Renewable Heat Incentive Scheme Regulations 2011

Lord Teverson Excerpts

Tuesday 22nd November 2011 Grand Committee

[Lord Teverson]

My Lords, as a proud owner of two wood-burning stoves, what could I do but welcome this piece of administration to the legislation? I was going to congratulate the previous Government on having introduced this but of course it was neither them nor the present Government who did so; it was a rather anarchic band of Back-Benchers in both Houses who insisted that this was one of the ways forward. It was one of the few occasions on which Parliament overcame Government when feed-in tariffs and the renewable heat initiative came about. Maybe we all ought to pat our own backs when we look back at history, but the question here is what will happen in the future.

As we have been reminded, we have a big target here—to move from 1.5 per cent of renewable energy through heat to 12 per cent and, ultimately, to the 15 per cent target. We concentrate a lot on electricity generation and not so much on this other half of the sector. I welcome the fact that this will be paid for by general taxation. That £865 million is a big victory for DECC regarding the Treasury. Maybe we are not meant to talk about arguments between friends, but that seems to have been a good negotiation in these times of economic and budgetary stringency. That means that where we have fuel poverty, particularly around heat—that is not helped by electricity generation for heat—then the majority of people not getting their heat from electricity means that we are not adding to those bills.

The other exciting thing about this, although this is also why it is dangerous, is that this is something new and different and has not really been tried before. We have seen feed-in tariffs elsewhere in Europe and have, I hope, learnt from that experience. Here we are going to create the learning curve ourselves—we are the guinea pigs. That has dangers in its own right. We have to ensure that we do not have unexpected short-term tariff changes because we find it difficult to predict how these installations are going to take place, what the demand is and how much of that money is going to be used. That will be difficult but it is important that we get it right regarding investor incentives, particularly in the corporates and the small business sector that we are talking about.

I was interested in what the impact assessment said about perverse incentives. I can see the problem where the tariff rate is greater than the marginal cost of producing electricity. I went through all those arguments in the impact assessment, and would be interested to be clear that the Government are now certain that we will not be burning heat just for the incentives and that we have got around that problem. Perverse incentives are important in all legislation.

I very much regret that the European Commission got involved in terms of state aid. I would have thought that that was inappropriate in this sector, and I am with the Government in being surprised that the Commission made that intervention. One of the problems with that has been that, as so often in these cases, where there is subsidy of any kind, the industry stops while we wait for these schemes to start. There have already been a number of casualties in the heat pump industry and in this sector because people hold off from making investments until the subsidies are available.

We are now moving ahead on the business and industrial side, and I welcome that, but I should be very interested to hear when the Minister expects the domestic side of this to come in. I may have missed it in her opening remarks but I did not catch a specific date. It is very important for the industry, for social housing and for this other area where investment is taking place that that moves forward rather than people holding off until the renewable heat initiative comes into being.

I am very pleased to see these regulations come before us. This is an exciting scheme. There are all sorts of challenges surrounding it but let us go ahead and reach for that 12 per cent and beyond.