HL Deb 29 March 2004 vol 659 cc1025-46

3.10 p.m.

Lord Whitty

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Lord Whitty.)

On Question, Motion agreed to.

Clause 96 [Interpretation of Chapter 1 of Part 2]:

[Amendments Nos. 189 and 190 not moved.]

Clause 97 [Requirement to prepare decommissioning programmes]:

Baroness Byford moved Amendment No. 190A: Page 79, line 28, at end insert— ( ) Where a consent is given under section 36 of the 1989 Act for the construction of a renewable energy installation in—

  1. (a) tidal waters and parts of the sea in or adjacent to Great Britain up to the seaward limits of the territorial sea; and
  2. (b) waters in a Renewable Energy Zone,
the Secretary of State shall, before that consent is implemented, publish a program for the decommissioning of that installation.

The noble Baroness said: My Lords, engineers, I am sure, are very capable and competent people. Considering the breadth and depth of their influence and the range of artefacts, buildings and huge constructions they have designed, it is amazing that there have been so few disasters. Unfortunately, when those disasters have occurred, they have tended to be memorable. One is aware of the Tay Bridge, the "Titanic" and the R101: all examples of cleverly engineered developments that worked perfectly well, until they came up against something unusual, not to say abnormal.

Sea-based wind turbines are comparatively new. They stand up to their turbine tips in some of the most hostile water in Europe, and they have not yet been fully tested. Bearing in mind the predictions of rising seawater levels, stronger winds, and even more frequent storms, that testing may not be long delayed. Can the Minister say if there is to be a test to determine whether the pattern of installation affects how each turbine reacts to stress? What will happen if something large and solid strikes a turbine, particularly in a storm? Will the unexpected result in environmental damage, which will need to be swiftly removed or reversed?

There is then the situation to be faced at the end of the turbine's life. This may occur at the expected time; it may occur sooner than that; it may be precipitated by new developments which render the wind turbines uneconomic. Whenever it occurs—by accident, by design, by competitive advantage—the ending of a turbine's life should be accompanied by a swift, uncluttered and complete removal of its constituent parts. These should then be recycled in whatever way is possible. None of them should be left in the sea or on the sea-bed.

We are told that the DTI is proud of the decommissioning programme which works for other sea-bound structures. This may well be so, but it apparently has not been translated into law and, if a company were to move to the other side of the world or to go into liquidation, it might be difficult to pursue the matter. In Committee the Government stressed Article 60 of the UN Convention on the Law of the Sea. This article demands the removal of defunct structures to protect navigation, and further demands that the removal process honours the rights of other states and takes care of the marine environment.

This will not content us, particularly as it may be that some of these structures will be put in areas where navigation is inadvisable, if not downright impossible. We believe that, before anyone constructs a wind turbine or a group of wind turbines—and we heard in Report last week that there may be up to 200 in one particular area—the Secretary of State should have a copy of the decommissioning plan. It may be that such a provision is already written into the Bill and that I have not seen it. If so, I apologise to the Minister. However, we believe that it should be as much a part of the construction process as the End of Life Vehicles Directive aims to be for car manufacture.

Any installations or structures which are abandoned or disused should be removed to ensure the safety of navigation, taking into account any generally accepted international standards established in this regard by the competent international organisation. I understand that it is the view of the DTI that there is already a decommissioning programme for such installations, which it says is working well. As I have suggested, however, this is not set down in statute. We believe that putting it on the face of the Bill would ensure consistent application of these duties in the future. I beg to move.

Baroness Miller of Chilthorne Domer

My Lords, we moved this amendment in Committee. While supporting the spirit of what the noble Baroness, Lady Byford, says, in this rare instance we were satisfied with the Government's answer on the particular issue.

Lord Whitty

My Lords, I thank the noble Baroness, Lady Miller, for that. The first part of what the noble Baroness, Lady Byford, said related to the construction standards and the built-in standards as against any outside shock, which would be part of the original consent.

As far as decommissioning is concerned, in serving a notice on a person to submit a decommissioning programme—which is covered by Clause 97(7)—the Secretary of State will have the power to direct a developer to consult interested parties. That involves everybody: shipping interests, conservation interests, the Environment Agency, and so forth.

The Secretary of State will also have the discretion under those powers to require a developer to make such proposals public—on a website, for example—as part of a formal consultation process. On receipt of a draft decommissioning programme, the Secretary of State will need to have regard to the general requirements for decommissioning which will be set out in those regulations, but should also have the discretion to consult further, if she so decides. Once the programme has been approved, it would be the intention that developers would provide that information on their website for public inspection. There does not appear to be a problem in relation to this, as it is already common practice for the decommissioning of oil and gas installations.

The Bill therefore already provides the powers for the Secretary of State to do what lies behind this amendment. As regards specifying more of the details—for example, if the noble Baroness suggests that the entire structure should always be taken away—it would depend on environmental factors and the science at that time. Clearly there is a decommissioning requirement at the beginning, which will be subject to consultation and, if necessary, the Secretary of State already has powers to extend that consultation to the decommissioning programme as such. I hope that the noble Baroness will, therefore, not feel it necessary to press this amendment.

Lord Jenkin of Roding

My Lords, I have listened carefully to what the noble Lord has said, but what happens if a developer, by the time you reach that point, is no longer solvent? What powers do the Government have to ensure that the provisions which the noble Lord has been describing will be written into the licence?

Lord Whitty

My Lords, they will have the powers to ensure that there is some security in place in relation to that; for example, if the company moved abroad. In the case of bankruptcy there may be a more complicated situation, particularly as we are talking of what would be a considerable time-scale. However, some security is provided.

We will not be able to deal with all such risks, but neither can we do that in relation to oil and gas installations. By and large, we have found that the present regulations and the security provided in relation to those do work, have covered the cost of decommissioning and, where necessary, destruction.

Lord Peyton of Yeovil

My Lords, to what degree does the noble Lord find his own answer satisfactory, in terms of satisfying the point raised by my noble friends?

Lord Whitty

My Lords, it is as satisfying as it can be in the circumstances. We are talking about a long time-scale. Where a decommissioning programme is approved, its technology of decommissioning will of course change over the period of time; but the costs of decommissioning are, as far as is possible, built into the security provided at that time and into the contract and consent that are set up at that time. In a normal situation, I would have considered that to be pretty substantial security.

Baroness Byford

My Lords, I am not at all happy about that response. I am very grateful to my noble friends Lord Jenkin of Roding and Lord Peyton of Yeovil, because I find the Minister's answer somewhat disappointing. He said that in the Bill there is the power to consult everybody, and that they can use their discretion and have regard to such issues. There is, however, no laid-down imperative that these things should be concluded. I am very grateful to my noble friend Lord Jenkin of Roding for asking the question that I tried to pose: what happens if somebody is insolvent?

I urge the Government to give this more thought. Before Third Reading, perhaps the Minister could write to me and place a copy of his letter in the Library, outlining the type of security that people will have to provide before receiving permission to develop these wind farms. That would be helpful. I am not at all happy with the response, and I shall return to the matter at Third Reading, but, at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Whitty moved Amendment No. 190B: Before Clause 107, insert the following new clause—

"DISCHARGE OF RENEWABLES OBLIGATION IN GREAT BRITAIN BY PAYMENT

  1. (1) In section 32(3) of the 1989 Act (renewables obligation), for the words from "must" to "produce" substitute "must, by each specified day, have produced".
  2. (2) In section 32C of that Act (payment as an alternative to complying with a renewables obligation), in subsection (1) for the words from "that" onwards substitute—
    1. "(a) that an electricity supplier may (in whole or in part) discharge its renewables obligation by making a payment to the Authority before the day specified as the day by which evidence must be produced for the purposes of section 32(3); and
    2. (b) that an electricity supplier's renewables obligation that was not discharged in whole or in part before the day so specified is to be treated as having been discharged to the extent specified in the order where the payment for which the order provides is made to the Authority before the end of such period beginning with that day as may be specified in the order."
  3. (3) In subsection (2) of that section (supplementary provisions of order providing for payments)—
    1. (a) after paragraph (a) insert—
      • "(aa) for the sums that must be paid in order for an obligation to be treated as having been discharged to increase at a rate specified in the order for each day after the time by which evidence had to be produced for the purposes of section 32(3);"
    2. (b) in paragraph (b), for "such sums" substitute "sums or rates falling within paragraph (a) or (aa)";
    3. (c) in paragraph (c), after "sums" insert "or rates"; and
    4. (d) in paragraph (d), after "sum" insert "or rate".
  4. (4) After subsection (3) of that section insert—
    1. (a) beginning with the day specified for the production of evidence for the purposes of section 32(3), and
    2. (b) of such duration, or ending with such day, as may be specified in the order,
  5. (5) After subsection (5) of that section insert—

The noble Lord said: My Lords, Amendment No. 190B seeks to take steps towards meeting the aim of reducing the likelihood of the impact of a future shortfall in the renewables obligation. In Grand Committee the Government agreed to consider a number of amendments that sought to deal with this problem. As I said at the time, I am grateful to noble Lords for the work they have done in preparing those amendments. I hope they will recognise that some of the concerns are addressed by this government amendment. We are under no illusion, however, that this would entirely remove the risk. With a market mechanism such as the renewables obligation, there is inevitably an element of risk as companies can and do fail. We need to achieve the right balance between reducing risk of a shortfall without placing undue additional burdens on consumers.

Our amendment is very different from those which we discussed in Grand Committee, and it is somewhat complex. The amendment to Section 32(3) of the Electricity Act provides the power to reduce the length of the obligation period under the renewables obligation. As noble Lords will be aware, obligations are currently of a year's duration. Reducing the length of the obligation period reduces the size of the buy-out fund and, consequently, the effect of any shortfall.

There are a number of complex issues to be addressed when considering shorter obligation periods. These include the length of the periods; the length of time after the end of the period before suppliers had to meet their obligations; and how suppliers' obligations could be assessed for shorter periods. These are detailed issues and there will be a statutory consultation exercise before amendment to the order can be made. We intend to do that this year. The amendment would therefore provide the necessary powers to introduce shorter obligation periods, but we would be informed by the outcome of that consultation.

Before turning to the major thrust of the amendment, perhaps I should say a few words about netting off shortfalls in the buy-out fund against entitlements for recycled payments from that fund. The amendment does not address the issue of netting off in any direct sense. We have agreed to look at that, but we have been advised that we already have the necessary powers under existing legislation to enable us to make this change. I can assure your Lordships that we will be consulting later this year on amendments to the renewables obligation order to allow for netting off. However, we do not need a legislative change to do that, if indeed that is what emerges from the consultation. Indeed, it clearly will be a significant part of that consultation.

Where our suppliers aim to meet their share of the obligations for a combination of ROCs and payment to the buy-out fund, and where their payments fall short for any reason—or where they aim to meet their obligation entirely through ROCs but for any reason should not have available sufficient ROCs—the first remedy will be netting off the shortfall against their entitlement for recycled payments. That is a sensible housekeeping measure that allows a more flexible approach to small shortfalls in provision.

On late payments, the amendments to Section 32C of the Electricity Act would introduce a regime whereby suppliers who did not meet their share of the obligation in full would still be in breach of the obligation, but the breach could be remediable by making a late payment on which surcharges would be added. That builds on the order which was approved last week and which, among other things, enables Ofgem specifically to accept and disburse late payments into the new late payments fund.

The amendment allows for the surcharges to increase for every day in which the payment is late. As noble Lords will recall, in Grand Committee I expressed some concern about the possibility of suppliers suffering double jeopardy. The amendment addresses this by specifying that the renewables obligation order may provide that no penalty under Section 27A of the Act can be imposed while the late payments regime applies. That should minimise the double jeopardy problem.

The main aim of the amendment is to provide an incentive for suppliers to make any required payments into the buy-out fund on time. As noble Lords said in Grand Committee, it should be more expensive for electricity suppliers to make late payments to the buyout fund than it should be for them to borrow from their banks.

The amendment's second aim is to compensate suppliers who have provided ROCs and therefore demonstrated their commitment to increasing the contribution of renewables. It is these suppliers who suffer when there are shortfalls. It is therefore only right that these suppliers should receive compensation in the form of recycled surcharge payments from those who have paid their obligations late.

As with all measures to address the issue of supply and shortfall there will be problems in specific cases. Applying surcharges to late payments will be effective only where the defaulting company has sufficient assets to pay both its obligation commitment and the surcharges which will be imposed.

The amendment also provides for a period when late payments can be expected to come to an end. The reason for an end date is that, having specified that no enforcement action under Section 27A can be taken while the late regime is in operation, it is also important that there is a date when the late payment regime ends and the existing enforcement regime is resumed which would allow Ofgem to impose penalties for breaches of the obligation in the normal way.

As with other issues concerning the securing of the buy-out fund, there are undoubtedly a number of detailed issues that will have to be resolved by secondary legislation. That includes, for example, the level of the surcharge and the duration of the period when surcharges are payable. Those issues will be addressed in the consultation, with the aim of these obligations coming into force on 1 April 2005.

I am aware that the amendment does not address the issue of transferring liabilities with the obligation—or of keeping the obligation with the customers, to put it more simply. We agreed in Grand Committee to consider an amendment put forward by the noble Baroness, Lady Miller. We have done so. However, on further consideration, it has become clear that to take forward such an amendment would breach one of the fundamental principles of insolvency law; namely, that, generally speaking, if a company is insolvent, no unsecured creditor should be preferred at the expense of others. The amendment that the noble Baroness brought forward in Grand Committee would indeed have had the effect of taking a power to require the transfer of the failed supplier's renewable obligation commitment to the supplier who had taken on the customers.

Not only does that conflict with the general approach to insolvency, if the power were exercised; it would also mean the buy-out fund would be paid in full and therefore other creditors would have lost out. The assets of the failed company would be worth less, as the assets would now come with the ROCs commitment, and the purchasers would therefore pay commensurately less for them. Hence there would be both a direct and an indirect effect on other unsecured creditors. So while the amendment may have appeared attractive at the time, it does conflict with these other principles of insolvency. We have concluded that it cannot be right for the buy-out fund to be treated more favourably than other unsecured creditors—for example, small businesses, those who supply to the company concerned, and so on.

We have attempted to see if the same objective can be achieved by other means, but we have concluded that, again, it would have the effect of placing the fund in a preferential position compared with other creditors. We do not think that we could do that without disadvantaging those other creditors and breaching the principles of insolvency.

Although I recognise that, particularly on the last point, this does not satisfactorily address all the concerns, I do not think there is a way of so doing without running into these other problems of organisations that may be in a contractual relationship or a non-contractual relationship with the supplier. However, I think the main point of the amendment addresses some of the problems arising from the possibility of shortfall on the renewables obligation. I beg to move.

3.30 p.m.

Baroness Miller of Hendon

My Lords, I am grateful to the Minister for the points that he made in moving his amendment. He is right to say that he was aware that it would not go far enough to satisfy us, but we are always grateful for small mercies. With regard to the other matters that he brought up, we will leave those until the debate on Amendment No. 209ZA, which would be appropriate.

Lord Jenkin of Roding

My Lords, I am giving way to my noble friend who is leaving the Chamber. It has been clear from the start that the insolvency of a significant contributor to the buy-out fund will lead to a shortfall in the fund and therefore a reduction in the sum that will be available to those who wish to cash in their renewables obligation certificates. Although the measures that the noble Lord, Lord Whitty, has described to the House are aimed at trying to mitigate the implications of that, the fact remains that there will be, from time to time, as a result of an insolvency such as we faced with the company TXU, a reduction in the amount available to those entitled to benefit from payouts of the fund.

In these circumstances the answer has to be that that has to be spread among consumers generally. It is far from clear that that will be the effect of what is happening. The effect will be to the disadvantage of those who invest in renewables and buy power from renewable generators—they will get less than they would otherwise have done. So the burden of an insolvency of, for instance, an ordinary generator from coal or gas will impact not on consumers as a whole but on those who invest in renewables.

The Government have now faced one case, TXU, which had an immediate impact on the tradable value of the certificates, reducing them quite significantly and thereby disadvantaging the purpose of the renewables regime. Can the Minister give a figure for how much that deprived the renewable generators of what they would otherwise have received if TXU and the other small company had made the required payments? I am not sure that the Government have this right yet, because it impinges directly on their renewables objectives.

Lord Whitty

My Lords, the noble Lord rightly refers to the TXU situation. The full effect of that on the shortfall of the fund, which would in one sense therefore be spread across the other suppliers in the first instance, was £23.1 million and another £500,000 for the other maverick—the other small supplier. In that instance it applies to almost 20 per cent of the total fund. Clearly, in any such situation the initial effect of that will be to hit the other suppliers and adjustments will subsequently be made to their prices. It may well mean that the consumers make a contribution to it, but the noble Lord is undoubtedly right that that is inevitably the effect of the system and that the other suppliers will bear the initial brunt of such a bankruptcy and shortfall. We have to balance the requirement to secure the fund with the interests of the suppliers and their delivery of the renewables obligation and the interests of consumers.

However, these amendments will make the situation of a shortfall less likely to arise or to arise at an earlier stage when the actual substantive effect would be less. But I am not pretending that it would not be there at all and that it would not have some of the consequences to which the noble Lord referred.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 190C: Before Clause 107, insert the following new clause—

"ISSUE OF GREEN CERTIFICATES IN GREAT BRITAIN

  1. (1) Section 32B of the 1989 Act (green certificates) is amended as follows.
  2. (2) In subsection (1), for "or to an electricity supplier" substitute ", to an electricity supplier or to a Northern Ireland supplier".
  3. (3) After that subsection insert—
  4. (4) In subsection (2)—
    1. (a) for "A certificate is to certify" substitute "The matters within this subsection are";
    2. (b) in paragraph (a), after "an electricity supplier" insert "or to a Northern Ireland supplier".
  5. (5) After that subsection insert—
    1. (a) that the generating station or, in the case of a certificate issued to an electricity supplier or to a Northern Ireland supplier, a generating station specified in the certificate, has generated from renewable sources the amount of electricity stated in the certificate;
    2. (b) that the generating station in question is not a generating station mentioned in Article 54(1) of the Energy (Northern Ireland) Order 2003; and
    3. (c) that the electricity has been supplied to customers in Northern Ireland.

The noble Lord said: My Lords, during the passage of the renewables obligation order through Parliament in 2002, the Government gave a commitment to consider the mutual recognition of renewables obligation certificates in Great Britain and Northern Ireland. There are now firm plans to implement a Northern Ireland renewables obligation on 1 April 2005. We have been working closely with Northern Ireland to set up the arrangements for the full tradability of certificates issued in Northern Ireland with those issued in Great Britain. That is important, as the relatively small size of the Northern Ireland electricity industry could not sustain a stand-alone market for ROCs.

I now turn to the detail of the clauses on this issue. Existing clauses allow the supplier to count Northern Ireland renewables obligation certificates, NIROCs—another set of letters in this alphabet soup, pronounced "nirox"—towards its Great Britain obligation. They would permit Northern Ireland electricity suppliers who have discharged their obligation in Great Britain to be eligible for recycled buyout funds, and would allow GEMA to act on behalf of the Northern Ireland authority for electricity regulation in administering the Northern Ireland obligation.

However, it has become apparent that these clauses are insufficient to deliver our policy intent of mutual recognition in full and the creation of a UK-wide market in ROCs, whether issued in Great Britain or Northern Ireland. Therefore we have tabled amendments designed to allow the completion of this policy intent.

The amendments allow GEMA to issue ROCs to suppliers in Northern Ireland for some renewables electricity supplied in Northern Ireland and for those suppliers to discharge their obligation by presentation of these ROCs. It includes the issue of ROCs relating to the generation of GB electricity supplied in Northern Ireland.

Amendment No. 191 A is a minor drafting change and does not change the substance of Clause 107. Amendment No. 191B deletes subsection (2) of Clause 107. It is no longer required in the light of the other amendments. Amendment No. 191C allows the DETI's powers to amend Part 7 of the energy order to be extended to take account of the addition of Section 32BA. Amendment No. 191D amends Clause 108 to replace a reference to persons who are electricity suppliers within the meaning of Part 7 of the energy order with the defined term "Northern Ireland suppliers".

We are keen to allow the full tradability of Great Britain ROCs and NIROCs from the outset of the introduction of the Northern Ireland obligation. These clauses will play an important part in that process and I commend them to the House. I beg to move.

On Question, amendment agreed to.

Baroness Miller of Hendon moved Amendment No. 191: Before Clause 107, insert the following new clause—

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

The noble Baroness said: My Lords, in Grand Committee I introduced an amendment, together with my noble friends Lady Byford and Lord Jenkin of Roding, which was supported by the noble Lord, Lord Ezra. The amendment was intended to exempt combined heat and power from the renewables obligation. A further amendment tabled by noble friend Lady Byford, the noble Lord, Lord Ezra, and me required the Secretary of State to draw up a strategy for the encouragement of the development of CHP, and another amendment tabled by the noble Baroness, Lady Miller of Chilthorne Domer, further added to our proposal.

Although these amendments—and especially the one requiring the Government to produce a timetable—were probing amendments, the response from the Government was disappointing to say the least. I will deal with that response in a few moments. However, in conjunction with my noble friend Lady Byford, the noble Lord, Lord Ezra, and the noble Baroness, Lady Miller of Chilthorne Domer, and—I stress this point—in consultation with the Combined Heat and Power Association, the present amendment has been tabled. It considerably modifies our original proposal and goes a substantial way towards meeting the Government's objections. We did not accept those objections as valid, but nevertheless this amendment goes some way to meeting them.

I stress at once that the amendment does not classify CHP as renewable energy. However, CHP is a highly efficient means of reducing the United Kingdom's carbon emissions, strengthening our security of supply and improving the competitiveness of important sections of the British economy. CHP plants have much higher efficiencies—around 70 to 80 per cent—than conventional power stations, which operate at efficiencies of a little more than 40 per cent. It is CHP's efficiency gains that significantly lower the United Kingdom's carbon emissions, as I shall mention again later.

The industry created a target to secure the much wider use of CHP when Michael Howard led the United Kingdom negotiations at the 1992 Earth Summit. The industry increased the target to achieve 5 gigawatts of CHP by 2000. When in opposition, the present Government committed themselves to double that target to 10 gigawatts by 2010. Last year's White Paper confirmed that target. The Government are woefully off course on achieving the targets set by the former government, let alone the more ambitious target that they set for themselves for CHP. Cambridge Econometrics recently reported to the Government that only between 7 and 8 gigawatts of capacity would be in place by 2010. That is 20 per cent less than what the Government say we shall need.

The noble Lord, Lord Whitty, is the chief Minister responsible for CHP, and is fully aware of three indisputable facts. First, the new electricity trading arrangements—NETA—caused some CHP plant output to drop by 60 per cent almost overnight. Secondly, CHP capacity actually fell last year, for the first time since 1991. Thirdly, many existing CHP plants ran at only 50 per cent of their capacity.

CHP is the primary carbon-reducing technology that supports British industry. It reduces energy costs and has a lower environmental impact. It thus makes our industry more competitive, and large-process plants such as refineries and chemical plants require more heat than power. That means that a CHP project could sell its excess power and, apart from the financial benefits, would add to the solution of our problem with security of supply. However, the Government's only support so far for CHP has been to exempt large industrial CHP plant from the climate change levy, but that took four years—from the Chancellor's announcement in 2000 until this January—to come fully into operation. That exemption's continued existence is not guaranteed beyond 2010, so there is no incentive for a new CHP project to be started today. It would take four years to come on stream, so it is possible to project only a minimal commercial value.

A consequence of the Utilities Act—I hope that it was one of the unintended consequences—was to burden CHP plant with the cost of helping to meet the Government's overall renewable energy target. The Government's target for CHP of 10 gigawatts of electricity will cost the industry more than £60 million per annum by 2010. The extension of the renewables obligation to 2015 will further increase that burden. As I have said, what the Government have done, in effect by imposing a tax on CHP, is to make it cross-subsidise other low-carbon technology.

In Committee on the Sustainable Energy Act 2003 in the other place, the Energy Minister said that the Government would, consider proposals for an appropriate means of promoting CHP in line with our commitments in the energy White Paper".—[Official Report, Commons Standing Committee C, 24/6/03; col. 69.]

We all know that the Government laboured long and hard in creating their White Paper, but they produced a veritable mouse that contains much more aspiration than inspiration. That is why, even as recently as Grand Committee, the noble Lord, Lord Whitty, said: I readily accept that CHP can make a significant contribution towards energy management and reducing carbons".

He said that, at present, the Government were not on target to meet their objectives for CHP, and that, one could argue that CHP requires additional support to meet even the 2010 target".—[Official Report, 10/2/04; col. GC 528.]

From the words of the well respected Minister, one could argue that CHP needs additional support. We on these Benches agree totally with him.

What are the Government doing, however? They are refusing to treat CHP as carbon-efficient, and are taxing it as though it were as bad as the worst fossil-fuel power source operating. As I have pointed out, that has had disastrous effects on the whole industry and the potential of developing and exporting the new technology. It is also costing jobs, in an area where we should be thriving.

We have had a White Paper and extensive consultation on the whole subject of energy. We have passed the Sustainable Energy Act, of which CHP could have been an element. We have this massive Bill before Parliament, but what did the Minister tell us in Committee? He said that, we shall need to introduce a further CHP strategy very shortly".

In the Government's annual report of 2003, they promised a CHP strategy to be published by the end of the financial year. The end of the financial year is 5 April, less than two weeks away. I am certain therefore that the Government have now made up their mind. I hope that the Minister would not disclose some vital state secret if he were to give us today a hint of what the decision might be. Why are even this Government vacillating over such an exceptionally important plank of their own energy policy? The answer may be found by reading between the lines of the fine print—I hope that noble Lords will forgive the mixed metaphor—of the Minister's speech in Grand Committee, when he said: We need to ensure that the renewables target is met and not undermined by anything we do for CHP, which should not be considered in isolation".—[Official Report, 10/2/04; col. GC 528.]

There we have it—a typical piece of creative bookkeeping.

I said at the beginning of my remarks that it is CHP's efficiency gains that significantly lower United Kingdom emissions. By treating CHP in the same way as the dirtiest coal-fired station, and then by lumping the two together in the same equation, the efficiency of one immediately reduces the liability of the other. What were the Minister's other arguments against—I use the word advisedly—the promotion of CHP, despite the lip service that he paid to it? He argued that including CHP in the renewables obligation was contrary to government policy, that measures to support CHP would weaken the commitment to renewables, and that CHP was largely based on fossil fuels and so merited less support anyway.

It will not surprise noble Lords that the CHP industry did not take that attack on it lying down. It commissioned the leading energy consultancy, ILEX, whose credentials are that it was recently commissioned by the DTI itself on work concerning the renewables obligation. It found that: there will be a greater reduction in UK carbon emissions by excluding CHP from the base cost of the renewables obligation; the cost to the Government is negligible, and the proposal is easy to administer; the cost of reducing carbon in such a way is relatively cheap; the proposal will result in significant increases in output from existing CHP plant and in new development; and, contrary to what the Minister implied, there would be no adverse impact on renewable investment or ROC prices.

Those findings have been duly presented to the DTI and Defra, the two departments that have the conduct of the Bill. Now that they have had the opportunity to consider them prior to today's sitting, I hope that they will agree that removing the cost burden from CHP is a relatively simple matter. No additional agencies or instruments would need to be created, because an effective audit trail for CHP already exists. There will be no additional cost to taxpayers, consumers or the Government.

To be fair, as I hope that I always am, I have to inform your Lordships that this modest amendment does not enjoy unequivocal support from all parts of the generating industry. In an early brief, I was originally given to understand that the major companies driving forward the development of the United Kingdom renewables market, in collaboration with the Government, supported the amendment. However, in a brief that I and other noble Lords, as well as the Government—presumably—received after the amendment was tabled, I learned that although the Renewable Power Association agrees that CHP needs help—and that concession should be noted—it argues, nevertheless, that the amendment would damage the prospects of renewables.

I shall not take up your Lordships' time by repeating the RPA's arguments in detail because your Lordships probably received them directly. However, it is my duty to respond as briefly as I can to its points. Its main argument is that the renewables obligation would instantly be reduced by the amount of electricity generated by CHP. In other words, it is argued—as I previously wrote before I received the RPA brief—that the other generators would have to work much harder to reach their targets. However, it is open to the Government to reduce any disadvantage that other renewables might incur by a few strokes of their pen, either by increasing the RO percentage or by increasing the base to which the percentage would be applied. Similarly, the Government could cap the amount of good quality CHP exports eligible to receive the exemption, although—it is to be hoped—that would still be at a realistic level that would maintain the economics of CHP.

I believe that all parties in both Houses of Parliament, whatever their differences may be on the detail, are united in support of the Bill's general objectives. That includes support on these Benches for the means to reduce the United Kingdom's dependence on a high percentage of foreign fuel. It is not right that one trade association should be attacking another, when their common objective should be to protect Britain from the consequences of looming power shortages. I stress that noble Lords on these Benches do not support CHP at the expense of renewables. We unequivocally support both in all their forms, as long as they are viable, and I sincerely trust that the Government do, too. I beg to move.

3.45 p.m.

Lord Ezra

My Lords, I support the amendment, which was moved so ably by the noble Baroness, Lady Miller of Hendon. This issue emerged in Grand Committee, much was said about it and the noble Baroness has fully answered the critique that has been made that it could be costly to the renewables sector.

In fact, as the ILEX report showed in great detail, that would not be the case if the proposals in the amendment were adopted. What is worrying is that although the Government and, indeed, everyone else fully accept the contribution that combined heat and power could make to the reduction in carbon emissions, so far those objectives have not been achieved. They are not yet at the target level that was set for the year 2000 and the prospect, on the basis of present policies, of achieving the 2010 target of 10 gigawatts remain remote.

CHP capacity for the past three years has remained unchanged while generation from that capacity has fallen. So urgent action is required if the Government are to do what they set out in the energy White Paper regarding CHP. We realise that the Government will publish a further report on CHP before long, but we do not know when that will be and we do not know what positive steps will be proposed.

We propose one measure that will immediately offer some alleviation and change the current feeling within the CHP sector. We strongly recommend that the Government adopt our amendment. I was involved in the lengthy debate on the Utilities Bill and it was certainly not our opinion that, arising out of that Bill, CHP would be discriminated against in the way proposed by the Government and treated on the same level—as the noble Baroness argued—as other sectors that emit far more CO2. There is not the slightest doubt on these Benches that this is a desirable amendment which goes some way to start a move towards more CHP operations by, at least, making fuller use of existing capacity and introducing additional capacity that would be required if the Government's objectives are to be achieved.

Lord Jenkin of Roding

My Lords, I, too, support the amendment. I do so following the noble Lord, Lord Ezra, who for some years was one of the few voices in this Chamber who consistently argued for the expansion of combined heat and power. My noble friend Lady Miller of Hendon has made a compelling case, to which I hope the Minister will listen.

I shall make one central point. When the White Paper was published last year it was widely interpreted as having set out a new approach to a low carbon energy policy. Indeed, in paragraph 1.18 of that White Paper, under the heading: The goals of our new energy policy", the first goal, printed in bold, was, to put ourselves on a path to cut the UK's carbon dioxide emissions—the main contributor to global warming—by some 60 per cent by about 2050". When the Royal Commission published that figure there was much scepticism, but that target has become a central plank of the Government's aspirations—I use that word because we recognise that they cannot be more than that at this stage. There it is—the first goal is to reduce CO2 emissions.

The next page contains the proposals for how that will be achieved. Under the heading, How we will achieve our goals"— that is, the goal of reducing carbon emissions—paragraph 1.29 states: We believe it is possible to achieve this goal by reducing the amount of energy we consume, together with"— these are the key words— a substantial increase in renewable energy". So, there is the goal—the end, as it were—of reducing carbon dioxide, and the means: the increase in renewables.

As my noble friend Lady Miller said, sight has been lost of the ends and the means have now become the primary target. They have become the goal. CHP is a technology that can achieve a marked increase in energy efficiency, by either reducing emissions for the same amount of output or increasing output with no increase in emissions; but receives no support. I shall weary the House by quoting, yet again, the words of the noble Lord, Lord Whitty, in Grand Committee: We need to ensure that the renewables target is met and not undermined by anything that we do to CHP".—[Official Report, 10/2/04; col. GC 528.] That position stands the policy on its head. The means have become the ends—and there are other such examples that will be considered later—where a perfectly satisfactory and proven way of reducing carbon dioxide and the CO2 equivalent is being denied the help that it deserves in order to save the Government's face as they head towards their targets for wind power.

What has happened? The CHPA made an interesting statement that capacity in CHP fell last year for the first time since 1991. That sits alongside an announcement from Defra, the noble Lord's own department, last week on 25 March, which said: Statistics published today by Defra show that carbon dioxide emissions increased by 1.5 per cent during 2003". What could be madder than that? My noble friend called it "creative book keeping", but, with great respect to her, it is much worse than that: it is standing the policy on its head, confusing the ends with the means and ensuring that the Government will not achieve their first goal, which I quoted from the White Paper; namely, the reduction of CO2.

It is nonsense to refuse to support CHP in order not to blunt the incentive for windmills, but that is what the Government are doing and why I support my noble friend's amendment. I hope that she will press it to a Division.

4 p.m.

Lord Peyton of Yeovil

My Lords, I too support my noble friend's amendment. I admire her persistence, eloquence and vigour and the way that she has sustained those qualities having gone through the anaesthetic experience of proceedings in Grand Committee in the Moses Room. I do not know how your Lordships can summon the patience to go through that dreary business when the Committee's teeth are removed and you are told at the beginning that you have no power to amend the Bill but that you must go through it and discuss it and take what pleasure, enjoyment or satisfaction you can from government explanations.

I have some sympathy with the noble Lord, Lord Whitty. I cannot understand why he instead of the Department of Trade and Industry has been saddled with this Bill. I thought that energy was subject to the DTI. I regarded the White Paper as a product of the DTI and I cannot for the life of me understand why the DTI is not here to answer for it. The explanation that occurs to me is the natural inborn coyness of the Secretary of State, who probably knows awfully little about electricity and does not care much about security of supply; perhaps she will be out of office when the penalties arrive.

The Government, particularly the DTI, have a sort of yearning. In case the Minister is under any misapprehension, I must tell him that my admiration, respect and regard for the DTI is extremely limited. It seems to suffer from the ambition of wishing to tell people what to do while at the same time taking little responsibility.

The Government and Ofgem have materially and substantially reorganised or been responsible for the reorganisation of the electricity market in our country. In the course of doing so they have reshaped it. The investment target of 10 gigawatts by 2010, which they accepted in their White Paper, has been rendered impossible to achieve. In the past two years, my understanding is that 2.7 million gigawatts have been put on hold, with the result that that target has become virtually unattainable, so the future security of supply has been jeopardised.

I do not understand how the Government have allowed such an important subject to be buried in the DTI, which is responsible for many other matters. As a result, they have put this vital matter into jeopardy. I hope that the Government will accept the powerful arguments of my noble friends Lady Miller and Lord Jenkin and the noble Lord, Lord Ezra, so that they show at least a gleam of sense in wishing to go in the direction which they stated in the White Paper.

Baroness Miller of Chilthorne Domer

My Lords, I am pleased to have my name to the amendment. Nothing is more important than cutting our carbon dioxide emissions. The Government's chief scientist says how important that is in counteracting climate change, which he views as the greatest threat.

We have heard that not only have the Government failed in their target but carbon emissions have increased by 1.5 per cent. In response, the Environment Minister Mr Elliot Morley said on Thursday that the Government would be reviewing UK climate change programme measures and policies to try to introduce new measures and policies so that climate change might be tackled more effectively. By writing this amendment into the Bill we will help the Government to do just that.

Lord Whitty

My Lords, I am grateful for some important speeches, not least from the noble Baroness, Lady Miller of Hendon, and the noble Lord, Lord Ezra, who has long been an advocate on the matter. I turn first to the intervention of the noble Lord, Lord Peyton, which was also enlightening but shows us that there is a misapprehension on the part of the Opposition Benches—he is not the only one to suggest it.

The energy White Paper, the Bill and our energy policies as a whole are a product of the whole Government. Nothing is buried, as he put it, in one department. We are all party to these policies and that is why we present them across government as a whole: the DTI, Defra, the Treasury and everyone else is engaged in their delivery.

CHP is an area that can clearly make major contributions towards a lower carbon economy. That is why the Government have set a target for it and supported it in a number of ways set out in the energy White Paper and since, fiscally in terms of support and the Government's commitment for their own estate and so forth.

The achievement of the Government's strategy on energy requires us to deliver on CHP and renewables. We cannot trade one against the other. The noble Lord, Lord Jenkin, argues that we should not maintain the renewables target at the expense of CHP and accuses us of doing the opposite. But both are necessary.

Lord Jenkin of Roding

My Lords, I do not know whether the noble Lord was asleep at that point, because I never said anything of the sort. I was quoting him as saying that he could not give help to CHP because he saw it as a threat to renewables.

Lord Whitty

My Lords, exactly. The logical conclusion is that the noble Lord would prefer us to adopt a policy in relation to CHP that undermined the target on renewables. I am saying to the House that we should do both. We have a target to meet our objectives for renewables and a target to meet our objectives in relation to CHP. I agree to a large extent with the noble Baroness, Lady Miller, that we need to redouble our efforts in support of CHP and that we need to ensure that we deliver the target of 10 gigawatts of CHP by 2010—not to the extent that she implied, but we are short of meeting that target at the moment. She is undoubtedly right that there has been some serious setback to the momentum on CHP, but the latest estimates suggest that even on current policies and current price matters we would be delivering about 8.5 gigawatts of CHP by 2010 and therefore the gap is achievable. Provided that we can focus support for CHP, we intend to deliver 10GW of CHP in line with our target.

CHP is not, as a result of the renewables obligation, discriminated against. Every form of power generation must meet the renewables obligation, whether it is coal, oil, gas nuclear or CHP. It is not discriminated against.

The noble Baroness has half an argument on the initial stages of the NETA proceedings, which probably disadvantaged CHP to some extent in terms of the supplier to the National Grid. However, that has been rectified by Ofgem so, that apparent discrimination has been removed.

The noble Baroness is wrong to say that the ILEX report says that it would have no effect on the ROCs' structure. In fact, it says that the effect on ROCs prices, and therefore the proper operation of the market in that area, will be about 5 per cent. We consider that it might be somewhat larger, but 5 per cent is a significant effect on the ROCs market. Indeed, it is almost the equivalent effect created by the TXU shortfall, to which the noble Lord, Lord Jenkin, rightly drew our attention on the previous amendment. If it has an effect of that magnitude, surely we should take it seriously. The fact of the matter is that CHP, although a hugely more efficient form of fossil fuel, is a fossil fuel. It is therefore odd to take it in a way that undermines the achievement of the renewables obligation.

In closing, the noble Baroness referred to the views of another trade association. The only way in which the amendment could stack up would be to increase the size of the renewables obligation to compensate for the effect which the removal of the CHP from that obligation would cause. That is not in the amendment before us. It is more logical, but it would impose an effect on the rest of consumers and industry. The noble Baroness also referred to the cost of achieving the renewables obligation more generally.

The noble Baroness, Lady Miller, the noble Lord, Lord Ezra, and others referred to the strategy on CHP. We will bring together into the CHP strategy all the measures in support of CHP through the fiscal process and any new measures. I can assure the noble Lord, Lord Ezra, that it will slip a little from 1 April, but will be in place immediately after Easter. Therefore, the degree of government support for CHP will be clear.

While I am deeply sympathetic with the need to support CHP, the amendment has serious problems which undermine the renewables obligation and thereby the achievement of the carbons target. We should not be favouring one means of achieving—and we are talking about means—by acting detrimentally towards another. We need CHP and renewables in order to meet what we have set out in the energy White Paper. This amendment would distort that achievement and does not of itself contain rectifying measures to offset that negative effect. I therefore consider that we should not go down this road.

Baroness Miller of Hendon

My Lords, I listened carefully to what the Minister said. He said that in part he agreed with me but he clearly did not agree with me enough. I therefore intend to test the opinion of the House.

4.13 p.m.

On Question, Whether the said amendment (No. 191) shall be agreed to?

Their Lordships divided: Contents, 138; Not-Contents, 118.

Division No. 1
CONTENTS
Addington, L. Kimball, L.
Allenby of Megiddo, V. Kingsland, L.
Ampthill, L. Laird, L.
Anelay of St Johns, B. Lester of Herne Hill, L.
Astor of Hever, L. Livsey of Talgarth, L.
Attlee, E. Lucas, L.
Avebury, L. Luke, L.
Baker of Dorking, L. Lyell, L.
Barker, B. McColl of Dulwich, L.
Bell, L. Maclennan of Rogart, L.
Biffen, L. McNally, L.
Blackwell, L. Maddock, B.
Blaker, L. Mar and Kellie, E.
Blatch, B. Marlesford, L.
Bradshaw, L. Masham of Ilton, B.
Bridgeman, V. Mayhew of Twysden, L.
Brightman, L. Miller of Chilthorne Domer, B.
Brooke of Sutton Mandeville, L. Miller of Hendon, B.
Brougham and Vaux, L. Molyneaux of Killead, L.
Byford, B. Monro of Langholm, L.
Campbell of Alloway, L. Mowbray and Stourton, L.
Carnegy of Lour, B. Murton of Lindisfarne, L.
Chalfont, L. Naseby, L.
Chalker of Wallasey, B. Noakes, B.
Chorley, L. Northover, B.
Cope of Berkeley, L. [Teller] Norton of Louth, L.
Craigavon, V. Oakeshott of Seagrove Bay, L.
Crickhowell, L. Palmer, L.
Deedes, L. Palumbo, L.
Dholakia, L. Pearson of Rannoch, L.
Dixon-Smith, L. Peyton of Yeovil, L.
Eccles of Moulton, B. Phillips of Sudbury, L.
Eden of Winton, L. Pilkington of Oxenford, L.
Elles, B. Prior, L.
Erroll, E. Razzall, L.
Ezra, L. Redesdale, L.
Falkland, V. Rennard, L.
Fearn, L. Renton, L.
Fookes, B. Rodgers of Quarry Bank, L.
Fowler, L. Roper, L.
Freeman, L. Rotherwick, L.
Geddes, L. Russell, E.
Gilmour of Craigmillar, L. Russell-Johnston, L.
Glenarthur, L. St John of Fawsley, L.
Glentoran, L. Saltoun of Abernethy, Ly.
Goodhart, L. Sandberg, L.
Gray of Contin, L. Scott of Needham Market, B.
Greenway, L. Seccombe, B. [Teller]
Hamwee, B. Sharples, B.
Hanham, B. Shaw of Northstead, L.
Harris of Richmond, B. Shutt of Greetland, L.
Hayhoe, L. Skelmersdale, L.
Higgins, L. Smith of Clifton, L.
Hodgson of Astley Abbotts, L. Stevens of Ludgate, L.
Home, E. Stoddart of Swindon, L.
Howe, E. Strathclyde, L.
Howe of Aberavon, L. Swinfen, L.
Howell of Guildford, L. Taverne, L.
Howie of Troon, L. Thatcher, B.
Hunt of Wirral, L. Thomas of Gresford, L.
Jenkin of Roding, L. Thomas of Walliswood, B.
Jopling, L. Thomson of Monifieth, L.
Tombs, L. Wallace of Saltaire, L.
Tope, L. Walmsley, B.
Trefgarne, L. Walpole, L.
Trumpington, B. Weatherill, L.
Waddington, L. Williams of Crosby, B.
Wade of Chorlton, L. Willoughby de Broke, L.
Wakeham, L. Windlesham, L.
NOT-CONTENTS
Acton, L. Jones, L.
Ahmed, L. Kilclooney, L.
Alli, L. King of West Bromwich, L.
Amos, B. (The Lord President of the Council.) Layard, L.
Lea of Crondall, L.
Andrews, B. Levy, L.
Archer of Sandwell, L. Lipsey, L.
Ashton of Upholland, B. Lockwood, B.
Barnett, L. Lofthouse of Pontefract, L.
Bassam of Brighton, L. Macdonald of Tradeston, L.
Bernstein of Craigweil, L. McIntosh of Hudnall, B.
Billingham, B. MacKenzie of Culkein, L.
Blackstone, B. Mackenzie of Framwellgate, L.
Boothroyd, B. Marsh, L.
Borrie, L. Mason of Barnsley, L.
Brooke of Alverthorpe, L. Massey of Darwen, B.
Brookman, L.
Burlison, L. Merlyn-Rees, L.
Campbell-Savours, L. Mitchell, L.
Carter, L. Morgan, L.
Christopher, L. Morris of Manchester, L.
Clark of Windermere, L. Nicol, B.
Clarke of Hampstead, L. Orme, L.
Clinton-Davis, L. Ouseley, L.
Cohen of Pimlico, B. Parekh, L.
Corbett of Castle Vale, L. Patel of Blackburn, L.
David, B. Pendry, L.
Davies of Coity, L. Pitkeathley, B.
Davies of Oldham, L. [Teller] Plant of Highfield, L.
Dean of Thornton-le-Fylde, B. Ponsonby of Shulbrede, L.
Desai, L. Prashar, B.
Dixon, L. Prys-Davies, L.
Elder, L. Radice, L.
Evans of Parkside, L. Ramsay of Cartvale, B.
Evans of Temple Guiting, L. Randall of St. Budeaux, L.
Falconer of Thoroton, L. (Lord Chancellor) Rendell of Babergh, B.
Richard, L.
Farrington of Ribbleton, B. Rooker, L.
Filkin, L. Sainsbury of Turville, L.
Fitt, L. St. John of Bletso, L.
Fyfe of Fairfield, L. Scotland of Asthal, B.
Gale, B. Simon, V.
Gibson of Market Rasen, B. Slim, V.
Golding, B. Smith of Gilmorehill, B.
Gordon of Strathblane, L. Stern, B.
Goudie, B. Stone of Blackheath, L.
Gould of Potternewton, B.
Gregson, L. Strabolgi, L.
Grenfell, L. Symons of Vernham Dean, B.
Grocott, L. [Teller] Taylor of Blackburn, L.
Harrison, L. Temple-Morris, L.
Haskel, L. Thornton, B.
Hayman, B. Tomlinson, L.
Hogg of Cumbernauld, L. Triesman, L.
Hollis of Heigham, B. Warner, L.
Howells of St. Davids, B. Wedderburn of Charlton, L.
Hoyle, L. Whitaker, B.
Hughes of Woodside, L. Whitty, L.
Hunt of Kings Heath, L. Williams of Elvel, L.
Irvine of Lairg, L. Winston, L.
Jay of Paddington, B. Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.