This is one of the key issues on energy policy that faces the Government. The Government have set targets in this area through their climate change programme. Some hon. Members will be only too well aware of the urgent need to give a boost to the CHP industry. There are huge concerns in the industry that the market for CHP has all but stagnated. A strong declaration of Government support is therefore vital to kick-start investment in such highly efficient technology.
I regret that we were unable to reach agreement on removing the renewables obligation. The CHPA estimates that, without it, some £100 million will drift from the CHP sector to other green technologies by 2010, acting as a further break on progress towards real breakthroughs. The debate will continue and I am hopeful that, over time, the Government will be persuaded of the merits of such a measure.
I make the point to the Minister as he learns about his new job that CHP is in crisis at the moment, and much of that results from the new electricity trading arrangements. Not accepting the original clause 3 will not make that problem go away. Many of us will be on the Minister's doorstep and that of the Treasury over the coming months. Scottish Power, Scottish and Southern Energy, Innogy, Powergen, Northern Electric and Meridian Industrial have all withdrawn from the development of their new CHP schemes. New CHP capacity fell by 95 per cent. from 2001 to 2002. I could go on, but given the time, I will not. The Minister will be aware of such statistics.
The Government have agreed that there is a need for action on CHP, and the new clause provided some assurance to the CHP industry. A proper CHP strategy is now five years overdue but the clause will help to convert some of the Minister's statements into future action. It will allow the Secretary of State to set targets for CHP in Government use. It is a useful, if minor, step forward that will help the CHP industry. The Minister has to realise the gravity of the situation facing the CHP industry, and I hope that, when he responds to accept the new clause, he will recognise the severity of the economic situation that the industry faces.
I should say that I have been a vice-president of the CHPA for many years. Regrettably, it is not an interest that I need to declare because I do not get paid for it—hope springs eternal. I instigated an Adjournment debate in October 2001 with the Minister's predecessor because NETA has had a dire impact on the CHP industry, and, at the time, was having such an impact on the renewables industry—although that has partly been allayed by the renewables obligation.
The hon. Member for Milton Keynes, North-East mentioned a few aspects of the problems with CHP. I want to tie the issue into—guess what—another Government target. Measured against targets, we can appreciate the dire situation of CHP. The Government target, which was set by the Conservative Government before 1997, was to have an installed CHP capacity of 5 GW by 2000. In 1997, the Government set a subsequent target of installed CHP capacity of 10 GW by 2005. We have yet to reach the 2000 target, which the Government accepted when they came to power, of 5 GW. Our current capacity is 4.8 GW.
That is immensely important. The hon. Gentleman pointed out that new CHP capacity fell by 95 per cent. between 2001 and 2002. That means that the amount of new capacity being installed now is miniscule. The output of existing schemes fell by 17 per cent. Some
£1 billion of investment in Government-consented CHP schemes is now stalled. The consequence of that and other things is that carbon emissions in the power sector have risen by more than 10 per cent. since NETA came in.
I return to the targets. In the previous debate, the Minister said that the Government were selective about adopting targets and that the whole apparatus of Government comes behind targets to ensure that they are reached. Well, there are two pretty plain targets that will not be reached. The whole apparatus of Government has not come behind them to ensure that they are reached.
Clause 3 would exclude CHP from the renewables obligation and largely treat it as a renewable. I am the first to admit that CHP is not renewable, but it is an efficient way in which to generate electricity, which is why it found favour with the Conservative Government and has found favour with this Government. If we are going to generate electricity—let us consider fossil fuel—it is better to do it in the most efficient way possible.
Those of us who discussed the Utilities Act 2000 made that point a long time ago in Committee. My understanding was that it was not the Government's intention at that time to include CHP under the renewables obligation. It happened by accident, rather than by design. At the time, that was not the intention.
The hon. Gentleman's intervention, with which I agree, has thrown light on the confusion about whether the climate change levy and the renewables obligation should apply in relation to CHP, and whether CHP is desirable.
I will share a briefing that I received about CHP. It states that, although it understands the renewables obligation, there are times during a CHP plant's operation when excess electricity is generated in relation to the site's requirement. That excess electricity can be sold on, and if it exceeds 5 MW, the CHP operator must hold an electricity supply licence. That is when the CHP operator will become subject to the renewables obligation. The industry has estimated that, if CHP were exempted from the renewables obligation, it could result in an investment of between 500 and 1,200 MW of new CHP capacity and dramatically improve the output of low carbon electricity from existing CHP plants.
Of course, it is a difficult one. The Government have shown confusion over whether they want to meet the targets for CHP production that were named earlier. We would say that meeting them is sensible. I have form: I am a vice-president of the CHPA, as is the hon. Member for Gordon (Malcolm Bruce), although I am not its most industrious vice-president.
If the country wants the most efficient electricity generation, with the least carbon emission per unit generated, it must encourage CHP. We all agree about that. However, at the moment, the Government are emasculating the Bill. To include the CHP target in new clause 11, which will only apply to the Government estate, is pretty weak and shows confusion on their part.
I want to echo the concern expressed by my hon. Friend the Member for Milton Keynes, North-East about the parlous state of the CHP industry. It is in that state despite the central role that we know CHP could play as a transition technology. It is not a renewable technology in its own right, but it could be renewable. At the moment it captures an immense amount of the real energy that is going up into the atmosphere and could be used to greatly boost the efficiency of the energy system. We ought to count it as a failure of our collective imagination that, because of the way in which we have regulated the industry—in many ways for good reasons—such energy is literally going up into thin air, and the prospect of the transitional technology moving us forward in the way in which it could do is in the balance.
The new clause provides a considerable degree of hope for the CHP industry in that the Government will nail their energy colours to the mast by saying that this is something for which CHP should be considered. However, we should not be under any illusion that that, in itself, resolves the problems that could threaten investment now or the long-term pattern of investment that will move us forward in the way that we want. As my hon. Friend said, the problem is that the investment that is being talked about now is the investment that has been queuing up to go in. It could go in; it could make a difference over a considerable period of time and it could, in this crucial period of change to a renewable energy economy, be lost for ever.
I join my hon. Friend in expressing disappointment that his Bill might not be able to make that key contribution of leverage in the debate. The clause as it stands is a welcome signal. If it is added to by further changes over the months—or one or two years ahead at most—considerable progress will have been made in the right direction. If no other thought goes into how CHP can make the changes stick in terms of its own investment over the next few years, we will lose an important stage in moving our energy economy in the direction in which we want it to go.
I shall not rehearse all the problems of the CHP market. They have been put forward forcefully and we all share the concern that an industry that does so much towards carbon reduction seems to have been chopped off at the feet, the knees and higher up every time that we look at it. Year on year, it gets a worse deal. That is why the clause was so welcome: it started to redress the balance. When we consider sustainability as a whole, we see that CHP has a key part to play. We are beginning to use the term ''intelligent energy'', and that perfectly embodies the intelligent energy that will deliver on the sustainability targets that we all seek to achieve.
Again, intentions have been expressed, but there is not necessarily explicit provision made for them in the Bill. I shall not pursue that point particularly strongly, but I should like to make another one. The Government are setting targets for using CHP on their own estate. I support that wholeheartedly, but given the Government's record on delivering sustainability on their estate, I fear that those targets may never be met. The Select Committee on Environmental Audit, of which I and the hon. Members for Bury, North and for Bexhill and Battle are members, has to reopen its investigation into sustainable timber, because the Home Office, yet again, is using timber from a non-sustainable source. For heaven's sake, it is being used on a fence that will be thrown away after six months, which is even more disgraceful. I understand that the massive new Home Office building has no plans for CHP. The Government certainly appear unable to deliver—Department by Department—on the sustainability objectives that they claim to have. The Home Office is an example of that.
If we support the new clause, I hope that the Minister will comment on whether the desired result is deliverable by the Government as they currently operate.
I appreciate that these are issues of great interest and considerable matters for debate, but the Committee has only until 11.25 am for further consideration of the Bill.
I shall be brief. I accept what has been said about the importance of the contribution that CHP will make to our sustainability objectives. Equally, I recognise the difficult circumstances that the CHP industry faces. However, I do not agree with the proposal in clause 3(3) and (4) to define CHP as a renewable energy source. Clearly, that would be a bit of a fiction and would not be right. The Renewable Power Association wrote to the Committee to make the point that
''the Renewables Obligation would be completely undermined, and all further deployment of renewables would cease''.
The other element in clause 3 is interesting. It relates to whether CHP should count towards the calculation of how much renewable electricity each supplier must supply. We have said that we will not make such a change without consulting on it, but we are willing to consider proposals for an appropriate means of promoting CHP in line with our commitments in the energy White Paper. There may be more to be said about that in due course.
I welcome the new clause to which my hon. Friend the Member for Southampton, Test (Dr. Whitehead) spoke. I accept that its impact will be limited, but it is potentially significant. As he said, it nails the Government's colours to the mast. I hope that the Committee will agree on that way forward.
Question put, That the clause stand part of the Bill:—
The Committee divided: Ayes 3, Noes 5.