Economy, Energy and Tourism Committee, 05 Nov 2008

Meeting date: Wednesday, November 5, 2008

Official Report 403KB pdf

---

Energy Bill

We welcome back the Minister for Enterprise, Energy and Tourism and his new team of supporting officials: Neal Rafferty and Christine McKay, senior renewables policy advisers; Ross Loveridge, senior energy policy adviser; and Linda Hamilton, principal legal officer. They are here for item 4, on United Kingdom Parliament legislation. The minister will make opening remarks, then members can ask questions.

I am grateful for the opportunity to present the legislative consent memorandum on the Energy Bill. This Government is unequivocal in its commitment to renewable energy. We all know that Scotland can deliver more than its fair share when compared with the rest of the UK. That is why I am here today to ask for the Parliament's consent to provisions in the UK Energy Bill that will deliver a renewable heat incentive and enable the introduction of a banded renewables obligation in Scotland.

Members will be aware that, earlier this year, as part of a UK framework agreed between the Secretary of State for Energy and Climate Change and the Scottish ministers, the Scottish Parliament gave its consent to Westminster legislating on our behalf to permit carbon storage in Scottish territorial waters. That was the right decision for Scotland and it rightly received the endorsement of the Scottish Parliament.

The UK Government has introduced some last-minute amendments to the Energy Bill that have been designed specifically to ensure that the House of Lords passes the bill. The LCM before you today is the result of those amendments. Their late submission by the UK Government has meant that the timescale is tight, but I am convinced that the measures that are subject to the LCM are vital for our renewables sector and good for Scotland.

The committee will recall that, when the Energy Bill was introduced, we agreed with the UK Government that the new renewables obligation banding powers should be transferred to the Scottish ministers. The intention was that the transfer of powers would be given effect, as in the past, through the laying of an order before the UK and Scottish Parliaments under section 63 of the Scotland Act 1998.

The delays to the Energy Bill mean that there is insufficient time to lay and make the section 63 order and introduce a revised renewable obligation order before 1 April next year, which prevents us from introducing an amended obligation containing banding next April. Such a delay would mean damaging delays to the vital additional support that we have promised for wave and tidal power, and other technologies, which the industry is expecting and on which we are consulting—the Energy Bill contains the banding powers that we need to deliver that additional support. The LCM seeks the Scottish Parliament's consent to those powers being conferred directly on the Scottish ministers rather than subsequently by dint of a section 63 order. As such, the LCM offers a means of ensuring that those powers are available in good time.

I can assure the committee that if the LCM is agreed and the powers for the Scottish ministers are thus enacted, the Scottish Parliament will be able to scrutinise in detail a suitably amended and detailed renewables obligation order, which we would plan to lay early in 2009. Consequently, I urge members to support the LCM on the renewables obligation.

The LCM also seeks members' consent to allow the UK to legislate on our behalf to create a UK-wide renewable heat incentive. As the committee will be aware, heat counts for around 50 per cent of emissions, which is something that will have to be tackled strongly if we are to meet our 80 per cent CO2 reduction commitments in the Climate Change Bill. Renewable heat sources such as biomass offer us one of the greatest opportunities for reducing such emissions, particularly in rural areas that are not connected to the gas grid. The Government is already supporting renewable heat through programmes such as the Scottish biomass support scheme and the Scottish community and householder renewables initiative. It is important to note that a UK-wide renewable heat initiative would not prevent that work from continuing.

As the committee will know, the generation of heat from renewable sources is a devolved matter. The renewable heat incentive that the UK is considering would operate on a UK-wide basis through regulations made on behalf of the UK Government by the Secretary of State for Energy and Climate Change, Ed Miliband. Those regulations would empower the secretary of state to impose levies on fossil fuel heat suppliers and direct Ofgem on its regulation of that process. That is important because although renewable heat is generally devolved, the Scottish Parliament does not have the power to introduce levies on fossil fuel suppliers or to direct Ofgem. We believe that the proposed measures could be of tremendous value in supporting renewable heat in Scotland. The LCM therefore seeks members' agreement to the UK Government being empowered to deliver those measures across Scotland.

Of course, the key objective influencing our discussions with the UK on this issue has been the need to ensure that Scotland benefits fully from the introduction of a UK-wide renewable heat incentive. I am therefore pleased to inform the committee that we have agreed with the secretary of state that the relevant renewable heat functions, to be inserted into the bill, will be exercised only by the secretary of state, subject to agreement with the Scottish ministers in the case of devolved areas, or in consultation with the Scottish ministers in the case of reserved areas. That means that the Scottish ministers will be fully involved in the introduction of any new regulations or renewable heat incentive, thus ensuring that it is appropriate to the needs of Scotland.

The alternative, of restricting any scheme to England and Wales only, would have penalised Scotland. For instance, fossil fuel heat suppliers would pass the cost of the levy on to consumers across the UK because they operate in a UK market, which would mean that Scottish fossil fuel heat consumers would pay the cost of the levy without being able to benefit from any of the incentives to switch to renewable heat. Members will be aware that the Scottish Government is consulting in our renewable energy framework, as is the UK in its renewable energy strategy, on how to meet the European Union's 2020 renewable energy targets, including those on heat.

Although recent developments on the Energy Bill in London mean that the powers to create a renewable heat incentive are being taken before the consultations have concluded, they are simply enabling powers; the detail of any scheme will still depend on the outcomes of those consultation processes and, crucially, as I advised earlier, on the agreement of the Scottish ministers. In addition, the proposals do not curtail the Scottish Parliament's power to support renewable heat. Scottish legislation can continue to use devolved powers to, for example, enable the award of grants for renewable heat, which we are considering for the Scottish climate change bill. Such powers would operate alongside and complement any UK-wide renewable heat initiative.

I am confident that the amendments that are the subject of the LCM will deliver vital and positive outcomes for Scotland. I am happy to take members' questions.

Can you confirm that the outcome of the LCM will be that the renewable obligation certificate banding and the terms of the renewable heat incentives in Scotland will be identical with those elsewhere in the UK?

I am not sure that they will be entirely identical.

We certainly propose to do some aspects of ROC banding differently, as the committee will be aware from the current consultation but, in the main, the mechanisms will be identical because that is how they function most effectively.

So it is an agreed mechanism that is shared across the jurisdictions in question, but which has the flexibility for the Scottish ministers to vary the level of incentive or the scale of the banding, as suggested in the consultation. Is that what has been agreed between the Scottish and UK ministers?

That is correct as far as the renewable obligation is concerned. As far as we understand the UK's initial thinking on the renewable heat incentive, the intention would be that it would operate on a UK-wide basis and the powers would be the same across the UK because the levy would have to be the same across the UK, although how it would operate in Scotland would be subject to the agreement of the Scottish ministers.

Scottish and Southern Energy raised a question with us on the 3MW cap for the feed-in tariff. If that is intended to help us promote domestic home renewables, it is unlikely that people will be able to develop anything above 500kW. If we are talking about having commercial development up to 3MW, that may inhibit microgeneration. What is your response to that?

The information that came from George Baxter on that issue was copied to me. The feed-in tariff is a reserved matter and not subject to the LCM that is before the committee. However, I agree strongly that the proposed feed-in tariff for microgeneration should be focused strongly on small-scale and domestic microgenerators. It is vital that there is a well-managed transition process for very small generators.

At this stage, details are still to emerge on precisely how any feed-in tariff would work and on its interaction with the renewables obligation. Indeed, the UK Government has said that the proposed cap of 3MW will be subject to further analysis and consultation with the sector. I am pleased to inform the committee that the UK Government has undertaken to consult the Scottish ministers formally when working up the details prior to the scheme's introduction. We will endeavour to facilitate a proper dialogue on the issue to get to a good outcome.

Are you suggesting that you want support to be concentrated on the lower end of production in Scotland, which is the home energy one? Is it possible to do that at the moment?

That is the intention. It is our belief that we will end up with something that will encourage that.

The 3MW cap in the Energy Bill is almost an opening gambit. It is designed to reassure that feed-in tariffs will not apply above a particular limit and therefore to preserve confidence in the renewable obligation mechanism. The UK Government has acknowledged that a great deal of work still needs to be done to refine the mechanism and ensure that it is pitched at the right level and that there are no unintended consequences for domestic microgeneration, which a feed-in tariff is intended to support.

I hope that the minister will make those points strongly on our behalf because we want families to undertake those renewables developments, not commercial groups.

Absolutely. One of the highlights of a recent energy conference was comments from the floor, when what could be done locally in microgeneration and energy storage in people's homes, and just reconfiguring the whole landscape, was considered. We are keen to encourage that.

I am not familiar with this area, but I have seen media lobbying in the other direction from commercial organisations that want to see the cap higher than 3MW. I am keen therefore to understand what, from first principles, the Scottish Government's position is. As I understand it from the minister, the Scottish Government's position is that, in principle, it is in favour of the cap being lower. I just want to establish that that is the case, rather than to have an open-ended discussion about whether the cap is too high or too low.

We are keen to encourage some balance on this matter, so we will listen to all sides of the argument and act as an honest broker.

With respect, that answer is different from the one that you gave Rob Gibson. Is the Scottish Government's position that we need to discuss arguments for the cap being higher than 3MW and for it being lower? Or is it the Scottish Government's position that it wants the cap to be below 3MW, which is the lobbying position of Scottish and Southern Energy? Its position does not make the Government wrong; I am just trying to establish what the Scottish Government's position is on a debate that will be taking place over the next few months. Is it the Government's position that the cap could be up or down from 3MW, or is it only that it should be down from 3MW?

We are undertaking a consultation process and listening to the voices that are coming in. The e-mail from George Baxter yesterday had a persuasive argument and perhaps the same point could be doubled up in different language. Nevertheless, we must listen to all responses and try to get an optimal outcome. My view is that, when opinion is as polarised as it is in this case, the two parties are usually not far away from having a worthy goal that they can jointly sign up to. We are keen to facilitate dialogue and ensure that our inputs to the UK Government are informed by that.

There are no further questions, so we will move on to agenda item 5, which is to consider the LCM. I ask the clerk whether we have had any comments on it from the Subordinate Legislation Committee.

Because of the tight timescales at Westminster, the Subordinate Legislation Committee was able to consider the report only recently. It has given me a copy of its findings, which I understand should have been published by now. Generally, the Subordinate Legislation Committee raised no points of substantive interest for this committee on the LCM. In detail, it found that the delegation of the powers to the Scottish ministers is acceptable in principle, that the affirmative procedure for future scrutiny is the appropriate level and that the scope of the powers to make renewable obligation orders is satisfactory. Those are the points that the Subordinate Legislation Committee has raised for this committee.

Before I put the question, I should say that we should not allow ourselves to be influenced by the fact that the statutory instrument to which the minister referred will come to this committee.

The question is, that the committee is content to recommend to Parliament that it agrees to allow the UK Parliament to legislate on our behalf as set out in the legislative consent memorandum. Is that agreed?

Members indicated agreement.

We have to produce a report to the Parliament on that by tomorrow. Are members content to leave the drafting of a short factual report on the matter to the clerk and me, in order to get it published in the required timescale?

Members indicated agreement.

That concludes the public part of our business. I thank the minister and his team and ask any members of the public who have not already died to leave—I think they have all gone.

Meeting continued in private until 13:39.