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Report (3rd Day)

Part of Infrastructure Bill [HL] – in the House of Lords at 8:00 pm on 10th November 2014.

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Photo of Baroness Verma Baroness Verma The Parliamentary Under-Secretary of State for Energy and Climate Change 8:00 pm, 10th November 2014

My Lords, as noble Lords know, this Government are committed to ambitious action to reduce carbon emissions and increase renewable energy generation in the UK. To this end, the non-domestic renewable heat incentive was introduced in November 2011 and followed with a domestic scheme in April this year. These schemes are the world’s first long-term financial support programmes for renewable heat. Switching to renewable heat can in some circumstances bring significant bill savings to businesses and households and helps the Government meet their challenging targets on climate change.

The government amendment before the House responds to one tabled by the noble Baroness, Lady Eaton, in Grand Committee, on which I undertook to return to noble Lords on Report. The new clause proposes three changes to Section 100 of the Energy Act 2008, which provided for the creation of the schemes. I shall take each of the changes in turn. As noble Lords will be aware, administration of the schemes is currently limited to either Ofgem or the Secretary of State. While Ofgem is successfully administering both schemes, our inability to run a competitive process is a constraint on achieving best value for money. The Government, therefore, signalled their intention to seek the necessary legal powers to enable an alternative administrator to be appointed in their consultation on the domestic scheme in 2012.

Ofgem will continue to administer the scheme for the time being and in making this change the Government will retain the power to appoint Ofgem to administer the scheme in the future. The ability to appoint a new administrator means that the Government will require the flexibility to adapt the appeals processes to any new administrator and to ensure that these remain robust. The amendment therefore also allows the Government to make regulations covering dispute resolution through appeals processes.

The second change deals with payments. Payments under the scheme must currently be made to the owner of the renewable heat installation or to the producers of biomethane, biogas and biofuels for heating. The amendment will allow the schemes to be redesigned to mean that these parties can have the option to assign their payments to a third party. For the domestic scheme, this would mean that the upfront cost of renewable heating systems could be funded by third parties for households unable to afford them, with scheme payments then made directly to the third party, making this an attractive opportunity for investors. For the non-domestic scheme, assigning rights to payments may allow for simpler financial arrangements between parties, reducing the costs of, and barriers to, the installation of renewable heating. By incentivising new funding arrangements, this change could lead to an increase in both demand for and supply of renewable heat technologies and a mix of higher deployment and lower costs.

Implementing changes would require secondary legislation, on which we intend to engage with stakeholders. In making any changes, we will also work with the scheme administrator and other parties to ensure appropriate design of the consumer protection framework and to integrate the assignment of rights into the schemes existing cost control mechanism.

The amendment would also allow some changes to the schemes to be made by the negative resolution procedure. At present, all changes must be made by the affirmative procedure, regardless of their complexity or materiality. In practice this is much slower than the negative procedure. The Government have found that their inability to make changes to the schemes quickly, in response to market changes and other factors, may risk undermining confidence in them. For example, we cannot update regulations quickly to allow them to reference updated technical industry standards.

The amendment tabled by the noble Baroness, Lady Eaton, proposed that all secondary legislation in relation to the schemes be made by the negative procedure. I have considered the comments made in Grand Committee in response to that proposal. The amendment now before us aims to achieve greater flexibility while still ensuring appropriate parliamentary scrutiny. It stipulates that some uses of the powers in important areas remain subject to the affirmative resolution procedure. For example, this would include making provision covering sanctions, enforcement and appeals, establishing requirements on fossil fuel suppliers to fund the renewable heat incentive, or amending Section 100 of the Energy Act to change the general type of heat-generating methods that can be funded through the scheme.

For other powers, the amendment stipulates that the first use of the power should be via the affirmative procedure, but allows for use of the negative resolution procedure for subsequent uses of the power in relation to the same scheme. This will allow for appropriate scrutiny where powers are first used, such as to provide for assignment of payments in the schemes, but means that minor subsequent changes can be made by negative resolution.

The Government expect that future changes to the existing schemes are likely to be straightforward and uncontroversial—for example, measures to reduce red tape, or technical changes to allow the schemes to keep pace with market innovation. I do not consider use of the affirmative procedure necessary in these circumstances. The negative procedure, while still allowing for adequate parliamentary scrutiny, provides flexibility to address issues as they arise, rather than delaying matters while suitable legislative opportunities are sought.

Together, these changes will allow significant improvement in the efficiency and cost-effectiveness of renewable heat incentive schemes, allowing the UK to meet its carbon reduction and renewables targets, while also making efficient use of taxpayers’ money. I beg to move.