The
Committee consisted of the following
Members:
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 UKs 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 Governments 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.
As
of January this year, almost 3 GW of renewable electricity generating
capacity was under construction, more than 8 GW has been consented, and
more than
10 GW is in planning. However, we now need to deliver even
more. That is why the order makes some changes to the renewables
obligation, which will allow it to bring forward a higher level of
renewable generation and provide increased support for offshore
wind.
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. Friends 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
renewablesLuxembourg and Malta are behind usin 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 Governments 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 peoples 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 Governments CERT schemethe energy
reduction target scheme. I also understand that a further £70 or
so a year would be put on peoples bills as the cost for paying
for the Governments 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 peoples 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 Governments
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 UKs 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.