Clearly there is a role for clean coal technologies but I would not accept that it is either sustainable or low carbon in the normal sense of the words. It is better than non-clean coal and therefore we would encourage its use where we adopt clean coal technologies. That has been recognised for some years in the DTI's cleaner fossil fuel programme which encourages R&D into carbon abatement technologies. We have recently announced that we will provide support of up to £4 million for new R&D projects in this area.

The energy White Paper and our programmes recognise the role that clean coal can play, but when it comes to imposing an obligation—albeit through the system proposed by the noble Lord—we are in different territory. There are degrees of sustainability involved but we would impose an obligation only if we had a target to seek. Rather than encourage an increase in coal-based technologies we are looking to reduce the use of coal through various mechanisms, including the climate change levy and other measures that are in place. We are seeking to reduce carbon emissions, acid gases, sulphur and so on. We hope to achieve this through the emissions trading scheme and the large combustion plant directive, both of which move in the opposite direction to the noble Lord's proposal.

The imposition via certification of an obligation to use clean coal technology does not sit easily with the remainder of our energy policy, albeit it can make a contribution. Whatever the comparative meaning of "sustainable", fossil fuel mechanisms need to be seen as having a role in our energy policy for the future. The system proposed by the noble Lord is complex and would cut across other areas of policy. I therefore cannot accept the amendment.

Lord Ezra

I did not expect the noble Lord to accept the amendment. I hoped, however, that he would take it away and think about it.

In the energy White Paper a certain amount is said about new technologies and the use of coal. However, it is one thing to say it but it is another thing to stimulate it. At the moment there has been very little practical development in that direction.

If the noble Lord is saying that, on the basis of the renewals obligation, this kind of certification is not appropriate, what will be appropriate? The issue will not resolve itself without some degree of intervention. It is the nature of environmental requirements that, on the whole, they cut across market requirements. If we were to leave everything to the market place no doubt we would get cheaper energy, but we would totally defeat the environmental objectives to, which we are formally committed.

There has to be a balance—to use the noble Lord's own words—between the environmental requirements and the market requirements. If coal is to come into the balance, there will have to be a degree of intervention of one kind or another to stimulate the ways in which new coal technologies can come about.

I had hoped that the Minister would have said, "This is too complicated. It cuts across what we are trying to do. But there is something here that we must take away and think about". I am looking to see the noble Lord's response, and if he will at least vouchsafe me that crumb of comfort.

Baroness Byford

The noble Lord, Lord Ezra, raises a very important point. Throughout the Bill we have been trying to debate the issue of where we will get our electricity from in the future. Coal has played an enormous part in the past and I found the Minister's response rather brusque and lacking in sympathy.

The Government must continue to address this issue. If they say, "No, we will not consider it", where will we get our electricity from in the future? How will we be able to balance the needs of everyday living against environmental matters? We have had long debates about nuclear power. I do not wish to raise the matter again, but I must. My interpretation of what the Minister said to the noble Lord, Lord Ezra, is that the Government are not interested in what happens to coal in the long term; it will not be a contributor. There will be nothing coming in from nuclear and they are not sure about some renewables. Although my noble friend Lady Miller was encouraged in regard to combined heat and power, there is still the question of where the power will come from and whether we want to be totally dependent on imported power. The noble Lord, Lord Ezra, was right to indicate his disappointment. While I accept that coal produces CO2 emissions, new technologies will come along.

I had hoped that the Minister would have had something encouraging to say. That is why I want to contribute to the debate at this stage. I would have intervened earlier but I was listening to the Minister's response, which was most disappointing. I assume from his response—perhaps the noble Lord, Lord Ezra, will care to comment on this—that coal is seen as not having any future in providing our electricity. I may be wrong but I should like clarification.

Lord Whitty

I am not saying that clean coal technologies will not play a part in the supply of energy in the future. What is being proposed is a sustainable incentive—which may apply to other issues as well as carbon reductions—but there is the question of how we intervene. If you are to have an incentive, that must be to increase the proportion of usage of a particular fuel as against other fuels. However, it is not necessarily appropriate to do that rather than reduce the environmental damage caused by a fuel source you have already.

The reason the Government have focused on supporting R&D is because the technologies are there and marketable in parts of the system—for example, in controlling sulphur—and not there in the same way for supporting the reduction of CO2. That is why we think that the best point for government intervention is probably at the R&D end. Of course, there are other incentives already being provided, which is why I say that it cuts across other areas. The carbon trading would, of itself, be an incentive for the cleaner use of coal. There would also be a side effect from the Large Combustion Plant Directive, which was primarily directed at sulphur and Mox, but may well have an effect on the level of burn of carbon.

However, I am not saying that we are excluding this from our strategy. However, we think that the R&D point is probably the best point for us to intervene and that the other strategies that are already there— emissions trading and so-on—will help the development of technologies in relation to clean coal for which the noble Lord is looking.

Lord Ezra

I am very grateful for that last intervention, which was most helpful, and for the noble Lord's slightly more emollient response. He said that he feels that the best contribution by the Government could be in the R&D stage. I do not agree with that. A massive amount of R&D is being conducted in the United States that enormously surpasses any contribution that we can make towards it and while we should, of course, continue with our R&D, it is all being done there. The time has come when this R&D must be translated into reality. Unless we do it fairly soon, we will miss the bus. Coal will then have been relegated out of the picture.

This is the conundrum that faces the Government. If they want to see coal play its part in the future diversity of supply, then the real problem to be addressed is not so much the R&D issue, which is being tackled on such a massive basis in the United States, in which we are free to participate and, I believe, are doing so. It is to consider how the R&D can be translated into operation, into practice, at a time when it can help us to diversify our energy supplies, which otherwise will become almost exclusively dependent on imports. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 113ZJB and 113ZJC not moved.]

4.15 p.m.

Lord Ezra moved Amendment No. 113ZJD: Before Clause 105, insert the following new clause—


(1) For the purposes of encouraging use of new and renewable energy sources, the Secretary of State shall within twelve months of the passing of this Act and at least every three years thereafter publish a plan specifying what steps he proposes to take to promote the growth of microgeneration.

(2) In any plan published pursuant to this Act the Secretary of State shall consider the role of microgeneration in—

  1. (a) reducing the emission of carbon dioxide;
  2. (b) alleviating fuel poverty;
  3. (c) reducing the need for reinforcement of electricity networks; and
  4. (d) ensuring security of supply of electricity.

(3) Before publishing any plan under this section, the Secretary of State shall consult such persons as he considers appropriate.

(4) In this section the following terms shall have the following meanings, that is to say—

The noble Lord said: Here we come to another important amendment dealing with a new energy technology. This is concerned with the promotion of microgeneration or micropower. In that connection, I must declare an interest as chairman of Micropower Limited. I should explain why I am chairman of that company, because it is relevant to the proposition. I am chairman of it, because I have thought for some time that we ought to be balancing the supply of electricity with a growing proportion of electricity produced on a smaller scale. The technology for doing so has much advanced, and the benefits are very considerable: the waste heat can be used, transmission losses can be avoided and emissions can be reduced. Therefore, it seemed to me that this is a very desirable objective at a time when we are concentrating more and more on the environmental aspects of energy policy.

I gathered together a number of the main companies involved in this procedure, some of which are ready to market their products, in order to push this technology ahead. I believe that, if you really want to pursue an objective, you might as well do something about it, quite apart from the importance of speaking occasionally on the subject in this august Room. So I did. I have no qualms about declaring that interest and explaining why it has come about.

The energy White Paper refers positively to microgeneration or micro-CHP, which are other ways of describing the same thing. We have now reached the stage where the technology has been completed— certainly that based on the Stirling engine—where the market prospects have been carefully investigated and where products are due to come on to the market very shortly, that is domestic-sized boilers, which have been extensively market-tested. However, the problem is that in the build-up period there will obviously be a cost. Until a substantial, sufficient run of product can be achieved, there will be a considerable cost encountered during the first few years. It is during that period that I believe some support should be given.

This is the same issue as I raised under the previous amendment. It is a question of balancing normal market forces against environmental objectives. There is not the slightest doubt that this serves environmental objectives in a major way. If one can achieve about 90 per cent efficiency in a domestic combined heat and power plant, compared with the 50 or 52 per cent efficiency from a conventional power station, to which must be added the transmission losses of up to 10 per cent, this is obviously serving a very desirable objective. Therefore it is something that we should aim to get off the ground. The work has been done, the technology has been done. Supporting the R&D is not an issue here. That has all been done. We have reached the stage of marketing the appliances—that is the companies involved, I am not directly involved in any of those companies—and need to have support in the build-up period. That is what this is about.

I hope that again the Government will respond to this positively and say that they may agree or disagree with the wording of the amendment, but that they accept that there is a problem here, there is a desirable objective to be achieved, and that this is another matter that they will take away and think about. I beg to move.

The Duke of Montrose

I was interested to see this amendment being tabled on microgeneration. Of course, I do not have anything like the expertise that the noble Lord, Lord Ezra, brings on this subject. However, I was interested that in his list of microgeneration sources in subsection 4(f) he puts,

other low or zero carbon sources", but that there is no mention of microhydro. As someone who looked into microhydro at one point in my life, I do not know whether the noble Lord, Lord Ezra, has thought about this one. There are run of the river hydro schemes and other very small-scale hydro schemes that have the great benefit that they are not visible. They do not rise 150 metres up into the air. These are something that would come in under subsection 4(f) and to that extent I would like to support the amendment.

Lord Ezra

I would very strongly agree that microhydro should be included and, indeed, micro-anything-else that anybody would like to think of. It is the micro side that is important.

Lord Tombs

I think that I would prefer to call this consumer-based generation because fuel cells, solar power and all kinds of technologies such as microhydro could come into this question. Among the matters that have to be considered is that the individual choosing to generate locally will want a stand-by supply. That is not free of cost, or does it follow that the savings in the distribution system would be as big as might be envisaged?

Lord Whitty

The Government are in favour of encouraging micro and other small generation. We have been working to ensure that the barriers to the connection of micro-generation are addressed. The noble Lord, Lord Ezra, will know that the DTI, together with Ofgem, established the Distributed Generation Working Group. The group has subsequently established a number of workstreams which are now coming to fruition in support of micro-generation.

We have announced our plans to enable smaller generators to accumulate their output over a year and to be awarded renewable obligation certificates. Noble Lords who have followed the proceedings closely will have noted that the draft order to allow renewable micro-generators to obtain ROCs as from 1 April 2004 was laid in the House two days ago. A fair amount of activity is taking place in this respect which indicates that the Government's vision of and commitment to a significantly enhanced role for micro-generation in energy supply is already there.

The amendment relates to the writing of a plan and reporting specifically on micro-generation. We believe that would be a duplication of what is already provided for in terms of reporting. There are separate reporting arrangements for other energy policy aims covered by the amendment. Under the Sustainable Energy Act 2003, for example, the Government have a duty to report annually on progress towards our sustainable energy aims. It requires us to publish an annual report on the cutting of carbon emissions, maintaining the reliability of energy supplies, promoting competitive energy markets and reducing fuel poverty. All of those areas are subject to a report.

The means by which we meet those objectives is not hugely specified in the legislative reporting requirements. Nevertheless, the annual reporting mechanism is rather more demanding than the measures contained in the amendment and clearly will need to address micro-generation and a number of other issues.

The Government will review the renewals obligation in 2005–06. This will cover a wide range of issues, including micro-generation. So it would be perhaps premature to legislate for a specific reporting requirement before that review has taken place.

In view of what is already in the pipeline and the quite stringent reporting arrangements in regard to energy policy which are already the responsibility of the Secretary of State, and given the assurance that the role of micro-generation will be conducted in that context, I hope the noble Lord will not seek to impose the separate strain of reporting outlined in the amendment.

Lord Ezra

I thank the noble Lord for his response. It is perfectly true that the issue of micro-generation will be in a number of reports which are to be prepared. The trouble is that they are all rather disparate so far as concerns micro-generation. It would be helpful if whatever relates to micro-generation could be brought together in order that a clearly defined policy in relation to this important emerging technology can be clearly set out and understood. Otherwise it will be necessary to go through a whole range of documents— including the fuel poverty action reports and various energy policy reviews produced by the Government— and it would be beyond the scope of the average interested party to gather together what is the Government's policy in the quite important and formative area of micro-generation.

While I shall withdraw the amendment, I hope the Government will bear in mind what I have said and try in some way to bring together their thinking in relation to micro-generation. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 105 agreed to.

4.30 p.m.

Lord Gray of Contin moved Amendment No. 113ZK: After Clause 105, insert the following new clause—


If the Secretary of State considers that the new trading and transmission arrangements would be likely to impact on one or more generators sufficiently to threaten all or part of their generating capacity, he may—

  1. (a) defer the introduction of the new trading and transmission arrangements until they have been redrafted to remove the threat, or
  2. (b) impose a maximum increase that would last for five years, such that no generator would face an increase in his transmission charge of more than £5 per KW or 100 percent of the existing charge, whichever is the less."

The noble Lord said: It will be difficult for me to join in the mutual admiration that has been underway between my noble friends on our Front Bench and Ministers because I have tabled my amendments to help the Government get out of the difficult position in which they have put themselves.

I shall start by briefly reviewing the situation in Scotland. The electricity industry in Scotland was privatised in 1991, a year after the industry in England and Wales. There were significant differences between the two privatisations and there continue to be important variations between the arrangements for the electricity industry in Scotland and those for England and Wales. For example, the new electricity trading arrangements, known as NETA, introduced in England and Wales in 2001, do not currently apply in Scotland.

The Government are now introducing enabling powers for the Secretary of State for Trade and Industry to establish the British Electricity Trading and Transmission Arrangements, BETTA. These will create a single, unified electricity market across Great Britain. In brief, they will extend the trading arrangements in England and Wales to Scotland.

This will require the creation of a single operator responsible for a real balancing of supply and demand across the electricity transmission networks in Britain. A unified electricity market across Britain would in principle be beneficial to the market and both Scottish Power and Scottish and Southern Energy are generally supportive of the BETTA reforms. In particular, there is no reason why Scottish electricity generation, including the planned new renewable generation, should not thrive in the Great Britain market.

However, there are two key risks to the successful implementation of BETTA, either of which could have profound implications for Scottish generation in regard to the targets for growth in new renewables. First, Ofgem has proposed that as part of the reforms there should be a single pricing methodology for charging generators for access to the transmission system. The details of that methodology are vital to the economic viability of generators. The overall impact of current proposals would be severely to penalise Scottish generation.

Secondly, the treatment of the 132,000 volt—known as the 132 kV—network in Scotland is not in itself an issue. For historic reasons, the network in Scotland has been part of the transmission business, whereas in England and Wales the 132 kV network is owned by the distribution businesses. The point at issue is simple. The extension of the transmission rules in England and Wales to the Scottish network would severely distort competition. At present, there are three transmission companies in Great Britain: Scottish Power, Scottish and Southern Energy and the National Grid Company. As I explained, each has a different system for recovering costs of transmission. The National Grid Company has been given the role of designated operator of the unified GB transmission system and, in its own way, it is consulting on use of system charges.

It has circulated an indicative list of which I have been given a copy. It is a terrifying list for Scottish generators. Those England and Wales companies that currently pay to use the system will, without exception, pay less. All but two of those that are presently recompensed for using the system will receive more money. In sharp contrast, the Scottish Hydro charge will rise from £5.44 per kilowatt to £20.69—a 380 per cent increase; while that for Scottish Power will rise from £2.45 to £11.28—an increase of about 430 per cent.

Scottish Power estimates that the overall increases in southern Scotland will be in the region of 460 per cent and, in northern Scotland, 430 per cent. It is little wonder that those companies are extremely concerned about what is taking place. The nearest prices in the south will be £8.51 to Dinorwig Pump Storage—a decrease of £1.51—and North Eastern, at £8.03, a decrease of £1.14. Scottish and Southern Energy, to which the Scottish Hydro Board charge of £20.69 relates, calculates that it will cost it an extra £20 million a year and put at risk both the Peterhead power station and a number of large hydro-electric schemes.

Peterhead power station is reckoned to be one of the most efficient gas-fired power stations in Europe and will be crucial in coping with the closure of coal-fired stations and the intermittent nature of most sources of renewable energy. I am informed that under the proposals, it would pay 20 per cent of all the charges levied on generators throughout Great Britain. If the proposals are accepted, Peterhead power station may well have to close, which will put the Government's renewables policy at significant risk.

At this point, it may be helpful to state that the underlying logic behind the pricing proposals is to create a device that will encourage generators to locate at cheaper points on the network. My concern with that argument is that Peterhead is located in the north-east of Scotland, near Aberdeen, and is fairly isolated. It may be typical of the sort of place that will act as a landfall for offshore-generated electricity, land-based wind farms and a variety of other renewable energy ventures. A five-year moratorium on increased transmission charges would enable an adjustment to the thinking behind some of the developments and, perhaps, to the logic behind the proposal.

I cannot emphasise too strongly the importance of the new clause. The implication of not accepting it or, at least, of not producing some provision—I realise that there may be drafting problems—that achieves the same result as the new clause, are far reaching in both political and social terms. Until now, the Committee has been relatively free of political arguments, but I warn the Government that one is about to emerge, because when the Bill leaves this place for the other House, there are seated there a great many Scottish Labour MPs who have recently been under considerable pressure and subject to much criticism for voting on English matters. I suspect that many of them will be hoping to grasp something that is purely Scottish that they can vote on with their heads high. I should be surprised if they did not take up this issue in a big way when the Bill arrives there. Only last night, I received a letter from British Energy. Its attitude towards our amendments is interesting. It thinks that they are too weak and that we should ask the Government to go much further. It states: In particular, Scottish generators will be exposed to a disproportionate burden of GB generator use of system charges. picking up approximately 60% of the total of such charges when Scottish generation only accounts for 12% … Such acute step changes are neither appropriate nor desirable.

It makes a further interesting point: it states that proposals, are not consistent with European legislation that requires network operator charges to be cost reflective and proportionate".

Those are serious charges and I hope that the Government will consider them carefully.

I am sorry to go on at some length, but I am speaking to four amendments. I have spoken to the principal amendment. The second amendment relates to renewable energy sources. On that subject, the main concentration of the Bill is on power generated from wind turbines. Some of those will be on land, but many will be placed offshore. The National Grid Company has made its charging proposals based on ease of access to transmission facilities. The areas in which generators receive a payment, as opposed to paying a charge, are all in the south or south-west of England. Under the proposals, certain northern areas in England will pay charges varying from £1.64 per kilowatt—compare that the figures I mentioned for Scottish generators—and £8.03 per kilowatt.

In rough terms, it appears that the further north one travels, the higher the penalty for generating electricity for the high voltage transmission system. When the wind is blowing, concentrations of wind power are capable—or so we are told—of generating a lot of power. The harder the wind is blowing, the faster the turbines will turn. In general terms, that will happen more in the north of the country than in the south and more at the coast than inland.

Although I have reservations about the faith that the Government place in wind power, that form renewable energy should not be discriminated against. The NGC proposals appear to be stacked against wind power. I should like to hear the Minister's reaction to that.

I want to say a few words about the final amendment. I will have to admit defeat; I have lost the piece of paper, so I cannot say what I was going to about that amendment. Perhaps after the Minister replies and I come to wind up I can deliver my oration then. I beg to move.

The Duke of Montrose

Although I may be in danger of giving the appearance that there is a Scottish Mafia at work, I support my noble friend's amendments in regard to the charges for and costs of transmission. We have talked to various power companies and we have heard of the complicated sums involved. I understand that, in addition to the transmission charges, other charges—known as demand charges—are added. Can the Minister tell the Committee when the demand charges are added to the transmission charges and how the total charges borne by generating companies in different parts of the country compare? It seems a strange and ironic system.

Admittedly the current policy is cost based—which always recommends itself to government—but given that we are told that about 90 per cent of power consumption occurs in England, with 60 per cent of it in the south-east corner of England, such a policy would make everyone situate their generating station somewhere in Essex. If the Government are looking to devolve industrial, generating and other facilities to different points around the country, that may mean that the policy will have to be considered on other than a strictly cost-based level.

Lord Tombs

I support the amendment. It would be a pity if we gave the impression that it involves a political issue; it does not really. I am sure that there is strong political feeling in Scotland but there are rational arguments that must be heard. The noble Lord, Lord Gray, has illustrated the increased burdens that will accrue to Scottish generators, which are out of all proportion with reason. My appeal is for the new authority to recognise that there are real differences in Scotland from England and Wales—differences of geography and organisation. Those differences of organisation have existed for almost 50 years and have produced many improvements in the industry during that period.

The figures cited by the noble Lord, Lord Gray, speak for themselves. Under the current proposals, which are the NGC/Ofgem discussion proposals, the burden on generators in Scotland would be totally disproportionate to their comparatively small contribution. It is impossible to defend them rationally. On that ground, I support the amendment.

Baroness Carnegy of Lour

The noble Lord, Lord Tombs, is right to point out that this is not only a political matter, although whether it will become one when it reaches another place is a different matter. If the Minister takes my noble friend Lord Gray's advice and considers the constituencies that will be affected, he will see what my noble friend means. I have.

Historically, there were very good reasons why the privatisation was carried out differently—but that led to a strange effect when a common system began to be worked out. Distortions have produced the effect enunciated by my noble friend. As I understand it, discussions continue—nothing has yet been settled— but if the result is as it appears it will be at present, that will be devastating. It is important that the Bill should preclude that happening now so that nothing quite so unfair can occur.

I think my noble friend forgot to say that the amendment puts a cap on the price a generator would have to pay to get access to the grid, which is being extended into Scotland—either an upper price, a lower price or both. That would at least be a safety measure, a fall-back provision for five years. That is what my noble friend is trying to do; it is a safety measure.

It is terribly important that generation in Scotland should not be hugely damaged. We have great deal of generation in Scotland. It is spread out: the nuclear stations are in remote places, as we would want them to be. In future, when we have to build more nuclear stations, as we inevitably will, Scotland is obviously one place where they ought to be, so that they can be a long way from centres of population.

The reason why negotiation is under way is that, in theory, it would be cheaper to have all generation close to centres of population, because transmission costs would be much lower. But it is not really on to move Peterhead power station to the south-west of England. In future, with terrorism, unknown weather and other problems, it will be important to have generation spread all over the country. This is not a Scottish nationalist—with a small "n"—issue at all, it is just pointing out to the Government that there is a danger that, because of history and the motivation to attract generation nearer to centres of population, something odd may happen that would be a disaster for the whole country, not just Scotland.

The cap is a good idea that should be included in the Bill for five years. Then everyone would be confident that there would be a level playing field for everyone entering the new system. I strongly support the amendments.

4.45 p.m.

Lord Gray of Contin

If I may speak again, the gremlins have returned my piece of paper, and it would be better if I finished what I had to say now, before the Minister replies. I especially thank my noble friend Lady Carnegy, for what she said. She said it so well that I need not say much about Amendment No. 115A, which concerns the power to modify the licence conditions.

I shall speak briefly to Amendment No. 114ZA, which provides the power to set up the lower limit or the higher limit, as the case may be, for the transmission licence. Its purpose is to ensure that the position of electricity generation in Scotland, including the new renewable energy schemes, is not discriminated against. Failure to tackle discrimination against Scottish generators, which is reflected in the current proposals, would inevitably have serious consequences for everyone in Scotland. The current proposals for electricity transmission pricing could have a damaging impact on the economies of strategically vital power stations in Scotland, and therefore place a question mark over the security of electricity supply. People in Scotland will be rightly concerned about that.

In conclusion, I thank the noble Lord, Lord Tombs, for his contribution. My noble friend Lord Jenkin of Roding once said that the noble Lord, Lord Tombs, had forgotten more about the electricity industry than the rest of us will ever know. I therefore find it reassuring that he supports my amendments, for which I thank him.

Baroness Miller of Chilthorne Domer

Has the Scottish Executive made any representations on this issue to the Government? If so, what were they?

Lord Davies of Oldham

I acknowledge the concern that surrounds what the transmission charges might be for generators under BETTA. Nothing could be further from my mind than to group together the three contributions from Scottish sources and suggest that there is some kind of Scottish Mafia at work. I cannot think of a collective term that I would find more odious. Clearly, it was a representation that the interests of Scotland need to be safeguarded in relation to this issue.

Having spent several weeks during which all members of my party have been berated for the degree of Scottish influence in the Commons, it is a little rich to suggest that I might be neglectful of such interests and not recognise that they exist. I notice that on the Front Benches represented here today there are no Scots, but I recognise that on the Government Front Bench Scottish interests are well represented. I am grateful to the noble Lord, Lord Gray, for reminding me of the Scottish dimension. I was aware of it. I hear what he has to say about it but I believe that he will be persuaded by the arguments that I am about to address to him. In the same way, if I succeed in persuading him, he will shortly indicate that he accepts the arguments.

In terms of the likely costs for Scotland, I understand that the noble Lord has identified a number of figures that would chill the soul of all those who are not familiar with them. The figures represent the current negotiating position. The noble Lord will recognise that we have a considerable way to go. Obviously, we are involved in the development of a Bill and a structure which we hope will obtain over many years in the development of the transmission of electricity in this country. But the figures relate to the current and first proposals and I have no doubt that there will be great toing and froing over the figures.

I am therefore not in a position to suggest that there is an underlying Government imprint that this is the situation which will obtain when negotiations have finalised—far from it. I recognise the dramatic quality of some of the noble Lord's figures but I am not sure that they portray the totality of the truth. I recognise that the figures are accurate but they will be under constant and ever-present negotiation over the next few months.

The figures need to be put into context. As the noble Lord recognises, the general evaluation of the implications of BETTA is that it will bring benefits to all consumers, including, of course, Scottish consumers. The development of the new situation is broadly neutral. The Scottish figures will not go up in quite the way identified by the noble Lord, not least because other charges for Scottish generation will disappear under the new arrangements—for example, the interconnector from Scotland to England.

There are factors which reduce costs for Scotland. I recognise that I am speaking against a background where there is scope for change, but our analysis of the present figures is that the net effect on Scotland will turn out to be broadly neutral. The noble Lord did not mention in his contribution that some of the economies to be effected in Scotland will help to balance certain aspects of the figures proposed.

The noble Lord is right, as is the noble Duke, the Duke of Montrose. We are under an obligation to ensure that the charges imposed are cost reflective. They are also supposed to be non-discriminatory and to promote competition in generation and supply. We are concerned that the methodology should meet those conditions. We want transmission assets to be built and charged for in the most efficient way. I heard what the noble Lord said about one particular generating station and I recognise the force with which he presented the argument.

But the noble Lord will recognise that, under the charging methodology identified in the legislation, under the present arrangements and as BETTA comes into operation, it will be necessary to ensure adequate supplies of electricity at reasonable prices. I am not in a position to make as detailed an analysis as the noble Lord with regard to one particular generator in Scotland, but I emphasise that there are pros and cons of the new regime and its impact on Scotland.

It will be Ofgem's role to assess the charging methodology that the GB system operator develops against the conditions set out in the licence. We do not think it appropriate to set limits in legislation on the regulator powers by prescribing an upper or lower limit. The regulator will be in operation over a considerable period of time. By definition, building in limits would impose restrictions that were time constrained. In legislation that would not make a great deal of sense.

I understand that the noble Lord has appropriately used the opportunity with these amendments to articulate concerns about the situation as it affects Scotland. I maintain that we need to resist Amendment Nos. 114ZA and 115A simply in terms of ensuring that we do not put limitations on the regulator's powers.

As is my wont, I should like to be a little more constructive in certain areas. There is one clear exception; namely, Amendment No. 113ZL, to which the noble Lord spoke with considerable passion. When the Government consider that wider energy objectives may be prejudiced, we want to see activity by Ofgem. But while Ofgem plays a part in delivering the objectives, as recognised by the breadth of its statutory duties and decisions about trade-offs between environmental and economic objectives—I am sure that the noble Lord is with me on this—the broader issues of meeting objectives within this policy are matters not for Ofgem but for the Government and for Parliament. It is there that the broad objectives and principles of the policies need to be discussed, debated and agreed.

As part of the consultation on transmission charges issued in August, the Government raised the question of whether special dispensation was needed for renewable generators in peripheral areas with high renewable potential which would otherwise be affected by the highest transmission charges, in order that the Government's renewable targets are met. We are prepared to look at discretion being exercised in this respect.

We are not in the position to have the agreed solution on this yet. But we are working towards the objective that there needs to be an exception for this group of renewables. It is for that reason that we are agreeing to consider the principle of taking a power to give renewables in specified areas some dispensation to protect them from the high transmission charges, which was the burden of some representation. On Report, we hope to give effect to that in amendments to the Bill.

Our broad strategy is not to be discriminatory in those terms, but to ensure that the policy is broad and fair to all. I recognise that the noble Lord will disagree with my analysis of the current cost position because he has given voice to some significant figures. Perhaps I may give some figures that may be helpful. We are in Committee, so I take it that his figures are in the form of challenging probes. I hope that I can give a response that will advance the debate, so that on Report we will all be better informed.

I have a detailed breakdown that indicates that the use of the system will see an increased cost of £90 million. Connection charges will go down by £25 million. The interconnector charges will go down by £60 million. I have a note here which says, "other". I think that the noble Lord would probably interpret "other" as I shall: if I add another £5 million, I get a total of £90 million going down, to balance the £90 million that is going up. The noble Lord is a tolerant man. I am sure that he will give me a little grace with regard to the £5 million.

I am seeking to emphasise that these figures underpin my earlier proposition, that the overall costs with regard to Scottish electricity are broadly neutral. The noble Lord does not need to emphasise the dragons that wait upon any unfavourable treatment with regard to Scotland; I know that they breathe fire on every occasion that they need to. I assure the noble Lord that we would not be constructing this Bill, nor would we be working on the basis of the charges emerging, if the outcome was the one that he described in such graphic terms, and which I recognise would be somewhat provocative to my various good friends north of the Border in the other place.

I hope that I have reassured Members of the Committee that the amendment tabled by the noble Lord, Lord Gray, would oblige us to interfere on the basis of legislation in a way that would not be appropriate. It relates to a system of charges which, by definition, are time limited. I should like the amendments to be withdrawn on the understanding that as regards Amendment No. 113ZL, we certainly shall be considering the proposition about renewables. In all the other circumstances, I reassure the noble Lord that the question of fairness in the market with regard to Scotland is more balanced than his figures identified.

The noble Duke, the Duke of Montrose, asked me a particular question about the transmission system. The transmission system is charged for by charging generators and demand; that is, suppliers. But generators do not pay demand charges as well. I think that in his contribution he was asking me specifically on that, whether there was a danger of an additional charge in those terms, which is not the case.

I must confess that I have entirely forgotten the question that the noble Baroness, Lady Miller of Chilthorne Domer, asked me. I do apologise.

5 p.m.

Baroness Miller of Chilthorne Domer

I asked whether the Scottish Executive had made any representations to the Government and, if so, what they were.

Lord Davies of Oldham

It is on such a clear piece of paper that I am amazed that I managed to overlook it. I do apologise. Scottish Executive Ministers have made representations to the Minister in other House, Stephen Timms, regarding their concerns about the high level of transmission charges. I have no doubt that they probably presented them in almost as graphic terms as the noble Lord, Lord Gray, did today. They emphasised what the impact on Scottish generators might be, especially the renewable generators. I have indicated the way in which the aspect with regard to renewable generators is to be tackled. Representations have been made from the Scottish Executive, but this is a changing situation.

At this stage, I can give the noble Lord, Lord Gray, the immense solace of knowing that he is among friends who are pressing this issue in order to ensure that an equitable and equable solution is reached. However, I do not think that it will be reached on the basis of his particular amendments, with the exception of the one that I have indicated we are prepared to consider. Therefore I hope that the noble Lord will consider withdrawing his amendment.

Baroness Carnegy of Lour

The noble Lord made a pretty good fist of that. It is a very complicated subject, if I may say so. He has a great number of bits of paper to study. First, I think that he did not understand that the cap is limited. He seemed to think that it would last as long as the regulation. The cap is a five-year cap in the amendment. He also did not seem to appreciate that the negotiations are about so many different factors that they come together in the way that the noble Lord, Lord Tombs, and I were describing. He seems to think that the savings will counterbalance all this. If they did, I think I can assure him that the anxiety, which is acute in the two generators in Scotland, would not exist. They very much want the system to work. They are extremely keen on it. They want the whole market. Of course, the interconnectors go if there is a whole market. Even I know that.

However, there is a lot of anxiety and it is anxiety that will not go away. If the negotiations go on over the progress of the Bill, and they are still going on in an unsatisfactory way in the House of Commons, I am very anxious about what will happen. It will be a great pity because those of us who believe in the Union, a whole market and all the rest of it, do not want the kind of row that may happen. I hope that the Government have listened to my noble friend and will study the figures that the two generators in Scotland have sent them. They have all this information available to them. They must study it and understand what my noble friend is on about.

Lord Tombs

I am sorry that the noble Lord, Lord Davies, found the strain of being constructive too great to maintain. I hope that he will shortly return to his earlier, welcome, mode. I think that he was unwise to quote figures that would essentially be one-sided and selective. Frankly, it is not helpful to do that.

The essence of this proposal is that, as it presently rests in the Scottish companies' view, they will be required to raise connection charges to generators in a way that would impact unfavourably on their business. That is the matter; we are not bandying about pros and cons. Inevitably in their negotiations to extend a trading arrangement to an area that is not at present covered, there will be a lot of issues involved. They will be the subject of negotiation.

It is very unfortunate that the new British Electricity Trading and Transmission Arrangements has the acronym BETTA, which is all too easily confused with the adjective. It does not follow that it is better. Finally, the Minister said that Amendment No. 113ZK is prescriptive and would require action. I should like to draw to his attention the words, If the Secretary of State considers … he may".

Lord Gray of Contin

I am grateful to the Minister for trying to be helpful. Some of what he said was quite reassuring. I took great hope from the fact that he said that the Government's mind was not wholly closed on many of the issues and that further discussion would take place. Discussions with those most involved in the industry at the highest level are very important.

This has been an interesting debate. I shall read carefully what the Minister said. The issues behind the amendments, which I shall withdraw, will not go away; we may return to them on Report. By that time, one would hope that the Government will have had meetings with those most involved in the industry—in particular, with the two Scottish generators and British Energy. They all have very serious reservations. The sooner that these meetings are arranged, the better. In the mean time, I thank the Minister, who is always very disarming. But I suggest that he does not go away in a complacent frame of mind. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 113ZL not moved.]

Clause 106 [Power to modify licence conditions]:

Baroness Miller of Hendon moved Amendment No. 113A: Page 86, line 27, leave out "or expedient

The noble Baroness said: Clause 106(1) begins: If the Secretary of State considers it necessary or expedient".

Amendment No. 113A seeks to determine whether there is any difference in the Government's mind between "necessity" and "expediency" or whether this is just more drafting tautology; whether there really is any significance in the word expedient; or whether, as I suspect, the draftsman has, in the words of that great Tory statesman, Benjamin Disraeli, become, inebriated with the exuberance of his own verbosity".

The Concise Oxford Dictionary defines necessary as, requiring to be done … requisite, essential".

There is no argument there, even if it is the Secretary of Statement's objective judgment that would be employed to decide whether something is necessary.

The dictionary defines expedient as merely, advantageous; advisable on practical rather than moral grounds".

I would imagine that the line between "requiring to be done" and "advantageous; advisable" is a very thin line. Perhaps it is a distinction without a difference. The noble Lord is thinking about it. Are these excess words in a statute of a sea bed of litigation? When one goes down that road, sometimes problems are caused. The motto should be: the least said, the soonest mended.

According to the dictionary, a secondary meaning of expedient is suitable or appropriate. Unless the Minister has a convincing reason why those two extra words "or expedient" must be in the clause, perhaps he will agree as a matter of expediency. If only to please me and my noble friends, no matter of principle is involved, would the Minister just delete those words? I beg to move.

5.15 p.m.

Lord Davies of Oldham

The noble Baroness tempts me, but not successfully on this occasion. We regard the phrase that we have included as crucial, and I shall explain why. It is a fairly tight argument, as all arguments about the direct usage of words are bound to be—this hinges on two or three words.

The amendment reflects some of the industry's concerns about the power that the Secretary of State or Ofgem may have in making changing to electricity licences. We are aware that the industry felt that the "facilitate" test, which governed NETA, was too wide and might enable significant changes to the industry to take place without its being fully consulted and in agreement. It is because of the industry's concerns that Clause 106, under BETTA, has a much narrower scope than the power taken to introduce NETA. The reason is that with BETTA we have limited the power so that it may be used only to bring about changes that are "necessary or expedient" to implement BETTA, and not to "facilitate" its general operation, as was the case with NETA. The fact that it is more limited than the previous position is a reflection of the industry's concerns.

It would be very difficult to get many of the changes needed for BETTA to fit squarely into the noble Baroness's "necessary" test. Expedience also allows for sensible changes that might not be essential—and therefore might not fulfil the requirement of "necessary"—to introduce BETTA but are appropriate, taking into account other changes being made before BETTA. The removal of "expedient" would make the test too narrow to be prudent for the introduction of BETTA.

Documentation has been drafted against the background of "necessary or expedient" because it was the vires that featured in the consultation draft of the Bill. If we altered the provision at this stage, apart from narrowing the test too far, several consultations would have to be revisited and redrafted. Those are consultations in which we believe that we have met the industry's concerns. To go back would be adversely to affect the timetable for the introduction of the new arrangements under BETTA. There is broad agreement across the Committee that BETTA ushers in an advantageous regime, so delay would have costs attached. On that basis, I hope that I can persuade the noble Baroness to withdraw her amendment.

Baroness Miller of Hendon

The Minister can certainly persuade me to withdraw the amendment, because I have to, given that we are in Committee. I can pretend to be very nice and friendly, but I do not have much choice in the matter. I assume that "necessary" is stronger than "expedient", as it means that something must happen. If something is "expedient", the Secretary of State takes a wide power to do whatever. That is a little dangerous. If an action is necessary, that is fine, but I am unsure about the inclusion of "expedient", as it is not limited in any way.

However, at this stage, I beg leave to withdraw the amendment. I shall read very carefully what the Minister has said. I shall also consult other dictionaries and return for a chat with him, either in the Chamber or outside the House.

Amendment, by leave, withdrawn.

[Amendment No. 113B, re-tabled as Amendment No. 114ZA, not moved.]

Baroness Miller of Hendon moved Amendment No. 113C: Page 86, line 34, at end insert— ( ) The Secretary of State shall ensure that seven-year forecasts of plant margin shall be published together with the target plant margin for each year. He shall require Ofgem to demonstrate to his satisfaction that the terms of generation licences and the wholesale tariff structure will ensure that the targets will be met.

The noble Baroness said: The amendment would ensure that future electricity demands will be met by establishing criteria for future generating plant capacity margins and placing the responsibility for meeting the desired margins with the regulator, Ofgem. It is plain that at present the regulator relies on short-term measures to regulate competition but fails to provide a favourable climate to stimulate medium-term investment in order to maintain satisfactory plant margins for the future.

Short-term tariff signals do not create confidence to invest for the future, especially when the investment climate for renewables is made so immediately attractive by generous subsidies. There is an inherent conflict in professing to rely on a free market to solve all the industry's problems while distorting competition for capital investment by providing subsidised purchase arrangements for the output of intermittent, renewable generation.

Adding to the deficiency of short-term tariff signals is the absence of any security in the plant capacity forecasts of individual generating companies. The declared commissioning dates for new plant are only indicative, carrying no obligation to implement on any time-scale, and there are many examples of abrupt postponement. There is no obligation on companies to give more than six months' notice of withdrawal of ageing plant from service. How, in those conditions, can any sensible view be taken of future generating plant margins?

We are losing the undoubted benefits of genuine competition by an amalgam of short-term regulation and the desire of government to impose measures incompatible with a free market. The Government have a responsibility to ensure that future supplies of electricity will be secure. It is important that the Government openly acknowledge and accept that responsibility. The amendment would make the targets explicit, and would place on the regulator, under the supervision of the Secretary of State, a duty to ensure that the targets are adequate and can be met.

Let me anticipate what I suspect will be the Minister's response by acknowledging that target plant margins must take account of a wide range of uncertainties. That simply makes it all the more important to confront and provide for those uncertainties rather than to try to shuffle them off on the individual generating companies, which have no responsibility for the overall operation of the electricity supply system.

The importance to the nation of a reliable electricity supply requires no explanation on my part. I ask the Minister to accept the amendment, and, in so doing, to acknowledge that laissez-faire will simply not satisfy the country's needs and the Government's responsibilities;. I beg to move.

Lord Tombs

I support the amendment moved by the noble Baroness, Lady Miller. It is high time that a sense of purpose was brought into what seems an area of considerable chaos. Noble Lords will know that I have raised the topic several times in the House—in the debate of 7 January, on 8 January in the preceding year, and in a Starred Question a fortnight ago.

Ofgem does not currently regard plant margins as important for the future. I quote as the authority for that the evidence given by Ofgem at a public hearing by the Select Committee on Science and Technology, which is looking at the practicability of renewable energy. It has no interest in future plant margins, as it thinks that the free market will sort them out. The timescale between investment in new plant and signals and tariffs is wide and not easily bridged. Some planning must be carried out.

At present, the only published figures on plant margin are those published by National Grid Transco, to which Ofgem pays very little attention, as it says. As I have pointed out, those figures are highly unreliable. A fortnight ago I asked for the firm capacity programmed to be installed in the years 2004,2005 and 2006. I chose those years because they lie within the construction and installation period—manufacturing and building—and should therefore be fairly reliable. However, to my considerable surprise, the figures that the noble Lord, Lord Davies, gave me were 36 per cent lower than those published in the seven-year statement eight months earlier. That is a damning indictment of the way in which future capacity is being provided.

I strongly support the amendment. There is a duty to establish future plant margins. It is the only means known to the electricity industry of securing future supplies. Some certainty or deliberateness, at least, must enter the present chaotic situation.

Lord Ezra

The security of future electricity supplies is one of the most important elements of energy policy that we face. The noble Lord, Lord Tombs, has reminded us of the important debates that he has initiated and the Questions that he asked, in which a number of Members of the Committee have participated. We are very concerned about the future. We are uncertain about how future electricity demands will be met, in view of the fact that we will become increasingly dependent on gas imports as the present operators of coal plant and nuclear plant will be run down, and the Government have no policy for their replacement. Although renewables will make a contribution, it certainly will not be big enough to close that gap. In the face of the prospective gap, the very least that can be done is properly to estimate what plant margins should be. to set targets and to give Ofgem the task of ensuring that those targets are met. I support strongly the proposition.

Lord Davies of Oldham

I am grateful to noble Lords for reflecting the fact that we have had these discussions in the Chamber under various guises — during debates and at Question Time. I am concerned about the representations that have been made in support of the amendment, because, as noble Lords will recognise, we regard it as being directly contrary to government policy in the area. Therefore, we do not propose to accept it.

The amendment would impose on electricity generators a duty to maintain a reserve of generating capacity defined by the National Grid. But that scarcely reflects the nature, make-up and operation of the electricity market post-privatisation. As the noble Baroness knows, the National Grid has responsibility for balancing the supply of and demand for electricity on the high-voltage transmission network in England and Wales. But neither the National Grid nor the Government decide the level of the plant margin—that is, the surplus of total generating capacity over peak electricity demands—which is currently around 21.6 percent.

I recognise that noble Lords have the right, and indeed the duty, to express concerns if they think that margins are too low. But it is sometimes difficult when different figures for the margin are quoted. The Government have been consistent in regard to the figures. When the figure was below 20 per cent we said that, given that it was below that figure, clear signals were being sent out to the market that there might be demand for additional electricity. The figures increased from the lowest level of 15.9 per cent to 21.6 per cent in a matter of months.

That is a reflection of the market working as we expect it to do. It also reflects the market that was the policy aim and the achievement of the party opposite when it was in power. I find it strange that Conservatives should now say, "We recognise the enormous defects of what we have created, and we are so panic-stricken about that situation, that it is now necessary to have an absolutely strategic change". I do not believe that that is so. I do not believe that the experience of this winter or of preceding years has proved that to be necessary. I do not think that I am being unfair to the Opposition; I am always accused of being excessively fair. Although I concede that sometimes it may be a useful rod with which to lacerate Ministers' backs, by suggesting that everything is going wrong, and the lights are going out the day after tomorrow, the experience of the past few years. including this winter, has not proved that to be so. A potential—I put it in broad terms—demand was identified for increased electricity consumption, to which the market appears to have responded with proper alacrity and entirely responsibly.

I hear what the noble Lord, Lord Tombs, says about the "duff report of the seven-year statement—I remember his phrase so graphically—and he reiterated that point today. I am genuinely concerned if he contends that the figures expressed are not in his terms sufficiently accurate or effective to present the position. But 21.6 per cent has been the broad figure that we have debated generally over the past few months. The sole exception was the occasion on which the noble Baroness threw me by quoting the figure of 5 per cent, which had been given in a reputable magazine. When we studied it afterwards, the figure seemed to apply to a different concept of the margin altogether. Against a background in which I had comfortably operated within the framework of a margin upwards of 16 per cent, the figure of 5 per cent threw me. Those are the facts of the situation. The current margin is 21.6 per cent.

The margin is determined collectively by the electricity market. I do not see how an arbitrary excess capacity guarantees sufficient capacity to meet demand. It is highly unlikely to guarantee electricity supplies at least cost to the economy and to consumers. After all, that was the rationale behind the policy changes introduced by the previous administration.

The National Grid company has a licence condition to publish its seven-year statement. I reiterate that others outside the House, including those responsible for the seven-year statement, will listen very carefully to the criticisms by the noble Lord, Lord Tombs. It is its job to present the position as accurately as possible, and it is in its interests to do so. On the basis of what it says, it indicates to the market the opportunities for further generation. But the statement is not a plan; it does not contain a specific target, and it was never intended that it should. It provides a range of scenarios reflecting the fact that there are always great unknowns in such a market.

We all know that the greatest single variable is economic growth and the rate of energy consumption. The Chancellor gets economic growth wrong. In all his modesty, he frequently underestimates economic growth and then has to come to the House of Commons and say, "Unfortunately, I got it wrong; we are actually doing better than I had predicted". We all recognise that those are built-in factors in any statement that seeks to outline the future.

Generators and suppliers are incentivised by facing large costs to contract between each other to ensure that there is balance between supply and demand. Rather than having a set wholesale price, the market system allows for companies to contract over various timeframes. This is an efficient system and it allows them to react to changes in demand, and, I maintain, it also produces an efficient plant margin. The current system also means that, should changes be needed to the way it operates, they can be suggested and very quickly implemented by the participants, through changes in the industry codes. Surely, this is the flexibility that we all need and of which we have taken advantage during the course of this past winter. It shows that strategies can be adapted as needed.

Last year the grid signalled to the electricity market that it needed a bigger safety cushion of generation to help it to manage exceptional circumstances this winter. The market responded by bringing back into play mothballed capacities. I contend that this is evidence of the system working well. That is not to say that under any circumstances with regard to these issues the Government should appear complacent. I do not want to sound complacent about this position. I want to identify as accurately as I can whether we have structures in place that are effective in meeting potential demand. As I, and my noble friend Lord Sainsbury, have indicated in replies to questions that have been addressed in the House, the Government— the department—continues to work with Ofgem, through the joint energy security of supply working group, to monitor developments. We do not stand idly by and hope that things are going well. We monitor because we recognise that signals need to be sent out in time for there to be a response.

I say to the Committee that I hear the anxieties. I am particularly concerned about the quality of information, which needs to be addressed. However, in broad terms, this is a structure that has worked well for the economy and the consumer over recent years and, despite the anxieties articulated, I maintain that this is the structure that will work well in the future. On that basis, I ask for the amendment to be withdrawn.

5.30 p.m.

Earl Attlee

The Minister is always helpful and interesting. He said that the market can signal for existing plants to be brought on-line, but how does it signal the need for new plant to be built?

Lord Davies of Oldham

I think that the mothballed capacity is roughly known. It can be called out in a very short period of time indeed. I recall one plant— although I cannot at this moment recall its name—that was brought back on stream in a very short period of time between October and December of last year.

Lord Tombs

Is the Minister aware that that mothballed plant, which was certainly brought back in a matter of two or three months, was the only plant capable of that response? In the remaining mothballed plants it takes upwards of 18 months. I shall give you a little lecture shortly about it.

Lord Davies of Oldham

I shall certainly benefit from that lecture and no doubt, if it is given to the rest of the Committee, others will also benefit. We all recognise the particular expertise that the noble Lord brings. Of course, there was a rapid transformation of the situation by the introduction of the plant that he identified.

It should be recognised that the market can envisage forward price curves. They will presage a potential rise in the cost of electricity where demand is being developed. That provides a clear opportunity for new investment against a rising price curve, which is a normal way for price mechanisms in markets to work.

Lord Ezra

A number of us are very concerned about the structural imbalance between electricity supply and demand that is likely to develop over the years ahead. For the noble Lord to express his entire dependence on market forces in a matter as important as the security of our electricity supply surprises me. He referred to the Conservative government which introduced privatisation. Yes, they introduced it, but with the electricity pool which had built into it a means of safeguarding electricity capacity. When NETA was introduced, that disappeared. We are totally in the hands of market forces.

The noble Lord, Lord Tombs, is right to say that the additional capacity brought in came from the mothballed plant which was easily available. A large amount of mothballed plant would take a long time, if ever, to bring back into service. Similarly, the noble Earl, Lord Attlee, was right to ask how, in these times of prices moving up and down, are we to persuade companies to invest in new capacity. The intention to invest in new capacity is much more limited, a point made by the noble Lord, Lord Tombs. Such investment has declined recently. It is feared that there will be less investment in new gas-fired capacity, declining capacity from coal and nuclear, and we shall be in a serious situation unless we provide an incentive for bringing forward new capacity of different kinds that we do not have at present, plus a system for stimulating a reserve, as has been done over the past 50 years under the CEGB and then under the pool. That reserve capacity may have cost the nation something, but it was worth paying for. Many fear that the purely market-oriented approach is likely to cost us dear in the future.

Lord Tombs

I want to make one or two general comments. The Minister said that National Grid Transco is responsible for balancing supply. That means that it balances load and demand hour by hour, as a result of the well-known fact that, in practical terms, electricity cannot be stored. The national grid company is not responsible for future planning or for sending signals to this much believed-in market. So it is quite wrong to put the responsibility on National Grid Transco, which is being helpful in providing what is anecdotal evidence—amounting to a plant margin, which is meaningless.

Frankly, I do not believe the figure of 31.6 per cent quoted by the Minister for any year in the next seven years. I will not ask him to explain it now because I do not expect him to be briefed on it, but I shall ask him to write to me.

Lord Davies of Oldham

Perhaps the noble Lord will allow me to intervene. I mentioned the figure of 21.6 per cent.

Lord Tombs

I had thought that the Minister twice referred to the figure of 31.6 per cent. I shall moderate slightly my disbelief in light of the new figure, but it remains on the table in a real sense.

The noble Lord, Lord Ezra, put his finger on the button as regards what has gone wrong since privatisation. In my view, privatisation was wrongly handled and misconceived, a point I have made openly a number of times. Mistakes have also been made since privatisation.

All the amendment seeks to do is to make Ministers accept what they themselves assert to be the case. During the debate the noble Lord at the Dispatch Box himself said that the Government have a responsibility for our future electricity supplies. This amendment would make that responsibility explicit. It would make the Government look forward to ensure that future supplies will be adequate. Ofgem would be required to devise the means of achieving that. I could suggest certain ways, but that is not my job; it is a task for Ofgem.

Finally, I do not want this to become a political issue. While I understand why the Minister referred to what he saw as the Opposition's own interests. I have no political interest. My only concern is security of supply in an industry for which I was responsible for many years and which I see moving into a highly dangerous state.

5.45 p.m.

Baroness Miller of Hendon

I thank the noble Lord, Lord Ezra, my noble friend Lord Attlee and the noble Lord, Lord Tombs for their contributions to this short debate on what is, however one looks at it, an extremely important subject.

The noble Lord, Lord Tombs, said that he has no political interest here; he is concerned only about the security of supply, and that is fine. I, too, do not intend to make any political point other than to say that I was pleased to hear the Minister declare in his reply that practically until now, the system has been working very well. It is his view that it is working well and our concern is something else.

I was surprised to hear the Minister express his own surprise that we have tabled such an amendment. The situation today is not exactly as he has described He went on to say that he is not being complacent. So I am surprised both at his own surprise and his assertion that he is not being complacent. In my view, the main part of all that he said suggested extreme complacency. It was only at the end of his remarks that he tagged on the remark, "I am not complacent".

When the Minister says that the margins are all right—this and that are fine; the market deals with it and power comes on stream and so forth—the situation is not the same as it has been over many years. Nuclear sources are coming to an end. The noble Lord, Lord Tombs, pointed out that the plant cannot be taken out of mothballs quickly, a point also made by the noble Lord, Lord Ezra. We shall lose our home-grown gas, as it were, in the next few years. We shall then be totally dependent on imports of gas—up to 90 per cent—sometimes importing those supplies from unstable countries.

The Minister's response did not seem to appreciate the gravity of the problem and the depth of concern expressed by all noble Lords. We seek to ensure that, in the coming few years, we still have sources of light and warmth when we need them. The truth is that with energy supplies of all varieties now running down, margins of 16 per cent or 21 per cent may not be sufficient. The Government need to take that on board. We have made the point in many debates, which the noble Lord acknowledged. I do not think that we have had one debate on electricity and energy supplies in which noble Lords have not pointed out the problems likely to arise. The notion that a minor amendment of this kind should be pushed aside is absolutely extraordinary.

The Minister has been generous today and I know he understands that in no way do I seek to make a personal point here. However, I feel that his response was not commensurate with the problem that we are trying to indicate. We do not yet have wind farms all over the place; we are running down our gas supplies, and the noble Lord was not helpful in his response to the noble Lord, Lord Ezra, when he referred to clean coal technology, saying that that too was probably not much good. Nothing that we have suggested as alternatives seems to have found favour.

Perhaps this amendment is not the way it should be done, but in my view the Minister should be able to say that the Government realise that there is a problem and that they will look into it. He should not say that there is no problem, because there is a problem. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 114 had been withdrawn from the Marshalled List.]

[Amendment No. 114ZA not moved.]

Baroness Miller of Hendon moved Amendment No. 114A: Page 86, line 38, at end insert ", and ( ) power to make modifications relating to the determination of transmission charging methodologies in order to, amongst other things, provide a cap on such charges in respect of a generating station for the purpose of producing heating or a cooling effect in association with electricity

The noble Baroness said: This is another drafting amendment to the very important Clause 106 in which the Secretary of State seeks power to vary licensing conditions. The clause heading uses the euphemism "modify" for what is really meant—namely "vary", which is a much more emphatic word. That does not matter because obviously it is sensible for the Secretary of State to have the power to vary or modify the licences he grants, notwithstanding that such modifications may have commercial and economic consequences.

Any company applying for a licence will be aware that it is liable to unilateral amendment. The variation proposed in this amendment is not in any way intended to restrict the modifying powers of the Secretary of State. Equally, it is not intended to increase the powers over those being sought by the Government. On the contrary, it seeks nothing more than to clarify them by removing an ambiguity.

The amendment would ensure that, in the wide and loosely drafted definition of the powers of the Secretary of State to modify licences set out in subsection (2), it is made absolutely clear that they include the right to ensure that there is a consistent method of fixing transmission charges. It would also put it beyond doubt that generating stations involved with CHP can receive special consideration, which is essential if that process is to be encouraged. I beg to move.

Lord Davies of Oldham

We think that this amendment, which I shall resist, would have very little impact because this concerns BETTA. Most CHP plants are connected to distribution networks on which BETTA does not impact.

Noble Lords will recognise that we agreed on a previous amendment that we are prepared to consider the limitation of transmission charges for renewable operators in peripheral areas in order to protect them from the impact of high transmission costs. I gave a favourable response to an amendment to that effect tabled earlier this afternoon. While we did not agree entirely with the amendment as drafted, we concurred with the thinking behind it. However, this amendment seeks to enable the Secretary of State to provide a cap on transmission charges for combined heat and power.

Unlike renewables, there is no real reason why CHP should be adversely affected by high transmission charges because at present so few plants are connected to the transmission network. Moreover, we do not expect too many to be connected in the future.

One significant exception to that is the Conoco plant at Immingham, the largest CHP plant in Europe. It is to come on stream later this year and will be connected to the transmission network. However, the situation of that plant in the geographical sense and the CHP plants that could be connected to the transmission network in the future is different. They are not located in peripheral areas, which formed the criteria adopted in the Opposition amendment moved earlier this afternoon, and are therefore not subject to high transmission charges in the same way as renewables in peripheral areas.

I recognise the constructive thought about combined heat and power behind the amendment, but it would be on the absolute margin in terms of its effect. We do not see how combined heat and power plants in general fit within the framework of the new renewable undertakings in peripheral areas which do not have special consideration. On that basis, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Miller of Chilthorne Domer

Am I correct in thinking that the Minister said that not many combined heat and power plants would want to connect in the future? Can he explain to me why that should be?

Lord Davies of Oldham

This concerns the distribution structure. Most CHP plants do not produce huge surpluses that need to join with the National Grid. However, the Immingham plant will do so because it is very large indeed. Moreover, in our view it is highly unlikely that combined heat and power plants are likely to be built in peripheral areas of the United Kingdom.

The reason why we are considering the issue for renewable sources is because wind turbines are much more likely to be located in remote areas far distant from transmission systems. However, the simple fact is that most CHP plants will be more concerned with distribution systems rather than connecting up for transmission. Moreover, this part of the Bill is concerned with BETTA and associated transmission issues.

Baroness Miller of Hendon

I have listened carefully to the Minister's reply, but perhaps not quite as carefully as I should because I did not understand one or two points. Having said that, however, I shall read his response. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Triesman

I believe that this would be a convenient moment for the Committee to adjourn until Tuesday, 24 February at 3.30 p.m.

The Deputy Chairman of Committees (Viscount Allenby of Megiddo)

The Committee stands adjourned until Tuesday, 24 February at 3.30 p.m.

The Committee adjourned at four minutes before six o'clock.