Jesse Norman (Hereford and South Herefordshire) (Con)
Let me start by thanking Mr Speaker for kindly granting this debate on lottery-funded projects and feed-in tariffs. I had hoped to speak in a Westminster Hall debate on the topic in October called by the hon. Member for North Cornwall (Dan Rogerson), but the then Minister was the beneficiary—or perhaps the victim—of a reshuffle and the debate was cancelled. This Adjournment debate is a welcome opportunity to address these matters properly.
Some debates in the House are on topics of purely general importance, but this one specifically concerns two villages in a remote part of my county of Herefordshire. The issue, however, is of huge importance to those villages and their residents. Indeed, it would not be too much to say that it gravely affects their well-being as well as that of a local school. It also raises a general issue relevant to other village communities as well as wider questions of fairness and responsibility that directly concern the Government. For all those reasons, I thank Mr Speaker for granting the debate and ask the Government to give it their close attention.
Clifford and Moccas are isolated villages on the western and northern edges of my constituency. Both are blessed with village halls that are well-used and well-supported by local people. In early 2011, both communities were awarded grants from the Big Lottery Fund, which distributes moneys on behalf of the national lottery, to install solar photovoltaic panels on their village halls. The motivation in each case, which was clearly stated throughout the application process, was to claim feed-in tariff payments to help meet the running costs of the halls.
The schemes were installed in late 2011 and early 2012. Clifford received a £10,000 grant from the Big Lottery Fund and raised a further £15,000 from the local community. Moccas received a grant for £9,603, which covered the full value of the works. In spring 2013, however, two years after the original awards, both communities were told that their eligibility for feed-in tariffs was under threat as grants from the Big Lottery Fund had been reclassified as state aid. The communities were presented with two options: to pay back the funding received from the Big Lottery Fund and continue to claim feed-in tariffs; or to keep the Big Lottery Fund money and give up any entitlement to feed-in tariffs.
On 6 June 2013, in response to a question from the hon. Member for Wells (Tessa Munt), the Secretary of State for Energy and Climate Change said that he hoped that his Department would look into the matter. On 6 September 2013, however, a written question from me received a reply from the Department stating that it was not investigating the matter and that it was for Ofgem, which administers the scheme, and its licensed suppliers to determine eligibility for feed-in tariffs based on the legislation.
On 3 October I received a letter from Ofgem that disavowed responsibility, stating that it did not set the policy underpinning the feed-in tariffs scheme, which was the responsibility of the Department of Energy and Climate Change. The letters also said that the Big Lottery Fund grants were classified as “grants from public funds”, as the national lottery and the apparatus through which it distributes funding were established by statute. As a result, Big Lottery Fund grants were subject to the rules on state aid and it was not possible to combine a grant with the receipt of feed-in tariffs.
The Big Lottery Fund has given the village hall committees the opportunity to convert the grant money received so far into an interest-free loan. That is to be welcomed but it does not address the underlying problem, which is that a change in the scheme administered by Ofgem is causing tangible hardship to the villages. It is even having a negative effect on a lovely local school. Clifford primary school is located on the same site as the village hall and was a partner in its solar panel project. Indeed, the project is a key part of its eco-schools accreditation. The head teacher tells me that the school might have to be run at a deficit purely as a result of this uncovenanted and unilateral change.
That turn of events was entirely unnecessary. Both hall committees and Clifford primary school entered the agreements in good faith and, to put the matter in the kindest light, appear to have been let down by poor communication somewhere along the line. The question goes deeper, however, and raises issues of fairness and accountability and of management within Government. So far, both the Department and Ofgem have disavowed any responsibility for the mishap. Each has placed responsibility with the other. My question is simple: who is responsible?
How is it possible that Moccas and Clifford hall committees were notified only in spring 2013 of the change in legislation that happened two years earlier? How can it be right for the Government to have allowed national lottery funding to be classified as state aid when its moneys derive from private gambling on the lottery? The question becomes still more pertinent when one considers that the statutory body is the National Lottery Commission, which does not give out any money at all. The lottery is, in effect, a trading name for Camelot, a private company. Clicking on “About us” on the national lottery website takes one directly to the Camelot website.
One might ask how grants of money raised from private individuals by a private firm can be classified as state aid. Did Ofgem check whether the grants were subject to state aid rules before the scheme was launched? What legal advice was taken? If it was taken, it would have been adverse; was any thought given to contesting the matter?
There are also more specific questions that I would respectfully ask the Department to address. Is it satisfied that Ofgem has correctly interpreted the policy directions that it was given? Will it conduct a detailed review of how the change in policy was communicated to interested parties? When exactly were Ofgem, the Big Lottery Fund, licensed suppliers and parish councils or other grant recipients notified? How were they notified? Was any effort made to ensure that they received and understood the notification? Was any attempt made to offer redress for the misleading way in which local committees have been treated? Simply and crucially, will the Department ensure that someone—a named individual—takes responsibility for what has happened?
This issue has caused huge confusion, concern and cost to local people in my constituency. Neither Clifford nor Moccas would have entered into the contracts if they had known that the funding or the feed-in tariffs would subsequently be withdrawn, and if they are withdrawn, both will struggle to maintain the viability of their village hall. The financial well-being of a local school—an eco-school, no less—hangs in the balance. It is not the villages that have changed their minds; it is the Department that has done so.
There are not many of these schemes across the UK. I ask the Government to consider forgiving the debts altogether. That will not mend the harm that has been caused, but it will at least redress the balance, and it would be in accord with natural justice.
The Minister of State, Department of Energy and Climate Change (Michael Fallon)
I thank my hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) for calling for this debate, and for persisting with it after an earlier attempt. This is a topic that the Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), would normally handle, but he is abroad tonight. I hope that my hon. Friend will forgive me if I stand in for him.
I regret the position that Moccas, Clifford and other community groups have found themselves in. The Department of Energy and Climate Change, Ofgem and the lottery have done their best to try to rectify the situation, but there is a limit to what can be done within policy and legal constraints. Let me explain the context, and set out the actions that we have taken and the measures that we have introduced to assist local communities that wish to develop renewable energy projects.
The feed-in tariff scheme is intended to replace, not supplement, public grant schemes as the principal means of incentivising small-scale, low-carbon electricity generation. As such, the tariffs are calculated to subsidise the entire cost of eligible installations, and to provide investors with a reasonably attractive rate of return of between 4.5% and 8% a year. For those reasons, and to ensure compliance with European Union rules on state aid, it is generally not possible for a generator to benefit from both feed-in tariffs and a grant from a public body, except in exceptional circumstances, some of which concern environmental considerations, such as the provision of fish ladders. That position, together with the various minor exceptions, has been clearly stated on both the DECC and feed-in tariffs websites since May 2011.
National lottery funding and grants issued by or on behalf of the national lottery are considered grants from public funds; I take my hon. Friend’s point about the lottery itself, but grants from it, including from the Awards for All programme and the community sustainable energy programme, are considered grants from public funds. As such, an installation cannot receive feed-in tariff support where national lottery funding has been accepted in support of purchasing and/or installing. I am sure my hon. Friend will accept that it is difficult to justify giving a double subsidy to individuals and organisations at any time, but particularly in the current fiscal climate, by allowing grants from public funds to be used in addition to the feed-in tariff subsidy.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. I think it would be unreasonable for the hon. Lady to expect to intervene, as she has only just arrived.
Michael Fallon
As I was saying, the costs of the feed-in tariff scheme are ultimately paid for through the electricity bills of consumers who, as my hon. Friend knows, are already facing rising fuel bills and general cost of living increases. The feed-in tariff scheme has been a success since its launch in April 2010, with over 480,000 systems totalling 2.4GW in capacity having been installed to date. An increasing number of these installations are indeed community energy schemes.
The Government recognise that some communities believed that it was possible to combine lottery Awards for All grants with feed-in tariffs when installing renewable energy systems on their premises, so we have been working with Ofgem and the lottery to try to find an acceptable solution for all sides. Recipients of lottery Awards for All grants who were also claiming feed-in tariffs were given the one-off option of repaying their grant to the lottery or converting it to a loan. The latter means that the income from feed-in tariffs could be used to pay back the loan over time. If the recipient did not take up one of the two options by 20 September, they faced being suspended from the feed-in tariff scheme and having their payments stopped. I understand that both Moccas and Clifford, along with a number of other community groups, have taken up the option to convert their lottery grant into a loan.
My hon. Friend asked a series of other questions. If I may, I will respond to him in detail in writing. Let me conclude by outlining some of the other measures that the Government are taking to support community renewable energy. My hon. Friend and those in his constituency who have already gone down this path are fully aware that our transformation to a low-carbon economy requires a huge national shift in the way we generate, distribute and buy our energy. By investing in local energy projects, communities can generate a healthy and stable return to cover the costs of installing small-scale renewable or low-carbon technologies. Such an opportunity can help drive local growth, redevelopment and even jobs at the larger scale.
Large low-carbon energy infrastructure, such as nuclear power stations and offshore wind, play a major role in our energy system. They are an important part of a diverse energy mix, but they are not a complete recipe. We also need a society-wide shift involving individuals, local communities and other organisations. I therefore know that, although my hon. Friend has been disappointed by the way in which the two applications have been handled, he will be delighted at the fact that the number of small-scale energy systems in homes, businesses and community facilities has leapt from a few thousand to nearly half a million since the feed-in tariff scheme was introduced in 2010.
We want to continue to help communities to spot and unlock such opportunities in their local area in order to save and generate energy for the benefit of the community. Communities will want to network with each other and with their local authorities and local businesses. My Department's forthcoming community energy strategy is looking at how information and advice can be used to supplement national resources, such as PlanLoCaL, the low-carbon hub and our recently published energy guide. I would also like to highlight the recent launch of the co-operative community shares fund website. That offers groups preparing community share offers free information and advice.
I would like to emphasise that local authorities have a pivotal role to play in community energy. They can share expertise, put people together, share facilities and, in some cases, partner community energy schemes. One of the benefits is the retention by local authorities of local business rates from renewables. There are also potential benefits for community groups in the green deal. Charities and community interest companies are able to receive financial support from the domestic customers' green deal cashback by registering on the cashback website.
I understand that pre-planning costs are a key barrier to developing viable renewables schemes of the sort that my hon. Friend has outlined and where those costs have already been incurred. In late 2011, we launched the local energy action fund, which offered pre-planning grants, and hundreds of applications have come in.
In December 2012, the Government put in place a one-year tariff guarantee for community energy and education providers pre-registering solar PV installations for the feed-in tariff scheme in future years. We also granted community groups and schools with solar PV projects an exemption from the energy efficiency requirement of obtaining an energy performance certificate of level D and above. We also think that larger community energy projects should be able to benefit from the simplicity and certainty offered by the feed-in tariff scheme. We are now considering increasing the maximum capacity that community projects can install from 5 MW to 10 MW, and we are seeking powers to do that in the Energy Bill, which is currently going through the other place.
As I mentioned, we are preparing a community energy strategy. It will tackle all aspects of community energy, including efficiency and renewables. I hope that that will inspire community groups, local authorities and commercial developers to put forward further projects. The call for evidence closed at the start of August and more than 300 responses have now been analysed.
I fully understand my hon. Friend’s disappointment that both Moccas and Clifford were not fully aware of the limitations of the feed-in tariff scheme and the classification of grants from the national lottery as public funding. The option that they are taking up to convert their lottery grant into a loan is a useful one, but I am very happy to look at the particular questions that my hon. Friend has raised during the course of this debate and to reply to him in more detail.
Question put and agreed to.