Renewable Heat Incentive (Amendment to the Energy Act 2008) Regulations 2011

My Lords, I was relieved when the Minister came into the Room. Noble Lords of my age may recall a private detective on television called Eddie Shoestring, played by Trevor Eve. Just before he retreated to his programme, he slunk into his chair just in time. I congratulate the Minister on slinking into his chair just in time, given that we have some interesting business for his department before us today. I see that nobody remembers Eddie Shoestring except me. I was encouraged by the Minister’s enthusiasm for these regulations. We share that support. I will raise three issues of which I have already given him notice. I have some questions and queries on which he may be able to satisfy me. First, on cost control, the Minister mentioned the level of budget. That is subdivided over four years: namely, £56 million in 2011-12, the first year, of which £15 million is, I understand, through renewable premium payments; then £133 million; then £251 million, rising to £424 million in the fourth and final year of 2014-15. Given that the renewable heat incentive is the policy to deliver 12 per cent of heat in the UK being renewable by 2010, will the Minister give an assurance that he considers that this budget is adequate to meet the target? My main point is the lack of flexibility between those years. Am I correct in thinking that any money unspent or unallocated in one year cannot be rolled over into the next year but will be lost to the programme? It is quite a tall order, particularly for a programme of this kind, for any department to hit the exact budget year on year. Do the Government intend to install some kind of capped grant scheme with all the stop-go inability that that brings with it to plan ahead for a growing industry which the RHI was trying to avoid in the first place? My worry is that not allowing some flexibility between the years will increase the difficulty of implementing a cost-control mechanism for the programme. It also creates considerable pressures regarding the accuracy of DECC’s modelling of the programme. We have seen already how the modelling on feed-in tariffs was said not to be accurate, and the same could occur in relation to this order. My biggest worry is that it would undermine industry confidence in the scheme. I have two requests for the Minister. First, will he consider allowing full flexibility between the years, although I appreciate that he may not get Treasury support in that? Or perhaps he could allow flexibility in terms of a percentage by which the budget has been underspent or overspent in one year. The budget could vary from year to year while keeping to the overall four-year budget. Secondly, will he look at amalgamating the budget for the first two years into a single spending period? There is a strong case for that. When the CSR was published in October 2010, the renewable heat incentive was intended to start in June 2011. That start date has already slipped three months. It would be helpful if, alongside the Treasury, DECC could look again at how that money has been allocated between the financial years. The renewable heat premium payments that I mentioned—the interim payments keeping things going until the RHI is in place—are also included in that year one budget. So we can take out £15 million from that £56 million. An announcement on that was due in May, which we still have not had, so there is less time available to spend the money. In his opening comments the Minister confirmed that the scheme will not start until 30 September—so it will not be for 12 months, but for six. Payments are made quarterly in arrears, which means that only projects that have been accredited by Ofgem by Christmas 2011 will be paid out of the year one budget—so we are now down to three months of the year one budget. In addition, on a point that might not be quite so serious, and given that it will be the first application, where an application for accreditation to Ofgem does not have all the required information and has to go back again, the start date for the project will be the day on which the further details, not the initial details, were submitted. Projects of any complexity may not complete the process in time even if their first application is made before the end of December. If there is any minor error or mistake or information is left out, it will have to go through again. I think that the Minister will appreciate the problem and agree that that is not an unreasonable request if the scheme is to succeed and achieve its objectives. I have given the Minister notice but, if he wants to consider it further, I would be more than happy for him to come back to me in writing, rather than to rule it out now. On a further matter, if I understand this issue correctly, the restriction is that the eligible waste is municipal waste only. Page 35 of the March 2011 policy document refers to using municipal waste, but it does not explain why it does not include commercial or industrial waste. I am aware of the balances between higher biomass—I am talking about waste with a biomass content of between 50 per cent and 89 per cent—but can he give me a reason for that exclusion? It would be helpful because Regulation 28(9) states: "““The participant may not generate heat using solid biomass contained in any waste other than municipal waste””." I am sure that it is not the intention that a tiny amount of non-municipal waste should require Ofgem to throw an installation off the scheme permanently or without payment for the entire quarter. I do not understand why operators should be banned from using non-municipal or other forms of waste even if they are entitled to claim RHI for municipal waste only. It may be that the operator will have to persuade Ofgem about the way in which it was measured, but I do not understand why it is excluded on principle. I hope that the Minister and his officials understood that. The issue is that even if it is only a fraction of the waste used, the operator would not be able to claim RHI for the entire amount of waste that was used. That is quite a serious problem for project developers and plant operators because they need to process a range of different wastes. I know that the regulations before us today are unamendable, but if the Minister could say something and at least give further consideration to the point and perhaps issue further guidance, it would be very helpful and give reassurance to the industry. It would also give Ofgem some discretion to be pragmatic in its approach to this because the regulations as they are worded could have unintended consequences. My final point is about another unintended consequence. Regulation 3(2) specifies that eligible purposes are space, water or process heating where the heat is used in a building. In Regulation 2, the definition of a building is, "““any permanent or long-lasting building or structure of whatever kind and whether fixed or moveable which, except for doors and windows, is wholly enclosed on all sides with a roof or ceiling and walls””." The previous draft had just ““an enclosed structure”” in Regulation 3 and did not have that definition in Regulation 2. This is where I think the unintended consequence arises. Chemical plants would not normally be considered to be a building. Even though individual parts of the equipment are fully enclosed, and are generally enclosed to a very high degree of efficiency, the structure as a whole would be in the open air, often for safety reasons. The definition now included would appear to rule those uses out of the RHI. It would be helpful if the Minister could put on record that it is not the intention to exclude industrial plant, especially chemical plants, through the drafting. I think that the Government are seeking to rule outdoor swimming pools and patio heaters out of the RHI, which is perfectly understandable, but it would be perverse if they also excluded industrial processes, particularly as that is going to be at the lower tariff. Two of those cases are clearly cases of the law of unintended consequences and I hope that the Minister can redress them today. If he can give some reassurance on those issues, or will even say that he will take them away and come back to us and issue guidance later, it will be extremely helpful and offer reassurance to the industry.