Renewable Heat Incentive Scheme Regulations 2011

My Lords, climate change is one of the defining challenges of our generation. At a time when we are trying to reduce our energy consumption but still need to heat our homes, renewable energy must and will play a part in managing this situation. This is why we want to introduce the renewable heat incentive, or RHI, to support renewable heat generation and to complement the renewables obligation and feed-in tariff schemes which support the generation of renewable electricity. Previous draft regulations for the renewable heat incentive were debated by both Houses. While both Houses passed those regulations at the time, they were subject to state aid approval being received from the European Commission for the scheme. In the event, the European Commission decided to approve the scheme, on the condition that the tariff for large biomass installations was reduced. The reason the Commission was concerned with the large-scale biomass tariff was because the tariff-setting methodology used for it differed from that applied to other technology bands. The Commission believed that this could result in overcompensation for some biomass installations. The proposed large biomass tariff was set to incentivise 100 per cent of potential large biomass installations, allowing us to maximise the level of biomass take-up at this scale. This approach differed from that taken to other technologies supported under the scheme. We had decided on this approach because large-scale biomass represents the most cost-effective way of meeting our EU renewables targets. As the tariff levels were set out in the previously debated regulations, we have revised the draft regulations to include the new tariff level for large-scale biomass. The new set of draft regulations is available to your Lordships today and sets out the details for the renewable heat incentive under which this scheme will operate. There are two changes to those previously debated in the Committee on 12 July. The tariff for large biomass installations—those of over 1 megawatt capacity—has been reduced from 2.7p per kilowatt hour to 1p per kilowatt hour, and the dates on which Ofgem is required to first report to the department on the administration of the scheme have been altered to reflect the delay in launching the scheme. These regulations provide the basis for 20 years of financial support for a range of renewable heat technologies such as solar thermal, biomass boilers and ground source heat pumps. Support levels are intended to bridge the financial gap between the cost of conventional and renewable heat systems. Once in the scheme, the level of support for participants will be fixed and will change each year only with inflation. The Government have committed £864 million in funding for the scheme up to the end of 2014-15. This funding will come from general taxation rather than the proposed levy suggested by the previous Government, which was found to be unworkable. Support under these regulations will be available for renewable heat installations in England, Wales and Scotland. The Northern Ireland Executive, who are developing their own scheme under powers provided by the Energy Act 2011, have consulted on their proposals and are now analysing responses to that consultation. The RHI will provide the right framework to enable a rapid transformation of the way heat is generated. We expect it to provide carbon savings between now and 2020 of 44 million tonnes—equivalent to all the carbon emitted by 19 typical new gas power stations operating at full load in one year. The RHI will be available to generators of renewable heat in the industrial, commercial, public, not-for-profit and community sectors in the first instance. We want to incentivise a wide range of businesses and organisations to realise the opportunity provided by the RHI and start generating heat from renewable sources. The domestic sector is currently being supported by the renewable heat premium payment scheme, which provides a one-off payment to households that have installed an eligible renewable heat plant. We are working on proposals for an ongoing domestic scheme as part of phase 2 of that scheme. However, in the light of the later than expected launch of phase 1 as a result of the changes required by the European Commission, we are reviewing the timetable for the introduction of phase 2. We will be in a position to confirm the exact timing early in the new year. The RHI will be delivered by Ofgem on behalf of DECC. I am pleased to confirm that the delay to the scheme has not impacted on its readiness to administer the RHI and, subject to parliamentary approval, it will be in a position to start accepting applications once these regulations have been approved and made. Ofgem has significant experience in delivering financial support schemes to renewable energy generators, and already delivers the renewables obligation and feed-in-tariff. Because Ofgem has experience in delivering similar schemes, it will be able to build on this experience and existing structures such as IT systems to ensure that the RHI operates as effectively as possible. Generators will need to apply to Ofgem to be accredited under the scheme, and the processes that they need to undertake are set out in guidance recently published on the Ofgem website. In order to be able to participate in the scheme, applicants will need to meet a range of eligibility criteria intended to ensure the integrity of the scheme. This includes the requirement that, for small and medium plants, installers and equipment need to be certified under the microgeneration certification scheme or an equivalent scheme. Generators will also need to commit to undertake certain ongoing obligations to receive payments under the scheme—for example, providing meter readings so Ofgem can calculate their quarterly RHI payments, maintain their equipment and, in the case of biomass installations, provide information on a number of sustainability issues. It is worth spending a little time considering bioenergy, which is a key element in allowing us to achieve our renewable energy targets. The amendments to Section 100 of the Energy Act 2008 that were approved in the summer went some way towards achieving this by enabling biogas to play a much more significant role in the RHI. We are still aware of the concerns surrounding the increased use of biomass as an energy source, particularly with regard to sustainability of the fuel sourced and air quality. Those concerns are addressed in the regulations by including sustainability reporting criteria from the outset. Air quality will be addressed through existing legislation for large-scale biomass, and we will introduce emission limits for all other biomass installations in phase 2 of the scheme. Rising energy prices, an increased dependence on imported energy and the impact of climate change all mean that we need to change how we use and generate energy. Energy used to generate heat is a key aspect of this, as heat energy contributes half of the UK's carbon emissions. We are also no longer able to rely on cheap fossil fuel gas, which historically has supplied 70 per cent of our heat. It is time to address this situation. By introducing the RHI we are taking a first step towards a radically new approach to how we generate heat in this country. I beg to move.