Clause 8 - Microgeneration and access to green energy certificates

Climate Change and Sustainable Energy Bill – in a Public Bill Committee at 4:15 pm on 25 January 2006.

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Question proposed, That the clause stand part of the Bill.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss new clause 10—Functions of the Gas and Electricity Markets Authority in relation to microgeneration—

‘In section 47 of the Electricity Act 1989 (c. 29) (functions of the Gas and Electricity Markets Authority), after subsection (1) insert—

“(1A)The activities to which subsection (1) applies also include, in particular, activities connected with the generation of electricity by microgeneration or with the transmission and supply of electricity so generated.

(1B)In subsection (1A), “microgeneration” has the same meaning as it has in section 82 of the Energy Act 2004 (Secretary of State’s strategy for promotion of microgeneration)”.’.

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith

The clause and proposed new clause deal with microgeneration and access to green energy certificates. I invite the Committee to reject clause 8 and, in due course, add new clause 10 to the Bill.

As we have discussed, access to renewables obligation certificates is important if microgeneration is to become a viable technology for many consumers. The ability to access the certificate and cash in the financial value that it provides can be make or break for an individual who is deciding whether investing in microgeneration makes sense in their circumstances. That is why clause 8 was drafted as it is. It has been put to me, and I see the force of the argument, that the proposals in clause 8 have unpredictable implications in that the likely impact on various public authorities is unclear and might have undesirable consequences in relation to microgeneration and consumer interest.

To ensure that microgeneration and the interests of microgenerators are put at the centre of the regulator’s decision-making process and activities, which affect how consumers access renewables obligation certificates, the new clause would deliver a statutory link between Ofgem and microgeneration, which would require the regulator to demonstrate a specific regard for microgeneration. That would send a clear message to the authority about the importance of microgeneration without upsetting the whole scheme of regulation or the relationship between Government, Parliament and the regulator.

The Bill as drafted refers to several green energy certificates: levy exemption certificates, renewables obligation certificates and renewable electricity guarantee of origin certificates—LECs, ROCs and REGOs as they are known in the business. I understand that the Government will, in due course, introduce proposals that will make it easier for microgenerators to obtain ROCs and will examine the barriers in relation to REGOs and LECs under the microgeneration strategy. On the basis of those assurances, which I am sure that the Minister will say something about, I am happy to proceed in the way in which I have indicated. I invite the Committee to support new clause 10 in place of clause 8.

Photo of Gregory Barker Gregory Barker Shadow Spokesperson (Environment, Food and Rural Affairs)

Once again, I agree with the hon. Gentleman. Clearly there are concerns that Ofgem may not be paying suitable attention to the needs of microgenerators, and the new clause would deliver a statutory link between Ofgem and microgeneration, demonstrating a requirement that the regulator must have some regard for microgeneration. It is worth noting that even back in 2004, the House of Lords Science and Technology Committee noted:

“The changes introduced by Ofgem may ease the burden on distributed generators,”— that is, microgeneration—

“but fall far short of effecting any fundamental reorientation of a regulatory framework that penalises distributed generation. If the Government wish to encourage distributed renewable generation, they must therefore fundamentally review their strategy.”

Again, this is a small new clause that seeks to effect a huge revolution, and we really do need to address the problem of Ofgem and the straitjacket in which the electricity generators operate if we are to release the full potential of microgeneration. If we are to do that, energy regulation needs to be completely overhauled, and Ofgem could be transformed into a sustainable energy regulator with a primary duty to deliver substantial emissions reductions through the active encouragement of microgeneration. One cannot hope to achieve that through this relatively modest new clause, but I accept that that is the direction in which it is pointing. It is encouraging a lot more thought and work, and the Government need to make their input with a great deal more urgency if we are to make advances and get Ofgem fully engaged.

The new clause, by adding microgeneration to section 47 of the Electricity Act 1989, which gives Ofgem the powers to examine certain activities in the electricity sector, Parliament and parliamentarians are sending a clear message to the authority about the importance of microgeneration. I hope, however, that we will deal with the issue on a much larger scale in the future.

Photo of Andrew Stunell Andrew Stunell Shadow Chief Whip (Commons), Liberal Democrat Chief Whip 4:30, 25 January 2006

I was very disappointed by the new clause, because it removes some of the specifics from clause 8. In clause 8(2)(a), for example, Ofgem must have particular regard to electricity metering, which I have spent some time investigating over the years. I have tried numerous times to have that matter taken seriously, because it is the foundation on which to make embedded generation work for the generator.

I had a long-running discussion with Ofgem when the environmental side of its business was being brought to the fore through legislation in this House. Ofgem was repeatedly challenged to have regard to environmental affairs, but it said that we would have to wait until its legislative guidelines were changed. That went on for months and months.

The Energy Act 2004 was eventually passed, and the environmental requirement was imposed on Ofgem. When I approached it again about electricity metering, it said that the new duty would make no difference, because it had taken full regard of what Parliament intended to do any way. Indeed, the duty did make no difference—because Ofgem would not have regard to it before it was imposed, and after it was given the duty it claimed that it had already adjusted its policies to have regard to it.

I thought that it would be a real step forward to put slap bang in the middle of the Bill a requirement to deal with electricity metering. Now I see that the requirement is simply to have regard to microgeneration. I suspect that we will be told that Ofgem cannot do that until the Bill has achieved Royal   Assent, and I very much suspect that when it has Royal Assent, Ofgem will say that it knew that Parliament was going to pass that provision and that it has always had regard for microgeneration, so the Bill will not make any difference.

I want to hear the promoter of the Bill and the Minister say that before the Bill gets through the House of Commons, there is a real intention to ensure that Ofgem does something about the duties that are imposed here—and that those will include dealing with metering, which is a fundamental part of making embedded generation work in this country.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

I support new clause 10, tabled by the hon. Member for Edinburgh, North and Leith. It is vital that a clear signal be sent to Ofgem that Parliament, and the Government, mean business on microgeneration.

There are three different electricity industries, and it is important not to confuse them. They are transmission—the long-distance transport of electricity, mainly on the national grid—distribution, which is the local, physical transfer of electricity on smaller voltage cables, and the electricity supply industry, which is just a financial contract industry where the same companies are buying electricity from generators and selling it to you and me, Mr. Benton, or to commercial firms, as customers. We tend to talk about the electricity industry, but it is not one thing; there are three fundamentally different activities going on.

The clause sends a signal to Ofgem that it must effectively promote microgeneration. However, it could be so simple to tie up all the things together. Were you minded, Mr. Benton, to have a wind turbine in your home, it should be possible to include on your electricity bill a line that says “minus £200” instead of “plus £200”, because of the electricity that you had generated in your home. The electricity would have physically left your home and gone into the local distribution network, but there would be an automatic transfer in terms of the financial contract and the meter reading. The job of the Bill, of government and of the regulator, should be to make that process as simple as possible. Otherwise we will not get the widespread expansion of microgeneration that all hon. Members want to see.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

This has been a useful and interesting debate. I understand full well my hon. Friend’s desire to see a statutory link between microgeneration and the regulator, Ofgem and I welcome the amendment as a more considered proposal than that in previous drafts. Clause 8, as originally drafted, was not acceptable to the Government because it aimed to elevate microgeneration above other forms of generation, including renewables, in Ofgem’s hierarchy of decision making.

Regulatory certainty is essential if we are to deliver our energy goals. Less than two years ago, an amendment was proposed that would have altered   Ofgem’s duties so that renewables were the main focus. We resisted that. Ofgem’s duties are less than five years old. Those duties were considered while working on “Our energy future—creating a low carbon economy”, the energy White Paper published in 2003, they were debated during the passage of the Energy Bill, and stakeholders know and understand them. Had we agreed the Energy Bill amendment, and now this proposal to add microgeneration to Ofgem’s duties, we would have created, by such chopping and changing, the exact uncertainty we wish to avoid.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

I am interested in what the Minister is saying about Ofgem. He mentioned the rejection of the renewables duty, but is he convinced that Ofgem now takes sufficient account even of the Government’s strategy on renewables? My experience of Ofgem’s attitude to transmission charges, which we will no doubt talk about later, and of which the Minister is very much aware, is that it took no account whatever of renewables when making up its transmission regime, which—albeit that the Minister is proposing changes to it—currently works against renewables.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

Let us understand the governance issues. Ofgem, as a non-ministerial department, answers to Parliament, not to the DTI. It is right for hon. Members to raise concerns here, but Ofgem develops its own procedure. As has been said, the message about what Parliament wants the regulator to do will be loud and clear; it is already. It is important to understand that Ofgem is not a sub-unit of my, or any other, Department.

The original clause 8 specifically mentioned a number of green energy certificates: renewables obligation certificates, known as ROCs, levy exemption certificates—or LECs—and renewable electricity guarantee of energy certificates, known as something so ridiculous I am not going to spell it out. There is consensus that microgenerators should not be discriminated against. In the Bill, we aim to provide several measures that will make it easier for microgenerators to obtain renewables obligation certificates. We will table amendments to that effect in time for the Committee’s next sitting. However, we do not think that microgenerators encounter the same barriers when obtaining levy exemption certificates and—I will say it—REGOs, or renewable energy guarantees of origin, as they do when obtaining ROCs.

For example, a significant administrative barrier preventing microgenerators from obtaining ROCs is the need for a sell-and-buy-back agreement. That is not required for either of the other two mechanisms. That is an issue that we are addressing in the Bill. Other barriers that exist are better addressed outside the Bill, and will be considered in the forthcoming Government strategy on the promotion of microgeneration.

Ofgem’s principal objective is clear and gives it clarity of purpose for its decision-making process. The principal objective is

“to protect the interests of consumers wherever appropriate by promoting effective competition.”

We must always remember that the statute describes future consumers as well as existing ones, and that means that Ofgem should not make decisions that discriminate against microgeneration. That, however, is different from being required to promote microgeneration.

Ofgem’s secondary duties ask it to have regard both to the environment and to the achievement of sustainable development. There is also the Secretary of State’s social and environmental guidance, which allows Ofgem to contribute to broader Government policies without going against the principle of arm’s-length regulation. The Sustainable Energy Act 2003 made it a statutory requirement for Ofgem to produce regulatory impact assessments for all important decisions, and those RIAs have to include an environmental impact assessment.

It is already in Ofgem’s remit to consider microgeneration. Given its recent consultation on how the regulatory framework might need to be adapted for microgeneration, it is clear that the issue is on its radar. The Government’s work on microgeneration, and this Bill, mean that Ofgem cannot fail to take notice of the momentum behind microgeneration.

It should also be noted that none of Ofgem’s duties specify a form of generation. We ask Ofgem to protect the consumer; that is clear. To ask it to protect the consumer and at the same time to promote microgeneration might be anything but clear. However, the new clause shows Ofgem that Parliament believes that there is a place in statute for the regulator to consider microgeneration. Section 47 of the Electricity Act 1989 already gives Ofgem powers to look into certain activities in the electricity sector. By adding microgeneration to those activities, Parliament is sending a clear message to the authority that we take seriously the contribution that microgeneration can make, and that we fully expect Ofgem to do so as well.

Photo of Theresa Villiers Theresa Villiers Shadow Chief Secretary to the Treasury

Both the Minister and the hon. Member for Edinburgh, North and Leith, who is the promoter of the Bill, have emphasised that the Bill will make it easier for those installing microgeneration mechanisms in their homes to get access to renewables obligation certificates. Will the Minister outline the procedure that someone who has just stuck a wind turbine on their roof will have to go through to get one of those certificates?

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

Of course I could, and in some detail—but I am reluctant to hold up the Committee. Seriously, if I am allowed, I could write to the hon. Lady about that, and if necessary, I will copy the letter to the Committee. It is still fairly early days on that point, but I will consider the matter.

The hon. Member for Kettering (Mr. Hollobone) made a useful contribution. I think that he was venturing into the territory of smart meters. Although that is not the subject of the Bill, and I am not equipped to say much about it, that issue—which is not without its difficulties in terms of investment—is, to use the phrase again, very much on our radar screen, and is important.

In summary, we oppose clause 8 standing part of the Bill, but we support new clause 10.

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith 4:45, 25 January 2006

The hon. Member for Hazel Grove (Andrew Stunell) invited the Minister and me to explain how the changes would achieve the objectives set out in the Bill as originally drafted. The hon. Gentleman, I am sure for good reasons, is no longer here, but for the record, to follow up the Minister’s comments on the changes to the certificate regime, I shall say that it will be a considerable improvement for the consumer if they are brought forward. That is why I was willing to accept the suggested changes. To be frank, I recognise that the area is so complex that however carefully I draft amendments, and even if they had been accepted against the will of the Government, I could not have achieved much without the help of the Department. I recognise that the Government must do that. As a Back Bencher, it is difficult to put together the full framework that is required.

I agree with what Conservative Members and the Scottish National party Member said about the need to make the process of going for green energy—renewable energy—much simpler. Given the way in which Ofgem operates and how it tries to achieve that objective, I am sure that many of us know from personal experience of trying to adjust our energy consumption patterns to take account of such concerns how extremely difficult it often is for customers to do that. I hope that Ofgem receives a clear message from Parliament today that customers and consumers need the process of acquiring the ability to take advantage of the new forms of energy to be made simpler. I hope that it will listen to what the Government are saying, too.

Question put and negatived.

Clause 8 disagreed to.