Renewables Obligation Closure Etc. (Amendment) Order 2016 - Motion to Approve

Part of the debate – in the House of Lords at 8:00 pm on 16th March 2016.

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Photo of Lord Grantchester Lord Grantchester Shadow Spokesperson (Energy and Climate Change), Shadow Minister (Environment, Food and Rural Affairs) 8:00 pm, 16th March 2016

My Lords, it is becoming an all too familiar situation on energy policy that once more there is another order before your Lordships’ House that severely limits the UK’s renewables industry, the mishandling of which, once more, has left confidence among investors in the sector further damaged.

The draft instrument today contains severe restrictions on the deployment of solar schemes of 5 megawatts or less under the RO regime. For solar it is another blow on top of the 65% cut to the rate of feed-in tariffs that your Lordships debated barely a month ago. As was said then, in the wake of the Paris agreement on climate change, the Government are sending out a terrible mixed message with another sudden and severe policy change, risking cutting off the sector at its knees rather than supporting its gradual glide path to being subsidy-free.

Today we will join the noble Baroness, Lady Featherstone, in her amendment to the Motion on the order. She is of course correct in her appraisals. Today the Government are not being technology-neutral as regards solar power. Having closed the RO to schemes above 5 megawatts on 31 March 2015, the extension to close the RO to 5 megawatt schemes and below, yet without access to the contracts for difference auction system, means that solar projects above 1 megawatt are now in effect without support, with no route to market.

The Government will spend just 1% of new expenditure on low-carbon projects under the levy control framework on solar power in each of the next three years. As solar is next to onshore wind as the cheapest major renewable power source and by far the most popular, this demonstrates a failure to understand the long-term cost benefits and the value for money it provides. According to the Government’s impact assessment, the extra-budgetary impact is likely to be less than £1 on household bills. In the context of the challenges of decarbonisation, while we all wish to keep consumer bills down and to be at least cost, this is being short-term penny wise and long-term pound foolish.

Your Lordships’ Secondary Legislation Scrutiny Committee has highlighted the Government’s mishandling and exposed the extent of the industry’s lack of belief in a department, which was not brought out in the Government’s own Explanatory Memorandum. In the two workshops the department undertook not only were overwhelming numbers opposed to the proposed package of measures but respondents questioned the rationale for the proposal because no evidence was provided to detail the breakdown of the LCF overspend, that it was due to solar overdeployment. Furthermore, there was a lack of trust in the department’s deployment forecasting. Not only is the industry challenged with sudden changes but it has no faith in the department’s competence and rationale for the action it is taking.

One of the damaging features of the order is not that the RO is closing from 1 April 2016 but rather that it effectively closed from 22 July 2015, with grace period allowances for projects with preliminary accreditation to be completed. This was the date of the opening of the consultation, so there was no warning before decisions were taken. Many schemes coming forward in good faith, with expenditure having been undertaken, were suddenly ruled out, however credible and beneficial they were.

If all this is not regrettable enough, a few items in this order need to be highlighted as even more regrettable. Once again, I highlight how this order, being an SI, is unamendable, in contrast to the early closure of onshore wind, which is amendable because it is in the Energy Bill. They are eminently similar provisions, yet the most pernicious aspects of this order cannot be changed.

One aspect of the post-consultation decision is to remove grandfathering from solar PV projects at 5 megawatts and below that were not accredited as of 22 July 2015. Rather curiously, this has not been commenced and is not included in this order. This is most confusing. As it was question 4 in the consultation, can the Government please now outline their intention in regard to grandfathering? The Explanatory Memorandum was unclear. Many respondents to the removal of grandfathering considered that without it, projects were uninvestable. Can the Minister clarify the position and state why this was left hanging from the order and whether removal of grandfathering will apply more widely than to solar technology?

Also regrettable is the inclusion of community energy schemes in the order. The noble Baroness, Lady Featherstone, is correct to include this aspect in her amendment. Community schemes widen the benefits of renewable deployment, encouraging individual households which want to do the right thing and do their bit towards combating climate change.

A wider consequence of the order is to underline the unsatisfactory nature of the levy control framework. The Minister will know that there is a call for full transparency on the LCF, given that the Government are using this budget estimate as a defining characteristic in their policy, while its opaqueness undermines the Government’s case in arguing that customers’ bills are being kept down to a minimum. Furthermore, the lack of detail on the LCF from 2020—which at the moment is left unclarified—is another cause for concern to those attempting to plan their inevitably longer-term projects for the future.

This measure damages the progress made towards low-carbon renewables. It is short-sighted, bad for business and bad for the environment. It is also bad for Britain. It is yet another in a series of policy announcements and changes that signal a significant change of direction in low-carbon energy policy. It again raises serious questions for investors—so much so that the Energy and Climate Change Committee conducted an inquiry, which has recently reported and raises severe issues for the Government to address. In relation to this order I will quote one sentence:

“We call on the Government to set out clearly the purpose of the LCF and to explain why the Capacity Market is not currently included, when it is clearly an electricity policy that results in levies on consumers’ bills”.

Damaged investor confidence drives out investment, raises the cost of capital and increases customers’ bills. If the Government are focusing on the levy control framework as the determining factor in low-carbon energy technologies, it is vital that the framework becomes coherent with the utmost urgency. That they have not done so is of the greatest regret.