HL Deb 28 March 2002 vol 633 cc358-70
Lord McIntosh of Haringey

rose to move, That the draft order laid before the House on 13th February be approved [20th Report from the Joint Committee].

The noble Lord said: My Lords, the order puts in place the main plank of the Government's renewable energy policy, a 25-year obligation on licensed electricity suppliers to secure a rising proportion of their sales from eligible renewable sources. It will make an important contribution to the UK climate change programme, to our Kyoto target and to our domestic aim of a 20 per cent reduction in carbon dioxide emissions by 2010. It marks a step change in our support for renewable energy and our proposals are the result of extensive consultation with industry, green groups, consumers and the public.

The obligation will apply to all licensed suppliers supplying customers in England and Wales and requires them to obtain a percentage of their sales from renewable energy sources. That percentage will rise from 3 per cent in the year beginning 1st April this year, to 10.4 per cent in the year beginning 1st April 2010 and remain at that level until 31st March 2027.

Promotion of renewables in Scotland is a devolved matter but I am pleased to say that the Scottish Executive is introducing a similar obligation in Scotland from 1st April. I understand that that order has now been passed by the Scottish Parliament. Certificates issued under the Scottish order will be eligible under this order and vice versa. There will be a seamless join between the two obligations.

The provisions of the Electricity Act do not extend to Northern Ireland, but electricity generated in Northern Ireland will be eligible provided that it is supplied to customers in Great Britain in accordance with the requirements of the primary legislation.

The scope for this is likely to be limited in the early years, but I am pleased to say that the Northern Ireland Executive is considering legislation to introduce a similar certificate-based obligation there. We would warmly welcome development of a UK-wide certificate-trading scheme. As I would say to the noble Lord, Lord Glentoran, were he still here today, we shall work with the Executive to that end.

The additional cost to consumers will be around £800 million a year by 2010. That will result in an average increase in electricity prices of around 4.5 per cent by 2010. Compared with 1999 levels, that is the equivalent of an increase of less than one-tenth of a percent on RPI over the decade.

We believe that this represents a worthwhile investment in our future. As a result, we expect to see the market for renewable electricity reach somewhere between £1.5 billion to £2 billion a year in 2010.

Some, including noble Lords, have suggested that the Government's target of securing 10 per cent of electricity sales from eligible renewables sources by 2010 is unrealistic or that the initial level of obligation is too high. I prefer to say that the target is tough. It must be tough if we are to respond effectively to the challenge of climate change. But we believe that it is achievable. That view is confirmed by the recently published overview of regional resource studies. We aim to make rapid progress towards meeting our earlier interim target of securing 5 per cent of our electricity from all renewable sources, although we accept that delays—particularly planning delays—in implementing projects supported under the earlier non-fossil fuel obligation scheme are likely to delay achievement of that target beyond 2003.

Planning, above all else, is seen as the main constraint to further, faster development of renewable energy projects, especially onshore windfarms. We will need more renewables energy projects in future and they must go somewhere. It is not good enough just to pay lip service to the environment and then oppose sensible action that can actually help to tackle the problem.

While the countryside will not be covered with wind turbines or any other type of renewable project—far from it—there is no point in pretending that there will be no impact either on the countryside. It is, of course, a question of balance.

The key is, in my opinion, to get public opinion on our side. Developers have a major job to do in making sure that they bring forward sensible and sensitive proposals and involve and inform local communities. In principle, the public at large is hugely supportive of renewable energy and that support has to be harnessed in practice.

Pricing under the renewables obligation should also allow projects to be sensitively sited while still being commercially attractive. For example, it should allow wind turbines to be sited off the highest hilltops, reducing their visual impact to some extent. It may also pave the way for smaller developments than we have seen in the past.

We are not providing separate bands within the obligation for different resources or technologies. Fragmenting the market in that way would undermine the competitive market for renewable energy that we are trying to create.

We are, however, providing additional grant support to help less well-developed technologies enter the market and reach the point at which they can compete on their own merits. Over the next three years the Government have set aside a package of support for renewables worth over £260 million, including an enhanced research and development programme, £74 million to encourage the early deployment of offshore wind projects and over £60 million towards the capital costs of early bio-energy projects.

We looked carefully at exempting all combined heat and power generation from the obligation but reluctantly concluded that that is outside our powers under the Electricity Act. The obligation does not, however, apply to licence-exempt supply, such as the on-site use of electricity generated by combined heat and power. This will give a small but important boost to the market value of such licence-exempt supplies.

We also considered whether the obligation could be used to promote the capture and use of coal mine methane—a powerful greenhouse gas that seeps from disused coal mines—but again concluded that that lies outside the powers available. Under current legislation, coal mine methane cannot be promoted as "renewable" and therefore is ineligible for the renewables obligation. But we are exploring other mechanisms to provide assistance that is both timely and cost-effective.

If otherwise eligible, the output from stations built under both current and expired non-fossil fuel obligation and Scottish renewable obligation contracts will be eligible for the obligation.

The proceeds from the sale of contracted non-fossil fuel obligation output will, however, be used to offset the cost to consumers of those original contracts through the fossil fuel levy.

We have also amended the arrangements governing non-fossil fuel obligation contracts in order to allow those not yet commissioned to relocate, subject of course to normal planning requirements. The industry estimates that over the next few years that could bring forward up to 100 stalled projects. That would help to ensure that a significant volume of certificates is available in the market and it would provide liquidity in the early years of the obligation.

I am confident that, coupled with the other measures we are taking, the obligation will deliver the 10 per cent target we have set for 2010; contribute an additional 2.5 million tonnes a year of carbon reductions to our Kyoto target; and stimulate the development of a new and thriving industry in the United Kingdom.

I confirm that, in my view, the provisions of the draft order are compatible with the Convention rights as defined in Section 1 of the Human Rights Act 1998.

I commend the order to the House. I beg to move.

Moved, That the draft order laid before the House on 13th February be approved [20th Report from the Joint Committee].—(Lord McIntosh of Haringey.)

11.45 a.m.

Lord Skelmersdale

My Lords, the manufacturers will be extremely grateful to the Government that at last this renewed non-fossil fuel obligation is to he legislated on. There has been a hiatus in plans for new green electricity projects. I suppose that that is inevitable when one moves from one scheme to another.

I understood from the phraseology used by the noble Lord, Lord McIntosh, that he had almost certainly read the report on this subject which emanated from Sub-Committee B of your Lordships' EU Committee. One finding of that report was that planning has been the biggest bugbear.

However, we have recently discovered another problem. Can the noble Lord when winding up say something about the proposed windfarm in the far western Hebrides which apparently is on the site of a European Union declared area for wildlife? It looks, on the face of it, as though the kibosh is being put on the whole plan. It would be the biggest semi-offshore windfarm anywhere in Europe.

Baroness Hooper

My Lords, I add my voice in welcoming these regulations. Those long-standing Members of your Lordships' House may remember that I had responsibility for renewables as a Minister in the Department of Energy. In some ways I was also responsible for the introduction of the non-fossil fuel obligation during the process of the electricity privatisation.

I was interested in what the noble Lord, Lard McIntosh, said about coal mine methane. I should like to know whether that covers all methane from any source? For example, I am aware that waste disposal sites also create methane. In some countries that byproduct of the process is put to good use.

As the regulations before us are to comply with our international obligations under the Kyoto agreement, I am interested to know whether the Government have consulted with other countries as to what measures they are introducing. The ultimate aim of these regulations of course is to improve the global atmosphere. It is therefore very important that not only we in this country but those in other countries fulfil our obligations.

Lord Monro of Langholm

My Lords, I should like to support my noble friend's point about planning. I am glad that the Minister included in his speech a paragraph about planning, because it is crucial that we get the balance right. At present, the balance is incorrect because it is weighted far too heavily on the side of renewables. In October 1996, I initiated a debate in another place calling attention to tLe proliferation of windfarms and telecommunications masts, which were sited on the top of almost every hill in Scotland—and, no doubt, in many places in England and Wales as well.

What detailed consultations is the department undertaking about planning? At the end of the day, the department and the Minister will answer to appeals. In almost every case in which I have taken an interest, the appeal has gone in favour of the developer and against those trying to preserve the beauty of the countryside. Often, inquiries overlook the issue of transmission lines that must run from the windfarms to where the electricity is required. They often add greatly to the concern of those interested in the countryside.

It is important that at least a word is said today to show that many of us are concerned about the development of windfarms, which are just as unsightly off-shore as on-shore. Are any practical steps being taken concerning tidal power using barrages, such as operate in northern France, where of course the stand of the tide is much higher than in the United Kingdom? They, too, can be unsightly.

The Government must have a fair balance between what is required under our renewable energy policies and the saving of our beautiful countryside.

Baroness Miller of Hendon

My Lords, 30 or so years ago, when I was teaching marketing, I used to instruct salesmen to close the sale by what is called the assumptive technique. That is, having made his sales pitch, the salesman would then without further ado simply start filling in the order form on the assumption that the customer was going to buy.

In his helpful letter to me giving the details of the orders that we are considering today, the Explanatory Notes and the reports of the debates in the other place, the Assistant Private Secretary to the Government Chief Whip said: All the orders are welcome and all are uncontroversial". That is an example of the assumptive close, but one that may be entirely justified. Although it is for me, not the Minister, to say whether the order is welcome and uncontroversial, I entirely agree—as three of my noble friends have already done so, it is just as well—and we shall not oppose the order, nor any of the orders with which I am dealing today.

I thank the Minister for his explanation of the Renewables Obligation Order 2002. Despite it being uncontroversial and welcome, it took the Minister for Industry and Energy 22 minutes and seven columns of the Official Report before the Third Standing Committee on Delegated Legislation to explain it. It certainly did not take the noble Lord as long. It took my honourable friend the Member for Salisbury another 26 minutes and another six and a half columns to explore the ramifications of the order. Your Lordships will be relieved to know that, following that detailed discussion in the other place, which I read with interest, and the Minister's helpful but nowhere near as long an explanation today, I shall need only a fraction of that time.

Only one aspect of the order concerns me. That is that apart from their own efforts, electricity suppliers will be able to meet their obligation by one of two other methods. First, they can purchase what are called renewable obligations certificates from another supplier, generator or third party instead of doing what is necessary themselves. Secondly, they can pay what the Explanatory Notes call a buyout price to the regulator, Ofgem, which will distribute what amounts to a penalty or fine to electricity suppliers that have themselves supplied excess renewable energy obligations certificates to other defaulting generators.

I agree that that will be an incentive to generators to produce as much renewable energy as they can in the hope of selling it to another defaulting supplier, as long as there is a market for it, but can we be sure that the buyout price will be set sufficiently high to make it worth while for generators to create their own renewable sources rather than taking the easy way out and relying on someone else? What incentives will there be for generators to create as much energy as possible from renewable sources, not merely the bare minimum to meet their obligations or to put on the markets to sell to others—those whom I have called the defaulting generators or suppliers?

The Minister in another place sought credit for the fact that the Government have exempted renewables from the iniquitous climate change levy—so they should. By their nature, renewable energy sources are the antithesis of the cause of climate change, so why should a levy have to be paid for them in any case? The Minister claimed that the new obligation will help to create a total market for renewable electricity of approaching £2 billion a year. Perhaps it would have been more accurate to have pointed out that the market for electricity will exist in any case and that the objective is to divert its manufacturing renewable sources.

The three-year package of other support measures for current research and development to which the Minister in another place referred, totalling £260 million, is welcome. Whether it will be enough to "kick-start", as the Minister put it, a research and development programme that will take more than three years, we do not know. As the Minister mentioned, that is another question. I do not expect the Government to commit themselves now, but an indication that further future funding is not out of the question would be useful and encouraging.

I turn to the question of costs. The energy review states that the existing renewables obligation will cause a price increase to domestic consumers which could be as large as 4.5 per cent in 2010. The proportionate increase on industrial bills could of course be double. The Minister's response to the committee in another place on the question of the added cost to industry was to suggest that, contrary to what the energy review predicted, the cost would be only an extra 4.4 per cent by 2010, spread over the next years, and that the cost will therefore not add more than 0.1 per cent to the retail prices index. If he can, I should like the Minister to tell us what steps are being taken by other EU countries to encourage the development of renewable energy sources, and whether the cost to their domestic industries will be no less than that being inflicted on British industry.

The Minister will recall that one of the world's greatest producers of so-called greenhouse gases, the United States of America, has not only resiled from the Kyoto treaty but is seeking to buy out the quotas of greenhouse gases from underdeveloped countries, rather than reduce its own production. Perhaps the Minister can remind us what steps the Government are taking to persuade our friends in the United States, who invariably rely on the United Kingdom when they need help, to help those of us who are worried about millions of tonnes of ice breaking away from the Antarctic ice shelf.

Finally—I mentioned this point to the Minister—I have just received a brief from, or perhaps it would be more accurate to say that I have been lobbied by, a commercial firm that has apparently been trading environmental instruments abroad, notably in Australia and New Zealand. While I accept that it clearly has its own business interests at heart, it raises two questions that I should like to pose to the Minister. First, the draft order gives Ofgem five days to decide whether a trade is valid. The company points out that that could be done more quickly using electronic means. The Minister may well say that five days is not an unreasonable time limit, and that there is nothing to prevent Ofgem from operating more quickly if circumstances permit. I should be interested to hear the Minister's comment on that point.

A point of more substance arises from the possibility of two trades taking place at more or less the same time. I suppose that that depends on Ofgem's intended procedure in creating its register, on which it has promised consultation with interested parties. Can the Minister assure us that he is pushing Ofgem to deal with that aspect, including the consultation exercise, with all speed?

Although I said to the Minister that I would raise two points, I did not tell him what they were. I was notified of them only late last night and until rereading what I had written about them at the time I was not sure myself. I appreciate that I have sprung them on the Minister at the last minute, just as they were sprung on me. I would therefore be satisfied if the Minister chose to write to me on those points. As I said, we are happy with the order.


Lord Ezra

My Lords, we on these Benches also support the order. We regard it as an important step towards reducing carbon emissions and meeting our Kyoto obligations.

As the Minister said, one of the big issues is whether there will be enough renewables to meet the obligation. One reason why there might not be is the restricted definition of eligible renewable sources. The Minister referred to methane from coal mines. I find it extraordinary that methane from landfill sites should be regarded as renewable, but methane from coal mines should not. We have raised the issue several times. I suppose we regard rubbish as something that will go on for ever, but the country's coal resources will virtually go on for ever, or at least for several centuries. The Minister referred to other measures being introduced to cover methane from coal mines, but this would have been an opportunity for what I consider a sensible and desirable step, and I cannot imagine that anyone would have challenged it.

Combined heat and power is another issue that arises from the definition of eligible sources. The Minister also referred to it and said that the Government had considered it carefully and would like to have included CHP in the renewables obligation but felt that existing legislation prevented their doing so. Like many noble Lords, I took part in the debates on the Utilities Bill. At every stage, I pressed for the inclusion of CHP in the eligible sources of energy. I find it surprising that the Government, who resisted that amendment, now say that, unfortunately, the legislation does not allow them to act. I do not see how they can have it both ways.

There is also the question of the support that the Government will give to other new energy technologies that can contribute to the reduction of carbon emissions. For example, the extraction and sequestration of CO2 from coal—my old industry—could make a substantial contribution to the reduction of carbon emissions if provision were made for it in the renewables obligation. There is also the question of substantially encouraging distributed generation—small-scale generation, as opposed to large-scale generation—which is far more efficient because the waste heat can he used and transmission losses avoided. That is another area where a big contribution could be made to the achievement of our Kyoto objectives.

It is also surprising that, although the Government are substantially encouraging renewables—even on the restricted basis to which I referred—there are measures in train that operate the other way. The Minister will not be surprised to learn that I refer to the balancing mechanism of the new electricity trading arrangement, which still operates against small-scale, intermittent generators. The matter has been under discussion since long before NETA came into operation, but no solution seems to be in sight. I cannot see the justification for, on the one hand, stimulating renewables and, on the other, putting obstacles in the way. That seems a disjointed approach.

Subject to those comments, we support the order.

Lord Woolmer of Leeds

My Lords, I declare an interest as the unpaid chairman of the energy forum of the Yorkshire Regional Development Agency. I welcome the measures in the order. I shall not repeat the many wise words uttered by the noble Lord, Lord Ezra. I simply endorse them and look forward to the Minister's reply.

I shall touch on one or two other matters, including CHP and methane. I understood from my noble friend the Minister that, in both cases, it was not a matter of principle that they had not been accepted but that, at the moment, the legislation is not framed appropriately. Given that we are looking forward to 2010—even 2020—for the next set of objectives, it might be possible to amend or change the statute so that they would become eligible in due course. If methane and combined heat and power were to he included, would that not make a significant or important contribution to meeting the targets? If so, would it not be worth considering, at the appropriate time, changing the legislative framework so that they could be qualifying sources of energy?

Many noble Lords say that wind generation is now, essentially a matter of planning. It seems to me, as a layman, that, with biomass, the planning problems will be relatively modest. It is really a matter of economics and of how to get it to the point that wind generation has reached after all these years. It is a matter of cost, not planning. The economics of wind power are becoming feasible, but there is a major planning problem. How will the Government take those planning measures forward? I appreciate that my noble friend the Minister is not responsible for planning; he is responsible for enough things in this House, without taking that on. However, can he tell us, today or in writing, about the role that the regional development agencies are expected to play in driving forward the question of wind power planning permission? When it comes down to it, there is an enormous gulf between the national level and the local level where such things must be accepted. There is a lot of pressure on regional development agencies to deliver many of the renewables targets.

As I understand it, the regulations rule out imported green energy—for example, wind generated electricity from Holland. Can the Minister confirm that that is the case? If it is, is it a matter of long-term policy for Her Majesty's Government? If it were to be feasible to import, for example, wind energy from Holland, that could drive out the economic viability of biomass. Biomass will not become economically viable without being heavily protected. It will not be economically viable against wind generation for many years. There is an important issue of commercial confidence. There will be a medium-term guaranteed market to enable biomass technologies to develop to the point of being more economically viable.

With those provisos and questions, I warmly welcome the order. I agree with my noble friend that it is better to be bold and aim high than to be timid, not least because the commercial interests that are to drive things forward need to feel that there is a vision that will be sustained and produce results.

Lord McIntosh of Haringey

My Lords, I am grateful to all noble Lord who have taken part in this brief but exceptionally well informed debate. I am also grateful for the general support that has been given to the order. I shall try to answer as many of the points as possible, but if I miss anything perhaps I may take the liberty of writing to noble Lords.

The noble Lord, Lord Skelmersdale, raised the point of the windfarm on Lewis. That is an ambitious project and we are aware of the concerns about wildlife in the area. It falls, in part, within a Nature 2000 area with rare blanket bog. Any wind farm on Lewis must obtain consent from the Scottish Executive and it will have to consult Scottish National Heritage and others. I understand that the developers are working closely with Scottish National Heritage to minimise the effect on local wildlife, but clearly they are some way from a conclusion.

The noble Baroness, Lady Hooper, referred to methane from waste disposal sites. That is included in the renewables obligation. It is a quirk which must be resolved that coal-mine methane is not, for what seems to me to he a bureaucratic reason, in theory renewable. However, in every other sense the production of energy from coal-mine methane is highly desirable because coal-mine methane itself is so undesirable. If it escapes into the atmosphere, it is 21 times more damaging than many other forms of emissions. Methane from landfill sites is a major contributor to renewables and it will be supported under the obligation.

The noble Lord, Lord Monro, was the first of a number of noble Lords to talk about the planning issues and I recognise how serious they are. I want to make it clear that the Government's role in such planning matters is restricted to a quasi-judicial role under Section 36 of the Electricity Act. There will of course be a planning inquiry on any occasion when the local planning authority objects to a proposal for a development for renewable purposes and that inquiry will be independent. The Government have no influence on the way in which the planning inquiry works.

The noble Lord, Lord Woolmer of Leeds, asked about the role of regional development authorities. That is probably a developing issue which has not been resolved. As the noble Lord, Lord Faulkner, made clear, there are many proposals about the relocation of responsibility for planning matter, but at present they are in the hands of local planning authorities.

We are aware of the concerns not only of environmental groups but of ordinary residents about the potential visual intrusion of renewable energy projects. However, project developers are also concerned about difficulties in obtaining planning consent. There are lessons to be learnt from some of the more difficult projects during recent years, which, including Cefn-coed, have been debated in your Lordships' House.

The noble Baroness, Lady Miller, took me back a long way by reminding me of what she called an "assumptive sales pitch". When I was a trainee sales service representative for Hoover Ltd, we used to call it "dual positive suggestion". One did not ask whether the lady wanted to buy; one asked whether she wanted to pay using cash or hire purchase. That is a trick which Ministers would do well to learn, if they have not done so already.

12.15 p.m.

Lord Skelmersdale

My Lords, I am sorry to interrupt the Minister in full flow, but surely Ministers, by definition because of the electorate, are not so much assumptive but certainly temporary.

Lord McIntosh of Haringey

My Lords, they should not make jokes—or attempt to make jokes.

I can confirm that the figures given by the noble Baroness, Lady Miller, relating to costs are correct. They are the same as those which I was given. She asked me in particular about comparisons with Europe and other parts of the world. The Kyoto obligations are world-wide and the renewable obligations within that are also world-wide. They will be different for different countries and it does not mean much in Norway, for example, where hydroelectric power can exceed the renewable obligation without difficulty. However, without going into detail, we are aware and supportive of many attempts in different parts of the world to encourage energy from renewable sources.

The noble Baroness also asked me about further funding for particularly difficult technologies. We believe that the £260 million to which I referred is enough to bring forward the earlier development of key renewable technologies. It would be premature to speculate on the need for future funding when we have not spent the money that has already been allocated or evaluated in order to ascertain whether it produces value for money. But we will be doing so. If the noble Baroness asked me whether I would rule out further money, my answer would be that I certainly would not if it produced value.

The noble Baroness asked about the details of Ofgem operations. As she suggested, I would like to write to her about that. I would also like to write to her about the points she raised on the trading arrangements in particular cases where there are defaulting suppliers and on whether the buy-out price is high enough to deal with the problems which may arise.

The noble Lords, Lord Ezra and Lord Woolmer, criticised us for a narrow definition of "renewables". The definition must relate to the common use of the English language. I agree that it is paradoxical as regards coal-mine methane which, although it is not renewable, has a considerable future life. However, combined heat and power is not of itself renewable. It is energy-saving and that is an important part of meeting our Kyoto obligations, but it cannot be called "renewable" unless in turn it comes from renewable sources. We have international obligations.

Lord Ezra

My Lords, I find the obsession with renewables as the only way in which we can reduce carbon emissions to be diverting us from our main task. Had we defined what has come to be the renewables obligation more widely under the Utilities Act, we could have put more effort into reducing carbon emissions, which after all is our main objective.

Lord McIntosh of Haringey

My Lords, I do not deny that, but this is a renewables order. I am not saying that there are no other ways of greater energy efficiency and no other contributions which can be made to meeting the Kyoto targets. It is merely that this programme is based on international definitions and common-sense language definitions.

Nothing that I say should be taken in any way to indicate that we are antagonistic towards or unsupportive of other technologies. The noble Lord, Lord Ezra, made a particular point about NETA and the balancing mechanism. We took account of NETA while designing the renewables obligation and we have protected the existing NFFO projects, with their fixed-term price contracts. The noble Lord will remember, as I do, the debates we held on this subject while considering the Utilities Bill. In fact, NETA is working well and delivering lower wholesale prices in England and Wales. The cost of balancing the system has gone down dramatically. However, lower energy costs sometimes means the greater use of energy and thus conflicts with Kyoto targets. That is in the nature of economics and it is difficult to overcome the problem.

My noble friend Lord Woolmer asked me about imported renewable energy sources. I shall go as far as I can in my response by saying that the order does not extend the obligation to imported renewable energy. There are benefits in extending the obligation in due course, but we have to pursue these issues with other member states in bilateral agreements. However, the first obligation is to ensure that investors have the confidence to invest in renewable projects—including biomass, which my noble friend mentioned—in the United Kingdom.

hope that in the time available I have dealt with as many as possible of the points that have been raised.

On Question, Motion agreed to.