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Lord McIntosh of Haringey: When the noble Lord, Lord Kingsland, says that nothing in his amendments is intended to restrict the growth of supply from renewable sources, I accept what he says, but Amendments Nos. 232, 233 and 234 would have the effect of restricting that supply. They would remove the option to place an obligation only on certain categories of supplier and require it to be placed on all suppliers.
I recognise that concerns have been expressed that the use of the flexibility to impose an obligation on some suppliers and not others could introduce unfair market distortions, but the Government's intention is quite the opposite. It is to ensure that the market works properly. Flexibility may be important in ensuring that inappropriate barriers are not placed in the way of new entry to the market.
If we had exactly those barriers that we would have if the amendments were inserted, how would we deal with new entrants to the markets? Clearly, we cannot impose a full renewable obligation on day one, not least because entrants would have no market share from which to calculate the size of their obligation. We are still consulting on that point. There is one option--it is only an option, and we shall be canvassing views on it--which would be to exempt them from the obligation altogether in their first year of operation. Whatever may be the case, the working of a market of this kind will not be possible if these artificial restrictions, particularly on new entry into the market, are to be imposed.
I find it ironic that I should be the one defending the market mechanism against noble Lords opposite. I do so because we believe that the market mechanism is the right way to approach the issue of renewables, as it is the right way to approach the other issues of consumer protection which form the basis of the Bill. The amendments that the noble Lord has put down would certainly restrict the market; they would restrict new entry to the market by creating unacceptable barriers to new entry.
There is nothing in Clause 61 or elsewhere in the Bill to prevent long-term contracts with renewable generators. Clearly, these contracts will be made in some cases. The difference is that it will be the market, not the Government, which decides the right terms of the contract. If the amendment in the name of the noble Lord, Lord Jenkin, were accepted, it would impose conditions for long-term contracts that might outlive the technology described so eloquently by the noble Lord. The noble Lord said that government policy did not address long-term technologies, such as biomass. However, in the context of our market-based approach we believe that the longer-term renewable technologies will also benefit.
As electricity suppliers move towards the 10 per cent target, they are likely to experience insufficient availability of cheaper renewables and will look increasingly to offshore wind and energy crops, for example, to meet their obligations. These energy sources cannot be bought in over night. It would be prudent for energy suppliers to look ahead now to ensure that the technologies are brought forward on a timescale, and in sufficient quantities, to meet their needs.
The noble Lord, Lord Jenkin, referred to the climate change levy. One possibility is to draw some funding from that levy. That was one of the issues referred to in yesterday's article in the Financial Times. Last year the Chancellor announced that £50 million from the climate change levy would be allocated to increase funding for energy efficiency, to promote the development of new sources of renewable energy and to encourage research and development and the take-up of low carbon technologies and energy-saving measures through a carbon trust. In November 1999 the Chancellor announced the trebling of support for energy efficiency measure from £50 million to £150 million to allow for the introduction of a system of 100 per cent first-year capital allowances for energy-saving instruments. Individual funding allocations have not yet been settled. The Government also made an announcement to exempt from the levy energy generated from new forms of renewable energy, such as solar and wind power and good quality combined heat and power plants.
In addition to our plans to impose an obligation on licensed electricity suppliers to supply a specified proportion of their power from renewable sources, the Government are actively considering top-up financial support for offshore wind energy and energy crops, possibly in the form of capital grants. This reflects both the higher costs of those technologies and the importance of bringing them forward if we are to meet the renewables targets in 2010 and beyond.
The noble Lord, Lord Jenkin, appears to believe that there is some conflict between this grant aid and the rest of our policies. No. There is a big difference between direct support for research and development and the long-term framework of the renewables obligation. I am much more sympathetic to the motivation behind the amendment in the name of the noble Lord, Lord Jenkin, than the amendment moved by the noble Lord, Lord Kingsland, which would have a very damaging effect on the renewables obligation. I am afraid that the approach of going back to the long-term contract of the non-fossil fuel obligation is not the right way to proceed.
Lord Ezra: In view of the fact that the Minister respects the motivation behind the amendment in the name of the noble Lord, Lord Jenkin, who says that he does not necessarily stick to the wording of his amendment, is it not possible to introduce into the order some preference for long-term contracts, bearing in mind the nature of the activity that we are talking about? The noble Lord, Lord Jenkin, is absolutely right. The thrust of the Royal Commission's report is that it will be extremely difficult for us to meet the targets which the Government have rightly set. This matter requires a good deal of long-term planning and thinking. While there is perhaps too much rigidity in the wording of the amendment, is it not possible to emphasise in the order the importance of providing long-term support for the renewables sector?
Lord McIntosh of Haringey: I am very dubious about the role of long-term contracts, although I am insistent about the long-term nature of our policies. After all, the renewables obligation is intended to last until 2025. Rather than respond positively in the way suggested, I invite the noble Lords, Lord Ezra and Lord Jenkin, to talk to me and my officials between now and Report stage so that where there is common ground those matters can be thrashed out and we can see whether progress can be made.
Lord Jenkin of Roding: Before my noble friend withdraws his amendment, perhaps I may say that I have been half encouraged by the response and very encouraged by the support of the noble Lord, Lord Ezra, and the noble Baroness, Lady Sharp.
As I said, I am not wedded to the wording of the amendment. However, I wish to emphasise that if one could encourage big industry to come in on this aspect--I do not refer to the little man with his rubbish heap or the family which happens to have a hydro facility--it could result in good, embedded energy. We want to encourage the big players, perhaps from overseas as well as our own people, to make this a major part of their investment. They are not encouraged by grants because they always recognise that they can be switched off at any moment. They are looking for an environment which will encourage them to put their money into the investment and into research and development.
Lord McIntosh of Haringey: I do not want to be exclusive. The noble Lord refers to "some of us". If other noble Lords, including the Opposition Front Bench, wish to discuss these matters, I shall be pleased to do so with them as well.
Lord Jenkin of Roding: I am sure that we should all like to come along. I should like to bring one or two of my advisers who have helped and guided me on this issue. I have not moved my amendment; therefore I do not need to withdraw it. It has been a short and useful debate. I am grateful to the Minister for the amount of trouble he has taken with his reply.
I think it unfair of the Minister to assert that my amendment is anti-competitive. On the contrary, it seeks to ensure that the small entrepreneur is fairly treated in relation to the rest of the market. It is a competition-enhancing rather than competition-constricting amendment. The Minister was clear about his rejection of it. In those circumstances, I should like to test the opinion of the Committee.