Renewable Energy Sources (Hansard, 1 February 2000)

§ Mrs. Liddell

Renewable sources of energy are an essential element of the Government's Climate Change Programme. They are set to make an increasingly important contribution to the provision of secure, diverse and sustainable energy supplies. Renewable sources of energy will become increasingly important in the new millennium as electricity consumption increases and existing nuclear generating capacity is retired. For all these reasons the Government are committed to increasing the contribution from renewable sources of energy to the UK's energy supplies.

The Government believe that our objective for the renewables industry can best be achieved within the framework of a competitive market. This will give the industry the greatest opportunity for technological innovation and the optimisation of efficiency so that the most cost-effective renewables can be brought forward. In order for this to be achieved the Government intend to give a clear signal to the industry that we are targeting a 10 per cent. share of electricity supply to be provided from renewable sources.

Key elements of our strategy to achieve the policy aim will be: a new Renewables Obligation on all electricity suppliers; exemption of electricity and heat from renewables from the Climate Change Levy; an expanded support programme for new and renewable energy including research, development, demonstration and dissemination; and, development of a regional strategic approach and targets for renewable energy.

The Renewables Obligation will enable us to make progress towards a target of generating 10 per cent. of our electricity from renewable sources by 2010. Clearly hitting this higher target may, at least in the medium term, mean slightly higher costs to consumers and the acceptability of those higher costs must be fully considered. The necessary legislative powers will be taken in the Utilities Bill which the Government introduced on 20 January. The Renewables Obligation and the associated Renewables (Scotland) Obligation will be an obligation on all licensed suppliers to supply a specified proportion of their electricity supplies from renewable sources of energy. Any additional cost of supplying electricity from renewables will be met by suppliers and may be passed onto their customers. There will be no new levy for these arrangements. The Renewables Obligation will be imposed by a Statutory Instrument that will contain the detailed requirements. The Government expect to require all suppliers to obtain a specified proportion of their electricity from renewables rising year by year to achieve the 2010 target. I shall be consulting the industry, as well as electricity consumers, on the costs of achieving the precise obligation (and the rate of progress towards the overall target and price cap) in advance of the enabling Order being laid before Parliament later this year.

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It will be essential to ensure that commercially viable projects already contracted under the NFFO and SRO arrangements continue to attract and retain project finance so that the UK stays on track to source 5 per cent. of its electricity from renewables by 2003. Accordingly, transitional arrangements are being developed by the contracting parties. The Utilities Bill will give powers for secondary legislation to be developed to facilitate this process. The Bill includes powers to continue the operation of the current sections 32 and 33 of the Electricity Act 1989 (relating to NFFO and SRO Orders and the Fossil Fuel Levy) and these measures may be amended to adjust to the new arrangements as necessary.

The renewables industry has made great strides in recent years. It has reduced the costs of the more mature renewable technologies over the last decade to the point where they are rapidly becoming competitive with other energy sources in the UK. The Government hope that the industry can rise to the challenge of the new policy by meeting the proposed targets at an acceptable cost that will not have a major impact on electricity prices. We will be consulting on what increase would be acceptable to consumers in order to promote renewables, but have in mind an increase of 1–2 per cent. in electricity prices by 2010, in return for which there will be real benefits to society from lower greenhouse gas emissions and a more diverse energy supply. This new approach to bringing forward renewables works with the grain of other developments in the electricity supply market. These other changes that the Government and the Regulator are taking forward should more than offset any increase arising from our support for renewables, so electricity prices should continue to fall in real terms over the coming years.

In addition, the Government's new policy will provide a positive strategic approach to planning for renewable energy from the regional level downwards to facilitate its development while continuing to protect the countryside. The Government are therefore proposing that regional renewable energy assessments should set the framework for a more strategic land-use planning approach at regional level, itself providing the framework for local authorities' development plans and decisions on individual energy projects.

This is an exciting time for the renewables industry, and an opportunity for it to move from being a fledgling industry to becoming a mainstream business activity. This policy offers good business opportunities in the home market, which will provide a good base for developing exports. Most importantly, it will make an important contribution to the protection of our environment, while contributing to diversity and security of energy supplies.

I have published today "New and Renewable Energy—Prospects for the 21st Century—Conclusions in Response to the Public Consultation", to coincide with the introduction of the Utilities Bill. This is an initial policy statement to inform discussion of the powers in the Bill to introduce a Renewables Obligation on electricity suppliers. I am also planning to provide a full report containing the proposed programme for renewables later in the year after further discussion with interested parties in the light of this document.

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