Feed-in Tariffs (Closure, etc.) Order 2018 - Motion to Regret

Part of the debate – in the House of Lords at 7:15 pm on 4th March 2019.

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Photo of Baroness Vere of Norbiton Baroness Vere of Norbiton Baroness in Waiting (HM Household) (Whip) 7:15 pm, 4th March 2019

My Lords, I thank the noble Baroness, Lady Jones of Moulsecoomb, for securing this timely and important debate on the future of small-scale low-carbon generation. I also thank the right reverend Prelate the Bishop of Salisbury for his measured, thought-provoking and sometimes hopeful speech. It was certainly a very welcome contribution.

By way of context, the UK is a world leader in cutting emissions while creating wealth. Between 1990 and 2017, the UK reduced its emissions by over 40% while growing the economy by more than two-thirds—the best performance in the G7 on a per-person basis. According to PwC, the UK has decarbonised its economy at the fastest rate of any G20 country since 2000.

The feed-in tariffs scheme, introduced in 2010, alongside other government schemes, has been instrumental in enabling the UK to build a successful renewables industry in support of this rapid decarbonisation effort. Indeed, renewables accounted for 33.1% of generation in Q3 2018—the highest ever share—and the UK achieved a record 76 hours of continuous coal-free electricity generation in April 2018. Through partnerships with business, we are both tackling climate change and moving to a smart, low-carbon energy system.

We are working with industry to develop an ambitious sector deal for offshore wind, which could result in 10 gigawatts of new capacity, with the opportunity for additional deployment, if this is cost-effective, being built in the 2020s. We have also supported the deployment of new renewable technologies by investing up to £557 million in contracts for difference. Alongside this, and irrespective of the closure of the FiT scheme to new entrants, which was announced in 2015 and comes into force on 1 April 2019, installations already on the scheme will continue to receive support in accordance with the terms they received on joining. We recognise the need to go further, building on our remarkable progress in cutting emissions from electricity. The Clean Growth Strategy sets out our plans through to 2032, including ambitious proposals on smart systems, housing, business, transport, the natural environment and green finance.

We are delivering a smart and resilient energy system fit for the 21st century that will benefit every home and business. Small-scale generation and battery storage can play a crucial role in cutting carbon emissions as part of this smart, flexible and efficient system, both reducing local demand and providing clean power into the grid when it is needed. But, as the Secretary of State for Business, Energy and Industrial Strategy set out in his lecture “After the trilemma—4 principles for the power sector”, consumers of all types should pay a fair share of system costs. While government must be prepared to intervene to provide insurance and optionality, wherever possible we must use market mechanisms to take full advantage of innovation and competition.

In this context, it is worth reflecting on the success of the feed-in tariffs scheme and the reasons it is no longer aligned with the Government’s vision for a smarter, flexible energy system that minimises support costs to consumers. The scheme has made an important contribution to renewable generation and it outstripped predictions. It generates enough electricity to power 2 million homes. Since 2010, the scheme has supported over 830,000 installations and been instrumental in helping to grow the small-scale low-carbon sector. Our support has contributed to lowering the cost of renewable energy significantly. However, to date over £5.9 billion has been spent through FiTs to support small-scale renewables, and over £30 billion is expected to be spent in continuing to support the existing installations over the scheme’s lifetime. All bill payers share these costs, and the FiT scheme currently adds £14 a year to the average household energy bill, at a time when the focus is also on reducing average bills.

This consumer-funded subsidy model does not align with the wider government approach to minimising support costs on consumers. Take solar as an example: 99% of FiT schemes are solar PV. The support these installations receive comes directly from consumer bills; as hardware costs fall, it is vital that we control the impact on bills and move towards subsidy-free solar deployment.

Furthermore, looking specifically at the FiT export tariff, it is a flat-rate tariff that does not reflect the actual value of the electricity at the time of export, and is mainly issued on estimated exports to the grid, rather than actual measured values. It may be that payments are being made for electricity that has not been generated and fed into the grid. This stifles innovation in export tariff design and in technical solutions to track or shift time of export in a way that would provide whole-system benefits. Therefore, as this successful scheme closes to new entrants—new, not existing—we need to develop a market that sends the right signals to incentivise investment in local generation and storage, in a way that makes sense for a smarter system.

The Government have recognised that green power will likely be the cheapest power by the mid-2020s, and the prospect of subsidy-free solar PV is becoming increasingly realistic for developers. Two such sites have already deployed in the UK and the planned construction of two more large-scale subsidy-free solar projects has recently been announced. Alongside this, a range of emerging technologies, including electric vehicles, smart appliances and battery storage, are being developed that can work alongside solar and help to decarbonise our economy. For example, while the cost of solar cells has fallen by 80% since 2008, the cost of lithium-ion batteries has also fallen by over 70% since 2010 and is expected to halve again by 2030, according to industry experts. Companies in the UK, such as Moixa, are taking advantage of this reduction in costs and installing their battery systems in homes and businesses in the UK and abroad.

Increasingly, business investment in renewable projects and smart energy technologies will unlock growth in the UK solar industry. This market-led innovation in energy is absolutely key to our modern industrial strategy and our clean growth strategy. If we deploy smart, flexible technologies, we could save the UK between £17 billion and £40 billion by 2050, and this would benefit both consumers and the environment.

Turning to the smart export guarantee, we recognise the need to ensure that while these smart innovations are developed, consumers do not give away the power they have generated for free simply because suppliers are not yet ready to provide payment for their export. That is why we are consulting on a smart export guarantee. It provides a guaranteed route to market for small-scale low-carbon generation. We expect to see suppliers bidding competitively for electricity to give exporters the best market price, while providing the local grid with more clean, green energy.

I am sure noble Lords will appreciate a little more detail on the smart export guarantee. The Government are proposing to mandate that larger electricity suppliers—those with over 250,000 customers—offer small-scale generators a price per kilowatt hour which is exported to the grid. The remuneration will be available to all the technologies currently eligible for the FiT scheme—up to 5 megawatts. Suppliers will be obligated to provide at least one tariff. The consultation proposed five possible options for tariff design, and when we see the results of the consultation we will be able to bring forward further details. We are also guaranteeing that remuneration must be greater than zero, even at times when negative pricing would be in effect.

The noble Lord, Lord Grantchester, asked about the timing of this and, as I am sure he knows, the consultation closes tomorrow. We will analyse the responses to the consultation very quickly. We propose to bring forward proposals in this area as soon as possible; we do not want to see a significant hiatus between the closure of the FiT scheme and the SEG scheme coming into force. Of course, after any installation of capacity between the two schemes, that capacity would then be able to sign up for the SEG scheme when it is operational.

On the point about £1 a year made by the noble Baroness, Lady Jones, and the noble Lord, Lord Grantchester, it is true that that is for the export tariff, but I have already discussed this and why it does not represent good value for money for anybody. I also mentioned that it is £14 a year for consumers—that is all consumers, including the most vulnerable. That is a really important point that we sometimes forget: often, the people benefiting most from the FiT scheme are those who have the capacity and the agency to get solar panels fitted on to their very large houses, which is not necessarily the case for those who live in slightly smaller houses.

The noble Lord, Lord Teverson, asked about smart meters, a topic close to his heart, and indeed mine because we debated that Bill earlier. We are not aware of any technological reasons why smart meters cannot be installed in premises with generating facilities. Certainly, I will investigate further and respond to him because he asked for more detail about SMETS 1 and SMETS 2, so I will have to find some more information about that.

The right reverend Prelate the Bishop of Salisbury expressed concerns about jobs in this sector. Certainly, this is a highly skilled sector. While we expect that some people will have to shift jobs—it is very difficult to quantify the impact across the different technologies, capacity sizes and regions—we have not been able to quantify the job losses, if any.

The noble Baroness, Lady Jones, talked about a wide range of issues, going far beyond the FiT scheme we are discussing today. It is a topic worthy of a much longer debate. It is the Government’s position that we do not provide subsidies for the production of fossil fuels—the noble Baroness is looking at me aghast. We would never be able to do the issue justice in the very short time we have today, drilling down into the necessary detail.

Building on the considerable success of the feed-in tariff scheme, the smart export guarantee will ensure that small-scale, low-carbon generators do not export their electricity to the grid for free while also protecting consumers from unfair cost burdens. The SEG would provide space for innovative market solutions to come forward, reinforcing our vision for smarter, cleaner and more flexible energy systems. As a reminder, the consultation on these proposals remains open until tomorrow and I encourage all noble Lords to engage in the wider conversation around delivering this vision.