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General Committee Debates
Delegated Legislation Committee Debates
|©Parliamentary copyright||Prepared 17th March 2011|
Publications on the internet
General Committee Debates
Delegated Legislation Committee Debates
Draft Renewables Obligation (Amendment) Order 2011
The Committee consisted of the following Members:
Alison Groves, Committee Clerk
† attended the Committee
It is a great pleasure to serve under your chairmanship, Dr McCrea. The renewables obligation is the Government’s main mechanism for supporting renewable electricity generation in the United Kingdom. The obligation has previously been the subject of significant change—in particular, with the introduction of banding of support for different technologies in 2009. The changes that I am putting before the Committee today are less radical. They are about ensuring that the RO continues to drive forward renewable electricity deployment through changes to introduce phased support for offshore wind. They are also intended to protect the environment and ensure that our fuels come from sustainable sources. We propose to do that by introducing minimum sustainability requirements for bioliquids in line with the 2009 European renewable energy directive. We are also building on existing voluntary sustainability criteria for biomass by introducing mandatory reporting in April 2011.
The changes to the RO are being made in the context of the Government’s wider electricity market reform, which is intended to put in place the right framework to support the delivery of a secure, low-carbon, affordable electricity mix for the 2020s and beyond. Reform of the market is aimed at putting in place the right long-term signals to facilitate cost-effective investment in all forms of low-carbon generation, while maintaining security of supply. We are looking right across the electricity market. That includes reviewing the roles that a carbon price, an emissions performance standard, a revised RO, feed-in tariffs, capacity mechanisms and other interventions should play in achieving our goals. The 12-week consultation closed on 10 March, and final recommendations will be made in a White Paper later this year.
In the context of those longer-term plans for change, we are committed to protecting existing investments currently benefiting from the RO and we will seek to ensure that the RO works as efficiently as possible to minimise costs to consumers and to increase deployment of renewable energy technologies.
The order introduces changes in three main areas: first, the introduction of arrangements for phased support for offshore wind; secondly, the implementation of mandatory European standards for bioliquid sustainability; and thirdly, the introduction of mandatory domestic requirements for biomass sustainability reporting.
Since introducing the maximum 20-year limit on support under the RO, we have become aware that offshore wind projects face particular disadvantages in accessing the intended maximum 20 years of support due to the large size of projects and the long construction periods that can be subject to seasonal restrictions. The intended 20-year support limit currently begins at the point of accreditation of a project. However, that disadvantages large offshore wind projects that may wish to accredit when the first turbines are installed in order to secure a renewables obligation certificate income stream. If, for example, construction takes place over three years, the last turbines installed may receive a maximum of only 17 years’ support, subject to the 2037 end-date of the RO.
We therefore intend to introduce phased support for offshore wind generators accrediting after 31 March 2011. Offshore wind generators will be able to register up to five phases of turbines over a maximum of five years. At least 20% of the total capacity of the generating station will be required to be registered in the first phase. Introduction of phased support for offshore wind will ensure that those projects have the opportunity to access support for up to the maximum of 20 years.
The other changes that we are making are about ensuring that bioliquid and biomass fuels used in our renewable electricity production come from sustainable sources. We are introducing minimum sustainability standards for bioliquids in line with our obligation to transpose mandatory sustainability standards for bioliquids in the 2009 European renewable energy directive. Eligibility for receipt of ROCs for electricity generated from bioliquids will depend on a demonstration that the sustainability criteria set out in the directive have been met.
We will open up the RO to bioliquids partially derived from fossil fuel such as fatty acid methyl ester—known as FAME—as required by the directive. ROCs will be awarded on the biomass portion of its energy content. The new rules will require generators using bioliquids to provide evidence to Ofgem demonstrating that the bioliquid complies with sustainability criteria when applying for ROCs. An independent audit report to be provided to Ofgem by 31 May following the obligation period will verify that.
The Government recognise the important role that biomass fuel will play in the UK meeting its renewable energy directive target of 15% renewables by 2020. About 30% of our overall target could come from biomass power and heat, which means that it is essential that we take action to ensure the biomass we use is sustainable. Therefore, we are introducing the following sustainability criteria for the use of solid biomass and biogas for electricity generation: first, a minimum 60% greenhouse gas emission saving for electricity generation using solid biomass or biogas relative to fossil fuel; and, secondly, general restrictions on using materials sourced from land with high biodiversity value or high carbon stock.
Mandatory reporting against the sustainability criteria will start in April 2011 for generators over 50 kW. In April 2013, eligibility for biomass and biogas to receive support under the RO will be linked to meeting the criteria, following a transition period. The transition period allows generators two years to familiarise themselves with the sustainability criteria and reporting process before the criteria are directly linked to the award of
The changes that I have set out today apply to the RO for England and Wales. There are separate but complimentary obligations for Scotland and Northern Ireland. RO policy in Scotland and Northern Ireland is devolved, but colleagues there have advised that they intend to make changes to their obligations similar to those I have set out today.
I can confirm that the changes before the Committee have been through the European state aids approval process, and I am pleased to say that clearance was given in early February. I hope that my hon. Friends and Opposition Members agree that the changes we introduce today to phase support for offshore wind and on sustainability criteria for biofuels are necessary, and are an important progression in the effectiveness of the RO. They will allow us to increase our renewables generation while ensuring that our environment is protected.
Huw Irranca-Davies (Ogmore) (Lab): I also regard it as a pleasure to serve under your stewardship this afternoon, Dr McCrea, and also to serve on a Committee with members with such considerable expertise. That includes not only the hon. Member for Wealden in his capacity as Minister, but my right hon. Friend the Member for Lewisham, Deptford, with her background as a Minister in the Departments for Environment, Food and Rural Affairs and of Energy and Climate Change. I have also had the privilege of being a DEFRA Minister, so I feel a little like poacher turned gamekeeper. However, I hope to bring my experience as shadow Minister for energy and as the Minister with responsibility for the natural environment to bear on the order.
We are broadly in agreement on the order. I have to say that at the outset to give the Minister some comfort before we begin on the details. It is worth saying that the provisions in the order on offshore wind are eminently sensible and are to be commended. Those who bring forward phased development of offshore wind generation, building on Labour’s great legacy in laying the foundations, which the new Government are taking forward—well done—should be able ensure that the ROCs cover the whole lifespan of the project, including those with a phased approach. In that respect, does the Minister foresee a time when we will need a similar order or part of an order applying the same criteria to marine, wave and tidal generation?
The Minister is aware, as I am, that there are many emergent energy generators, none of which are at full industrial capacity as yet. Although he shares my ambition to see them up and running, that is a debate for another day. They will also phase their development from, perhaps, an initial array of a dozen or 15 turbines or tidal stream generators in one area to 30, 40, 50 or more. Logic dictates that a similar provision would be brought forward in subsequent orders when the generators are up to the scale that we know can be driven forward. Some marine, wave and tidal consortia in Scotland are on the cusp of doing that, and perhaps the Minister will enlighten us about that.
Let me turn to the meat of the provision, which I consider to be the sustainability criteria for biomass and bioliquids. My right hon. Friend and I often deliberated on such matters during our time in the Department for Environment, Food and Rural Affairs, alongside Ministers from the Department of Energy and Climate Change, and there was great interplay between the two Departments. Will the Minister tell the Committee what discussions have taken place at both official and ministerial levels to ensure that the sustainability criteria—both those being transposed directly concerning bioliquids from the EU directive, and those discussed today regarding biomass—have achieved the right balance?
“The general policy objective is to guarantee a sustainable use of biomass for energy purposes. The specific objectives are to ensure that heat and power uses of biomass leads to (1) sustainable production, (2) high greenhouse gas (GHG) performance compared to fossil fuels and (3) efficient energy conversion of biomass into electricity and heating and cooling.”
“The operational objective is to establish sustainability requirements for solid and gaseous forms of biomass used in electricity and heating, as long as they are…effective in dealing with problems of sustainable biomass use”.
That is the conundrum with which we are dealing. It is about the balance based on the impact assessments that accompany the order and the explanatory memorandum, and whether we have got that balance right in defining the sustainability criteria. We must ensure that we do not produce negative adverse implications for land use management, or for the transfer from food production into biofuels or biomass oil, and that must be the case both domestically in the UK and internationally. There are several options for the Minister to consider when looking at how to achieve that, and the question for the Committee to consider is whether we have that balance right.
The issue of cost-efficiency is key. As the Minister will know from discussions with DEFRA colleagues—about which I am sure he will illuminate us—the provisions will not satisfy everybody. Some organisations such as the Royal Society for the Protection of Birds, Friends of the Earth, and others, will say that we must go much further and put the sustainability criteria at a higher standard. Of course, that will have implications, and not only for the UK. If all we do is transfer the problem to other EU nations, that will simply drive our greenhouse gas problems abroad. I hope that the Minister will elaborate a little on the representations that he has heard during the 12-week consultation, both within DECC and in discussions with DEFRA Ministers and other organisations. Will he tell us who is broadly content with the proposals and who thinks that they go too far? Who thinks that the burdens are too great, and who thinks that the measures do not go far enough? That will help us to decide whether we have the balance right.
As I have said, the aspects of the legislation that deal with offshore wind generation are eminently sensible, and I would like to hear what the Minister thinks about how that could apply to marine, wave and tidal energy
Paragraph 3.1 of the explanatory memorandum states that although, as the Minister has explained, there are devolved aspects to the ROCs regime, the orders, together with those in Northern Ireland and Scotland, effectively create a UK-wide renewables obligation. That is absolutely correct. As we consider the legislation, perhaps the Minister will illuminate the Committee about whether there were any differences of opinion among the devolved Ministers in terms of input into the formulation of the sustainability criteria. Were the Welsh, Scottish or Northern Ireland Ministers in a different position? What was the nature of the discussions that have brought us to this point today? Or was there broad consensus from the word go that the right balance was achieved, between avoiding the imposition of undue burdens on businesses, the regulatory framework and delivering legally sourced, sustainable biomass and bioliquid crops?
“The European Commission are in the process of assessing this instrument for the purpose of providing state aids approval. We anticipate that we will receive this approval before this instrument is made.”
Regarding the devolved Administrations, perhaps the Minister could tell us what the latest information is about when the relevant statutory instruments, or the equivalent of our orders, are being laid and passed in those Administrations. Are they being laid today, or within the next few weeks? What do his and his officials understand about that process?
Paragraph 4.6 of the explanatory memorandum says that the Commission can adopt measures relating to sustainability criteria, in terms of amending annex 5 to the directive. If that happens, we will need to be back here in Committee again to see how we can amend our instruments to the 2009 order. Has that measure been inserted because we expect that the Commission will introduce some amendments to the directive in short order, or is that just a future-proofing measure? It would be good for the Committee to know if we will be back here before the summer recess to look at aspects of this measure again, or even in the autumn, because that would be pretty short order. I know how much you, Dr McCrea, and I enjoy these Committees, but it would be good if we got this issue out of the way today.
I mentioned the issue of marine and tidal power and whether a similar approach can be adopted. Paragraph 7.6 of the explanatory memorandum says how that would actually work. I can see the sense in that.
The 50 kW exemption is eminently sensible. We do not want to drive out new investors or smaller investors from this potential market. Of course, many of the
“generators over 1MW will need to comply with the greenhouse gas emissions criteria and the land use sustainability criteria from 1st April 2013 in order to be eligible for ROCs…from solid biomass or biogas.”
That is an absolutely sensible move. However, in the intervening time will the Minister also consult with those industries that are not directly involved with biomass generation, and so on, but that have an interest in what happens with the ROCs regime and the development of this industry? I am particularly thinking of the fact that, as the Minister is aware, we are considering this order at the same time as there is a Westminster Hall debate on the wood panel industry, which my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger) will be responding to. If he has not already done so, it would be helpful for the Minister to speak to his DEFRA colleagues rapidly about the concern, which I was aware of when I was a Minister, that the drive towards biomass is not only about sustainability in where we source our biomass product from internationally, but about domestic sustainability. The established timber industry and the wood panel industry in this country are concerned that their products, including some good quality wood that should not be burnt for biomass but should be used for other purposes, might be squeezed or priced out of the markets, and that there might be genuine job implications that do not appear in the impact assessment. The impact assessment focuses exclusively on sustainability in land use and the sourcing of timber. It does not consider the other externalities of the possible impacts on the wider timber production sector in the UK. Concerns exist, some of which are being elaborated on at this moment in Westminster Hall. It would be good to see whether the Minister has had those discussions and what concerns have been raised. He has the opportunity up to 2013 to discuss with associated industries what the impact might be on them.
I genuinely struggled to come to terms with this point, although I know that there is a simple explanation, and I am sure that my right hon. Friend knows the reason for this. What is the rationale for including fossil fuel derivatives in the bioliquids in the eligibility for ROCs? To a lay person it seems counter-intuitive. Why would one include fossil-fuel derived products in biofuels and reward them with ROCs? There must be a darned good reason, but I cannot fathom it. Am I misunderstanding it? I am sure that the Minister will have a good and clear reason and rationale for the Committee.
What has happened to the coalition agreement, and the Conservative party commitment in the run-up to the general election, unilaterally to impose, on a UK basis, a ban on imported timber? That is directly relevant
The impact of the regulatory requirements on Ofgem, in terms both of funding and of staff resources, is referred to in the impact assessment and elsewhere. Has allowance been made and money put aside for that, or is Ofgem expected to do this using its existing pocket of funds? It may incur initial IT and staff costs of about £1 million; the ongoing staff requirement is estimated to be approximately £75,000 a year, increasing to £125,000 a year; and offshore wind support might add marginally to Ofgem’s administration costs. That is not a massive amount, but bearing in mind the restrictions on all regulatory bodies, which are all currently sharing the burden of pain, has some additional funding been acquired from the Treasury?
Finally, I would like clarification on an anomaly in the impact assessment, which I believe to be a genuine mistake. The summary of interventions and options on the front page—with which we are familiar as former Ministers—deals entirely with biomass and nothing else. Further down, under the policy options that are being considered, bioliquids rear their lovely head. The two are not the same, and they do not overlap. In fact, the early paragraphs refer entirely to biomass. It confused me a little, and I assume that it is something that has been overlooked and that requires some rewriting. It certainly does not dilute the subsequent analysis in the impact assessment, but it does seem odd.
Finally, I want to get to the core of the matter. As I said, one can park the issue of offshore wind and accept that as a sensible way forward. In the light of all my points, comments and questions, I am asking the Minister to reassure the Committee that, when he looks at the various options for biomass, in particular, as well as bioliquids, the preferred option will be the one that delivers certainty around sustainability criteria, which people have been seeking for some time and which the previous Government were working on—the Government are looking to make good on that. The preferred option should also have the right balance between the burdens on industry, the light touch and ensuring that we can hold our heads up high and say that our expansion in biomass generation, which we all subscribe to, will not be at the cost of the environment in this country or elsewhere.
Charles Hendry: It has been a fascinating discussion, and I congratulate the hon. Member for Ogmore on finding so much detail to introduce during the course of his remarks. I join him in his generous comments towards not only the right hon. Member for Lewisham, Deptford, who performed with such distinction in both Departments when her party was in Government, but also the officials at DECC, who are worthy of the praise that he has given. I was intrigued that the hon. Gentleman likened his move to poacher turned gamekeeper. I would have thought that moving from Government to Opposition was gamekeeper turned poacher, but that is an interesting view of his relationship with his Government.
The measures on offshore wind have been brought forward, because we need to recognise the huge scale of the change that is happening. Dogger Bank, which would be the largest offshore wind facility and which Norwegian companies are looking at developing, would produce 9 GW. If that was around 5 MW turbines, we are looking at some 2,000 turbines. The scale of the development requires us to look at the phasing of it in this way. For marine energy, that will be some significant way off, but we will keep the window open in such areas, so that if there is a need to make further changes, we can.
The hon. Member for Ogmore understandably asked about the sustainability criteria and the responses that we have had from other groups. Some people would, of course, have liked us to go further, and he is right that, in such areas, one must make choices about what is realistic. On the bioliquids side, we are required to implement what the European directive says, and that is exactly what we have done, but we have greater flexibility on biomass. That is the reason why the impact assessment differs. On bioliquids, we have no choice; on biomass, we do. Therefore, there was a difference in the way that they needed to be interpreted.
We had some representations that said that the 60% minimum target would not be ambitious enough. We hope that, while we have set a minimum level, companies would go beyond it in most cases, but, as a starting point, we are in no doubt that it is moving us strongly in the right direction. There were some concerns from the non-governmental organisations about the lack of indirect land use change, and we will consider any proposals to address that issue, which is also being considered by the European Commission, to see how they could be applied to biomass and biogas. We consulted broadly with the NGOs and the devolved Administrations, and we have struck the right balance.
The hon. Gentleman asked about the 50 kW exemption and I am grateful for his support for that. One of the reasons for that is that anything below 50 kW would be likely to be a domestic installation. To require people who have put a domestic installation in place in their own homes to be absolutely certain in all circumstances
Huw Irranca-Davies: The Minister mentioned ROCs and I ask this question with no foreknowledge of what the opinion of the Environment Minister for Wales would be on this. Has he had any approach from her as to whether she would like to have the same capacity to modify ROCs within Wales, particularly in light of the Environment Minister’s statement on marine wave and tidal earlier this week, as her Scottish colleagues have to modify ROCs in Scotland? Has he had any representations like that and would he be minded to consider them?
Charles Hendry: We have certainly had representations from various sections of the Welsh community about the threshold at which decisions are made by different organisations. We have taken the view that it is better that those decisions are fundamentally still made by UK Ministers on behalf of developments coming forward in Wales and that we see a distinction between the situation in Wales and the situation that has existed in Scotland. Our external investors sometimes find it confusing: if they stray a little bit north of the border there is a different degree of ROC support. But that is part of the respect agenda: we understand the Scottish Government can reach their own conclusions in those areas. As we will undertake a fundamental review of ROCs this year, which we have brought forward by an entire year, those are clearly issues that can be addressed in that format.
The hon. Gentleman asked a range of other questions that I shall attempt to go through in detail as well. He asked about alternative uses for biomass. We have engaged with the wood panel industry in the course of this process and we will continue to do so. We will continue to liaise with it. We want to understand the full implications of these policies and we know that it will engage actively in the course of the fundamental review of the ROCs.
Huw Irranca-Davies: Why is it that within the impact assessment the associated industries that are not directly involved in generation are not referred to in terms of the costs that they may incur, either in terms of lost access to the source material that they use for their timber products or the impact on jobs? Is there a good reason why the impact assessment is designed in that way or would that need to be a separate discussion that he has beyond the impact assessments that we see here today?
Charles Hendry: The work that we are doing today is narrow in its focus and very specific in what it is trying to achieve. As I say, we have the more fundamental review coming forward of how the ROC regime should work post-2013 and post-2014 for offshore wind. We want that to give as much long-term clarity to investors
The hon. Gentleman asked about Ofgem. Ofgem can recover its costs for administering the renewables obligations scheme. There is a fund which the energy suppliers contribute into, so that will make sure that any additional costs which Ofgem incurs are covered in that approach. He asked about the ban on imported biomass which we had spoken about prior to the election. World Trade Organisation rules mean that we cannot ban biomass imported from third countries, but initiatives are being progressed by DEFRA, particularly a ban of illegal wood from Indonesia. I can write to him about that if he would like some additional details.
The hon. Gentleman also asked about the inclusion of the fossil fuel element, and why that might be happening. We concluded that it is not possible to exclude partially renewable fuels—such as biodiesel produced by the FAME process—from the renewable obligation because of their eligibility under the renewable energy directive. We feel it is right that those bioliquids should be included if they meet the sustainability criteria.
The hon. Gentleman spoke about the phasing for other technologies, which goes back to the onshore wind aspect, and I hope I have answered his concerns with respect to the marine and tidal sectors. He asks about how it ties in with the one in, one out aspect. The renewables obligation is treated as a tax and spend commitment rather than a regulation as such, but there is a very clear steer within the Department. If we want to introduce a new regulation—and even with our wish to avoid overregulation we are not exempt from that—there is a robust mechanism that ensures we find and remove something else that is at least as burdensome on business.
Huw Irranca-Davies: Will the Minister write to me to explain that please? I am unusually—or perhaps typically—dense this afternoon, and I do not quite understand the difference. Even though this is essentially a tax and spend issue as he described, it does impose regulatory impacts, not only on those involved directly in generation but also on associated industries that rely on access to biomass or bioliquid sources for their own use. I would appreciate it if either the Minister or one of his colleagues from the Treasury could write to me to explain why this particular measure does not count against the one in, one out rule the Government seem to be complying with. Otherwise, I suspect that we might see a lot of measures defined as simply tax and spend, and not regulatory.
Charles Hendry: I am more than happy to write to the hon. Gentleman. I can see the definition and clarity that he seeks, so if he is happy for me to write to him to set that out in more detail I will.
My hon. Friend the Member for Birmingham, Yardley also asked about the treatment of fertiliser. Fertiliser input is taken into consideration in the life cycle greenhouse gas calculation under annex 5 of the renewable energy directive. Ofgem will provide detailed guidance once it has finished its consultation process.
This has been an extremely detailed discussion, and if there are any areas raised by the hon. Member for Ogmore that I have not fully responded to I will of course respond in writing, but I hope that it will now be appropriate for the Committee to approve the orders, having had the chance to discuss them in detail.
|©Parliamentary copyright||Prepared 17th March 2011|