Clause 6 - Direction to offer to contract

Energy Bill – in a Public Bill Committee at 4:00 pm on 22nd January 2013.

Alert me about debates like this

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy) 4:00 pm, 22nd January 2013

I beg to move amendment 42, in clause 6, page 5, line 4, at end insert—

‘( ) Regulations must—

(a) place a duty on the Secretary of State and the Authority to promote new generation capacity from community energy schemes; and

(b) define community energy schemes.’.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation, NATO Parliamentary Assembly (President)

With this it will be convenient to discuss amendment 43, in clause 6, page 5, line 4, at end insert—

‘( ) Section 41(4)(a) Energy Act 2008 (“specified maximum capacity”) is amended as follows—

“Specified maximum capacity” means the capacity specified by the Secretary of State by order, which must not exceed 10 megawatts.’.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I am pleased to have the opportunity to speak to these amendments tabled by me and my hon. Friend the Member for Liverpool, Wavertree on community energy schemes. The Minister will know that we touched on that during the evidence session, and particularly with the Secretary of State who, with some assistance from his ministerial colleague, made clear the imminence of the community energy strategy, which I think will be in March. I tabled the amendments to raise some issues relating to community energy on which I want to stimulate discussion and to obtain clarity about the Government’s intention, notwithstanding that soon-to-be-published strategy.

Community energy schemes have a number of benefits, particularly given that the Government have stated several times their intention to bring diversity, resilience and security to the energy market. Community energy schemes can play a significant part in that. They can also make a sound economic contribution through attracting investment from new sources and, importantly, through locally owned strategies for generating and saving energy, help to address some of the issues of fuel poverty and greater engagement among communities in generation and conservation of energy. I am sure that members of the Committee are aware of a number of examples in their constituencies that demonstrate that on a relatively small scale. They can also promote wider carbon reduction in terms of recycling revenues into local energy efficiency schemes. Again, there are a number of examples.

The Minister is aware that Co-operatives UK has estimated that there is a huge potential for community and co-operatively owned energy in the UK. I think they estimated nearly 3.5 GW, broken down into 2 GW in England, 1 GW in Scotland and about 0.5 GW in Wales. These are significant amounts which it equates to three or four conventional power stations.

However, as this Bill stands, there is little in relation to community energy. It is one of the areas that would benefit from some amendments and that is the point of these amendments today. As I reminded the Secretary of State when he gave evidence at the start of this Committee process, he has previously said that he wants a community energy revolution. While I am not always a revolutionary, I agree that the potential for a significant increase in community energy is an opportunity that should be encouraged by Government and can be done in part through this Bill.

For many involved in community energy, the real concern is their ability to participate in CFDs. We heard this from Nigel Cornwall, the consultant from Cornwall Energy Associates, who gave evidence. Members will recall that he was on the same panel as a couple of academics and he was not always able to make as full a contribution as others during that session. Therefore he made his points concisely and promised to provide further written evidence to Committee members. He made the point that the high degree of technical knowledge that it is anticipated will be required to participate in CFDs may well act as a barrier to smaller generators and that they also receive lower market prices for their power. This is not compensated through the proposed CFD, as envisaged in the Bill.

So with the end of the RO, suppliers will have no incentive to purchase renewable energy from independent generators. Those were the views expressed by Cornwall Energy. In response to a question from my hon. Friend the Member for Liverpool, Wavertree, Mr Cornwall called this,

“a black hole in the Bill with regard to market access, particularly its impact on smaller players, generators and suppliers”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 79.]

Therefore, our amendment 42 is designed to increase the feed-in tariff threshold from 5 MW to 10 MW, to help to address this issue. I put these points to the Secretary of State when he was giving evidence at the start of this process. He indicated that either this was not an issue or there were much more significant issues than this threshold; and that it does not really affect community energy schemes because these are under 5 MW. This is not necessarily the case and I am sure that the Minister and his colleague would like to be aware—if they are not already—of at least two examples above 5 MW: the Westmill wind farm in Oxfordshire, which is 6.5 MW and is a community-owned scheme, and the Lochcarnan wind farm in South Uist in the Western Isles, a 7 MW scheme, where the income is invested in the local community.

Those projects show that, under the existing renewables obligation scheme, community ownership at a significant scale is achievable. Members of the Committee will be aware that that can be done if the projects have access to markets and finance. In Denmark and Germany, co-operative ownership of renewables is much more widespread, as it is in the US. However, in the UK,  co-operatives and community schemes and independent commercial developers find it harder to access finance than schemes backed by large utilities. That makes development costs higher, returns lower and puts communities and other small developers at a significant disadvantage.

It is anticipated that the complexity of the CFD proposals, with the lack of the demand pull-through that was provided by the renewables obligation, will further worsen the situation for co-operatives and community schemes, compared with larger, commercial schemes. The Government continue to assume that community means small-scale, despite the evidence that I have cited. However, if Ministers do not consider the interests of communities, I am afraid that their assumption is likely to become a self-fulfilling prophecy.

We suggest increasing the threshold from 5 MW to 10 MW, in line with the Energy and Climate Change Committee’s discussions on this issue, with which many Committee members will be familiar. At a later stage, others may seek to increase the threshold further and bring in other aspects. However, we see merit in being consistent with the Select Committee’s view. We challenge the assumption that community energy is necessarily small scale. A number of organisations believe that, with a higher FIT, the scope could be increased.

I have heard the Minister say on a number of occasions that he wishes to see more diversity in our energy supply market. We do not disagree, and that is the purpose of these amendments. Amendments 42 and 43 would require the statutory authority and the Government to support community energy and to give a definition of community energy. I am sure that the Government will consider doing that with their strategy. However, for the strategy to be effective, there is a sound argument that increasing the scope from 5 MW to 10 MW will ensure that what I anticipate will be in the strategy is achievable.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

It is me. We are joined at the hip; neither of us can stand up without the other moving. This is the first time that I have risen. It is a pleasure to be properly in harness in the Committee and to serve under your chairmanship, Mr Bayley. I am glad to have the chance to speak on community energy, the feed-in tariff scheme and the benefits of encouraging a more distributed energy economy.

I find myself in a great deal of agreement with the hon. Member for Rutherglen and Hamilton West. He spoke of the benefits of bringing diversity, security and resilience from greater community and distributed energy, and I wholeheartedly agree. There are also very sound economic reasons for this measure, as well as the engagement that it brings, as he said. Often, communities are brought in to the energy sector because they want to generate energy from one technology, but once they have found a route in, they discover that there are many other opportunities to engage, whether on energy efficiency or with other technologies. That is extremely welcome, and I have seen very real examples.

That is why the coalition has made community energy such a high priority. In the Department of Energy and Climate Change, we have given real resource to this issue and made it a policy priority in a way that it has never been before. The fact is that communities can ignite a passion for energy issues and can act as a focus for different strands of the sector to come together.

As a result of the changes that we have made, DECC now ensures that communities have a voice right across our portfolio. In fact, DECC has commissioned the Centre for Sustainable Energy to produce an interactive green deal pack specifically for community organisations on how, for example, communities can engage with the green deal.

DECC is taking work forward with Ofgem to encourage a more diverse energy market and the plurality that we all seek, and is taking backstop powers on liquidity and so on to boost transparency in competition should actions not prove adequate. Smaller independent renewables companies should benefit from improved competition in the power purchase agreement market once CFDs are available. We are working with the market to smooth the transition to the CFD regime. However, reflecting the importance of independent generators, we are taking powers in the Bill to enable the Government to intervene in the event that the PPA market does not develop as expected. We also have a number of trial projects on community energy systems, using Ofgem’s low-carbon network funds.

In July 2012, we explained how we would support community energy generation within the FIT scheme, and we have already defined community energy installations in the FITs order. FITs community energy projects, such as wind farms or hydropower, now benefit from tariff guarantees, which allow communities, particularly when they are endeavouring to put together a larger project, to have certainty about the tariff that they will receive once their installation is up and running. I have to say that the tariff guarantee was a welcome addition to the FITs regime that came in as part of our reforms of the system.

For PV community projects, we have introduced an exemption from the energy efficiency requirements for schools, further education colleges and non-domestic buildings, to ensure that such community buildings can benefit from the installation of solar PV at the heart of their communities. We are very aware that these community buildings can often have a powerful, iconic impact on spreading the engagement message around the energy sector.

We have actively supported community energy projects with real money taken out of the DECC budget. For example, last year, we allocated £10 million to the successful local energy action framework programme that was disbursed among several hundred local groups, helping them to get off the ground with their plans to develop a local energy project. That was much-needed seed capital. When I met those groups at a networking event that we held in London, I was struck by the extraordinary enthusiasm and success that they have had in starting with one project but then snowballing into a range of others. I do not underestimate the power of community engagement.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change)

I thank the Minister for kindly giving way. He made a very articulate point that I heard for myself when last week I visited a project in Brixton called Repowering South London. I heard from the people there that they are looking to grow the scheme. Does he acknowledge the fact that, although many projects are currently under the 5 MW barrier and only some of them are at or above it, many of them could go above that level?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

Indeed, and I will come on to that point, but we would have to go some way to find a community project in Brixton that went beyond 5 MW. We have to bear in mind the scale of 5 MW projects, but we will come on to that.

Another example of DECC putting its money where its mouth is and investing in community energy schemes is the £5 million that we have given to Cheaper Energy Together—a special scheme to help communities to finance innovative collective switching and purchasing schemes.

To summarise, the coalition Government have been active as no Government have before in not only inspiring but driving and investing in community energy. We are absolutely committed, not just in our words but in our deeds, to the community element of the whole energy agenda.

With the help of the community energy contact group, which I established very soon after coming into the Department, we will launch our community energy strategy shortly. A great deal of work has gone into that strategy, not only within the Department but more broadly. Work has been undertaken by community energy groups themselves and we have had fantastic engagement, largely from voluntary sector personnel—people who have given up their own time to participate in this project. They have given their expertise and shared their experience, which really will help others looking to replicate that expertise and experience. When we publish that community energy strategy in the spring, it will set out our future ambition for community energy.

The publication of the community energy strategy will be the appropriate opportunity to land and secure the Government’s ambition for community energy. Rather than being a footnote to the Bill, it needs to stand alone. We do not think it is necessary for there to be another piece of legislation, but the strategy needs rigorous policy and a clear statement of intent. That is what we will publish, and what we expect to be held to account for in our delivery.

Although no Government have been more proactive in their support or enthusiasm for community energy than we have, we do not consider—on balance and on reflection—that amendment 42 is necessary. I hope that, having quite rightly raised this issue during consideration of our energy economy, the hon. Gentleman will consider withdrawing the amendment.

Regarding amendment 43 and the point that the hon. Member for Liverpool, Wavertree made about the feed-in tariff scheme, it is a matter of public record that I myself supported the expansion of the FITs scheme at the Conservative party conference last year. I think there was significant merit in my doing so. However,  this is a coalition Government and this is also an issue that cannot be rushed into, because there would be significant consequences to doing that and they need to be thought through carefully.

Nevertheless, the fact that the hon. Gentleman has tabled this amendment, which seeks to raise a threshold, should be seen as a significant vote of confidence in the reforms that we have made to the FITs system, because as a result of our reforms we have now created a far more transparent, agile and reliable support system for smaller-scale renewables, which marries the best learning from Germany with the insights from our own local home-grown renewables sector. I am very pleased with the way that we have been able to work with the renewables industry to complete these reforms, which were not easy and required difficult decisions to be made.

I have to say that the future looks increasingly positive for small-scale low-carbon generation, and I am very proud of the way in which we now have a mature debate about the future of this sector. Without appearing to single out one technology, I was particularly pleased last week to launch the national solar centre. The solar industry, which has been through a challenging time as a result of the need to reform the FITs system, now looks set to enjoy a period of strong, sustainable growth in the UK.

We have just completed the last batch of changes to the FITs scheme and we want to continue to use the productive relationship that we have fostered with the sector to ensure that we maintain the optimum support mechanism for smaller-scale renewable power as we introduce the reforms set out in this Bill.

As we enter a new stage for the electricity market, we need to make the most of the established systems that support a great many renewable generators. At the same time, we appreciate that support for low-carbon generation is changing and we need to ensure that we can continue to provide the optimum framework to guarantee that growth. We need to see out to 2020 and beyond.

We should also remember that the renewables obligation will continue to be available alongside the CFD to support new generation from renewables greater than 5 MW right up until 2017. Alongside the introduction of CFDs, we need to bear in mind that increasing the FITs threshold beyond 5 MW would move the small-scale FITs scheme into a different market, covering installations of considerable scale and complexity. That is not necessarily a bad thing and potentially could be very good, but we need to do it—were we to do it—with our eyes open to the wider potential impacts on consumer bills, the tariff scheme and the levy control framework. A 5 MW solar PV installation, for example, is roughly the size of five football pitches and would, at current prices, generate subsidies of hundreds of thousands of pounds a year. Obviously, as with any subsidy taken from across the energy sector, that is taken only from consumer bills. We need to be careful in looking at the proposal, so that we consider the possibility of any change thoughtfully and deliver value for money.

Few community electricity schemes exist or would be realistic in the multi-megawatt range, although the hon. Member for Rutherglen and Hamilton West mentioned at least two and we would like to see more than that. We need to ensure that we support what communities can actually deliver and what they want to see from their homes and schools. Without a sense of ownership, the  benefits of community energy will all too easily slip away. That is why we are working in partnership with the community energy sector to develop the strategy that I have been discussing and to ensure that we address such questions in an evidence-based and thoughtful way.

Photo of Luciana Berger Luciana Berger Shadow Minister (Energy and Climate Change) 4:30 pm, 22nd January 2013

I wonder whether the Minister will specifically respond to the point about co-operatives and what work his Department is doing with Co-operatives UK. Co-operatives incur a specific cost from providing that community energy by way of their legally obligated social responsibility. Many examples exist of different co-operative energy projects across the country where a certain proportion of the money generated goes back into such things as energy efficiency projects, which meets other Government aims. Therefore, as the Minister previously discussed the wider aims of his Government—co-operatives being one that we hear the Government mention quite a lot—will he specifically respond to that point?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

We do not currently have a specific co-operative tariff. We have taken powers to differentiate for communities, but we do not have a specific tariff for communities within the feed-in-tariff scheme. However, we are keen to encourage co-operatives and our community strategy group has been looking at that. When we publish our community strategy, I fully expect there to be recommendations as to how we can more broadly support co-operatives. I have certainly seen the good work that they do and want to encourage them more.

We should not forget that the FITs scheme is about more than just community projects. FITs have allowed us to support innovation and engagement by commercial organisations, by individual landowners and developers and, in particular, by small and medium-sized companies, which are absolutely crucial to our growth agenda. It must be right that as wide a group of organisations as possible are able to take advantage of our distributed energy ambitions.

We need, however, to proceed with care, so that any changes to schemes, were changes to come forward, incentivise the right kind of projects. Our forthcoming changes to the renewables obligation, for example, will help to secure a viable future for larger-scale solar power, which has a particular emphasis on the best use of rooftop solar and brownfield. We need to be careful that we do not over-incentivise large-scale ground-mounted projects in inappropriate places—I am thinking of greenfield agricultural land—that could generate strong opposition to our community energy agenda. As I said, a 5 MW solar plant, for example, would be several times the size of a football pitch, so we need to bear in mind that when we start talking beyond small scale, we are actually talking about potentially very large energy projects. All future changes would need to be consistent with that approach. It needs careful design and thoughtful consideration. It certainly could not be a scheme about renewable energy at any cost. Impacts on the local community, on landscape and on consumer build have to be a real consideration of any expansion of the scheme.

In conclusion, we appreciate the amendment, or at least the intent behind it. The issue has a great deal of support within the Government. However, it requires  further consideration. We know that the previous feed-in tariff scheme was introduced without sufficient rigour and thought given to the unintended consequences that could lie behind it. It actually gave rise to perverse consequences and we had to make substantial reforms as a result. Is there potentially an ambition to grow the scheme forward? Are we open-minded about that? Absolutely, but we need to give the matter further consideration. As I said, we need the Secretary of State to be comfortable with that consideration.

I recommend that the hon. Gentleman withdraws his amendment—I will be happy to talk to him outside the Committee—as the matter is under active consideration in Government.

Photo of Peter Aldous Peter Aldous Conservative, Waveney

I do not wish to make a speech; I simply want to put something on the record. As set out in the Register of Members’ Financial Interests, I am a partner in a family farm and that partnership has just entered into an agreement for the letting of some land for a solar farm. I want to put that on the record to avoid any misunderstanding.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I think this is the first time that I have heard a Conservative Minister place responsibility on the other members of the coalition party. I am looking at the faces of the two hon. Members. One is more inscrutable than the other, but I take it from their facial expressions that it was a surprise to be held responsible for the position that the Minister outlined. There was little to disagree with in his first remarks. In fact, he was broadly agreeing with some of the points that I had made, and I salute his enthusiasm for community and co-operative and mutual energy.

I understand the Minister’s point about his strategy, which will soon be published. A part of the effectiveness of that strategy was in seeking to grow community energy. My hon. Friend the Member for Liverpool, Wavertree referred to at least one example, and I know there are others. Schemes would be looking to expand and to continue to expand. The strategy would be fine and well, unless the state of the law at some point makes it difficult for them to expand because the 5 MW limit applies. It could almost be perverse and there could be unintended consequences. The strategy could be saying all the right things and making encouraging noises. Given the Minister’s own personal interest and involvement, he will go to lots of forums and make enthusiastic comments, as I know he is adept at doing, in support of community energy, yet the expansion of those schemes will be hampered by one aspect of the Bill that we did not take the opportunity to amend when that opportunity arose in Committee.

I take the point that the Minister makes about duty and the definition in relation to amendment 42. Given the undertaking, which I took from his earlier contribution, that those issues will be addressed within the strategies and the points around the encouragement of community energy, I will withdraw the amendment. I expect that others will wish to bring some of these issues up again, or some related aspects, on Report. I would like to press amendment 43.

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change 4:45 pm, 22nd January 2013

In respect of amendment 43, what I was trying to indicate to the hon. Gentleman is that this is under active consideration in the Government. If it were pressed to a vote at the moment we would not be able to support it, but I hope that it might be something that we can revisit. We are on the first day of the Committee proceedings in the Commons. It will come back on Report. It has to go to the Lords. We may be able to return to it. So rather than bring this to a head now I ask him to consider staying his hand, pending further consideration by the Government.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I wonder whether the Minister could perhaps give a little bit more on that point. Is he hinting that there may be a Government amendment on this, not necessarily the same amendment but with the same purpose on Report, or subsequently? Or was he indicating that this is something that he would rather not vote on now?

Photo of Gregory Barker Gregory Barker The Minister of State, Department of Energy and Climate Change

No; it is above my pay grade to make the commitment that we will definitely return with an amendment. We have to go through a proper consideration. But we may be returning and leaving the door open to returning with a Government amendment on Report or in the Lords.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I am grateful to the Minister for that little bit more. I will take him at his word and hope that he wins that battle with his Liberal Democrat colleagues in the coalition to seek to promote community energy further. I am sure that at least one of his Liberal Democrat colleagues will make that point to the Secretary of State. I am sure that he will be a strong supporter of community and co-operative energy. I am sure the other Member is too, but he is much better at not giving anything away. If a Government amendment does not appear on Report he may find amendments from others addressing the issue. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I beg to move amendment 44, in clause 6, page 5, line 24, at end insert—

‘( ) Regulations must make provision for the setting of a strike price for a contract for difference.’.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation, NATO Parliamentary Assembly (President)

With this it will be convenient to discuss the following:

Amendment 45, in clause 6, page 5, line 24, at end insert—

‘( ) Provision included in the CFD Regulations must in particular include—

(a) provision for setting the strike price by or under the CFD Regulations (“administrative setting”);

(b) provision setting the strike price by determination on a competitive basis (“competitive setting”);

(c) provision for a combination of administrative and competitive setting, including providing for the lower of two strike prices set by administrative setting and competitive setting; and

(d) a report to Parliament by the Secretary of State within three days of any provision by virtue of paragraphs (a) to (c) being made.’.

Amendment 46, in clause 6, page 5, line 24, at end insert—

‘( ) Regulations must make provision for the setting of a market reference price for a contract for difference.’.

Amendment 47, in clause 6, page 5, line 24, at end insert—

‘( ) The market reference price for a CFD is the price of electricity per megawatt hour that may be specified in, or determined under, the CFD as the market reference price for electricity generated in the period to which the CFD applies.’.

Amendment 48, in clause 6, page 5, line 24, at end insert—

‘( ) The provision included in the CFD regulations must in particular include provision for—

(a) setting the market reference price by or under the CFD Regulations; and

(b) the Secretary of State to report to Parliament on any provision made by virtue of paragraph (a) within three sitting days of any provision being made.’.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I believe this is probably back in the purview of the other Minister. Having enjoyed a brief interaction with his colleague we go back to some of the detail in relation to the EMR and CFDs. The amendments seek detail on the process for setting strike and reference prices, which the Minister and others in debate earlier indicated they see as particularly significant. The Minister will be aware that we are in a slightly curious position here. The draft Bill published in May contained clauses on those two important issues, but those clauses do not appear in this Bill.

One of the most significant aspects of CFDs for generators, suppliers and consumers is the strike price and its impact on how much people will pay for electricity in years to come. The Secretary of State himself said in evidence to the Committee that the strike price is what particularly concerns investors. He said:

“The big issue that they want to know is the strike price. That is rather important, as you can imagine, for the contracts for difference.”

I am making a habit of agreeing with the Secretary of State, but I believe that is the case. He went on to acknowledge that the strike prices will not be known until the end of the year at best. His exact words were that

“we hope to have a final strike price in December.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 8, Q13.]

The inclusion of “hope” introduces yet more uncertainty and doubt.

Keith Anderson of ScottishPower said in his evidence that any delay in seeing the detail of the strike price would be concerning and would have an impact on investment. Speaking about draft strike prices, he said:

“If we do not see them until after the summer, we will start to get worried, because we will start to think that there will be a delay to the final strike prices.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 21, Q55.]

Andrew Buglass of the Low Carbon Finance Group made it clear that any assessment of the levy control framework will be impossible until the detail of the strike prices have been revealed. He said:

“It is therefore hard for us to form a view at this point as to the adequacy of the £7.6 billion cap overall, particularly since we do not know at what level the strike price will be set.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 54, Q160.]

He continued to emphasise the importance of the strike price when he said:

“If the strike prices that are proposed are not viewed as sufficient to bring forward the investment, they will take their investments elsewhere.”—[Official Report, Energy Public Bill Committee, 15 January 2013; c. 55, Q163.]

All the points raised during the evidence sessions show just how key strike and reference prices are to the success or otherwise of CFDs in attracting investment at the appropriate cost. It is for those reasons that I am concerned that there is so little detail of how the Government will arrive at the figures and of how the strike and reference prices will be set.

According to the Government, strike prices on renewables will be set in a similar way to the RO banding review, and their decision will be based on analysis by the system operator, which is National Grid. On CCS, prices will be set after negotiation between the Department and developers for early-stage projects, and on nuclear, they will be set after negotiation between the Department and developers on a project-by-project basis; indeed, that is the case in relation to Hinkley. However, I am not convinced that that is enough to go on. Investors need clarity on the process for setting the strike and reference prices for both administrative and competitive price-setting, and on how those processes will differ according to technology type and much more.

Specifically on amendment 48, which would oblige the Secretary of State to come before Parliament to announce strike prices within days of their being set, we must have transparency above all on the strike price reached, whether that is for new nuclear, offshore wind, CCS or any other low-carbon technology. Knowing that he will be held to account for any strike price should help to drive the Secretary of State to the best price for consumers.

Importantly, as we have said in relation to other aspects of the Bill, the maximum amount of transparency will increase the level of public confidence and therefore public support. We must all acknowledge that with significant shifts in policy, a number of people and sources may well seek to suggest a lack of transparency. Therefore the maximum level of transparency is important. I have tabled the amendments to enable the Government to respond to some of the significant questions about how the strike and reference prices will be set.

Photo of Michael Weir Michael Weir Shadow SNP Spokesperson (Business), Shadow SNP Spokesperson (Energy and Climate Change)

I want to make a few brief points. I listened carefully to the hon. Member for Rutherglen and Hamilton West and agree with much of what he said.

One of the things that concerns me about the whole question of CFDs, particularly in regard to strike price, is how we will deal with newer technologies. It is easier to see how established technologies like wind and nuclear can establish a strike price, because there is a record to some extent of how they have performed. The strike prices we set for newer technologies will be important for CFDs, which will replace the renewables obligation. Wave and tidal technologies, for example, may need more support in the short term, because they have no prior record or commercial application. The existing system supported all manner of newer technologies through their initial stages, but it is not clear how contracts for difference will do that, because the prices will be determined by the market, although in the first  instance they will be set administratively. The initial administrative price will give clear direction to the market as to how the Government expect those technologies to go, so it is important that those prices are right. The clause states:

The Secretary of State or the national system operator may, in accordance with provision made by regulations, direct a CFD counterparty to offer to contract”.

Will the Minister expand on how he intends the system to work for new technologies that have not gone through the renewables obligation to any great extent and are not yet commercially viable?

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

I am grateful to Opposition Members for tabling the amendments, because they have given us another opportunity to discuss the CFDs and, in particular, the setting of the strike price, which, as the shadow Minister said, is critical to the success of our reforms. A number of hon. Members have an interest in the reference prices and strike prices and it is right that the Select Committee looks at those matters in detail. The industry, of course, is interested in the matter too, because it is the basis on which investment will be secured or otherwise.

The Government fully recognise the need for the market to understand what strike prices prevail. I draw the Committee’s attention to the fact that there is already sufficient power under subsections (4) and (5) to make provisions on the setting of strike prices for CFDs through administrative or competitive means, or a combination of the two.

Before I move to the principal thing I want to say about the amendments, I will specifically deal with the point raised by the hon. Member for Rutherglen and Hamilton West in his opening remarks. He said that originally much of the text of the amendments was in the draft Bill, and he is right. The reason was that the text formed part of the multiparty counterparty model and reflected the fact that the CFD was at that point formed of hybrid contract legislative instruments. Putting provision about that in the Bill was both appropriate and necessary at the time.

However, as we changed that—we discussed the metamorphosis earlier—to a single counterparty model with a supporting private law contract, we deemed it unnecessary to detail the text of the amendments in the Bill, because the Bill now envisioned the arrival of that genuine private law contract. The direction given by the delivery body or the Secretary of State will dictate the terms that must be offered by the counterparty and those terms include the strike price. That is the reason for the change, but the hon. Gentleman is right to raise the issue of how far one can go in establishing a degree of confidence in the determination of strike prices. He emphasised the need for transparency in that respect, and I agree.

Of course, to some degree, it will almost become easier as the new arrangements become established, such as those in respect of new technologies and nuclear. Once a set of assumptions has been formed based on the published details of the results of earlier negotiations, expectations will be formed, so in a sense, certainty will be a product of the system’s success. It is not easy at this juncture to be precise about the strike prices because they are the subject of negotiation, which I emphasise.

As the hon. Gentleman knows, the Government intend to set out in regulations the provision to set strike prices administratively. Similarly, it is intended that the provision for setting a strike price through competitive price discovery will be set out in regulations, too. Consequently, Members will have the power to scrutinise the detail of those provisions at the appropriate time as part of the secondary legislation process. Regulations on contract terms that may be offered are all subject to the affirmative procedure, so they will be subject to scrutiny.

During the passage of the Bill, we intend to make known the decisions we are taking on strike prices. The Government will set the CFD strike prices for renewables informed by evidence from the system operator. Broadly speaking, the strike prices will be in line with the renewables obligation banding review, as my fellow Minister suggested. The system operator, in its capacity as the delivery body, will undertake analysis, perhaps following research, that will include modelling the impact that potential CFD strike prices for renewable generation will have in reflecting the Government’s objectives for creating the energy mix, particularly including low-carbon generation and capacity requirements.

The hon. Member for Angus raised the issue of the strike price and new technology, and the shadow Minister mentioned carbon capture and storage. Understandably, questions will be asked about what strike price will emerge for such technologies. The strike price for new technologies will be set in a similar way to the renewables obligation and will consider levelised costs and hurdle rates, where necessary, to bring developments to fruition.

Competition is under way on CCS, but for less mature technologies there will be further analysis. Part of the competitive process in which we are engaged is a test of value for money. We will take decisions on an appropriate strike price based on an analysis of those projects, and that process will inform any further action. As I made clear both to the Committee and previously, I am very anxious that the process is as transparent as possible, and it will be subject to further scrutiny.

The information in the public domain thus far on CCS includes the report of the carbon capture and storage cost reduction taskforce, which suggests that competitiveness and value for money is indeed attainable in respect of CCS and, in its estimation, rather sooner than many people anticipate. The taskforce believed that CCS can become a cost-effective option; allowing that it is technologically sound, we are talking about commercial viability as early as 2020. We are confident about both the ability to set the right prices for those technologies as well as the transparency associated with that, and the cost-effectiveness that is critically important to make sure that viability means an effective roll-out of CCS with the consequent beneficial, virtuous effect in respect of gas and coal.

The process of collecting appropriate data has already begun with the Government’s system operator having issued a call for evidence in October 2012 to review technology cost and the deployment of potential assumptions, and to understand the difference in investment decisions under the renewable obligations and the CFD. Members of the Committee will remember that, while it is true that some eagerness was expressed in our evidence sessions about settling such matters, the broad principles of CFD associated with the strike price were warmly  endorsed. Indeed, EDF and the renewables sector suggested that it would give a long-term certainty associated with the investment decisions that they wanted to make. EDF specifically made such a point. I recall that Vestas did, too.

The process has attracted pretty wide endorsement, but it is absolutely right that we are clear about the engagement in that process being subject to scrutiny and being as transparent as possible. The information obtained in the process, together with the existing renewables obligation data, information on the CFD terms and the impact on the cost of capital, will be used by the systems operator in its analysis. They will be published in or alongside the delivery plan that I mentioned earlier, which will be published in July and subject thereafter to consultation.

A final CFD strike price for renewables will be published by the Government in the first EMR delivery plan by the end of the year, obviously subject to Royal Assent and, where appropriate, in annual updates thereafter. The Government will also consider potential wider economic and environmental impacts where appropriate when making decisions on CFD strike prices for renewables. The clauses relating to the final investment decision-enabling process set out the principles governing the settling of strike prices for individual plant in the short term, as a result of which there is no need for such a proposal.

As for amendments 46, 47 and 48, it is correct that the reference price is an important part of the CFD provisions as we outlined in some detail in the CFD operational framework. However, it is a technical provision and we do not consider it appropriate for such a level of detail to be in the Bill. I assure members of the Committee that they will have the opportunity to scrutinise the provisions relating to setting a market reference price for CFDs as part of the secondary legislation process. I am absolutely clear about that. The desire to scrutinise the process properly is a legitimate expression that has been given form by the amendments, and I am determined that the process will be as transparent as possible, to use the same word as that used by the hon. Member for Rutherglen and Hamilton West to enliven his contribution to the debate.

We must not risk constraining the terms that can be included in a CFD, which is a private law contract, by specifying or defining them within primary legislation. It would not be appropriate for the Secretary of State to report to Parliament on the outcome of the reference price-setting process. As the reference price is expected to be linked to the price of electricity, it will be dynamic and vary on a like-for-like basis. We will not accept the proposal, not because we do not want to be transparent, but it would be so impractical because of the very nature of the dynamism of the reference price. That will administered by the CFD counterparty body in accordance with the proposed specified regulations. I trust that I have reassured members of the Committee that the House will retain appropriate oversight of the reference price without introducing onerous reporting requirements. However, I note that the hon. Member for Brent North requires further satisfaction.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North 5:00 pm, 22nd January 2013

If I were looking for satisfaction, I would not be sitting here for six hours a day for the next few weeks. The Minister has really changed his view of what is an appropriate time, and I think he needs to  acknowledge that to the Committee. On Second Reading, in response to my hon. Friend the Member for Rutherglen and Hamilton West, he said

“and we will certainly, in the spirit in which I intend to conduct the Committee, make available draft material of the kind that the hon. Gentleman described so that, I hope, all members of the Committee get the chance to shape the Bill, as he suggests.”—[Official Report, 19 December 2012; Vol. 555, c. 956.]

It is precisely that assurance that we have had before, so when the Minister now says that there will be an appropriate time later on, he needs to acknowledge that it is not just Members of Parliament who are concerned that we do not have greater clarity and that we are not able to debate the context in which secondary legislation will come forward; it has been put to us by Energy UK and the Low Carbon Finance Group that these are significant problems where the Government are not allowing proper parliamentary scrutiny of the Bill.

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

The hon. Gentleman did indeed require further satisfaction. Let me try to satisfy him, therefore. It is important that we make as much information available as possible. On his point about draft material being provided, I think I said this morning that I am always willing to look at that as closely as possible. I highlighted some of the things that we have published and, furthermore, some of the things we intend to publish during the passage of the legislation. He is right, too, that we need to be transparent about the mechanisms by which the analysis, following the research that is done to establish strike prices, is formed. I endorse that view.

I emphasise, however, the point I made earlier: because this is a significant change in the way that investment is funded, with all the long-term certainty—15 years—associated with that change, at the very beginning of the process, there will be, in a sense, a necessary degree of investigation and discovery both for the industry and, working with the industry, for the Government. When we have been through that process, which is, by its nature, in the case of a new technology, or a technology such as nuclear that is about to enjoy a renaissance, the subject of negotiation, the matter will settle to a much greater degree than perhaps the hon. Gentleman fears, although he may not fear it.

I am clear that I want to make as much information available as possible. I made the revised impact assessment available, and I think that my exact words on Second Reading, which I have plucked from my notes in response to the hon. Gentleman’s comments, were these:

“Let me say at the outset that we will certainly make the revised impact assessment available before scrutiny starts in Committee, and we will certainly, in the spirit in which I intend to conduct the Committee, make available draft material of the kind that the hon. Gentleman described.”—[Official Report, 19 December 2012; Vol. 555, c. 956.]

I insisted to my officials, frankly, that we made the impact assessment available because I wanted Opposition as well as Government Members to have maximum opportunity to look at the revised impact after the quad agreement on, for example, the levy control framework, because I knew it would have significance in terms of the analysis of the effects of the Bill. I will continue in that spirit, and I have heard what the hon. Gentleman and others have said. Secondary legislation will be  consulted on during the passage of the Bill. I make no bones about that, and there is no alteration to my determination to ensure that it occurs.

Photo of Peter Aldous Peter Aldous Conservative, Waveney

The Minister may find me an easier person to satisfy than the hon. Member for Brent North. I take the opportunity to repeat, based on what we heard in the evidence sessions and on what I hear from industry in my constituency where about three wind farm applications are being worked up, that timeliness on the publication of the strike price is critical. The Minister has gone a long way towards addressing my concerns, and I am sure that he is very much aware that some important decisions will flow from those announcements.

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change 5:15 pm, 22nd January 2013

I am grateful to my hon. Friend, and his intervention is useful. He underestimates the closeness of my relationship with the hon. Member for Brent North and, indeed, the regard in which I hold the Labour party—which I believe to be mutual. With those remarks and reassurances, I hope that the hon. Members for Rutherglen and Hamilton West and for Liverpool, Wavertree will withdraw the amendment.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I thank the Minister for his words. I will make one observation, which is that I am relatively new to this game—to seeking to scrutinise Government legislation as effectively as possible. In all honesty, I am trying to do that to the best of my abilities, which I am sure goes for everyone on the Committee. The policy changes that we are discussing are important and significant. Not for the first time, we have referred to the Minister’s words on Second Reading and, in all candour, I am disappointed that he has not been able to offer any of the regulation, even in draft, because we will not get the opportunity later to scrutinise in the same way as we do in Committee. It is vital that we get the details right. The more gaps there are—we heard the evidence from those who came before us, at the start of this process—the higher the risk that investment will not happen, will be delayed or will cost more, all of which feeds through to the costs then paid by consumers and businesses, to which the Minister rightly alluded. I have heard what he said and understand the reason he has given, but I want to put on the record my disappointment that we have not been able to scrutinise some things to the degree of rigour that we would have liked had some of the information been available in draft.

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

Let me emphasise that, before the Bill, engagement with the sector, interested parties and expert groups was extraordinarily significant, with monthly meetings with relevant trade associations, energy firms, NGOs and consumer groups—we met on a regular basis. We created, as the hon. Gentleman may or may not know, expert groups for policy areas in EMR, feed-in tariffs, contracts for difference, capacity markets and judicial framework. We have been engaged with the Business Energy Forum, individual firms and business groups such as the CBI, in addition to the engagement that the DECC commercial team has had with the sector. In putting that on record, I do not want him to be under any misapprehension that there has not been a significant level of engagement with a range of interested  parties to get the Bill absolutely right. That is the appropriate way to move forward. I hear what he says, but I would not want him to have a less than balanced view of our approach.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I am grateful to the Minister for his intervention. I do not want to undermine any of that engagement. Industry involvement is vital, but we have a slightly different role—

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

Which is scrutiny. My disappointment is that we have not been able to scrutinise some of the detail, and that the Minister has not been able to bring any forward for the Committee. I am sure that I speak for the whole Committee in that we wish to scrutinise in a responsible, sensible and sensitive way, to help to get the Bill right, because of its importance. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.