Renewable Heat Incentive Scheme Regulations 2011

My Lords, I thank all noble Lords for contributing to this debate. Quite a few issues have been raised and I will do my best to cover most of them in as much detail as is sensible on such a complex matter. I welcome not only everybody’s contributions today but the support that this initiative has received from the Opposition and my noble friends in all parts of the Committee. As someone who is new to this brief, it was interesting for me to learn that the scheme was first mooted by NGOs 10 years ago and that the Back Benches, rather than previous Governments, were behind this move, although it obviously now benefits from the decision of this Government. I will go through the issues that were raised, some of them by several noble Lords. A number of noble Lords sought to draw comparisons between this scheme and the feed-in tariffs scheme for solar panels. I understand why some people might be concerned that issues will arise from this scheme similar to those which arose from the feed-in tariff scheme. The key thing is that this Government are learning lessons from how the feed-in tariff scheme was set up by the previous Government. There has been a much higher level of collaboration with the industry and stakeholders in setting up this scheme. We have tried to build in the flexibility that is not there in the feed-in tariff scheme. I point out, as I did in the Chamber earlier today, that the changes that we are making to the feed-in tariffs scheme are to ensure that the industry is sustainable in the future. It is an important industry and we want it to be part of the future. The noble Lord, Lord Grantchester, my noble friend Lord Teverson and the noble Baroness, Lady Worthington, raised the issue of why the RHI is being funded by general taxation, whereas the feed-in tariff scheme is funded by a subsidy, or a levy on consumer bills. The difference is that feed-in tariffs are paid to consumers by electricity suppliers. That is, there is a tariff for the energy that is generated by people through the solar panels on their roofs. To fund feed-in tariffs from general taxation would require the scheme to be restructured or the Government having to pass money to the electricity suppliers to pay to the solar panel participants. It is a different scheme altogether; that is the main reason why it is funded differently. Let me move on now to some other issues that were raised. The noble Lord, Lord Grantchester, perhaps in the same vein, asked about the reduction in tariff. The answer is that the rate of return remains at 12 per cent, so that rate has not changed. We expect that to be the rate required to incentivise installers to adopt renewable heating. The change is that we expect fewer installers to adopt large biomass. However, given supply chain constraints we expect there to be greater uptake of small and medium-sized biomass than of the other types of technology. As for the process for reviewing the scheme and ensuring that sufficient notice and planning time is given to the industry, we are putting in place a cost-control mechanism which will alleviate the need for early and emergency reviews. There may still be a requirement for early reviews and we will consult on the criteria for this, such as significant changes in the costs of technologies, as part of our proposals for phase 2 of the scheme. We will ensure that this process is transparent and predictable in order to provide the certainty that the markets need. In addition, we expect to introduce a policy to control cost as an integral part of the scheme, which should reduce the need for reviews. The point for me to emphasise here is that—learning from previous schemes—we are ensuring that in monitoring how this is operating, it should prevent the need for significant reviews of that kind. Several noble Lords sought the Government’s confirmation that we are committed to the renewables targets. My answer to noble Lords on that is that, yes, we are absolutely committed to meeting them and that renewable heat is a vital pillar of that commitment—both the wider one and, indeed, the specific target. There were so many different issues raised. Let me rattle through some of them now. As to the effect on investors and whether there would be confidence in this scheme, which again links to the issue of review, we would expect the criteria for early review—as I mentioned, we will consult on those—to focus on issues such as rates of deployment. I think that the noble Lord, Lord Grantchester, asked whether part of the review would be about the level of jobs created. However, investor confidence is of critical importance in delivering our renewable targets. This is why we intend to be transparent about the process and criteria, as I have said before. Being transparent in the way we operate this should provide the confidence that the industry is looking for—and is right to require from us as part of this. He also asked about interaction with the Green Deal. In answer, I can briefly and confidently say: yes, we are looking to ensure that when phase 2 comes into operation, there will be ways in which that can operate in line with the Green Deal. My noble friend Lord Teverson, and perhaps others, asked about the timing of the expected launch of phase 1. As I said earlier on, as a result of the changes required by the European Commission, we are reviewing the timetable for introducing phase 2. We will be in a position to confirm the exact timing early in the new year but I cannot give it to him now. He also sought an assurance that we would not create a situation in which people were burning heat in order to receive incentives. We believe that the tariff structure and the eligibility requirements prevent people from generating heat just for incentives. Once the scheme begins, of course, we will monitor it closely for any signs of such behaviour.