With this it will be convenient to consider Lords amendments Nos. 47 to 53, 58 to 63, 67, 86, 87, 90, 92, 93, 97, 98, 100 and 101.
This group of amendments covers the changes made in the other place to a number of issues in the Bill, including the three decommissioning regimes—nuclear, offshore renewables and oil and gas decommissioning—the reporting requirements and matters relating to smart meters. There is also a minor and technical drafting amendment. I shall deal with each of them.
Amendments Nos. 46 and 47 relate to the nuclear decommissioning provisions. The other place sought greater clarification about the factors that the Secretary of State may take into account when deciding to approve or modify a funded decommissioning programme for a new nuclear power station. Amendment No. 46 creates a duty on the Secretary of State to publish guidance on factors that it may be appropriate to consider when approving a programme or making a modification to a programme in clause 51(5). Amendment No. 47 creates a duty on the Secretary of State to have regard to that guidance. That provides the potential operator with greater certainty about the factors that the Secretary of State will take into account, while not unduly limiting his flexibility.
Amendments Nos. 48, 50 and 53 relate to the definition of security and the protection of that security in the event of insolvency for the three decommissioning regulatory regimes in the Bill—the nuclear power stations, offshore renewable energy installations and offshore oil and gas installations. The amendments clarify the meaning of the term "security" as it is used in relation to the three regulatory regimes. Under the Bill as it was previously drafted, there was a risk that if an operator became insolvent, the courts could construe the term "security" by reference to the narrow, legal nature of any arrangements in place, rather than to their broader economic effect. In such a situation, there would be a high risk that the taxpayer would have to meet any resultant shortfall in decommissioning funds. The amendments will help to ensure that the courts take a broad definition of security when considering insolvency cases, thereby helping to protect the taxpayer better.
Amendments Nos. 51 and 52 relate to the oil and gas decommissioning provision in clause 69. The other place debated an amendment aimed at more closely linking the liability for decommissioning an offshore installation to companies that have received benefits from the installation. The amendments are technical in nature, and make it clear that liability will apply to licensees only when they are entitled to benefit or have benefited from the principal purpose for which the installation is maintained or is intended to be maintained. The amendments will create a precise link between the benefit and activities on the relevant field. The liability will not extend to licensees on a different field even if they receive a secondary service from the installation. The amendments will extend further clarification to gas unloading and storage and carbon sequestration activities. The Government believe that these amendments add to the clarity and practicality of the respective frameworks while maintaining their robustness.
Amendments Nos. 58 to 62 reinstate a requirement for the sustainable energy report to cover a specific reporting period. We propose that this period should run from January to December instead of retaining the current 12-month reporting period ending with
Amendment No. 49 relates to nuclear decommissioning. The other place debated the offence under clause 57 of knowingly or recklessly supplying false or misleading information to Ministers in relation to nuclear decommissioning programmes, and whether that should apply in all cases. Lord Jenkin of Roding believed that that was too onerous. Amendment No. 49 therefore creates a materiality threshold so that only information that is false or misleading in a material respect falls within the scope of the clause. That makes clause 57 consistent with equivalent offences in other areas of legislation—for example, sections 117 and 201 of the Enterprise Act 2002.
Some of the other Government amendments cover a variety of smaller technical matters and consequential issues related to legislation.
Let me turn to amendments Nos. 63, 86, 87, 90, 92 and 93. The House will be aware that the Government recently confirmed that we will move forward with smart metering for all households in Britain. I believe that we all recognise that delivering 47 million smart meters to homes across Britain in an efficient and well managed way will be an enormous challenge. On Report in the other place, Lord Dubs proposed an important amendment related to the type of market model that will underpin the roll-out of smart meters. As we develop the detail of the project, it may become apparent that there are advantages to moving away from our current competitive metering market and considering centralising some or all metering services. At the moment, smart meters could be got to six houses by six different suppliers, who could send six different sub-contractors to those houses, which could be all in a row next to each other. We should look for a better way of doing things. At this stage, our objective is to ensure that we have a legislative basis on which to deliver a range of future options to ensure an effective roll-out.
In response to my noble Friend's amendment, the Government tabled amendments Nos. 63, 86, 87, 90, 92 and 93. We believe that the new clauses and new schedule will enable us to deliver a range of market model options in future. They amend the Secretary of State's powers under the Gas Act 1986 and the Electricity Act 1989 to create new licensable activities and ensure that, by affirmative order, he can create new licensable activities in connection with providing, installing or operating smart meters or the related communications infrastructure. The power also provides that the Secretary of State may make regulations so that he or Ofgem will be able to award those licences following a competitive tender process, the detail of which is outlined in schedule 4. We believe that that type of power is the best way to ensure that we can deliver a range of market model options to ensure that, whatever model we choose, we retain an appropriate element of competition. This is about ensuring that we deliver the smart meters effectively and that we have competition that is not obtuse or bizarre but effective, and a model that enables it to be delivered.
Will this allow the Secretary of State to ensure that the same type of smart meter is installed in an area so that if someone wishes to switch they are able to do so without needing to have a meter removed and a different type refitted?
We want to ensure that people are able easily to switch. We do not necessarily want to ensure that all the smart meters are provided by exactly the same supplier—we want an element of competition. In terms of delivery, we must work out how we ensure that we have smart meters that enable effective switching so that people do not need to swap them if they decide to switch suppliers two or three times a month to get the best price. I do not have a straight answer to the hon. Gentleman's question whether there will be one standard meter, although I think that there probably will not be. On whether we can frame a system of smart meters that will facilitate the sorts of circumstances where people are able to switch, I think that we should be able to do that. However, we need to consult those who will be delivering this stuff to ensure that the mechanics of doing it are right.
Amendment No. 67 is minor and technical. It clarifies the fact that the regulation-making as well as order-making powers set out in clause 94(2)(a) are subject to the affirmative resolution procedure. I hope that the House will agree to these Lords amendments.
Between the first and second Divisions, the gap between the Government and us narrowed by three votes, so if we had gone on for another couple of hours we would have got it down to zero. However, we decided not to inflict that on the House, and I am glad that we can now move on to the next group of amendments.
The Government will be aware that we have supported the approach taken in the Bill towards encouraging nuclear new-build. We think that they have got the framework broadly right. We have to examine the changes proposed in the Bill in conjunction with some of the other initiatives that the government are taking to encourage people to consider nuclear new-build.
Whatever one's approach to nuclear new-build, we should recognise the work that is being done by the office for nuclear development, which is an outstanding example of proactive government in seeing where there are problems and how to get round them to ensure that people looking to invest in this country feel that the Government are trying to remove the obstacles. That is a good example for other areas of energy policy. I single out for praise the work of Dr. Tim Stone in trying to identify where the obstacles may be, looking specifically at the nuclear installations inspectorate and seeing what needs to be done to provide it with additional resources and more skilled personnel so that it can move forward more quickly with the work of assessing the role that different reactor types might be able to play.
We welcome the changes that the Minister has announced today. We strongly support the obligation to publish the decommissioning guidance and the requirement on the Secretary of State to take account of that guidance. We also welcome the clarification of the definition of what would constitute information that is false or misleading. In fact, we proposed that in Committee, so it would be rather churlish not to support it now.
We welcome the clarification of reporting requirements. There had been a strong sense in and outside the House that the Government were using the changes to remove the requirement to report regularly and in a way that people could understand. The Minister has tackled that most helpfully.
There was particular concern about the vagueness of the time scales that would have been permitted and could have resulted in reports that did not reflect the same period of time. For example, one report could have covered 15 months, with the next covering nine months, and we could not easily have gained a clear picture of what was going on. We could not compare like with like. We therefore welcome the Government's change of heart and the decision to state specifically the definition of the reporting period, which will relate largely to the calendar year.
We also welcome the requirement to publish the sustainable energy report before the end of October in the year following the year to which it relates. Perhaps that approach could be taken to other Government reports, for example, on the number of people in fuel poverty. The figures always appear to lag approximately three years behind the actual figures. They probably do not lag when the numbers are going down, but when they increase, there seems to be more of a lag. Nevertheless, the requirement is a welcome step forward and we are pleased to support it.
One of the most significant changes of heart that the Government had during the Bill's passage was about smart metering. We are pleased that they will mandate the installation of smart meters. It will make a huge contribution to resolving fuel poverty, removing for ever the need for estimated bills. It will enable people to choose the cheapest tariff much more constructively and give the customer much more information. It will also help meet the environmental goals, which we share, encouraging people to use energy outside peak times. It will also be a key element in encouraging microgeneration by measuring two-way flows of electricity: that which is brought into a house and that which is exported from it. It will be essential if feed-in tariffs are to work.
It is crucial that smart meters will apply to gas, electricity and, potentially, water. That is an important step in fulfilling a range of different goals. It is a step towards what would be called a smart grid—a much more intelligent grid—and being able to control the way in which people's electricity is used and manage demand much more effectively.
We are glad that the Government have overcome their reservations and accepted in principle the case for smart meters, which energy companies, consumer groups, environmental groups and Members of Parliament of all parties advocated. We are also glad that they have been persuaded of the need to accept a time scale for introducing smart meters.
The 10-year roll-out is not significantly different from the current rate. Typically, in a year, 8 per cent. of meters are replaced and, just on that natural rate of churn, one would expect the whole country to be done in 12 or 13 years. Ten years is, therefore, not especially ambitious, but we recognise that it has much support in industry and with other groups outside.
We could shorten the two-year consultation period. Let us revert to the concept of a locked room, especially with my right hon. Friend Mr. Gummer there to badger people to reach a conclusion. That would have been effective. We could achieve agreement in a much shorter time, but we are not prepared to make a big issue out of it because we are genuinely pleased with the Government's approach and the fact that they have taken on board many representations that we and many others have made.
Lord Hunt said:
"We anticipate a period of around two years to resolve the issues and to design the full detail of a domestic roll-out. Our aim is then to ensure that the subsequent roll-out happens over a period of 10 years. This would see delivery of smart meters by the end of 2020 to align with our renewables targets."—[ Hansard, House of Lords, 28 October 2008; Vol. 704, c. 1515-16.]
Will the Minister give us assurances or tell us the legal status of Lord Hunt's comments? Will he clarify whether the Government would be inclined to move more quickly on the installation of smart meters in new-build properties? A case could clearly be made for saying that it is easier to install them when a property is being built and that that should be done before replacing the stock. Can he give us assurances about the way in which the Government wish the roll-out programme to proceed?
Having said all that, the amendments are sensible and we are happy to support them.
It is the first time that I have spoken in today's debate, so, first, I congratulate the Department on moving some way with the amendments that it has tabled. We all acknowledge that the Bill is much better than the measure we started debating.
I am grateful to the Department for providing a briefing on some of the amendments that we are discussing today, partly because some are complex. I was encouraged by the heading, "Nuclear energy—false and misleading", but, sadly, it was only an introduction to amendment No. 49. For one moment, I thought that the revolution in the Department of Energy and Climate Change had begun—sadly, it has not.
I am surprised by amendment No. 49. I accept the Minister's comments that Members in the other place felt that clause 57 was onerous, but it is strange to punish knowingly false and misleading information, yet excuse it if it is slightly false and misleading, even if it is "knowingly or recklessly" provided. If even a small amount of false information is provided knowingly and recklessly, a small fine might be appropriate, but there should still be a penalty. Although we will not make a huge issue of that, there is a good case for retaining clause 57 unamended.
By contrast, we unreservedly welcome amendments Nos. 46 and 47 to clause 51. More frequent use of "must" in legislation that applies to Ministers is a good thing. Some of the duties that the amendments would explicitly create helpfully strengthen clause 51. The Minister understandably gave the amendments a slightly understated welcome, but he should be congratulated on accepting them. If they mean that the Department has to take into account the advice of, for example, the Health and Safety Executive and the Environment Agency, and that it must publish the way in which it has taken that advice, it will be less tempted to balance health and environmental considerations with those dictated by short-term political convenience—or, as is more likely, political embarrassment.
Let me deal with amendments Nos. 48 to 53—the most interesting set of amendments, which the Minister portrayed as somewhat technical—which cover the slightly controversial subject of the nuclear decommissioning programme. Charles Hendry is right that there was considerable debate, which I shall not revisit, about them in Committee. However, it was good to hear the hon. Gentleman making it crystal clear that the Conservative party is now enthusiastically pro-nuclear and has abandoned the ambivalence that seemed to be present in Committee about whether it could be simultaneously pro-nuclear and anti-nuclear. He clearly said that he wanted to encourage nuclear new-build, and I welcome his clarification of his party's position. It is obviously not our position.
We are especially concerned for the amendments on arrangements for securities to do what the Minister suggested and better protect the taxpayer. What would happen if the funded nuclear decommissioning programmes turned out not to be so well funded? That is a critical question. The amendments sensibly help define the term "securities" in a legal context. However, as we know, not all securities are as secure as others. As businesses and local authorities that are trying to recover funds from Iceland have found, some bonds and investments turn out not be as secure as they had believed.
That underlines the long-term issue with funded decommissioning programmes for nuclear power, which is whether, in the event of future economic downturns, financial crises or simply bank failures, the public purse will yet again have to subsidise nuclear power. Perhaps this is a moment for the Minister to clarify how likely he thinks it is that those provisions will be used to allow public funds yet again to bail out the nuclear industry, which seems to us to be a bail-out that we need not risk at all.
Many of the remaining amendments in the group are technical, tidying amendments, which is welcome. The most interesting are those from amendment No. 63 onwards, which relate to smart meters. I entirely endorse the comments that other hon. Members have made about these important provisions. It is welcome that we are setting the framework for smart meters to be introduced. Smart meters will empower householders, so that they can not only play their part in tackling climate change and helping to save the planet, but use their household appliances much more efficiently and reduce their energy bills, thereby tackling fuel poverty. That has to be a good thing and, as the hon. Member for Wealden pointed out, may contribute towards a more intelligent use of energy on the grid more broadly.
It is a shame that the time scales envisaged in the amendments are of the rather more relaxed kind that were typical of the old Department for Business, Enterprise and Regulatory Reform, rather than the imaginative new Department for Energy and Climate Change. It is pretty disappointing that the process will be complete only by 2020. We all know—the financial crisis has underlined this—that the House and the Government can certainly move fast when they want to. It would therefore be nice to see a greater sense of urgency in the planning of the introduction of smart metering.
The Minister is right, however, that there are complicated details to be sorted out. I understand that, and the devil will be in the detail. I am sure that I am not alone in having already been lobbied quite extensively by advocates of different systems and technologies. We can all anticipate a heated debate on the regulations and orders made under the Bill. It will be important that we get them right and that we correctly balance commercial competitiveness, affordability for energy customers and the environmental priority of having the best possible technology to allow people to reduce their energy use.
Overall, however, progress is progress. I end by congratulating the Government on the bulk of the amendments and on the green shoots of environmental change that they are beginning to cultivate in their policies.
I was interested in the opening comment that Charles Hendry made about the vote moving his way. I look at the assembled ranks behind him and wonder whether that would continue—mind you, Mr. Deputy Speaker, I look at the similarly empty Benches behind me and wonder what our majority would be. I join the hon. Gentleman in praising the work of Dr. Tim Stone and welcome the establishment of the office of nuclear development, which was set up by my predecessor, my right hon. Friend Malcolm Wicks, who was with us earlier, and our predecessors in the Department for Business, Enterprise and Regulatory Reform, including the then Secretary of State.
Let me deal with the points that have been raised. On the target of two years plus 10 years, we are undertaking a massive project and we need the time to do it properly. New build provides us with the opportunity to make sensible provisions early on. We would like to consult the building industry on how quickly we can introduce the scheme, but it makes sense that new buildings should have the new smart meters as soon as possible.
Martin Horwood raised a couple of issues, including one about clause 57 and the need for materiality before a prosecution is undertaken. If somebody knowingly or recklessly gave information that was utterly immaterial to the decommissioning process, it would be a bit onerous for us even to give them a small fine. People do things frivolously, and that can be taken as reckless; therefore, we need some element of materiality in a criminal prosecution. That is why we have decided to accept the proposal made in the other place that there would need to be some issue about the release that was deserving of prosecution.
The hon. Gentleman also asked about the public becoming responsible for decommissioning. I remind him that nuclear power was initially public, which meant that there was an obvious public liability in relation to decommissioning. However, in respect of the introduction of nuclear power in the future, we have said that we are putting in place robust mechanisms to ensure that the taxpayer is protected, through ensuring that the operator securely pays sufficient funds to cover the costs of decommissioning and waste management. We have no intention of subsidising new nuclear, and that will include the costs of constructing the stations. Keeping the costs of construction under control is a matter for energy companies, not the Government.
The strength of the regime lies in the wide range of powers that we have taken. They include the power for the Secretary of State to modify a programme, issue a direction, request information, undertake reviews and, if appropriate, bring criminal proceedings to ensure compliance. The power to place bodies corporate associated with the operator under certain obligations—for example, if the Secretary of State considers that there is a risk to taxpayer protection—adds further strength to that regime. The regime is fairly robust and will ensure that we can protect the taxpayer. Having responded to those points, I hope that the House will be able to support the amendment.
Lords amendment agreed to.
Lords amendments Nos. 47 to 53 agreed to.
Before Clause 80
Lords amendment: No. 54.
This group of amendments covers a large group of areas that the Bill addresses, including: the duties of Ofgem and the related issue of access to the transmission grid for new electricity generation projects, including renewables; the ability of distribution network operators to recover the costs associated with making offers of connection to new developments; and ensuring consistency between the Bill and the existing statutory framework for energy policy.
Let me deal with this group of quite complex but important amendments. We have had a lot of debate about Ofgem and its powers during the passage of the Bill. A number of concerns have been raised, centring on the need to give sustainability greater priority in Ofgem's statutory duties and the need to address the problems of strategic investment in the electricity transmission grid in the medium and longer term, and access to the existing grid in the shorter term.
After the determination shown on the subject by Members of both Houses, we brought forward a package of amendments in the other place that we believe will address those key concerns. The first element of our proposals, in Lords amendments Nos. 54, 95, 96 and 104, is to change the Secretary of State's and Ofgem's duties in two ways. The first is by placing the words "existing and future consumers" directly into the wording of the primary duty. In the other place, the Government were persuaded by arguments that placing such a formulation of words directly into Ofgem's primary duty would be a clear signal from Parliament that it must take the needs of tomorrow's consumers into account when making decisions today. It is a key signal about the importance of sustainability in decision making.
The second change to the duties was made in response to those who wanted the Government to find a way to put consideration of sustainability on to an equal level with security of supply.
I have not left the point about Ofgem, but I was going on to the second part of it. I shall make that point and then give way to my hon. Friend.
The second change in relation to Ofgem was making sustainability equal with the issue of security of supply. Amendments Nos. 54, 95, 96 and 104 will therefore place sustainability at the same level within the hierarchy of duties as security of supply, at the top of Ofgem's list of secondary duties. We are confident that that will give sustainability more prominence in Ofgem's decision-making process, while maintaining its primary focus on consumer protection, without creating uncertainty for investment in new energy infrastructure.
In the other place, peers emphasised that their key concern was the problems that generators face in connecting to the electricity transmission grid. Before I continue on an issue in which I know Mr. Weir is interested, I will give way to my hon. Friend.
It seems to me that the way in which Ofgem was set up gives it quite strong powers. In the past, it has worked with the industry to ensure that competition was effectively delivered. We have been clear with Ofgem that we expect it to use its powers robustly in future to ensure not only that competition is effectively delivered, but that consumers are fully protected.
That needs to be done within the context of recognising that we are expecting billions of pounds-worth of investment in new generation to come from the energy companies. We are asking for vast amounts of money from them—billions of pounds—for new power stations, renewables development, wind farms and nuclear. The change in the size of the agenda is massive. Ofgem is well aware that it has a role in ensuring security of supply and a competitive market, and that the consumer is dealt with responsibly when it comes to competition. However, it must also ensure that the energy companies are able to bring forward that very substantial generation, to ensure that we have the energy that consumers need for the future.
Getting that balance right is always going to cause a lot of debate and disagreement. Ministers are supporting Ofgem, but we are also making it clear that the new Department expects it to use its powers robustly. At the same time, it must recognise that there is a wider agenda than merely keeping prices as low as possible. Recognising that agenda is desirable for all us, as the energy suppliers agreed when we met them yesterday. It is also important that we bring forward that investment and deal fairly with suppliers.
I am grateful for the Minister's clarification, because the implications of the words added to Ofgem's primary duty are quite far reaching. Is the Minister confident that Ofgem understands that this is not simply a bolt-on phrase that is being added to the primary duty, but a sea change in thinking? I ask that because whenever we have asked Ofgem to address specific commitments either to a future shift to renewable energy or to specific provisions that address the needs of the fuel poor, we have not been able to get it to go beyond its primary duty, which is delivering price competition within the market. If the poorest have had any choice, it has been simply to change supplier. What the Minister said represented a much more radical upheaval in the thinking. Does he feel that Ofgem is clear about the scale of the sea change that he has invited them to accept?
That depends how we define radical sea changes. I am sure that Ofgem is aware of the changes. We meet Ofgem officials frequently to discuss such issues, and they are aware. Indeed, more importantly, the suppliers and generators of energy will need to be aware that the requirements are part of Ofgem's remit. Therefore, when it comes to making decisions, they will have to have regard to the requirements. They are important changes, but whether they amount to a sea change or an element of radicalism remains to be seen. We have made it clear to Ofgem that we expect it to have full and proper regard to the changes when it makes decisions.
I was just about to move on to the hon. Gentleman's concern about transmission grids, but I will give way on that point.
I always find that the problem with Ofgem is simply that the guiding factor was not necessarily consumers, but its strange vision of locational charging. That everything was determined by an economic theory of locational charging was always the excuse, for example, when we approached it about difficulties with grid connections. I am not sure that the changes to bring sustainability will necessarily deal with that central problem with Ofgem.
At the time of privatisation, when the rules under which Ofgem operates were set, it was required to have regard to competition in particular. Ofgem officials have always fallen back, in my discussions with them, on that requirement. With the legislation, we are trying to clarify and emphasise some of Ofgem's roles, so that we can get it into a better position to deal with the issues, without damaging the way in which we expect companies to bring forward long-term investment.
For example, if we were to start arbitrarily changing the parameters of Ofgem's activities, investors—many of whom are from other countries and are putting large amounts of resources into the UK—would question whether they wanted such a presence. Because this market is a good one, I believe that most of them would want to be here in any event. However, there are degrees and proportions of investment, and we therefore want to ensure that we have the Ofgem rules right. We have listened with care to the arguments in this place and the other place on how to introduce issues such as the need to look after the interests of future consumers and sustainability. We have also examined how to ensure that electricity transmission issues are better addressed.
In the other place, Lord Oxburgh urged the Government to consider bringing forward a power for the Secretary of State to intervene to resolve some of the grid access issues if the current industry process to reform the codes and licences were to fail or be delayed in some way. Having given that careful consideration, we introduced amendments Nos. 55, 56, 57, 72, 76 and 102 to deal with the problem. It is vital that the industry negotiations make significant progress quickly, and that the Secretary of State should therefore be given the power to intervene only if that proves not to be the case.
These amendments will give the Government the power to amend licences and codes and will help deliver the high-level principle set out in the transmission access review. It may be used only for the purpose of facilitating access to, or efficient use of, the transmission system. The power is time-limited to two years from the date of commencement, and the Secretary of State is obliged to consult the holders of any licences that will be affected, Ofgem, and anyone else he considers appropriate.
I believe that, together, these amendments will at least assist in dealing with the issues of grid access and strategic investment, as well as helping to make sustainability a more prominent part of Ofgem's culture as it continues further to develop the work it has already done in this area. I am not presenting this to the hon. Member for Angus as a panacea; it is not. We recognise precisely what he says—that there are issues about transmission access to the grid and that they have to be resolved. That is why we sought the transmission access review to look further into how to resolve these problems, and the process to get agreement on how to deal with it is now under way. This will give the Secretary of State the ability to resolve some matters—if necessary, on the grounds that agreement has not been reached.
Amendment No. 64 was made in response to another of Lord Jenkin's proposed amendments in the other place. It introduces a new clause to give the Secretary of State a regulation-making power to provide for distribution network operators to charge up front for the work carried out in providing network connection offers.
The practice of up-front charging was until recently carried out with Ofgem's approval—until it was found to be unlawful. The Government believe that an element of up-front charging for assessment work related to large commercial projects is an efficient way of balancing the need to promote competition in the market for distribution network connections, while disincentivising speculative connection requests. What happens is we get these speculative requests, they get a slot, they crowd out those that are more definite, and it ends up with those who want access being put further down the queue. We need the capacity to charge some fees, so I believe that this is the right approach. It is envisaged that the regulations will be made, following a consultation by Ofgem to ascertain the most appropriate way of allowing these charges to be levied.
Amendments Nos. 65, 69 and 75 are technical amendments to ensure consistency between the powers in the Bill for the Secretary of State to modify licences granted under the electricity and gas Acts and similar powers in the existing statutory framework for the energy sector. I will not go any further into these amendments, but I am happy to answer any questions about them. I recommend that the House accept them.
We welcome the Government's response to recommendations made over the last few months about Ofgem's remit. We understand that it was difficult to go down the route of giving Ofgem a dual primary duty. At the end of the day, that would have meant that it had a duty to consumers and an equal duty towards sustainability. It is probably right that it is for the Government to make any decision about the balance between those two objectives, rather than devolving their power to an independent but unelected body.
We recognise the Government's sensible approach of attempting to rebalance Ofgem's responsibilities to ensure that the interests of future consumers, alongside those of current consumers, are taken into account. That will allow Ofgem to require that actions be taken now to provide for our long-term energy security and to address issues of long-term affordability as well. Generally speaking, the Minister has found a clever way through the different options put to him, and we support him in that.
We welcome the explicit highlighting of the requirement for Ofgem to take account of measures that will assist sustainable development—essentially putting at the top of the list of secondary duties a duty towards sustainability. Although that does not go as far as some might have wished—some wanted sustainability to be a primary duty—it makes it clear that it is at the top of the list of secondary duties. That is also something that we think should work effectively.
There has been much discussion—in Committee and more generally—about problems of access to the grid, especially for renewables. The current position, whereby applications have to be connected in the order in which they were applied for, is absurd. It has led to some facilities not getting a connection for years after they have been given planning consent and been built. The worst case I know of is the offer of a connection in 2022—14 years from where we are now—even though the facility will be available to run many years before that. It is right for the system to be able to take account of planning considerations and actual construction issues, and to be able to distinguish between projects that can be brought on stream at an earlier stage than others that are many years off.
It is genuinely desirable to achieve the objective through voluntary agreements and it is appropriate to see whether such agreements can work. We await with great interest the outcome of discussions between the regulator and the industry. If agreement cannot be reached, however, we simply cannot allow the situation to drift on; the Government need to have powers, so that a solution can be imposed if it cannot be found through voluntary agreement. We hope that those powers will not be needed, and that the voluntary agreement will work, but we support the Government in taking on these powers, if necessary.
We welcome the amendments in general terms, but some aspects of them are a little disappointing. Unlike Charles Hendry, I am afraid that we regret the fact that the sustainability requirement was not placed alongside security of supply as part of the primary responsibility in Ofgem's remit.
Even at the top of the list of Ofgem's secondary requirements, the definition of sustainability remains absolutely key. Unfortunately, in other Government Departments—not necessarily in this new Department—we have seen the use and abuse of the word "sustainability" in many different respects: the Department for Transport appears to believe that it is sustainable to build a third runway at Heathrow; the Department for Business, Enterprise and Regulatory Reform thought that it was sustainable to build unabated coal-fired power stations; and the Department for Communities and Local Government thinks it is sustainable to bulldoze over increasingly large areas of the countryside. The word "sustainability" is thus one that needs to be tightly defined. Luckily for the Government, one body has been very robust in its definitions and very wise in its advice—the Sustainable Development Commission. I thus urge the Department—and, indeed, Ofgem, in exercising its duty—to take its advice on the precise definition of sustainability and sustainable development.
Subsection (2) inserts the words "existing and future" in respect of Ofgem's customers. It is an interesting and clever formulation to address this issue and place it within the primary duty, but it is a little obscure and it poses the question of why we cannot one day simply value the environment in its own right, without having to regard it as a consumer entitlement of future gas or electricity customers. It is an awkward formulation, and I am not convinced that it will achieve what some of our noble Friends believed it would, as they thought it would be a completely unambiguous provision, but there is still room for some doubt about that.
In the end, we have to encourage Ofgem to look radically at pricing and payment for energy works. The reform of energy pricing should one day break the link between the increased use of energy and electricity and the profits of the energy companies. That link has to be broken in some way. We need to reflect on whether it can be done by allowing consumers to pay still more for increased use of energy or by capping the profit that an energy company can take from an increase, perhaps redistributing it as another means of tackling fuel poverty. These issues are being looked at by other regulators. Ofwat is having some interesting discussions in connection with the current price review on water, attempting to break the link between resource use and private profit. It seems to me that Ofgem should be looking into the same issue, but I am not convinced that the provisions in the Bill will be strong enough to allow that to happen.
For another example, some have advocated moving forward on the access transmission system from what is described as the "invest and connect" model to a "connect and manage" model that would prioritise connections to renewable sources of electricity and provide a structure that would guarantee a priority for low-carbon technologies and an incentive to move towards them. That has been advocated by the British Wind Energy Association—and I suppose we might say that it would advocate that, wouldn't it? But it is also supported by the Sustainable Development Commission, which is there to advise the Government independently on the application of sustainable development policy. It is through tests such as this that we will really see whether this section of the Bill is strong enough to achieve the kind of change that we want to see in the energy markets, and will support the ambitious targets for carbon reduction that we will probably be debating later this evening.
I want to make a few brief remarks on this subject. I have had many struggles with Ofgem over the years on the question of transmission charges. I genuinely welcome the amendments, which move things forward a little, particularly on up-front charges and the ridiculous situation with people having to wait years for connections. I continue to have concerns, particularly about Ofgem's state of mind on locational charging and economic theory. That was always frustrating when discussing transmission charges and connection charges with it. Earlier I mentioned the possible development of the Pentland firth and the need to strengthen the grid overall. I am not sure that Ofgem, even with this proposal, has the mindset to do that.
I say that because I well remember the last Energy Bill, during whose passage there was a lot of discussion about capping charges for access to the grid. At the end of the day, a clause was inserted into the Bill to allow one area to have capped charges. It was widely assumed at that time we were talking about the Highlands and Islands of Scotland. However, it was only the islands of Scotland on which the price cap was placed; it did not really work, and Ofgem continued on its own merry way.
I am not clear from the amendments the basis on which the Secretary of State will intervene to deal with this point, or what advice he will take before doing so. Ofgem has tended to be the organisation that advised the Secretary of State of the actions he should take, so we seem to be getting into a slightly circular difficulty with that. The measure will also last for only two years. This is the same argument with the sunset clause on the capping charges, which allowed five years, if I remember correctly, for the first development that was capped, as it was very quickly on a sliding scale. I am not convinced that this proposal will get to the root of the problem.
Having said that, I recognise that there are slight signs of change in Ofgem in recent months. I was slightly encouraged by its recent report on the energy companies, which was far from perfect but did finally show that it intended to take action on the scandal of prepayment meters. That suggests that Ofgem's mindset is beginning to change a little, but I would have liked to see something stronger to ensure that the grid was strengthened and our wide capacity for renewables would be able to connect to the grid quickly. I fear that that will be the bottleneck that will prevent the uptake of many renewable resources.
I shall respond briefly to Mr. Weir, as most of the other comments were welcome and positive. The hon. Gentleman is right to say that we need to examine transmission access, which is why we have had the review. We need to make sure that that is now put in place by consultation. Obviously, access is a difficult and a complex issue. This is not just about the way in which it is administered; it is about the actual mechanics of getting access and the cost of creating that access for the new renewables or other projects, particularly in terms of bringing renewables on to the grid. We need to make sure that, as we have a target of 2020, we create the mechanisms that enable that target to be achieved. I accept many of the points that the hon. Gentleman made, but I wish their solutions were easy; they are not. He is right to say that we must continue to work to try to resolve them.
Lords amendment agreed to.
Lords amendments Nos. 55 to 64 agreed to [some with Special Entry].
After Clause 90
Lords amendment: No. 65, to insert the following new clause— Renewable heat incentives.
Lords amendment No. 65 is decidedly good news and amendment (a) simply seeks to put a time frame around its implementation. The reason I say that it is decidedly good news is that there has been a very important shift in the thinking about how we deal with the heat part of the energy agenda. For a long time whenever Members approached Ministers on the issue, we were given the rather intriguing assurance that the Department had a "team on heat." This may have raised some eye-watering prospects as to what life was like in the then Department for Trade and Industry or Department for Business, Enterprise and Regulatory Reform, but it was not clear whether this team on heat was delivering anything.
One of the problems was that the efforts at that time were centred on trying to find an equivalent of the renewables obligation for heat. The good news about the amendment is that it represents an abandonment of that search in favour of a feed-in tariff arrangements; a production tariff, the like of which we can see in operation in other parts of Europe. I welcome that, and the important thing for us to address now is the time scale and the significance of the measure in connecting with other parts of the renewables agenda that we have already debated this afternoon.
I would like to give just a couple of examples of why it is important that we get the time frame right. Perhaps I should say in parentheses that I welcome the fact that the Government have accepted that there should be no threshold in relation to heat generation. That is a definite good move that allows us to bridge the gap that currently exists between ourselves and, for example, Germany in relation to the generation of heat from renewable sources. In the UK at the moment there are 17 biodigesters producing gas and heat. In Germany, there are 5,500. The reason for that is that the German system already has a production tariff, which allows the system to work in ways that direct heat to off-grid communities and/or to the fuel poor, while allowing it to connect to the use of biogas for electricity. That is why it is important that the Government synchronise the timetables for the introduction of this renewables-intensive programme, and that we set in the cross-party amendments the same sort of time frame that we wanted to see in place for the introduction of feed-in tariffs for electricity. Let me give some examples as to how that makes sense.
First, if a hospital, as in my own city, is considering investing in the construction of a biodigester that would take hospital waste, including food waste, and some of the biodigestible waste from other parts of the city, it will want to use that waste to create biogas, to increase its quality to biomethane and to use it to provide direct heating. In parts of the summer, when it might not require heating to the same extent, the obvious answer is to turn the excess heat into electricity. So there is an overlapping purpose: connection to the renewable energy agenda makes sense for the renewable heat agenda.
The same applies to off-grid communities and the fuel poor. I brought representatives of one of the German companies across to explain that to officials in my own city. Some of the officials in Nottingham struggled to grasp the scale of what was on offer. The Germans were able to say that, in respect of fuel poor, they could offer fixed gas prices for the entire contract period for the disposal of the biodigestible waste. In an era of ever-spiralling gas prices in the international gas market, everyone who can offer, in real terms, fixed gas prices by taking what is currently a problem—biodigestible waste—and turning it into a fixed-price resource is almost offering a winning lottery ticket. Against the criteria of how we address the needs of the fuel poor and those of off-grid communities, such schemes in many respects offer a potential that is at least as large as the capacity to generate renewable electricity and place it in the context of renewable gas and heat. The point of amendment (a) is simply to say that, if we seek to remove confusion, it would be phenomenally helpful if the schemes for both could be synchronised.
I do not want to be dogmatic given that, if I were to turn the argument around slightly, it would be disastrous to hold back one scheme just because the final details were not in place for the second. However, it is still legitimate for us to say that, as we think about the time scales for electricity, it makes sense for us to try to synchronise them with the time scales for the introduction of renewable heat incentives. In many cases, the same companies, communities and localities will be at the heart of that investment planning. So if we are to offer a genuinely joined-up approach to our renewables strategy, it would be helpful to have the same sort of time scale according to which we seek to deliver them.
I do not want to go into the arguments that we have rehearsed in relation to the details of the scheme and the tariffs that would apply, but the principle of synchronising timetables is one that, I hope, we can commit ourselves to, and I hope that the Minister, even if he cannot accept amendment (a), can give assurances that that is the Government's intention as they seek to motor on both of those important fronts.
I associate myself very much with the remarks that we have just heard from Alan Simpson. We welcome greatly the distance that the Government have already travelled on this issue. In Committee, we were told that this was a step too far, and there was a sense that we would fail to include any aspect of heat in the Bill. It shows how far the Government have moved that we are considering in more detail today a proposal that was put into the Bill in the other place.
There is no doubt that the issue has been overlooked for too long. About half the energy consumed in the United Kingdom is in the form of heat, and its generation is responsible for about 47 per cent. of our carbon emissions, so it must be a crucial part of the Government's carbon abatement programme. But all too often, it has been easy to overlook the importance of heat, because many different households are involved, it is complicated and the solutions have been less easy to consider than in other parts of energy policy. However, we are glad that the Government have sought to address the issue and have made progress on it.
I very much endorse what has been said about the need for a clearer time scale. The concern is that we are moving in the right direction, but we do not know at what speed or when we might arrive at the conclusion that we want to reach. It is also right that there should be no threshold and that we should be thinking big and have big visions about what can be achieved. Clearly, any such threshold would have been regrettable.
Just a couple of weeks ago, I visited a plant just outside my constituency that is operated by Southern Water and that takes all the waste from Burgess Hill and puts it through a very advanced, sophisticated system—the waste is put into a digester; the biogas that comes off is collected in a huge balloon and is used to power the generator; and the heat from the generator goes back to the digester and is used to assist the digestion process. It is very neat process. The only thing that is missed is the extra heat that is emitted as part of firing the boilers, which means that, as a result, some heat escapes into the atmosphere. The final link would be to capture that heat and supply it to businesses or homes that need extra heat.
Lots of individual parts of the solution are being thought about, but what is sometimes missing is the element of joined-up thinking that draws them all together and makes it all happen in the manner that we want. I hope that the Government can give us some more detail, particularly on the time scale, because if investors and consumers want to get involved, they need greater clarity.
There is also concern that the Lords amendment does not indicate the nature of the tariff and whether it can be varied according to technology types and energy sources. The Renewable Energy Association is concerned that the Lords amendment excludes biodiesel, as it refers to biogas and biomass. There is concern that it could be extremely problematic to have a definition of biomass in primary legislation for the first time that is possibly inconsistent with existing support mechanisms. The Renewable Energy Association suggests that the safest approach would be to use the definition of biomass found in the current renewables directive and the draft 2008 version.
Biomethane is defined as gases produced by renewable sources, but it is possible to produce methane from biomass, and it looks as though that process may have been inadvertently left out.
We generally welcome the fact that the Government have decided to accept the recommendation that heat should be addressed in the Bill, but there is an element of disappointment that things have been left so vague, especially with regard to the timing.
I welcome the inclusion in the Bill of the renewable heat incentive and support amendment (a), which, again, tries to set a timetable. I will not repeat all the points that were made on the timetabling of the feed-in tariff, but they apply in precisely the same way.
The Minister may well say that this is a much more embryonic thing and that it has been subject to less thought, less discussion and so on. I understand that point, but an explanation would be helpful to those in the outside world who watch these debates—I imagine that someone does—and who might like to know the direction of the Government's thinking. I certainly realise that I am very hazy about what the renewable heat incentive might look like. I was trying to probe that a bit in the debate on the ways and means resolution. If I install some sort of renewable heat project, I can expect some sort of financial return. I am slightly hazy about what and how much it might be and so on.
My understanding of the Government's thinking from the ways and means resolution is that the scheme will probably be funded by a levy on the energy companies and fossil fuel generators. Essentially, Ofgem would introduce a levy and take money from the generators. That money would presumably go to the Treasury and become a Government grant to renewable heat producers. If the Department already knows that that is roughly the model that it is considering, it would help those in the world outside who might be thinking of going into such things to understand what sort of support they might get, just in very broad terms. I understand that the Minister does not yet know the detail.
Again, on timing, as Charles Hendry says, we are talking about something that is a huge part of our overall energy mix and that could be a big part of our renewable energy targets by 2020. According to figures from the National Grid Company which I am sure the Minister has seen, in what might be described as a "stretch scenario", an amount approaching 10 per cent. of our 15 per cent. target for 2020 could come from renewable heat, gas on the grid and the like. The scope for that seems enormous.
Given that, as the Minister said, 2020 is only a little over 11 years away, it is worrying that Lord Hunt was so vague about how long all this would take. It would be very worrying if there were any unnecessary delay. I hope that the measure can be introduced at the earliest possible opportunity, but failing that, I hope that the Minister will paint even the most broad-brush picture showing what a scheme of this kind would look like.
This is a strange moment for me. I warmly welcome the amendment, not least because on the one occasion when I managed to get near the top of the ballot for private Members' Bills, I introduced a Bill providing for a renewable heat obligation. That Bill, which was drawn up by Friends of the Earth, was talked out. I also sponsored a Bill promoted by Mark Lazarowicz providing for a renewable heat obligation. As I recall, that obligation was dropped from the Bill because of staunch opposition from the Government. I am delighted that times have changed, and that the renewable heat obligation is now becoming part of the Energy Bill.
I agree wholeheartedly with Alan Simpson. The amendment shows how much the debate has moved forward in the last few years. I appreciate that the scheme is at an embryonic state, but if it can be made to work, it has the potential to contribute a great deal to our fight against carbon emissions and many other problems, not least fuel poverty. I welcome the Government's change of heart, although it has been some years coming.
If we are to meet the 2020 EU target on renewable energy, substantial amounts of renewable heat will be required, as well as an expansion of renewable electricity and transport fuels. We estimate that, to meet the United Kingdom's renewable energy target of 15 per cent. by 2020, we will need to obtain not 10 per cent. of heat from renewable sources—as I believe was suggested by Steve Webb—but about 14 per cent.
At present, the renewable heat sector is very small. The Government accept that financial support is necessary for investment in renewable heat, and creating the right financial incentive will be important in helping us to meet our 2020 renewables targets. The powers in the amendment will allow the Secretary of State to establish a financial support system for the renewable heat incentive.
The purpose of amendment (a) is to get the Government to specify a time scale. I understand why information should be required—Charles Hendry rightly said that people would need it so that they could take a view—but because heat, including renewable heat, is a new and potentially complex area of policy, it will take some time to make the necessary arrangements. A new Department with a new agenda has made a series of changes to the Bill at quite a late stage, and, understandably, a good deal of work on the details of the policy remains to be done.
To an extent, we have a picture of what we want to do. We want to enable those who generate heat to be paid from a levy to be imposed on those who supply fossil fuel for the purpose. The funds created by the levy will be used to support the production of renewable heat. That formulation, however, does not take us far enough. We could do this through the Treasury, through something more like the renewables obligation or through a direct mechanism like a feed-in tariff, which I think would be preferable. We need to think about the details, and discuss them not only with the industry but with all the potential beneficiaries.
Stakeholders have recognised the complexities involved in developing new policies in a sector in which there are much more players and issues to consider than there are in the electricity sector. It will take time to work out the implications of a move to the heat market, and how best to provide incentives for renewables. As was pointed out by both my hon. Friend Alan Simpson and the hon. Member for Wealden, people want to know about the timetable. We plan to introduce the renewable heat incentive as soon as possible, and hope to be able to set out a robust timetable in the new year. However, a good deal more policy work will be necessary before we can do so with much precision.
Can we do this at the same time as introducing the new feed-in tariffs? Clearly the two schemes will have to work side by side, and clearly it will be important to provide a single interface for generators who will want to benefit from both schemes. Heat is a complex issue, and considerable time will be required for the development of the strategy. However, we must find a way of providing the two financial incentives together, so that people can benefit from both.
The Minister accepted earlier that it might be necessary to accelerate rules on smart meters in relation to new build. Ground source heat pumps are obviously a viable technology for new build. Would he be interested in a variation of the heat incentive, perhaps on an accelerated time scale, which might encourage the use of ground source heat pumps in such buildings?
I am tempted by that suggestion, but I would want to be a little cautious about it. The hon. Gentleman talks of creating a financial incentive just for new build, but we cannot create a separate incentive. If we are not ready to create the broader, main incentive, we will not want to rush into that, although the hon. Gentleman is right to suggest that it would probably be easiest to introduce an incentive relating to new build first.
We will produce a robust timetable as soon as we can—by the new year, I hope—and we will then be in a position to give a clear indication of when the scheme will be introduced. It is more difficult and complex than feed-in tariffs. I wish I could assure my hon. Friend the Member for Nottingham, South that we will be able to introduce it all at the same time in 16 months, but I cannot do that. He will have to accept that the new Department and the Government have come a long way. We have tried to produce the Bill in an open and straightforward manner, and to show that a clear direction of policy is developing in regard to renewables and energy in general. I hope that on that basis, despite my acknowledgement of the lack of a precise timetable, my hon. Friend will support the Government rather than pressing his amendment.
I welcome the Minister's declaration of his intention to come back with an outline of a scheme in the early part of the new year. I accept the good will and good faith of his commitments, and I simply ask him to bear in mind two time deadlines.
Simply because this issue is new for his Department does not mean that it is new per se. Germany has already committed that by 2020 it will have developed such matters to a point where it will be economically non-dependent on Russian gas. In our own context, by 2010 when the European Union waste directive is applied to local authorities, many will face huge increases in charges for disposal of biodegradable waste, and I should think they will be looking for the sort of initiative that is to be found on the continent as a way to address such problems. If the Minister can grasp this opportunity and harness it to his enthusiasm, the House will be well served.
On the basis of the assurances, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lords amendment No. 65 agreed to [Special Entry] .
Lords amendments Nos. 66 to 105 agreed to [one with Special Entry].