House of Commons portcullis
House of Commons
Session 2009 - 10
Publications on the internet
General Committee Debates
Delegated Legislation Committee Debates



The Committee consisted of the following Members:

Chair: Hugh Bayley
Beckett, Margaret (Derby, South) (Lab)
Cousins, Jim (Newcastle upon Tyne, Central) (Lab)
Crausby, Mr. David (Bolton, North-East) (Lab)
George, Mr. Bruce (Walsall, South) (Lab)
Havard, Mr. Dai (Merthyr Tydfil and Rhymney) (Lab)
Hendry, Charles (Wealden) (Con)
Horwood, Martin (Cheltenham) (LD)
Hughes, Simon (North Southwark and Bermondsey) (LD)
Kidney, Mr. David (Parliamentary Under-Secretary of State for Energy and Climate Change)
Purnell, James (Stalybridge and Hyde) (Lab)
Rifkind, Sir Malcolm (Kensington and Chelsea) (Con)
Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
Swire, Mr. Hugo (East Devon) (Con)
Thornberry, Emily (Islington, South and Finsbury) (Lab)
Watts, Mr. Dave (Lord Commissioner of Her Majesty's Treasury)
Wiggin, Bill (Leominster) (Con)
Mick Hillyard, Committee Clerk
† attended the Committee
The following also attended (Standing Order No. 118(2):
Grogan, Mr. John (Selby) (Lab)

Third Delegated Legislation Committee

Monday 8 March 2010

[Hugh Bayley in the Chair]

Draft Renewables Obligation (Amendment) Order 2010
4.30 pm
The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney): I beg to move,
That the Committee has considered the draft Renewables Obligation (Amendment) Order 2010.
The order will further drive the significant advances that we have made towards delivering on our renewable energy targets. Renewable energy is vital to our strategy for tackling the twin major challenges that we face today: combating climate change and ensuring the supply of secure and affordable energy for the UK. That is why the Government have been instrumental in pushing for effective, binding EU targets, and have published a strategy for achieving the UK’s target of sourcing 15 per cent. of our total energy from renewables by 2020.
The central scenario for the breakdown of the target between electricity, heat and transport proposes that around 30 per cent. of our electricity will need to come from large-scale electricity generation. The renewables obligation is the Government’s main policy measure to encourage the development of electricity generation capacity in the UK using renewable sources of energy.
The order that I have the pleasure of putting before the Committee today is a significant step forward. It builds on the work started with the Energy Act 2008 on delivering the additional generation necessary to meet our share of the target. We are doing other work alongside the renewables obligation, including implementing a feed-in tariff mechanism for smaller-scale generation and developing a renewable heat incentive, which is the first of its kind in the world, but we are here today to debate the changes that we are making to the renewables obligation. We are confident that they will drive significant investment in new renewable electricity generation, build on our success to date and set the stage for delivery of further new build.
Since its introduction in 2002, the renewables obligation has tripled the level of eligible renewable electricity generation from just 1.8 per cent. of total UK supply to 5.4 per cent. in 2008. Originally designed to be technology-neutral, it has been particularly effective in encouraging the cheaper forms of renewable generation, bringing forward large amounts of co-firing, landfill gas and onshore wind. Following the introduction of banding last year, we have seen significant increases in investment in other, less well developed technologies, particularly offshore wind, where we have been number one in the world since October 2008.
The changes that we are introducing apply to England and Wales. Scotland and Northern Ireland are bringing in complementary orders that will work to create a UK renewables obligation. The extension of the lifetime of the renewables obligation by 10 years to 2037 was announced in the 2008 pre-Budget report. It will give investors the long-term certainty necessary to incentivise them to invest in new generation up to 2020.
However, in order to avoid overcompensation of generators and excessive costs to consumers, we have limited support for new stations to a maximum of 20 years. That will apply to stations that receive full accreditation on or after 26 June 2008, up to the 2037 end date. A further period of 20 years’ support will apply to capacity that is added to any generating station in that period. Generating stations that were accredited before 26 June 2008 will continue to receive support until 31 March 2027.
We have removed the 20 per cent. cap on the size of the obligation to allow renewable electricity generation to grow as much as possible, and increased the level of headroom, which is the set margin between predicted demand and supply of renewables obligation certificates, from 8 per cent. to 10 per cent. from the 2011-12 obligation period to ensure stability of the market for renewable obligation certificates.
Mr. John Grogan (Selby) (Lab): On the subject of caps, why have the Government rejected the findings of the Oxera report, which they commissioned and which recommended lifting the cap on biomass for co-firing stations from 12.5 per cent to 17.5 per cent., particularly as the report concluded that the cap is suboptimal for renewables policy and serves to discourage all participants from investing in co-firing? Will Ministers reconsider that at some stage?
Mr. Kidney: We keep all these matters under close consideration. The Oxera report was requested by the Government because of concerns that were expressed by, for example, current users of co-firing. The report says that, in the longer term, it does not see a problem with the cap, but there might be some short-term pressures, which I think is where my hon. Friend’s interest comes in. We increased the banding in our banding review last year. It is our judgment that that should be sufficient to meet the short-term problem that the report describes as a possibility. I can assure my hon. Friend that my noble Friend the Energy Minister, Lord Hunt, is in regular touch with Drax, which has a major concern about this matter, and we are giving it close consideration.
The move away from fixed targets to the use of headroom will help to stabilise the ROC price, preventing the fluctuations in value seen with fixed targets where the gap between deployment and the obligation level has varied considerably. That in turn will increase the value for money for consumers, and it stabilises the revenue stream for generators, meaning developers are better able to source funding for new projects. Given the current climate, I am sure that the Committee will agree that that is more important than ever.
One of the most significant and well received changes we are making is to the level of support for offshore wind stations meeting specified conditions. Offshore wind is expected to make the largest single contribution to renewable electricity in the UK by 2020, and we need to ensure that momentum is maintained in the industry and projects have the confidence to go forward.
Following an early review of the banding for offshore wind, as announced in pre-Budget 2009, we have decided to increase the level of support to offshore wind from 1.5 ROCs to 2 ROCs for stations or capacity accredited between 1 April 2010 and 31 March 2014. That increased level of support will apply to the whole station accredited within the period or to all of the additional capacity accredited in the period. It therefore includes any turbines that form part of the station or the additional capacity, even if some of those turbines are yet to be installed.
The change to the banding level for offshore wind followed concerns from the offshore wind industry that its costs had risen markedly and that certain projects were under serious risk of not proceeding without further support, thus jeopardising our renewable energy goals and our ability to develop an offshore wind industry.
After commissioning a study into the costs of offshore wind and extensive consultation with the offshore wind industry, we decided to increase the banding to 2 ROCs to give projects the support necessary to go ahead. Grandfathering policy will apply as normal to any projects that qualify for the 2 ROCs. That means that they should continue to receive 2 ROCs for 20 years from the point of accreditation subject to the 2037 end date.
The introduction of the feed-in tariff scheme from 1 April this year will provide a guaranteed payment, made directly by electricity suppliers, for each unit of low-carbon electricity generated by small-scale projects up to 5MW capacity. This simplicity and certainty is intended to encourage households and communities to invest in generating their own electricity from low-carbon sources. While we have made changes to the renewables obligation in recent years to make it easier for microgenerators to access support, feed-in tariffs will be a more appropriate support scheme for that category of generator. We therefore intend for feed-in tariffs to replace the renewables obligation as far as possible at the microgeneration scale.
That is why, among the changes we are introducing with this order, we are removing from the renewables obligation all microgenerators in technologies that will be eligible to claim feed-in tariffs, so that they can join the new scheme from its start. From 1 April 2010, feed-in tariffs will be the only available support scheme for microgenerators in anaerobic digestion, hydro, solar photovoltaic and wind.
At the small scale, covering generators above 50 kW and up to 5 MW in capacity, it will depend on the circumstances and preferences of the individual generator as to whether the renewables obligation, or feed-in tariffs is the more appropriate scheme. For that reason, small generators who had already chosen to join the renewables obligation before 15 July 2009, when we published our proposals for feed-in tariffs, will remain in the renewables obligation. Those who have been accredited under the renewables obligation between 15 July 2009 and when the feed-in tariff scheme comes into force will benefit from a defined window of opportunity to elect to transfer to feed-in tariffs.
Once the feed-in tariff scheme is in place, new generating stations at this scale will need to make a one-off choice as to which of the two schemes they wish to join. We are also making a number of small technical and administrative changes to the order such as excluding landfill and sewage gas from sustainability reporting, as we do not believe that there is any value added in requiring reports for these sources, and setting out the circumstances in which ROCs can be revoked.
The changes before the Committee today are the culmination of an extensive consultation and have been very well received by the renewables industry, which is keen to see them introduced. However, I must point out that, as with previous renewables obligation orders, we have notified the European Commission about the amendments that we intend to make to the renewables obligation and we are awaiting its response. It is our intention that the order will come into force on 1 April. These changes will set us on the way towards meeting our share of the target for 20 per cent. of EU energy to come from renewables by 2020, but we are not stopping here. We will continue to work closely with hon. Members to drive forward work in this important area. I commend the order to the Committee.
4.42 pm
Charles Hendry (Wealden) (Con): It is a pleasure to serve under your chairmanship, Mr. Bayley. There must be a sense of groundhog day, taking you back to those happy days when you chaired the consideration of the Energy Bill just a few weeks ago. I hope that this will provide you with further entertainment and enjoyment. I realise that there is a strong constituency issue for you here, as the hon. Member for Selby mentioned, in relation to the impact that some of these measures might have on Drax and its coal-firing necessities.
We think that most of the proposals are sensible, although the Minister was slightly over-zealous in the way he set them out, suggesting that Britain is leading the world in the development of renewables. We know that the Britain is third from bottom in the EU in the development of renewables—Luxembourg and Malta are behind us—in spite of our having the third most generous system of support. Only Belgium and Italy have a more generous system of support.
It would be useful to know why the Minister thinks that, despite the measures the Government have put in place to encourage renewables, we have not done better in developing them in recent years. These proposals must in some respect be seen as an admission that the targets for 2020 would not be met with the Government’s existing policies. They have accepted that more needs to be done to bring that forward.
I hope that the Minister can also provide greater clarity on what he sees as being the costs to consumers. At the end of the day, all these proposals impact on people’s bills and our constituents have a right to know what the additional costs will be for them. It is my understanding that, at present, of a typical dual-fuel bill for gas and electricity of a bit over £1,000, about £70 a year would be accounted for by renewable charges. That is the ROC, the cost of the European emissions trading scheme and the Government’s CERT scheme—the energy reduction target scheme. I also understand that a further £70 or so a year would be put on people’s bills as the cost for paying for the Government’s renewable heat incentive and the feed-in tariffs. So that is a cost of about £140 to £150 a year for consumers.
Can the Minister confirm that those figures are correct and can he tell us what will be the impact on people’s bills as a result of the measures being proposed? As he skipped over this a little, could he also explain the implications of the order in terms of allowing generation capacity to be developed overseas using British ROCs? To what extent will British consumers be paying to create jobs overseas developing renewable generating capacity? Again, that is a matter of concern. People are worried by the way their bills are going up at the moment, so we need greater clarity on the matter.
The Minister has talked about the need to do more to support offshore wind. We agree that offshore wind has tremendous potential and should play an important role in the growth of renewables in this country, but does he think that the temporary increase to two ROCs will be sufficient to deliver the increase that he wants? At the moment, we do not have the ships, the cranes, the money or the skills base for the offshore regime. Apart from that, everything is going terribly well, but an enormous amount more needs to be done to make it happen.
I was talking to the developer of one large potential offshore facility, who said that they had been told that by 2020 they will only have a national grid connection for one quarter of the output of that facility, and yet the full output is being taken into account in the Government’s expectations of what will be delivered. Therefore, there are other issues, going beyond the financial regime, that are crucial if we are to see things develop in the way we would like. Currently, there are only a small number of ships in the world that can erect the turbines at sea. The most efficient of those can erect perhaps 80 turbines a year. The new ships will be able to erect 100 turbines a year. Even if every single ship in the world that can erect turbines was to come to the North sea to help us deliver our capacity, we would probably be erecting 400 to 500 turbines a year, but that is only if they started today and did nothing else for 10 years. However, we need to have about 1,000 turbines a year erected. What is the Minister doing to address the structural problems that this section of the industry faces, especially if we are to achieve the targets that we all want to see?
It is also disappointing that the measure says nothing at all about the wider marine renewable potential of this country. Britain is losing the opportunity to lead in that area. We have 11,000 miles of coastline and the highest tidal reaches in the world. We should be a beacon for international investment and a place for developers to try out their projects and ideas. However, if we look at what is happening, things are moving the other way. Two of the UK’s most advanced developers of wave technology, Pelamis and Aquamarine, are considering developing their technologies overseas. Pelamis is going to Portugal and Aquamarine to Oregon in the United States, because they will get more support there than they do in Britain. Today, there seems to be a great missed opportunity. When the Minister could be doing more to encourage the development of that technology and when Britain should be leading the world, we have heard not a word about it. We have the marine renewable deployment fund to support such technologies, but £8 million of that is for environmental aspects, which has been spent. However, not one pound of the £42 million for the deployment has been allocated because the Government have set the bar too high. They are now coming up with a different scheme, but why do they not use this as an opportunity to take the matter forward?
I was talking to the people who were operating one of the most advanced tidal stream facilities, which may generate megawatts in the near future, and they say that they would rather have ROCs at the outset to develop that technology and other systems of support.
 
Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2010
Prepared 9 March 2010