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Energy Bill

moved Amendment No. 44: 44: After Clause 40, line 62, leave out ““3 megawatts”” and insert ““1 megawatt”” The noble Lord said: My Lords, I am sure the Minister and other noble Lords will recognise that in the past hour and a half, I have been exercising totally uncharacteristic reticence as I realise that an important debate is to follow this Third Reading of the Bill. It has been postponed once already and it is not fair on the noble Lords who will be taking part in the debate that we should waste time. We now come to the question of the size of the cap. It was briefly refereed to in previous debates. I start from the proposition that almost everybody recognises that there has to be a cap, an upper limit, on the amount of microgeneration that will be available to take advantage of this new clause and the regulations when they eventually emerge. My noble friend Lord De Mauley has just referred to the possibility of confusion and conflict with the renewable obligations system in certain circumstances. I listened with great care to what the Minister said right at the end of his speech before my noble friend replied. To my mind, it is enormously important that there should not be a conflict between the feed-in tariffs at the lower end of the scale and the ROCs, as I shall call them, for the rest. Insufficient weight has been given hitherto to the enormous importance of a proper cap in not undermining investor confidence in the ROC system for what will always be the great majority of the quantity of power generated from renewable sources. That has been emphasised to me very forcefully by those who are investing, have invested and want to continue to invest in middling and larger-sized renewable generation. The issue is: where should the cap of the FITs be set? A wide spread of options faces the Government. At the lower end, some have been arguing that it should not be more than 50 kilowatts; that figure was mentioned in debate on Report and is still the Government’s figure, as referred to in the new clause, for certain combined heat and power plants. The noble Baroness, Lady Young of Old Scone, who will no doubt speak after me in a moment, has argued for a cap of 10 megawatts, which I should have thought is at the upper limit that anyone would want to consider. Today—not more than four hours ago—I received a substantial representation from a group of lobbyists who wanted a cap of 10 megawatts. I say in parenthesis that if people really want us to take notice of their views, please do not send those representations while one is in the middle of writing one’s speech and all the amendments are already on the Marshalled List. We are not well served by some of those groups. I suspect that the Government's 3 megawatt cap is a sort of triangulation; it is somewhere between the extremes of those conflicting views. I have tabled the amendment to make the cap 1 megawatt. I have already been roundly abused within the confines of the House by a noble Lord who thought that I was trying to sabotage the whole scheme, but I assure the House that that is not the case. I am seeking by the amendment to give the Minister the opportunity to explain to the House what lies behind the Government’s thinking for the 3 megawatt cap. I have received representations, as I am sure have many noble Lords, from a number of quarters. I start by asking: what is the aim of encouraging, "““small-scale low-carbon generation””," by offering consumers the chance of a return on their investment from being able to sell surplus power to the grid? I was very interested in what the noble Baroness, Lady Corston, said about her experience. That totally links with what I understand the provision is supposed to be about. Larger investors already have the incentive to invest in renewables by the subsidy provided by the ROC system, and very attractive that subsidy has turned out to be. It is not a subsidy paid by the Government, as appeared in an article in the Times a couple weeks ago—one would have thought that the Times might have known better. As the Minister made clear a few moments ago, it is paid by consumers. It goes directly onto all our electricity bills, as will the cost of feed-in tariffs. We will all have to pay the cost of that; it will be reflected somehow in our bills. ROCs are not a satisfactory incentive for consumers at the domestic or very small community level. It is clear that a combination of complex bureaucracy and the complexity of the system simply turns people off and they do not think that it is for them. To be fair, ROCs were not invented for them. They were invented to encourage what is happening or should be happening across the country to get renewable energy up and running. FITs are intended to fill this gap; that is, what could happen at the lower end of the scale where the ROC incentive is not effective. FITs are seen as an alternative for those who cannot or will not benefit from ROCs. I echo my noble friend’s point, to which the Minister replied. It should not be available as an alternative for investors who can and should claim ROCs. A 3 megawatt cap on FITs would take them well into the sector where ROCs are already proving effective. I will not bother the House by reading it all, but Ofgem’s ROC accreditation list shows that one-quarter of projects—by project numbers—are already between 500 kilowatts and 3 megawatts. Of course, they are not all happening, but that is not because the ROCs are ineffective. It is for the reasons that were admirably rehearsed in our debate on Report, first, as regards planning and, secondly, as the noble Lord, Lord Oxburgh, said, as regards access to the grid. No doubt we shall be able to return to that in a few moments. Those obstacles prevent large numbers of projects for wind power, in particular, but also other forms of renewables, coming into effect. FITs will have no impact on that. My noble friend Lord Reay was right to ask about planning. Of course, exactly the same things will happen, except, as the Minister made clear, at the very lowest level where many of these things will not require planning permission. I shall give three examples of ROCs which are attracting investment on a considerable scale and are below the 3 megawatt limit: a 2.75 megawatt wind turbine in Suffolk, which cost £4.4 million to build, and has annual revenues of £550,000; a 3 megawatt hydro turbine, with the water reservoir covering 16 square kilometres, was built at a cost of £3.5 million and generates revenues of £800,000; and a 2.5 megawatt capacity plant, which is based on 30,000 tonnes of waste per annum, generates 15,000 megawatt hours per annum and was built at a cost of £11.5 million, with revenues of nearly £2 million. By no stretch of language could these be described as small-scale renewable energy projects. They are certainly 1,000 miles from the type of domestic project referred to by the noble Baroness, Lady Corston, and miles from the sort of hospital or school projects talked about in this context. They are medium-sized commercial ventures, all of which are capable of benefiting from the ROCs, and many do. By making FITs available to investors of this size, the result will be to siphon off funds intended for the genuine, small community and domestic sector. We have always understood that that is what these FITs are primarily aimed at. Among the representations that I have had is one which I can only describe as a genuine cri de coeur, from a small firm called Good Energy which has raised with me what it sees as the threat of this proposal. In its letter it states: "““Good Energy is the UK’s first and only 100% renewable electricity supplier who supply electricity to homes and businesses across the UK … In Good Energy’s view, the point of a feed-in tariff is to support micro-generation and encourage individuals to make a difference””." That sentiment lies behind many of the speeches we have heard today. The letter continues: "““They are concerned that a 3MW limit is too high and supports commercial wind farm operators rather than focusing on supporting individuals—for example a full size onshore turbine averages 2.5MW. They also believe it undermines the Renewables Obligation … Essentially, Good Energy believe that feed-in tariffs ""should be designed to encourage individuals to do their bit to fight climate change, not create a support mechanism for commercial enterprises””." That is the function of the ROCs. I am in 100 per cent agreement with this company, a small firm which has been in the market for some time. It has put its finger very firmly on the point. At the other end of the scale is the trade association that represents most of the major wind investors, the British Wind Energy Association. I have received a very good brief from the association which—at the risk of boring the House, but this is an important issue—I shall quote. It states: "““A stable, long-term policy environment is vital in order to stimulate the investment necessary for 2020””—" I see the Minister nodding his assent and I am grateful for that— "““the key component of which is confidence that the support mechanism will remain stable over the 20-25 year life cycle of a project’s operation. Any move which appears to signal a weakening of the Government’s long-term commitment to the RO could have a seriously negative impact on the willingness of companies to invest in the UK renewable energy market, especially when compared with more predictable opportunities overseas””." One has to remember that for many of the firms that are investing in large wind farms both onshore and offshore, the world is their oyster. They can do this elsewhere, and if they find that their arrangements are threatened as a result of the integrity of the ROC system being undermined, they will push off. There is a third issue which the noble Lord will remember I raised on Report in the course of an intervention in a speech made by the noble Lord, Lord Teverson. I asked about the effect of the addition to local low-voltage distribution networks of a significant number of generators claiming FITs sized between 1 and 3 megawatts. Since then I have taken advice from the Energy Networks Association which represents the operators of the grid and of local distribution networks. It is a long report from which I shall quote only a couple of short passages. It states: "““The connection of multiple microgeneration units can have an adverse effect on network operation. The main issues that need to be considered include""1. impact on voltage levels, both over and under-voltage""2. short circuit levels””—" variations in the power supply that can lead to equipment being switched off— "““3. system loading""4. voltage unbalance””." That is all spelt out in the report. In another paragraph the report states: "““Realising the full potential of lower voltage networks in particular will require further clarification of the requirements under ESQCR””—" the electricity safety, quality and continuity regulations— "““that would potentially permit a wider (LV) voltage operating range within specified parameters and hence permit a wider penetration of microgeneration into LV networks””." These are technical questions, and I am certainly not a technical man, but I read that as endorsing the anxiety I expressed on Report that if one has a surge of medium-sized feed-in tariff generators seeking access to the local networks, that will have a disruptive influence. I asked the Minister to look into that and he undertook to do so. I hope, therefore, that I will now get an answer. The higher the cap, the bigger the project and the greater the risk. As this is a two-directional flow going both from the generators to the consumers and back from the consumers to the generators, it poses significant problems for the distribution network. As I said at the outset, the purpose of the amendment is to give the Minister an opportunity to explain his figure of 3 megawatts. What I have said seems to be, at first sight, powerful arguments for a figure somewhat lower than 3 megawatts. I have suggested 1 megawatt and I am assured that that figure would have the support of the British Wind Energy Association. I beg to move.