Mr Gareth R. Thomas

Renewable Energy

Hansard: Column 118

Mr. Gareth R. Thomas (Harrow, West): Renewable energy is where the knowledge-based economy meets the environment. It is where market-based solutions deliver reductions in carbon dioxide emissions and it provides opportunities to modernise and enhance our industrial and manufacturing competitiveness by developing new technologies and expertise.

The dome, which was the centrepiece of our successful millennium eve celebrations, is powered by renewable energy. Similarly, the headquarters of the Central Intelligence Agency in Washington and Gatwick airport's north terminal both use renewable energy. British Petroleum, Shell, PowerGen, National Power, Eastern Electricity, Yorkshire Water, Rolls-Royce, Pilkington and Harland and Wolff are just some of our national and international companies with interests in the renewable energy industry. It employs about 3,500 people in more than 700 companies in this country.

Achieving our target of 10 per cent. of electricity from renewables by 2010 would create between 10,000 to 45,000 new jobs, according to the Department of Trade and Industry, and up to double that number according to estimates from Friends of the Earth. Many of those new jobs would be in manufacturing and/or rural areas. According to estimates by the Department of the Environment, Transport and the Regions, achieving that 10 per cent. target would also provide 25 per cent. Of the carbon savings needed to meet the 20 per cent. carbon dioxide emission reduction in our manifesto commitment.

In short, the renewables industry offers at the same time significant environmental, economic and social benefits, at a time when energy markets worldwide are in transition. For example, in the past 20 years the coal and oil share of generating capacity in the United Kingdom has halved. Fossil fuels are certainly not yet running out--gas fuels 28 per cent. Of the electricity market in this country and considerable coal reserves are left--but the global sourcing of such energy is changing, potentially increasing costs and certainly raising issues about security and diversity of supply. Few challenge the view that rising fossil fuel demand cannot be sustained indefinitely.

In addition, open competition in energy markets, together with new technologies, are making on-site, smaller scale generation efficient and viable. That is changing and challenging a traditional exclusive vision of electricity production as being just about large, remote power stations serving an extensive distribution grid. The other crucial dynamic is our international obligation for reductions in greenhouse gases emissions. That is particularly important as more than two thirds of the United Kingdom's carbon dioxide emissions come from non-transport energy production.

Our renewables industry is ideally poised to offer solutions and responses for those changing energy needs. Indeed, the Department of Trade and Industry's renewable consultation document identified renewables as offering an option for maintaining a degree of diversity in the electricity system in the longer term. It said that they were the most promising option for the development of a sustainable non-fossil fuel generation system and an increasingly cost-effective means of reducing CO 2 emissions. Couple that with the new employment and export opportunities that renewables offer and it is no surprise that the industry's potential has been highlighted by the DTI's own foresight programme.

As Lord Sainsbury of Turville made clear on 5 November last year, to achieve our immediate target of 10 per cent. Of electricity from renewables by 2010,

"a very significant increase in the rate of investment in renewables will be necessary".

The European Communities Committee in the other place made clear in a report published in June its view that the UK needed to increase the average annual rate of installing renewable electricity generation by a factor of at least seven. I recognise the excellent work in this area already initiated by those on our Front Bench--for example, the reversal of the decline in research funding planned by the Conservatives, the allocation of £43.5 million for investment in renewables over the next three years, the record 260 projects
contracted for under the fifth NFFO--non-fossil fuel obligation--order placed in September 1998, and the climate change levy, with renewables exempt, which inevitably encourages business to consider carefully the source of its energy.

Our Government has not been idle. The outlook for the industry now, compared to the position just three years ago, is considerably more positive. Nevertheless, such was the lack of imagination bedevilling industrial policy under the Conservatives that our renewables industry, despite its considerable potential, has not had the long-term development support available to some of our competitor countries.

By comparison, on 12 August last year Bill Clinton signed an executive order aiming to treble American use of biomass energy, and setting up a permanent council to manage a programme that included a package of tax credits as well as significant levels of direct Government funding. The US Government already have a programme to achieve a million solar roofs. The German Government want to achieve 100,000 solar roofs, and the Japanese Government want 70,000 solar roofs--programmes of support designed to create
strong domestic markets from which to achieve the economies of scale necessary to perform well in the rapidly growing global solar market.

Dr. Alan Whitehead (Southampton, Test): I thank my hon. Friend for giving way. What does he make of the claim by the British photovoltaic industry that an expansion of internal production and the creation of an internal market would make PV viable in the UK? That is the main obstacle standing between PV and viability, compared with other forms of energy, in the UK.

Mr. Thomas: I thank my hon. Friend for that intervention. There is much to be said for the argument advanced by the British Photovoltaic Association. That is the assumption on which the US, German and Japanese Governments are aiming for significant expansion in the number of solar roofs.

We have arguably the best offshore and onshore wind resource in Europe, yet at 330 MW of installed and operational wind capacity,we lag behind Germany, where 2,900 MW of installed capacity already exist, and Denmark, where 1,450 MW of installed capacity are in place. Denmark is already meeting 10 per cent. Of its electricity needs from wind power alone, has a substantial domestic manufacturing base as a
result, and is aiming for 20 per cent. Of electricity from renewables by 2003 and 35 per cent. by 2030.

Estimates from World Energy Council projections indicate cumulative investment in renewables ranging from £150 billion to £400 billion over the next 10 years, while analysis by Shell suggests renewables meeting about 40 per cent. Of world energy needs by 2050. By any definition, that represents a huge business opportunity.

Other action to help our renewables industry to make up for the failures of the Tory years could include new national targets for renewables beyond 2010. Targets help to concentrate minds, define ambitions and create confidence about long-term policy support. They would help to focus minds in the industry, the financial community and the many relevant parts of Whitehall.

Early announcement of regional targets for renewables generation would also help to lock in other crucial agencies--for example, the regional development agencies, the Welsh and Northern Ireland Assemblies and the Scottish Parliament--to achieve our renewables goals.

Coal, gas, oil and nuclear all have their champions in Westminster and Whitehall, and a sustainable energy agency is, rightly, strongly supported by the renewables industry to perform a similar role. Such bodies exist successfully in New South Wales and the Netherlands, co-ordinating funding, research and business advice to their renewables industry.

Such a body need not be created from scratch--the Green Alliance proposed developing an enhanced role for the Energy SavingsTrust to help complement existing work in Whitehall and by individual renewables trade associations, thus avoiding the cost and disruption of organisational change.

The failure of many renewables projects during the planning process has been a particular problem for some parts of the industry, with suitable and sensitive schemes delayed and prevented by the planning system from coming to fruition.

I welcome the positive consideration of that issue in the Department of Trade and Industry's consultation document last year and in the response to the report by the Select Committee in the other place on the European Union report on renewables. I hope that my right hon. Friend will be able to expand on those comments and outline what other action is being taken to help to tackle that problem.

Mr. David Drew (Stroud): I apologise for missing the start of my hon. Friend's compelling speech. Does he agree that energy policy requires joined-up government action, not only in planning but in agriculture and the whole of industry?

Mr. Thomas: My hon. Friend makes an excellent point. We are beginning to see such action, and I hope that my right hon. Friend will outline further such measures in her speech.

The new electricity trading arrangements and the utilities Bill are set to modernise our domestic energy market. The obligation on suppliers to achieve a percentage of renewable energy which is expected to be in the utilities Bill will be extremely welcome. I hope, too, that the regulator, as part of its enhanced role, will be able to promote and encourage renewables generation.

There is concern within the industry about the possible impact of the new trading arrangements. In particular, generators with NFFO contracts want reassurance about their position under the new arrangements. The other key concern is that intermittent or fluctuating sources of generation, including many renewables, which are unable to predict four hours in advance, will be much less attractive to suppliers. I recognise that progress has been made on that issue, and I trust that my right hon. Friend can confirm that appropriate aggregation arrangements, for example, will be allowable.

I urge my right hon. Friend also to consider the case for a dedicated member representing renewables to be on the balancing and settlement panel--the body central to the on-going governance of the new electricity trading arrangements. I hope that the way in which renewables are affected by the new arrangements will be kept under careful review. I hope also that my right hon. Friend will be able to confirm the Department's positive view of embedded generation and outline what further steps it is taking to encourage the
benefits of embedded generation to be properly valued and accounted for.

I hope that my right hon. Friend will consider introducing a positive programme to encourage net metering to help facilitate smaller scale renewable energy generation for individual domestic and business usage. Net metering would enable small generators to export any excess electricity back to the grid at a fair price. Various forms of net metering are already in place in Germany and Holland. Net metering is also very much alive in America, where 22 states, including Wisconsin, Idaho, California and Washington, have varying net metering regimes. A further seven states are in the process of introducing such schemes.

Net metering could be an attractive option for social housing providers, offering pathways out of fuel poverty for their tenants. Imagine the pleasure of watching our electricity costs reduce before our eyes as our meter turns backwards, reflecting our excess electricity going to the grid. If that can be done in America, Germany and in Holland, it begs the obvious question, "Why not here too?" I hope that my right hon. Friend will strongly encourage further action at a European level to encourage renewables and the maximising of funding from EU sources for British renewables developers.

In its report on the EU report on renewables, the Select Committee in the other place said that the proportion of renewable energy used in the European Union has increased by just 1 per cent. since 1990 and that a three-fold increase is required to meet the European Union's target of getting 12 per cent. Of energy from renewables.

The development of energy crops in particular is hindered by the high cost of their establishment, which inevitably makes them an unattractive proposition compared with more traditional farming activities, which receive support under the common agricultural policy I recognise that some progress was made during the Agenda 2000 discussions, but I hope that my right hon. Friend will continue to push for further appropriate
reforms to ensure that what is potentially an exciting new business opportunity for rural communities receives much-needed EU funding.

In 1997, the EU "White Paper for a Community Strategy and Action Plan for Renewables", published on the eve of the Kyoto conference, said:

"In some cases it will be appropriate . . . for . . . Member States' authorities to enact necessary legislation . . . in areas such as flexible depreciation of renewable energy investments; favourable tax treatment for third party financing of renewable energy; start up subsidies for new production plant, small and medium enterprises and new job creation, and financial incentives for consumers to purchase renewable energy equipment and services."

I hope that, in the light of that comment and other imperatives, my right hon. Friend will continue to keep under close consideration, particularly during her discussions with the Treasury, the levels and form of financial support for renewables. I should like to highlight the tax exemptions given in Denmark to those investing in green funds, which have provided considerable funding for the development of locally owned wind farms. In its report on the EU report on renewables, the Lords Select Committee on the European Union made a similar recommendation.

The renewables industry will experience considerable growth in the first years of the new millennium, as energy markets change, new opportunities for manufacturing and jobs are exploited and the ever more important environmental imperative to reduce carbon dioxide emissions is focused on. The global market for wind and solar energy is set to double in the next three years--a rate of growth comparable to sales of mobile phones and internet services. In short, the British renewables industry is ideally placed to benefit from and to lead such growth.

The Minister for Energy and Competitiveness in Europe (Mrs. Helen Liddell): I congratulate my hon. Friend the Member for Harrow, West (Mr. Thomas) on securing this Adjournment debate. It is appropriate that the first such debate of the new century is on the future of our energy supply and its development in a way that is sustainable and that meets the needs both of our economy and of the planet. I am delighted that he has returned from his recent exertions none the worse for wear and that, while on the piste, he has crafted some excellent phrases. I warn him that I shall probably pinch a few of them, not least his description of renewables as

"where the knowledge-based economy meets the environment."

I hope he has not claimed copyright on that singularly apt phrase.

I like my hon. Friend's concentration on the job-creation potential of renewable energy generation--an industrial sector with tremendous scope for expansion. In discussions with representatives of the energy industry, I am always conscious of the increasing extent to which some of the largest players are involved in generation from renewable sources. However, there is a long way to go and much to do, and today's debate gives me an opportunity to restate the Government's commitment to the promotion and development of renewable energy.

My hon. Friend is right to say that the increased use of renewable energy will contribute to the security and diversity of energy supply, while helping us to move towards a more sustainable form of energy development.

The opportunities that that effort offers are considerable. The Government expect renewable energy, improved energy efficiency and increased use of combined heat and power to play an important role in reducing future greenhouse gas emissions. The development and increased use of renewable energy is an important part of any cost-effective climate change strategy, not only in the coming decade but far beyond. It is inevitable that we shall face further constraints on greenhouse gas emissions and our ability to burn
fossil fuels.

The Government have already implemented a raft of measures to stimulate the uptake of renewable energy and to assist the development of the UK industry. In September 1998, we announced the fifth and largest ever order for England and Wales under the non-fossil fuel obligation, comprising some 260 projects and almost 1,200 MW of capacity. In February last year, we announced the third Scottish renewables order for a further 53 projects and 150 MW capacity. In March, we announced a steep increase in spending on research and development, with the budget set to total £43.5 million over three years. At the same time, we announced plans to re-establish the wave programme closed by the previous Government--we shall shortly announce the first projects under that
new programme.

As my hon. Friend pointed out, we have already announced our intention of working towards a 10 per cent. renewable contribution to UK electricity supplies. We published a consultation paper on that and, in July, we published the responses to it. The target is challenging, but it is only the first move towards a much wider use of renewable energy

My hon. Friend referred to the planning issues that surround renewables. Last summer, we launched a new regional planning initiative. In November, we issued two consultation papers on network management and licensing issues for embedded generation, which my hon. Friend mentioned. That is directly relevant to renewables. Only last month, we announced our intention of allocating around £30 million to the growing of energy crops over the six years to March 2007. My hon. Friend and the House know that we have also announced plans to exempt all forms of renewable energy, including electricity generated from renewable sources, from the climate change levy that will be introduced in April 2001. That provides a substantial financial incentive to the industry.

It is important to examine renewable energy in the overall context of our broader environmental strategy and our economic policies. We will publish draft proposals for the UK climate change programme shortly.

We also propose to publish the utilities Bill shortly. It will provide new powers to support renewable energy development. I will make a further statement on future support for renewables at that time. I am sure that the House appreciates that it is not appropriate for me to go into detail about the contents of the Bill at this stage.

As part of our overall analysis of our future energy needs, we take into account the difficulties of ensuring that we meet our 10 per cent. Target of generating electricity from renewables. We also want to be absolutely sure that electricity supply companies have completely bought in to that process. We want contracts to be commercially viable. That will continue with the provisions that we shall put in place for new electricity trading arrangements.

In moving towards the target of 10 per cent., we will have to increase our renewable energy generating capacity by perhaps as much as 4,000 MW above what we are likely to reach by 2003. That will mean significant contributions from many technologies, such as waste, landfill gas and onshore wind. They have provided the mainstay of the non-fossil fuel obligation policy to date. However, we must consider the less developed technologies such as offshore wind and the energy crops to which my hon. Friend referred in his
interesting speech. It is vital that we consider increased research and development and that we also consider planning targets.

My hon. Friend and I face a significant challenge. Those of us who are committed to renewable energy have to be confident that we can take people with us. Many people are worried about the technology that surrounds electricity generation in particular. They are used to large electricity generating plants, but much of the renewable generation will be on a smaller scale and closer to communities. Therefore, we have to persuade people. That aim underpins our attitude to planning.

My hon. Friend mentioned photovoltaics. We acknowledge that that there is an important debate about photovoltaics. We believe that solar PV can make a significant contribution to renewable energy supplies both in the UK and elsewhere in the longer term. It offers a cost-effective electricity supply in many applications when grid connection is too expensive or unavailable, and it makes an important contribution to energy, environmental and social goals in developing countries.

However, PV is currently an expensive means of generation. Critics argue that the Government could create a market by subsidising installations and that that would lead to economies of scale and a self-sustaining market. I do not think that that would work because the costs are too high and the UK market is too small. I am not yet persuaded that the cost could be justified by the social and environmental benefits--this is an emerging technology. A 50,000-roof programme with a 50 per cent. subsidy, as has been suggested by Greenpeace and others, would cost the taxpayer about £250 million. That is not to say that we do not support photovoltaics--we do--but we need to ensure that we move towards a more cost-effective programme as well.

There is another matter on which I have to take a different view from my hon. Friend. He has previously argued very eloquently in the House for the formation of a new sustainable energy agency. My hon. Friend the Member for Stroud (Mr. Drew) referred to joined-up government, but I do not believe that establishing such an agency is the way to secure it. The Government would have to remain responsible for policy; Departments and Ministers across Government would have to work together to develop policy and monitor its implementation; and the burden of liaison and co-ordination would increase rather than decrease.

I also believe that we would be taking a retrograde step if we were to set up a separate agency to deal with sustainable development because we would be removing it from the mainstream of Government policy, which is where it should be if we are to have a truly sustainable energy policy. If we are to have sustainable development, we have to cut across all areas that relate to energy efficiency, from housing to energy policy, health and taxation. I am unpersuaded of the case for a sustainable energy agency, but not because I want in some way to weaken the Government's commitment to sustainable energy. I argue against such an agency for precisely the opposite reason, although I understand the view of my hon. Friend the Member for Harrow, West.

My hon. Friend also referred to the changes that will take place in the electricity market. The planned reforms, including the introduction of further competition in electricity supply, have encouraged key players in the industry to suggest options that allow people to choose green electricity. That will make sustainable, environmentally friendly electricity available in a commercial setting, which is the way to guarantee its future; and linking it with exemption from the climate change levy will provide a market-based financial incentive for the industry to participate in such schemes. The reforms will make the current NFFO mechanisms inappropriate, which is why we shall shortly introduce new powers to support renewables through the utilities Bill.

The new trading arrangements that we shall introduce will mean the operation for the first time of--to use that dreadful phrase--a level playing field for all electricity generators, which will allow real opportunities for them. The regulator, too, has shown commitment to developing, for example, embedded generation. He has proposed a new group, under his chairmanship, that will examine a wide range of matters, including the principles and the ground rules for the connection and use of system charges to facilitate and encourage embedded generation.

My hon. Friend referred to net metering. Although the Government want to ensure that small renewable energy generators such as those involved in photovoltaics get the full value of their generation, it is not immediately obvious to us that net metering would achieve that. We want to use the system of distribution licences as a means of facilitating competition. That duty will in itself embrace the need for embedded generation--including operators of both renewable and combined heat and power plants--to allow
them access to distribution systems on fair terms.

My hon. Friend also referred to the European dimension. European policy is very important, and discussions in the other place have shown it to be significant. There is still much to be done on European policy, not least a draft directive on fair access to renewables, which will be introduced shortly.

This is an important subject that will have a growing impact on how we generate energy in the 21st century. I again congratulate my hon. Friend on securing the debate, and I look forward to many more opportunities of discussing with him and colleagues the future of renewable energy generation.

Question put and agreed to.

Adjourned accordingly at half-past Ten o'clock.

Reply to Gareth R. Thomas

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