I thank the Minister for his explanation of the regulations before the Committee. They are important, because they establish the new green gas support scheme as a replacement for the renewable heat incentive, which closed to new applicants on 31 March this year. This scheme will begin on 1 April 2022, with a reach back to the scheme’s launch date, due to be 30 November this year.
This new scheme is for new deployment and excludes equipment and plants used to register under the RHI scheme, so can the Minister confirm that there will be no crossover of payments between the schemes and that there is therefore little likelihood of much new biomethane coming forward, certainly during the retrospective six months but also for some time to come as new plants come on stream? How soon, and in what number, does the Minister’s department expect applications for new plants to be built and come on stream? It would appear to be quite quickly, as payments will last for only 15 years in a scheme of 19 years until 2041. I presume that the department has confidence in the speed of decision-making, the planning process and the construction phase, all of which will need to go smoothly to encourage speedy deployment.
I must also admit to having some déjà vu moments as I read through the details of the scheme, with recollections of how Conservative Governments regarded such schemes in the past. When I read under paragraph 7.3 of the Explanatory Memorandum that tariff rates
“will be set at a level that aims to encourage continued deployment and ensure value for money”,
and, then, under the very next paragraph, that
“a degression mechanism … will reduce tariffs if certain triggers are met”,
I recall the devastating cutbacks introduced by the Conservative Cameron Government, which slashed support for wind and solar, devastating the industry and undermining investor confidence so tragically. The misprint in paragraph 7.4—
“compromise of an annual tariff review”—
only underlines the impression that undermining support for deployment, especially in conjunction with some sort of levy control framework coming back disguised as a budget cap, will be another feature of this scheme.
It also suggests that few lessons have been learned by the Government. The levy control framework became a politicised mechanism that defied industry understanding and eventually had to be scrapped. Can the Minister give more details today to give confidence that the balance between encouraging deployment and payback to investors will not suddenly lurch towards ill-defined value-for-money analysis being undertaken at the stroke of the department’s pen? Those lost years after those experiences for the solar industry, as well the jobs that were lost, have contributed to the climate emergency that is yet to be recognised fully across government.
Continuing further into the details, I commend the Government on the impact assessment accompanying the regulations. It gave greater insight into the set-up of the scheme and the changes from the RHI regime. This scheme will mandate biomethane producers to produce at least 50% of their biomethane from waste. On page 70 of the impact assessment, the full feedstock energy mix is identified, with 50% of the waste expected to be food waste. Can the Minister confirm whether there is a full definition of food waste that includes food waste in all its various unfortunate and distinguishing forms? My understanding is that this refers not merely to restaurant, domestic household and other post-consumption end-of-the-food-chain waste. It should also include waste that does not even reach the food chain, such as food being rejected or suddenly no longer wanted by supermarkets; this can befall farmers and growers, especially in salad crops and vegetables.
Has the Minister’s department worked closely with colleagues at Defra who are working to reduce food waste through recycling schemes and local authorities? Can he also say what analysis has been undertaken by the department to consider the effects on the renewable fuel obligation undertaken by the Department for Transport, which reuses cooking oils?
I am not aware of the definitions and analysis of “food waste” under the RHI scheme, but I remember that, at one time, miscanthus growing was an important feature of biomethane production plants. In the department’s analysis, maize is the next important feedstock, at 20%, along with agricultural waste. However, I note, under “Non-monetised costs and benefits”, which the Minister mentioned in his opening remarks, the effect on the rural economy. The analysis states that
“two thirds of … plants are located in rural areas, with 80% of all GB plants located in areas with a lower than average GVA.”
I welcome the positive effect that this will have on rural areas. I also note that many properties are not on the gas grid in these rural areas.
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This scheme will apply the levy to the gas grid only and will not include electricity supplies, producing enough green gas to heat about 200,000 homes. In the context of the application of the levy, which is adjudged to have minimal effect on bill payers, this does not amount to a significant impact. Does the Minister’s department see this as an interim scheme in its thinking about a framework to bring hydrogen gas to the grid? Hydrogen would certainly bring far greater benefits to, and have a greater impact on, the decarbonisation of gas and is recognised as a possibility in the memorandum. Will this be a key feature of the reviews being built into the scheme? How often will the reviews be undertaken? Will they be public documents, and will they become part of the reporting structure to Parliament that monitors progress towards reaching net zero by 2050?
Another key feature of this scheme is that payments will be made only in respect of supplies that reach the grid. The Minister will know that many plants are considered for the savings they would generate in the industrial process—for example, sugar—and that therefore do not reach the grid. The Minister will also know that tanked or bottled gas goes to many properties off the gas grid, and that there are many district heating schemes. Can he explain why this scheme is so restrictive and does not look at the decarbonisation of gas in the round? Will this type of extension be considered under a review or excluded altogether?
Finally, it is important to note that the scheme represents yet another new levy on households—a change from the Treasury-funded RHI. It is also therefore a potentially regressive scheme, affecting poorer households already in fuel poverty. According to the analysis in the document, in the initial phases the effect on consumers starts at about £1.40 per year, and at £2.50 according to the Minister’s remarks today. Nevertheless, it will increase over the lifetime of the scheme, while moving to a levy on volume consumption. I understand that the devolved Administrations have looked at the effect on their schemes and appear to be content with it.
However, there are many simultaneous dynamics. Will the department be able to assess and review each change individually, as well as the cumulative effects that could have a meaningful impact on certain income levels and households? How will these reviews be conducted?
I grant approval today for the scheme and thank your Lordships’ Secondary Legislation Scrutiny Committee for its report. Nevertheless, there are many important areas of concern as the UK moves forward with plans for net zero, and I welcome further dialogue along that pathway.