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Energy Bill

My Lords, my noble friend is trying to tempt me down a path that I do not want to go down. I know what he wants me to say—that of course we will be flexible and respond to circumstances as they arise. It is perfectly possible that another energy Bill will come at some stage and that noble Lords may propose to come back to this issue. While I am concerned simply to leave this where it is and say that we are flexible, I am also concerned not to give the impression to companies wishing to invest seriously in this area that somehow the 3 megawatt limit is okay for the moment but that in a year or two it might have risen. That is why I am reluctant to go as far as my noble friend wishes me to go. We think that the 3 megawatt cap is right for the long term—and I really must place that on the record. I should make it clear, too, that we think that the renewables obligation is absolutely critical to delivering the vast majority of renewable electricity that we need to meet the challenging targets set by the EU for 2020. That is why maintaining investor confidence is so important, while we keep enough flexibility to ensure that we direct support to small-scale projects at the right capacity. I say in response to the remarks of the noble Baroness, Lady Young, that the types of projects that we are trying to incentivise through the feed-in tariff scheme range from the individual householder to the larger community-scale projects. As for deciding on an upper limit, our analysis shows that an upper limit of 3 megawatts will enable a feed-in tariff scheme to support a variety of projects. For example, at one end of the spectrum, a typical household might use about 4 megawatt hours of electricity per year. That electricity requirement could be provided by a 4 kilowatt wind turbine or a 4 to 5 kilowatt PV installation. A school’s electricity requirement might typically be met by a wind turbine below 50 kilowatts and a hospital by a larger system closer to 250 kilowatts. In addition, at the other end of the spectrum, a 3 megawatt wind turbine has the capacity to generate enough electricity to power in the region of 1,500-plus homes per year—potentially enough electricity to power a village. The cost of such a project would be around £4 million to £4.5 million, which is clearly not an insignificant sum. As a further example of the significant scale of 3 megawatts as an upper limit, a 3 megawatt biomass plant could support around 3,000 to 4,000 homes. That is why we think that the 3 megawatt cap is about right, as it provides investor confidence and avoids any wait-and-see behaviour for at least 95 per cent of deployment currently covered by onshore wind turbines under the renewables obligation. The noble Baroness, Lady Young, talked about headroom. I think that she suggested that we should accept the amendment proposing 10 megawatts and then have the opportunity for consultation, as a result of which we could say that we would set the limit much lower, as we have in the flexibility given by the government amendments. But there is still the problem that, if we suddenly accepted 10 megawatts as the limit, it could jeopardise investment decisions for quite a large number of projects that we wish to see go ahead immediately. The essential point is that we should go for a limit that is reasonable and defensible but which does not inhibit a lot of investment decisions. The noble Lord, Lord Teverson, is also tempting me down paths that I should not go down. He said, ““You’ve got the 3 megawatt limit but, come on, give some more details about where you might place the limit, if you went below it””. I do not think that we have done enough work so far to be able to give the noble Lord an indication of that. Clearly we need to do an awful lot of work in the next few months. As I have said, we will be happy to find ways of involving Members of your Lordships’ House who have a particular interest in those discussions. The noble Lord, Lord Jenkin, is absolutely right about avoiding confusion or overlap between the FIT scheme and the ROC scheme. We are anxious to invite comments about how we should do this. I have already set out our initial thinking. He made an interesting point last week about the network operation of voltage. We will have to look into that. I hope that I did not give him the impression that I would have a definitive answer by today, because I do not have one, but I am advised that my officials will look into working with Ofgem and the energy companies. Clearly we do not want to cause the kind of problems that he has suggested, so I hope that he will accept that I am taking this seriously, even though I cannot respond immediately. I recognise that there is no simple answer. We have tried to get the balance right and to set the cap at a level that will provide enough flexibility and encourage the small-scale generation that we want through a feed-in tariff. At the same time, it is essential that we give certainty to the companies that are taking the kind of investment decisions that we need them to take if we are to meet this challenging target. On that basis, I hope that noble Lords will accept that the 3 megawatt cap, with the flexibilities given within it, is probably the right way forward.