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Clause 33: Power of Secretary of State to transfer functions
91. This clause gives the Secretary of State the power to transfer to another authority any of the functions conferred on the Secretary of State by this Chapter (with the exception of powers to make regulations or orders). The Secretary of State may also make such a transfer to several different authorities, either of different functions or of the same function in respect of different places. For example, one or more authorities may be given the function of granting licences in respect of all the activities covered by the Chapter, or just some of the activities. This allows flexibility in the choice of the regulatory authorities for carbon dioxide storage. Any transfer of functions under this clause will be made by order subject to negative resolution procedure (see clause 89).
92. Subsection (4) ensures that an order transferring functions to another authority may also provide for the financing of that authority's exercise of the transferred functions, and may require fees collected by the authority to be paid into the Consolidated Fund. The order may also modify section 188 of the Energy Act 2004 (which gives the Secretary of State the power to collect charges in respect of its performance of certain energy-related functions and is amended by paragraph 12 of Schedule 1 to the Bill), and regulations made under that section, in order to reflect the fact that certain functions have been transferred to another authority.
93. Subsections (5) and (6) give the Secretary of State a power of direction in relation to the exercise of functions by the authority to which they have been transferred. In exercising that power of direction, the Secretary of State is obliged to consult with the authority concerned (subsection (7)).
CHAPTER 4:GENERAL PROVISIONS ABOUT GAS IMPORTATION AND STORAGE
Clause 35 and Schedule 1: Chapters 2 and 3: consequential amendments
94. Paragraphs 1 to 3 of the Schedule amend section 7A of the Food and Environment Protection Act 1985 ("FEPA"), which excludes certain matters relating to offshore pipelines and installations from the requirements of Part 2 of FEPA (which regulates deposits in the sea and under the seabed), and make a consequential amendment to section 24. The effect of the amendments is to ensure that the exclusion extends to all activities for which a licence is required under Chapter 2 or Chapter 3 of this Part. That extension does not however apply to the territorial sea (i.e. up to 12 nautical miles) adjacent to Wales, Scotland or Northern Ireland, or to waters beyond the territorial sea within which the Scottish Ministers have functions under Part 2 of FEPA.
95. Paragraph 4 amends the provisions of the Petroleum Act 1987 relating to automatic establishment of safety zones, to ensure that such zones are also established around all installations used for the purposes of the activities under Chapter 2 of this Part. Such safety zones are areas extending 500 metres around the installation, from which vessels are prevented from entering or remaining except in accordance with regulations made by the Secretary of State or a consent given by the Health and Safety Executive. A similar extension is made, for the purposes of Chapter 3 of this Part, by clause 31.
96. Paragraph 6 amends section 11 of the Petroleum Act 1998 to ensure that the power to apply civil law (such as the law of tort) to offshore installations extends to all installations used for the purposes of Chapter 2 and Chapter 3 of this Part. Paragraph 7 amends the definition of "gas" for the purposes of Part 3 of that Act, in order to ensure consistency with the definition in clause 2 of this Bill (which defines the kinds of gases that are licensable for offshore gas storage and unloading)
97. The new section 11(4B)(b) inserted by paragraph 7(g) of the Schedule states that the section 11 power cannot be used in relation to activities in Scottish territorial waters relating to the storage of carbon dioxide, with the exception of activities which involve injection of carbon as part of Enhanced Oil Recovery.
98. Paragraph 9 amends section 44 of the Petroleum Act 1998 to ensure that the provisions of Part 4 of that Act (which relate to the decommissioning of offshore installations including for example, obligations to remove the facilities completely after the permanent cessation of the facilities' operations) apply to all installations used for the purposes of activities under Chapter 2 of this Part. Paragraph 8 makes a corresponding amendment to section 30, which sets out who will be required to submit a programme for such decommissioning to the Secretary of State. Similar provision is made, for the purposes of Chapter 3 of this Part, by clause 29.
99. Paragraph 10 amends section 47A of the Petroleum Act 1998, which was inserted by the Energy Act 2004. At present, that section enables the Secretary of State to have regard to matters connected with the offshore generation of electricity (for instance by means of wind farms) in exercising functions under the Petroleum Act 1998. The amendment made by this paragraph will permit the Secretary of State to have regard also to activities licensed under Chapter 2 or 3 of this Part. The rights of existing holders of petroleum licences will be affected, to the extent that they may, for instance, find it more difficult to obtain consent from the Secretary of State to the development of a petroleum field close to an area intended for gas storage. To that extent, rights under Article 1 of the First Protocol (protection of property) may be engaged; however, the Secretary of State considers that the imposition of such additional controls in respect of rights under a petroleum licence is justifiable and proportionate in the light of the public interest in ensuring the fair allocation of rights to use the offshore area. A corresponding provision is not needed in relation to the Secretary of State's functions under Chapter 2 or 3 themselves, since in that case there are no existing licence holders who could claim to have a legitimate expectation that other offshore activities would not be taken into account in exercising the relevant functions.
100. Paragraphs 11 and 12 amend section 188 of the Energy Act 2004 to ensure that regulations made under that section (which are subject to negative resolution) can impose charges to fund the Secretary of State's functions in connection with activities under Chapters 2 and 3 of this Part. The regulations would be able to fix amounts that appear to be appropriate having regard to the costs that the Secretary of State is likely to incur in carrying out the relevant functions, to be paid by the persons (within subsection (3) of that section) who are specified in the regulations. Where an authority is designated under clause 33 to exercise any of the Secretary of State's functions under Chapter 3, an order under that clause can modify the operation of section 188 of the 2004 Act (see clause 33(4)(c)).
PART 2: ELECTRICITY FROM RENEWABLE SOURCES
THE RENEWABLES OBLIGATION
SUMMARY AND BACKGROUND
101. This Part of the Bill deals with the changes proposed to the Renewables Obligation. The Renewables Obligation (RO) was introduced in 2002 to stimulate growth of electricity generation from renewable sources. The support currently provided under the RO does not differentiate between renewable technologies. It is the main policy measure for supporting the development of renewable electricity across Great Britain and Northern Ireland. In Great Britain the RO operates under the Electricity Act 1989 (c.29) with separate orders in England and Wales (the Renewables Obligation Order 2006 (SI No 2006/1004), as amended by the Renewables Obligation (Amendment) Order 2007 (SI No 2007/1078)), and in Scotland (the Renewables Obligation (Scotland) Order 2007 (Scottish SI No 2007/267)). These, together with a parallel measure in Northern Ireland (the Renewables Obligation Order (Northern Ireland) 2007 (S.R.2007/104), made under Articles 52 to 56 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I.6))) provide for consistent Obligations in all three jurisdictions.
102. Under the existing regime, licensed electricity suppliers in the relevant part of Great Britain have a "renewables obligation" to produce to the Gas and Electricity Markets Authority ("the Authority"), before a specified day, certain evidence regarding the supply to customers in Great Britain of electricity generated by using renewable sources. The evidence required is in the form of renewables obligation certificates ("ROCs") currently issued by the Authority to renewable electricity generators on the basis of 1ROC/MWh of renewable electricity. The generator can then sell these ROCs to suppliers with the electricity or separately. The Renewables Obligation Order in England and Wales and the one in Scotland set out the proportion of the electricity supplied by an electricity supplier that must be sourced from renewable sources.
103. As an alternative to providing ROCs, electricity suppliers may discharge their renewables obligations (either fully or partially) by making buy-out payments to the Authority. Payments made into the buy-out fund are redistributed at the end of the obligation period to suppliers who have produced ROCs, on a pro-rata basis. The obligation level has been deliberately set higher than the expected amount of renewables generation to be deployed in order to ensure there is a market for ROCs. This will mean some suppliers pay the buyout price for at least some of their obligation. The redistribution of the buyout fund in this way is intended further to promote competition between suppliers in supplying more electricity from renewables sources, and therefore to promote further investment in renewables generation.
104. The existing legislation also provides for suppliers who do not comply with the RO by the specified day to be treated as having subsequently discharged the RO if they make late buyout payments, together with escalating interest into a late payments fund.
105. It also makes provision for requiring suppliers to make payments to the Authority to cover some or all of an un-recovered shortfall in the buy-out fund caused, for example, by the insolvency of a supplier with an obligation who cannot make payments into the buyout fund. Where this occurs, additional sums are then required from the remaining electricity suppliers to cover the amounts that would have been paid by the insolvent supplier. This process is known as mutualisation.
106. As already mentioned, Northern Ireland has enacted legislation which is analogous to the provisions of the Electricity Act 1989 creating the RO. That legislation requires Northern Ireland suppliers to produce, as evidence, Northern Ireland Renewables Obligation Certificates ("NIROCs") issued by the Northern Ireland equivalent of the Authority, the Northern Ireland Authority for Utility Regulation. ROCs issued in Northern Ireland are also recognised in Great Britain and can be used by GB suppliers to discharge their obligations. Similarly ROCs issued under the two GB orders can be used by suppliers to fulfil the Northern Ireland RO.
107. The Government's proposed reform of the RO in Great Britain in the Bill is designed to bring forward more renewables generation by increasing the effectiveness of the RO. The proposals enable the Secretary of State to increase support to some forms of renewable generation, while reducing subsidy to others.
108. The proposals will:
- Allow the Renewables Obligation to be banded to provide different levels of support for different technologies based on their cost and other considerations specified in the Bill.
- Change the obligation to one in which suppliers must present a specified number of renewables obligation certificates (ROC), rather than supply a specified percentage of their electricity from renewable sources.
- Maintain the rights of most existing generating stations to claim 1ROC/1MWh once banding is introduced.
- Provide for the bands to be reviewed periodically or where a specified condition triggers a review.
- Provide for a mechanism to prevent a price crash in the event of an anticipated oversupply of ROCs.
- Require biomass operators to provide information to the Authority on the source of biomass fuels and what steps they have taken to ensure its sustainability.
- Allow generating stations using both fossil fuel and renewable sources (i.e. energy from waste plants) to claim ROCs only for the proportion of electricity generated by the renewable source.
- Enable the Authority to recover the costs of administering the RO from the buyout fund.
109. The detail of all these changes will be covered in secondary legislation made under the Electricity Act 1989. The orders will be subject to a statutory consultation process.
110. Since the RO was first introduced in 2002, there have been a number of subsequent changes to the primary legislation (made by the Energy Act 2004 and the Climate Change and Sustainable Energy Act 2006) intended to improve the way that the RO works. However as has been indicated by the Committee of Public Accounts 2 and by the Government Review of the RO 3 there is scope for further increases in efficiency of the RO as a mechanism. The reforms proposed in this Bill are intended to restructure the way the RO works while maintaining its overall aims. In practice there will continue to be an obligation on suppliers to present certificates to the Authority or to pay a penalty. The buy-out fund will continue to be recycled in order to promote competition in the renewables market. As there have been a number of previous changes to the primary legislation, the Government has also taken the opportunity through the Bill to recast the existing legislation so that it is easier for the reader to follow.
2 http://www.parliament.the-stationery-office.co.uk/pa/cm200506/cmselect/cmpubacc/413/413.pdf
3 http://www.dti.gov.uk/energy/sources/renewables/policy/renewables-obligation/key-stages/2005-6-review/page18365.html
111. The provisions reforming the RO potentially engage two provisions of the ECHR. Article 1 of the First Protocol, the right to the peaceful enjoyment of possessions and Article 8, the right to privacy.
112. New section 32D provides for the RO to be banded so that some generating stations of particular technologies will have to produce more than one MWh of electricity to be awarded a ROC whilst others will be awarded a ROC where they produce one MWh or less than one MWh of electricity. However as this relates to a future right to receive a possession as opposed to an existing right the Secretary of State does not consider Article 1 of the First Protocol is engaged. Even if Article 1 of the First Protocol were engaged the interference is justified in that the relevant provisions pursue a legitimate aim and are proportionate.
113. New section 32J(3) will enable an order to provide that operators of generating stations using biomass as a fuel will be required to supply the Authority with information. It is possible that some of this information could constitute commercially sensitive information and engage Article 8(1) of the ECHR (privacy). However the interference in Article 8(1) can be justified under Article 8(2). In general terms, the Authority requires this type of information in order to pursue an important public interest, namely to assess the environmental impact resulting from the production of biomass which is used as a fuel in a generating station.
COMMENTARY ON CLAUSES
Clause 36: The Renewables Obligation
114. Clause 36 substitutes sections 32 to 32M in the Electricity Act 1989 in place of sections 32 to 32C. The new sections incorporate all amendments made to the Renewables Obligation (RO) in primary legislation since 2002, as well as the further additions and amendments proposed by this Bill.
New section 32
115. New section 32 defines the RO and provides a power for the Secretary of State to make a renewables obligation order detailing how the RO will operate in practice. The process for Parliamentary approval of the order by affirmative resolution is set out in new section 32L(2).
116. Subsections (3) and (4) set out the new obligation which may be imposed on electricity suppliers in Great Britain. The existing obligation requires specified electricity suppliers to provide evidence of the supply of a certain quantity of electricity from renewable sources. The new obligation requires electricity suppliers to submit a certain number of ROCs during a specified period. The number of ROCs to be submitted will be calculated in respect of the total amount of electricity of any kind (i.e. renewable or non-renewable) supplied by a given supplier in that period.
New section 32A
117. New section 32A enables the order to specify how the level of the obligation is to be set. In particular, the order will:
- specify how the number of ROCs which an electricity supplier must produce to the Authority for a given period is to be calculated;
- allow scope to provide that ROCs issued in respect of electricity generated from different renewable sources or different types of generating station can only be used to discharge the obligation up to a certain number or a certain proportion of a supplier's obligation (this allows for a cap on the contribution made by particular technologies such as co-firing of biomass by coal-fired power stations);
- determine how the amount of electricity supplied by electricity suppliers to customers is to be calculated. The size of a supplier's individual obligation is generally based on its electricity sales.
118. Subsection (3) provides that suppliers cannot produce the same ROC more than once as evidence of complying with the obligation.
119. Subsection (5) provides, among other things, for the order to enable suppliers to 'bank' a specified number of ROCs acquired during a current obligation period which can then be presented to the Authority in a later obligation period. This power is to allow suppliers to hold over ROCs where, for example, for business process reasons they do not manage to present ROCs by the due date or if they have more ROCs than they need to meet their obligation for a given period. The order can specify the proportion or numbers of ROCs that may be held back for any period.
New section 32B
120. New section 32B provides for the issue of ROCs by the Authority. It enables the order to set out the criteria for their issue. Section 32B also sets out what ROCs are to certify. Subsection (3) provides for a ROC to certify that the amount of electricity stated in the certificate is from a renewable source and that it has been supplied to customers in Great Britain. It also sets out a number of alternative matters which ROCs may be required to certify.
121. Subsections (5), (6) and (8) provide for ROCs to be issued in respect of total quantities of renewable electricity generated by more than one generator, which facilitates the issue of ROCs to agents acting for small generators.
122. Subsections (7) and (8) allow ROCs to be issued where renewable electricity has been generated but not sold through a licensed supplier in accordance with 32B(3) so long as that electricity has been used in a permitted way.
123. Subsections (9) and (10) set out what is meant by permitted ways. This is where (i) the electricity which has been generated has been used by the operator of the generating station; (ii) where electricity is provided through a private wire network to customers (for example where a generator supplies electricity to customers on a neighbouring industrial estate); (iii) where the electricity has been provided to an electricity network in circumstances where its supply to customers cannot be demonstrated (for example, where a small generator produces excess electricity which it is unable to consume and the electricity automatically "spills" onto an electricity network). The definition of a private wire network is set out in subsection (11).
New section 32C
124. New section 32C allows the order to exclude specified renewable sources or descriptions of generating stations from eligibility for ROCs, or to confine such eligibility to a proportion of electricity from specified sources. For example, large hydroelectric plants that have been running for over fifty years can compete in the wholesale electricity market without any additional incentive from the RO.
125. Subsection (4) provides for generating stations using both fossil fuel and renewable sources to be able to claim ROCs only for the proportion of electricity generated by the renewable source. The order will specify how the proportion is to be calculated, and the consequences for issuing ROCs to a generating station where it uses more than a certain proportion of fossil fuel during a period.
126. Subsection (8) replicates provisions in the existing legislation for the RO. It requires the order to preclude the issue of ROCs in certain circumstances where the Northern Ireland Authority is not satisfied that the electricity has been supplied to customers in Northern Ireland.
New section 32D
127. New section 32D creates a new power to enable the Secretary of State, through the order, to set bands. Changing the obligation in this way will enable different levels of support to be provided to different technologies and, in particular, will enable the order to provide higher levels of support for less mature, emerging technologies, such as offshore wind and biomass.
128. Subsection (1) provides that the order may specify how much electricity each ROC is to certify as having been supplied. In particular, (as subsection (2) explains) the amount may vary as between different types of renewable sources or technologies. So a ROC issued in respect of "Source A" would certify a different amount of electricity from a ROC issued in respect of "Source B", based on the band in which that particular technology or renewable source is placed
129. This banding power will thus allow for different technologies and renewable sources to be awarded ROCs for either greater or lesser amounts of electricity. For example, the Secretary of State may decide that a generating station using a certain renewable source or technology will have to generate 0.5 MWh of electricity to get 1 ROC. Equally the Secretary of State may decide that other generating stations using another renewable source or technology will have to generate 4 MWh of electricity in order to qualify for 1 ROC.
130. Subsection (4) sets out the matters to which the Secretary of State must have regard before setting bands in the order, namely:
a) the costs associated with generating electricity from renewable sources and the cost of transmitting or distributing that electricity;
b) the income that generators using renewable sources receive from generating electricity or from activities associated with the generation of electricity;
c) the impact of the exemption from the Climate Change Levy for those generators;
d) the likely impact of the proposed banding in securing the growth and development of renewables generation and associated industries;
e) the likely effect of the proposed banding on the number of ROCs issued by the Authority and the impact on the ROC market and on consumers;
f) the potential contribution of electricity generated from each of the various renewable sources to the attainment of any target relating to the generation of energy generally, or of electricity in particular, which arises from a target imposed by, for example, an EU Directive.
131. Subsections (7) and (8) provide that after the first order with banding provision is made, any subsequent order with banding provision cannot be made except where a review of banding is carried out in accordance with the terms of the order.
132. The purpose of allowing the bands to be reviewed is to ensure that they can be amended to reflect changes in the costs of technologies in the marketplace as markets mature. Subsection (8) provides that the order can authorise the Secretary of State to review the bands at: (a) intervals set out in the order or (b) where one or more specified conditions are met. This could, for example, enable the Secretary of State to review the bands on an "emergency" basis. An emergency review may be triggered if there is an unforeseen significant change, for example, in the marketplace (for example, to grid connection costs); a new support scheme is introduced; a new technology comes forward, or there is over-compliance with the obligation.
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