The Energy Bill (the "Bill") was introduced in the House of Commons on 10 January 2008 and has made good progress through the House of Lords, reaching the report stage at the end of October. The Bill contains the legislative provisions required to implement UK energy policy following the publication of the Energy Review 2006 and the Energy White Paper 2007.

The aim of this article is to highlight some of the main amendments tabled at the end of the report stage in October and cover comments made at the third hearing in the House of Lords on 5 November 2008. Once enacted at the end of November we will produce a more in-depth review.

Two amendments concern tariff incentive mechanisms, one for electricity (known as the "low carbon electricity tariff" or "feed in tariff") and one for heat and biomass (otherwise known as the "renewable heat incentive").

LOW CARBON ELECTRICITY TARIFF

This amendment aims to allow people to generate small-scale low-carbon power to serve themselves and their community. The amendment provides that generators capable of creating up to 3MW of power, which is fed into the National Grid, would qualify for feed-in tariffs ("FIT"s) obliging energy companies to pay a premium to use the power. It is hoped that this will lead to an increase in micro-generators from the 100,000 currently in use. However, power companies, are concerned that allowing individuals and communities to profit from energy creation will significantly alter the market.

Encouraging individuals and communities to generate power will help the Government meet its EU target which stipulates that 15 per cent of UK energy should come from renewables by 2020. It is hoped that a big up-take of FITs will ensure that this target is met. In the Stern Review, carried out in 2006, Sir Nicholas Stern said that FIT's represented the best way to make renewables work.

However, despite the incorporation of this amendment, green campaigner, Friends of the Earth, said it was deeply disappointed with the amendments which it criticised as being too vague, lacking an effective timetable and failing to guarantee that the FIT would actually be introduced. Furthermore, Friends of the Earth claim that the 3MW threshold for the scheme which covers small scale renewable electricity schemes, was too small to encourage investment in the full range of community scale renewable energy schemes such as small wind farms. Friends of the Earth, Head of UK Climate, Ed Matthew said:

"The legislation put forward by the Government is vaguely worded and gives no certainty to business that a feed will be introduced. The UK has one of the worst renewable energy records in Europe. The Government must strengthen the Bill to guarantee the introduction of a genuine feed in tariff that encourages households, businesses and communities to invest in renewable energy generation".

Friends of the Earth suggested that the Government "toughen" up its amendment to include:

  • Renewable schemes under 10MW- a 10MW upper limit could work without damaging investor confidence in large scale renewable schemes which would continue to be covered by the existing renewable obligation.
  • A duty on Government to introduce the scheme within one year.
  • The basic elements of a FIT - guaranteed contract length and an obligation on the government to set the tariff levels for different technologies.

The possibility of increasing the 3MW cap to 10MW was raised at the third reading of the Bill. In response however, Lord Hunt of Kings Heath for Government said that the 3MW cap was "about right". He claimed it was the right level in order to foster large investor confidence and to provide them with certainty and encourage small low carbon generation. The 3MW cap will therefore not be changed.

Amendment: on 18 November the Bill was amended to change the 3MW cap to 5MW.

RENEWABLE HEAT INCENTIVE

This amendment is a financial support mechanism for renewable heat and has been described as the first such incentive in Europe. It will provide financial help to people who install renewable heat generators or heat pumps. It applies to the following:

  • renewable heat generating plants;
  • the production of bio gas; and
  • the production of bio fuel for heat generation.

It is hoped that the above will be more precisely defined in the secondary legislation which could define (1) the level at which the tariff is calculated, (2) the provision for recovery of payments and (3) various provisions for payments between fossil fuel suppliers and Ofgem. Payments for the tariff will be made by designated fossil fuel suppliers. Concern surrounds whether a fossil fuelled CHP plant would be required to pay a levy. Baroness Wilcox tabled an amendment at the third reading which effectively allowed for "exempted fossil fuel supplies" to be considered. Baroness Wilcox asked Lord Hunt:

"Can the Minister confirm that the provisions will not necessarily impose the levy on fossil-fuel powered CHP plants?"

Unfortunately, Baroness Willcox's amendment was not accepted, Lord Hunt responded:

"I know there are some concerns that my amendment may disadvantage fossil-fuel CHP operators. I would say to the noble Baroness that the levy proposed would apply to suppliers of fossil fuel to consumers for the purpose of generating heat and not directly to consumers - that is, the owners of the CHP plant. I know that the powers in the Government amendment are broad, but that has one advantage as we develop the regulations and the consultation, we can take into account the argument put forward by the noble Baroness and the organisation that has talked to her".

SMART METERS

Another key amendment concerned smart meters. During the report stage of the Bill, Lord Hunt announced that the Government has taken the decision to mandate smart meters for all households. Smart meters are the next generation of electricity and gas meters and are said to bring an end to estimated bills and meter readings by providing both customers and energy suppliers with accurate information on the amount of electricity and gas being used.

Recent trials have suggested that smart meters, displayed and fitted in homes, could help the UK reduce carbon emission by around 3% of the 153 million tonnes of carbon dioxide the Energy Saving Trust estimates are emitted from UK households each year. More encouraging is the backing of the consumer. The Energy Retail Association (ERA) carried out recent research which found that 70% of energy customers believed smart metering technology would help them reduce their energy consumption. Garry Felgate, Chief Executive of ERA said:

"This is a momentous decision for households across Britain. We're delighted the Government has decided to forge ahead with the roll out of smart meters. It is vital that no time is wasted in implementing this decision and that Government provides the necessary parliamentary time to debate the detailed plans".

Lord Hunt said: "This is a major step forward, no other country in the world has moved to an electricity and gas smart meter rollout on this scale".

Furthermore he commented that "the more we know about our consumption, the more conscious we will be".

Notwithstanding the positive reception there is still some uncertainty concerning the effectiveness of the amendment. Detailed rollout plans, yet to be finalised, include who will foot the bill for new technology and the exact specification of the meters to be installed.

IMPLEMENTATION OF SCHEMES UNDER THE BILL

The scepticism surrounding the implementation of the Government's amendments, particularly in respect of the FITs, was clearly voiced by Baroness Wilcox at the Bill's third reading. She suggested amending the wording of the power of the Secretary of State from an enabling power to an obligation, i.e. by changing the wording from "may" to "shall". This, she claimed, was one of the most important amendments.

Lord Hunt explained that a number of amendments were implemented at a late stage and were prepared at short notice; therefore, a broad approach has been adopted in order to allow flexibility for the development and implementation of policy. On a number of occasions he stressed that the Government is fully committed to supporting small scale low carbon generators and hopes the scheme will be in place in 2010.

In a direct response to Baroness Wilcox's suggested amendment that the wording be changed to "shall", Lord Hunt acknowledged that there was a desire to see the Government's commitment to act in good faith in this area, however he claimed that creating an obligation on the secretary of state would limit discretion and could lead to difficulty in implementing the power.

The House of Lords has now completed its debate on the Bill, which has now been passed back with amendments to the House of Commons for consideration.