My Lords, I beg to move that the Commons amendment be now considered.

Moved accordingly, and, on Question, Motion agreed to.

commons amendments

[The page and line references are to HL Bill 52 as first printed for the Lords.]

Motion A

Insert the following new Clause-

"Feed-in tariffs: electricity

(1) The Secretary of State may modify-

(a) a condition of a particular licence under section 6(1)(c) or (d) of the Electricity Act 1989 (c. 29) (distribution and supply licences);(b) the standard conditions incorporated in licences under those provisions by virtue of section 8A of that Act;(c) a document maintained in accordance with the conditions of licences under section 6(1) of that Act, or an agreement that gives effect to a document so maintained.

(2) The Secretary of State may exercise the power in subsection (1) for the purpose only of-

(a) establishing, or making arrangements for the administration of, a scheme of financial incentives to encourage small-scale low-carbon generation of electricity;(b) requiring or enabling the holder of a distribution licence to make arrangements for the distribution of electricity generated by small-scale low-carbon generation;(c) requiring the holder of a licence to make arrangements related to the matters mentioned in paragraph (a) or (b).

(3) Modifications made by virtue of subsection (1) may include-

(a) provision requiring the holder of a supply licence to make a payment to a small-scale low-carbon generator, or to the Authority for onward payment to such a generator, in specified circumstances;(b) provision specifying how a payment under paragraph (a) is to be calculated; (c) provision for the level of payment under paragraph (a) to decrease year by year in accordance with a formula published, or to be published, by the Secretary of State;(d) provision about the circumstances in which no payment, or a reduced payment, may be made to a small-scale low-carbon generator;(e) provision about the circumstances in which a payment may be recovered from a small-scale low-carbon generator;(f) a requirement for the holder of a supply licence or distribution licence to pay a levy to the Authority at specified times;(g) provision specifying how a levy under paragraph (f) is to be calculated (which may require specified matters to be determined by the Authority or the Secretary of State);(h) provision conferring an entitlement on the holder of a supply licence or distribution licence to receive a payment from the Authority.

(4) In this section-

"Authority" means the Gas and Electricity Markets Authority;"distribution licence" means a licence under section 6(1)(c) of the Electricity Act 1989 (c. 29);"owner", in relation to any plant which is the subject of a hire purchase agreement, a conditional sale agreement or any agreement of a similar nature, means the person in possession of the plant under that agreement;"plant" includes any equipment, apparatus or appliance;"small-scale low-carbon generation" means the use, for the generation of electricity, of any plant-(a) which, in generating electricity, relies wholly or mainly on a source of energy or a technology mentioned in subsection (5), and(b) the capacity of which to generate electricity does not exceed the specified maximum capacity;"small-scale low-carbon generator" means an owner of plant used or intended to be used for small-scale low-carbon generation, whether or not the person is also operating or intending to operate the plant;"specified maximum capacity" means the capacity specified by the Secretary of State by order, which must not exceed 3 megawatts;"supply licence" means a licence under section 6(1)(d) of the Electricity Act 1989 (c. 29).

(5) The sources of energy and technologies are-

(a) biomass;(b) biofuels;(c) fuel cells;(d) photovoltaics;(e) water (including waves and tides);(f) wind;(g) solar power;(h) geothermal sources;(i) combined heat and power systems with an electrical capacity of 50 kilowatts or less.

(6) The Secretary of State may by order modify the list of sources of energy and technologies for the time being listed in subsection (5).

(7) The power conferred by subsection (1)-

(a) may be exercised generally, only in relation to specified cases or subject to exceptions (including provision for a case to be excepted only so long as specified conditions are satisfied);(b) may be exercised differently in different cases or circumstances; (c) includes a power to make incidental, supplemental, consequential or transitional modifications.

(8) Provision included in a licence by virtue of that power-

(a) need not relate to the activities authorised by the licence;(b) may make different provision for different cases."

Line 64, leave out "3" and insert "5"

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 42A to Lords Amendment No. 42.

As noble Lords will know, an upper-capacity cap for the feed-in tariff scheme has been defined in the Bill to give clarity and certainty to investors in large-scale projects under the renewables obligation. Our original amendment set an upper cap in the Bill of 3 megawatts. As I said when I first introduced the feed-in tariff clause, we want the upper cap to be high enough to give us sufficient flexibility to ensure that we are able to direct support to small-scale projects at the right capacity.

Since the debate we have reflected more on the arguments put forward by noble Lords and other interested parties that the upper limit on this power gives enough flexibility for us to ensure that appropriately sized smaller-scale projects are effectively incentivised to come forward. We still believe that setting this limit as high as 10 megawatts, which was the subject of an amendment tabled by the noble Baroness, Lady Young, would be too disruptive to larger-scale renewable investments under the renewables obligation. Having listened to the debate in your Lordships' House and to other considerations in which we have taken part, we think that it would now be prudent to set the upper limit at 5 megawatts. If further analysis and evidence gathers support, this higher upper limit would give us the flexibility to implement a feed-in tariff to support smaller-scale projects up to a possible maximum capacity of 5 megawatts.

Noble Lords will be aware that we have a power in the Bill to set the upper cap below this maximum level. As part of the process for consulting on the details of this scheme we will undertake further analysis to determine the limit at which the feed-in tariff should be set below the 5 megawatt cap. Our guiding principle in following the capacity cap has been to preserve the investment being successfully delivered by the renewables obligation. This is very important since the renewables obligation will remain the key mechanism for supporting large-scale renewable projects. I reassure noble Lords that 90 per cent of onshore wind capacity to date is delivered by projects above the 5 megawatt limit that is now proposed on the feed-in tariff.

I should also say that as part of the Pre-Budget Report this week, we announced our intention to strengthen the renewables obligation by extending the scheme by 10 years beyond its previous end date of 2027. This is to ensure that investors can plan with confidence for the future, making renewable electricity investment more viable and helping us to achieve our renewable energy targets.

I hope that noble Lords will consider that this amendment moved by the Government in another place is sensible. It reflects listening to the views of noble Lords in this House and in the other place. I believe that it gets the balance right between the renewables obligation and feed-in tariffs. Clearly a considerable amount of work now needs to be undertaken on the practicalities, but we think that this is a sensible amendment which I commend to noble Lords.

Moved, That the House do agree with the Commons in their Amendment No. 42A to Lords Amendment No. 42.—(Lord Hunt of Kings Heath.)

My Lords, I do not wish to oppose the amendment because the proof will be in the outcome. I am glad to see the Minister nodding at that. Noble Lords will remember that on Third Reading I tabled an amendment to reduce the figure to 1 megawatt. I was therefore somewhat surprised to find myself being demonised, if I may put it that way, by one or two speakers in the other place who accused me of trying to sabotage the feed-in tariff scheme. One honourable gentleman quoted what I said, which I am surprised to find is in order in that House. Under our rules, I am not at liberty to quote what he said. But I can say that I made my intention very clear when moving the amendment when I said:

"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".—[Hansard, 5/11/08; col. 239.]

That is still my position and I hope that those at the other end who bother to read the Official Reportof this place will recognise that demonising me was perhaps not wholly appropriate.

However, I still have a question, which is the same question that the noble Lord, Lord Teverson, asked at Third Reading. How do the Government intend to use their power to fix different caps for different circumstances? The noble Lord, Lord Teverson, got a rather dusty answer when he asked that question, but I cannot help feeling that now that the Government are raising the maximum cap to 5 megawatts they must now have some idea of the circumstances in which a lower cap would be appropriate. The House will remember that I quoted observations from the very small company that was pressing for a very low cap because it felt that if it were too high it would lose out. It does very small renewable energy projects, at the domestic level and just above it. There must be some way in which the Government are going to differentiate and use their powers to fix different caps for different circumstances in the feed-in tariff. I do not wish to go on at length because there is an important debate to come and other noble Lords may wish to say a word. I hope that in his reply the Minister will be able to enlighten the House about how that is going to be done.

My Lords, we on these Benches welcome this move. However, I get the impression that if it were not for Prorogation, we might be back next week and the cap would be 10 megawatts and we would keep on going backwards and forwards. At least we now know that the figure is 5 megawatts. I am sure that the Minister will agree that the industry and the sectors involved need to know what the cap and the timescales will be for which bits of those sectors. Given the urgency of the renewable energy programme, we are all concerned that there should be that certainty and that there should not be a pause in investment, which would damage those long-term aims, because no one knows which rules apply under 5 megawatts. I would love to hear exactly how the Minister foresees that happening and in what timescale, but I think he will be less than exact. As the Government have made these important decisions, I press them to get on with designing the scheme to let everybody know the rules of the game so that investment can take place.

My Lords, as one of the protagonists who tried to change the Government's mind on feed-in tariffs, I welcome their conversion during the progress of the Bill. I also welcome, in a lukewarm manner, the 5 megawatt limit. Like others, I argued that there is no need for a limit, not because we wanted to undermine the ROC scheme—we believe in it—but because there are different sorts of users who are likely to use the feed-in tariff mechanism and therefore the two could coexist. The majority of such users will benefit from a 5 megawatt limit. For example, community schemes, farmers, single site operators and so forth will greatly benefit from the Government's move. While I understand that the Government need a bit of flexibility in case special cases arise, I hope that they will not make it too complicated by setting different limits for different sorts of application. Subject to that, I welcome the move upwards, and I believe that we will see schemes in this range that we would not have seen if we had not argued and convinced the Government of the need to include feed-in tariffs in the Bill. I congratulate the Government and, in particular, the Minister's new department for seeing the light on this issue.

My Lords, the new clause after Clause 40 includes some important delegated powers. The scheme was proposed very late, so the Delegated Powers and Regulatory Reform Committee has not had a chance to consider them. The powers include powers in subsection (6) to amend primary legislation in subsection (5), so I would expect the affirmative resolution procedure to be used to approve such an order. I am not clear whether that will be the case. Can the Minister say how the powers will be exercised?

My Lords, I am pleased to see that the Government have seen the light, as the noble Lord, Lord Whitty, would have it, and moved towards greater flexibility, as our original amendment would have provided. As the Bill has progressed, we have had several debates on the level of the cap and it is clear that there is no level that will please everyone. However, I am pleased to see that the Government have ensured that the cap is high enough to make community schemes possible. I look forward to hearing more from the Minister as further details emerge about the implementation of the feed-in tariff.

The arrival of the noble Lord, Lord Hunt, mid-Bill, when the Government had their change of heart and established a new department, was very welcome. That has allowed them to reassess the mood of the country and of this House and to agree to the inclusion of the feed-in tariffs and smart metering. That has improved the Bill immeasurably, enabling your Lordships' House to fulfil its commitment to help the Government get their business and to improve legislation.

My Lords, I thank noble Lords for their contributions to this short but important debate. In particular, I thank the noble Baroness, Lady Wilcox, for her remarks. Since I have taken part in our debates on the Bill from Report onwards, I have been struck by the constructive way in which they have taken place. Bringing this amendment to noble Lords today reflects that. I would say to the noble Lord, Lord Teverson, that even if we were bouncing back and forth, 5 megawatts would have been the settled view of the Government on the matter.

I say to the noble Lord, Lord Goodhart, that we are not debating the insertion of the new clause as that went through at the previous stage; we are debating whether 3 megawatts or 5 megawatts should be the limit. I thank him and his committee for their comments. I well understand the difficulty for the committee because many amendments to the Bill were laid at a late stage. I understand that that has not always enabled the committee to report to your Lordships' House in the time that it would wish, but that has been because the Government have listened to the debates in this House and the other place. I am grateful to him and can confirm that the orders will be in the affirmative.

My noble friend Lord Whitty has always preferred for there to be no limit at all, but he will know that we have always thought that there ought to be a limit if we were to introduce feed-in tariffs, because it is essential that investors have certainty. Defining an upper limit at this stage gives investors the certainty required.

I know that noble Lords now wish me to fill in the details of how the tariff will operate, where the cap will be set in relation to different technologies and whether there will be specific differentiation. I hope that I am not going to give to the noble Lord, Lord Teverson, and others what the noble Lord, Lord Jenkin, described as a dusty answer. I will try to give as much detail as possible. However, a lot of work needs to be undertaken before I can give definitive answers. Very simply, the Government decided only a few weeks ago to accept the principle of feed-in tariffs. That is why we need to undertake considerable work on this matter. I very much understand the need for action to be taken as quickly as possible and investors' need for certainty. I recognise that we need as quickly as possible to help projects that might be regarded as transitional and to tell them whether they are likely to come under the renewables obligation or the feed-in tariffs and what the transitional arrangements should be.

In the first half of 2009, we are launching our renewable energy strategy. We will then submit our more detailed proposals on feed-in tariffs for small-scale low-carbon electricity and on incentives for renewable heat, which we have also introduced in the Bill. In the light of those decisions, we will be in a position to set out in detail the expected contribution of on-site generation alongside other kinds of electricity and heat generation. I well understand the need for us to give certainty in these matters as quickly as possible.

It is then our intention to consult next summer on the detail of the regime, including proposals for tariff levels. In recognition of the need to make rapid progress towards the 2020 EU renewable targets, we aim to have the feed-in tariff system in place in 2010. Our ideal target is for the scheme to go live in April 2010 so that it can be aligned with the financial year of the renewables obligation. We well understand that investors and all those with an interest need speed and certainty, but delivering a fully operational scheme in a little over 16 months is a considerable challenge. We will do everything that we can to meet the target, but it is clearly important that we get the details right as well.

I have found the contributions of the noble Lord, Lord Jenkin, to be most constructive and helpful, and I look forward to debating these highly important energy matters with him in the months and years to come.

On Question, Motion agreed to.