Draft Renewables Obligation (Amendment) Order 2014
The Committee consisted of the following Members:
† Baldwin, Harriett (West Worcestershire) (Con)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
Cox, Mr Geoffrey (Torridge and West Devon) (Con)
† Cunningham, Mr Jim (Coventry South) (Lab)
Donaldson, Mr Jeffrey M. (Lagan Valley) (DUP)
† Fallon, Michael (Minister of State, Department of Energy and Climate Change)
† Greatrex, Tom (Rutherglen and Hamilton West) (Lab/Co-op)
† Hemming, John (Birmingham, Yardley) (LD)
† Kaufman, Sir Gerald (Manchester, Gorton) (Lab)
† Knight, Sir Greg (East Yorkshire) (Con)
† Lee, Dr Phillip (Bracknell) (Con)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
Robinson, Mr Geoffrey (Coventry North West) (Lab)
Ruane, Chris (Vale of Clwyd) (Lab)
Skinner, Mr Dennis (Bolsover) (Lab)
† Stewart, Bob (Beckenham) (Con)
† Thornton, Mike (Eastleigh) (LD)
Matthew Hamlyn, Committee Clerk
† attended the Committee
Fourteenth Delegated Legislation Committee
Thursday 20 March 2014
[Annette Brooke in the Chair]
Draft Renewables Obligation (Amendment) Order 2014
11.30 am
The Minister of State, Department of Energy and Climate Change (Michael Fallon): I beg to move,
That the Committee has considered the draft Renewables Obligation (Amendment) Order 2014.
I welcome you to the Chair this morning, Mrs Brooke. We look forward to these proceedings under your normal efficient chairmanship. The renewables obligation is our main mechanism for supporting renewables electricity generation in the UK. The obligation has been the subject of previous change, the most significant of which was the introduction of banding of support for the different technologies in 2009. The changes before the Committee today are less radical. They offer renewable electricity generators a choice between support under the renewables obligation or support under the new contracts for difference. The changes also help to protect consumers by ensuring that no generation can receive support from two schemes at the same time. They also strengthen the sustainability reporting requirements for biomass that is used for electricity generation.
The two main changes are the transition away from the renewables obligation to the new contracts for difference and the move to greater carbon savings and increased sustainability of the biomass used. As all Members will remember, we expect the new contracts for difference to open for applications this autumn, subject to Parliament’s approval of the secondary legislation that flows from the Energy Act 2013 and subject to state aid approval of those details.
On the principles set out in detail in the Government’s response to the consultation on the renewables obligation transition, the renewables obligation is scheduled to remain open to new capacity until 31 March 2017, to allow a period of transition in which generators of new renewable capacity will have a choice between the two different support schemes. The renewables obligation will then stay open for a further 20 years to support the capacity accredited within it.
The order sets out a straightforward process for applications for the renewables obligation during the transition period, when both the renewables obligation and the contract for difference will be open for applications. Renewable generators will be required to choose which scheme to apply for and will have to declare as part of their application that they are not also applying for the alternative scheme. That declaration will be subject to checks through data sharing between Ofgem and the National Grid, as the contracts for difference delivery body. Once a generator has applied for a scheme for a particular generating station or capacity, he or she will be barred from withdrawing that application and applying
to the other scheme in its place. If the application fails for any reason, the generator will then be able to apply for the alternative scheme.That process, we hope, involves minimal administrative burden on the generator and the scheme administrators, while giving consumers and the Government assurance that no capacity will end up being supported through both schemes. The choice of scheme is not only open to new renewable generating stations, but also to additional capacity of more than 5 MW in size at existing stations. Generators will also be able to apply for a contract for difference for that additional capacity after the renewables obligation closure date.
The order ensures that generating stations already within the renewables obligation that have the opportunity to expand can do so, making efficient use of existing generating resources. For similar reasons, biomass and offshore wind stations that are accredited under the renewables obligation will also have the opportunity to enter some capacity into a contract for difference, under certain circumstances. The dual scheme facilities that result, with some capacity supported by the renewables obligation and some capacity supported by a contract for difference, will be required to meter electricity generation and to measure fuel usage separately under each scheme. Again, Ofgem and the contract for difference counter-party will work together closely to ensure that only the generation from capacity within each scheme will receive support under that scheme.
It might be convenient for the Committee to know that the Government will lay further statutory instruments before the House in coming months, to take forward other aspects of transition policy. They will include a closure order, which will formally set out the date of the renewables obligation’s closure to new capacity, and allow for grace periods. Those grace periods were developed partly in response to concerns raised in the other place during debates on the Energy Bill last year, and are key to maintaining investor confidence during the transition period. In addition, later this year, we intend to lay before the House a consolidated version of the Renewables Obligation Order 2009, implementing some final elements of transition policy relating to biomass conversions and to the capacity market.
I turn to the second major change incorporated in the order, relating to biomass sustainability requirements. The Government are committed to achieving sustainable, low-carbon bio-energy deployment. The use of effective sustainability criteria forms a key part of our approach and is essential for the public acceptability of biomass. The order strengthens the reporting requirements and introduces audit requirements for solid biomass under the renewables obligation. That will enable generators to familiarise themselves with the sustainability criteria and put appropriate compliance systems in place ahead of our intended introduction of mandatory sustainability standards from April 2015. These changes will encourage the use of biomass that delivers genuine greenhouse gas emissions savings, compared with fossil fuel use, and that is sourced from land that is sustainably managed, not land with a high biodiversity value or carbon stocks.
The main changes to the biomass sustainability criteria that the order introduces include: reporting against a tighter minimum greenhouse gas emissions savings target for new dedicated biomass generating stations; and preventing larger generating stations from making use
of the various default values for greenhouse gas emissions from solid biomass. In future, stations over 1 MW will have to report actual values, and we encourage the use of the greenhouse gas calculation tool that has been made available by Ofgem.The order also introduces new sustainable forest management criteria for virgin wood fuel, based on the Department for Environment, Food and Rural Affairs’ timber procurement policy for central Government. The current land criteria were designed with sustainable agriculture in mind, rather than forests. The timber procurement policy draws on established sustainable forest certification schemes that cover a range of environmental and economic issues relating to forests. The forest management criteria also provide for bespoke evidence to be provided by generators to demonstrate compliance where forests are not certified by a recognised scheme. The land criteria for biomass that is not wood will remain in line with the land criteria set out in the European Union renewable energy directive.
The order also introduces new reporting requirements to provide greater detail about any non-waste wood that is used and where it has come from. That includes the name of the forest, the species of wood and the forest or land management practices that were used. There are also new reporting requirements on the previous use of land in the case of energy crops, and a standardisation of the units used to report the volume and mass of the biomass. There will be a new audit requirement for generating stations over 1MW that use solid biomass or biogas. That is based on the audit requirement that already applies to generating stations using bio-liquids. It provides for an independent assessment of those stations’ performance against the sustainability criteria.
The audit requirements have been brought more closely in line with similar requirements that apply to transport biofuels under the renewable transport fuel obligation, in order to provide greater consistency across schemes.
There are a number of exceptions from the reporting requirements and from the sustainability requirement for biomass fuels—exceptions such as municipal waste, landfill gas, sewage gas and manure. That reflects the lower sustainability risks of those fuels. Our intention is that the contracts for difference awarded under the first delivery plan period for bio-energy will follow the same approach as the sustainability standards set under the renewables obligation. The aim is to ensure that bio-energy offers a genuine reduction in greenhouse gas emissions, that the reduction is cost-effective, and that the biomass is produced sustainably and therefore contributes both to our renewables target and to ensuring security of energy supply.
Our sustainability criteria have taken into account the recommendations of the European Commission’s 2010 report. We depart from that report in some areas: we recognise the need for more robust sustainability criteria to help us deliver our priorities of maximising the carbon savings from bio-energy, minimising the environmental risks, and making best use of the biomass resource available, both for energy and non-energy purposes. Being robust also means being mindful of the need to develop criteria that are realistic, measurable and deliverable.
As for the devolved Administrations, I understand that an order has been laid before the Scottish Parliament introducing similar changes to the renewables obligation in Scotland, on both biomass sustainability and transition.
I also understand that the Northern Ireland Executive will bring forward an order introducing changes on biomass sustainability only. Contracts for difference will not be introduced in Northern Ireland until 2016, so the transition provisions are not required in secondary legislation there at the moment. However, I understand that the Northern Ireland Executive intend to bring forward equivalent provisions in secondary legislation in due course.In conclusion, I am sure that hon. Members will appreciate the value and importance of offering a choice of scheme to the renewables industry during this important period of transition to the contract for difference, and of setting up a clear and transparent process for applications to the renewables obligation during that transition period. The sustainability provisions in the order provide a route for delivering greater greenhouse gas savings from our biomass electricity generation, and enhancing the sustainability of the biomass used. I therefore commend the order to the Committee.
11.43 am
Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op): It is a pleasure to serve under your chairmanship again, Mrs Brooke. The Minister set out the background to the amending order, and the three areas that it covers. As I am sure that he will be aware following debates that we have had on the transition from the renewables obligation to the contract for difference, we Labour Members support the introduction of the contract for difference mechanism as a tool to bring in investment in low-carbon generation. The measures that he outlined in the order are important to ensuring a smooth transition from the one scheme to the other, which is vital for the industries concerned.
I want to pick up on a couple of the Minister’s comments. He referred to the closure of the renewables obligation in March 2017, although that is not covered by the order. On the consultation that his Department carried out, he will be aware that concerns have been raised about the potential for the RO to close before that date. If he confirmed what I think he said—that it will not be closed to new capacity any earlier than 2017—that would be helpful and widely welcomed by the industry, which even in the past few days has expressed concern on that point at various events that I have attended.
The instrument before us focuses on projects currently under the RO that seek to add additional capacity under the CFD. Facilitating that kind of expansion is obviously important. As the Minister outlined, encouraging projects to expand, rather than beginning anew, has advantages, in terms of economies of scale and using existing expertise. Importantly, there is also the ease of acquiring planning permission for extensions to existing projects. The proposal to require additional capacity over 1 MW to undertake separate metering and registering for a separate CfD is a sensible solution, because it is important to avoid the scenario the Minister outlined in which payment is duplicated across both schemes.
I want to ask the Minister some specific questions. He referred to data sharing between Ofgem, the administrator for one scheme, and the National Grid Company, which will effectively be administering the contract for difference scheme. Has his Department
analysed how data are currently configured and kept by those organisations in order to ensure that the transfer is smooth and we do not end up with people being under or overpaid? Similarly, what assessment has his Department made of the additional administrative burden that might therefore be levied on the operators of some schemes because they will have to use separate reporting and metering structures? To what extent is it possible for such structures to be similar so that the integration is more straightforward?The Minister referred to new projects, but will he confirm that the grace periods on the renewable obligation for CfD transition for project extensions will mirror those for new constructions? What incentive does he believe exists for expansion to existing capacity of less than 5 MW? The Government’s decision not to provide support for such expansion makes it unlikely that small, incremental capacity improvements will be made to the existing fleet once we have transitioned from the RO to the CfD. I know that that point has been raised with the Minister in previous debates.
We have debated biomass when discussing a number of previous statutory instruments, as well as in a Westminster Hall debate with the Minister’s predecessor, the Minister without Portfolio, the right hon. Member for South Holland and The Deepings (Mr Hayes). On those occasions, issues relating to sustainability were raised a number of times by Members from all parties, particularly those with a constituency or local interest in the wood panel industry. I am sure that the Minister will be aware of some of the concerns, which have been reflected in the consultation.
Although there has been some controversy on sustainability, important progress has been outlined today. There will be requirements to give information on the forest from which wood fuel was sourced, to report on whether wood fuel meets standards for sustainable forest management—the timber standard—and to report on whether solid or gaseous biomass used by new dedicated biomass-generating stations meets a tighter target of 66.7 grams of greenhouse gas emissions.
I am sure the Minister is aware that I pushed his predecessor on the issue of sustainability during a previous debate, so I am pleased to see the provisions in the draft order. Getting the sustainability question right is vital to the success of biomass in this country. People have important, genuine technical concerns about both usage and emissions that must be addressed. I am sure that the Minister is aware that, for a period, different groups in the debate were offering conflicting sets of data. It is important that the criteria are clear so that we can address the differences in data and make a valid judgment.
Will the Minister explain why the Government’s biomass calculator is still delayed? I understand that when the version developed by the chief scientific officer was leaked, the point was made that it was an early version of the biomass calculator. It was due to be published last autumn—when does the Minister now expect publication? That will be a significant factor. What progress has been made on the Government’s commitment to notify the EU of RO sustainability criteria under the technical standards directive? What assessment has the
Minister made of the effect on greenhouse gas emissions of not including plants under 1 MW in the sustainability criteria?Many Members from all parties have in previous debates highlighted the benefits of cogeneration—combined heat and power—for our energy mix. Capturing both heat and power is highly efficient, so CHP systems should have a key role to play in the move towards a more sustainable form of resource management. By operating locally, they also reduce inefficiencies as a result of transportation leakage, which is a well acknowledged point. As ever, though, the devil is in the detail, and again I want to raise a couple of questions.
Is the Minister content that the Government’s efficiency assumptions in the new classifications do not account for deterioration in normal operation? I understand that that is partly because there are few, if any, older CHP plants on which to make that assessment. Will he commit to keep that under review in the years ahead? Deterioration in terms of wear and tear may well have a material impact.
In the Government’s consultation, 22 respondents opposed the lack of grandfathering of the current formulae for existing schemes. What discussions has the Department had with stakeholders to ensure that changes to the current formulae do not disincentivise investment?
The Government have said that categorisation by fuel lists will be retained, with revisions to the lists and categories. However, in order to provide a process to accommodate new fuels within the categories, and to enable developers to seek alternative categorisation in respect of a scheme using one of the fuels listed, where there is evidence to support that, developers will be able to submit evidence to justify an alternative categorisation based on demonstrating those criteria. Have the Government worked with the industry to determine the standards for that evidence, so that developers of new fuels are confident that they will find a place for themselves in the system? As the Minister and, I am sure, everyone else is aware, there are often developing technology and new potential solutions coming to the fore in the area, which may well help to achieve the overall goals that we seek. A degree of flexibility and accommodation in that regard is therefore important.
If the Minister is able to respond to those points in his conclusion, I am sure that we will be able to conclude the sitting without dividing the Committee.
11.51 am
Michael Fallon: It is good to hear that we may be able to avoid dividing the Committee on this important draft order.
The hon. Member for Rutherglen and Hamilton West has, quite reasonably, asked me a whole series of questions. I hope that he will allow me to reply in writing if I am not able to answer every single one of them. I shall certainly try to deal with the major ones.
The hon. Gentleman asked me about the closure date of the renewables obligation. As I said, that remains on schedule to close in March 2017. We have made no secret of the fact that we are consulting on moving towards more competitive allocation between the technologies, and we have to keep under constant review the management of the levy control framework. We also have the likely requirements of the new draft
state aid rules to keep in account. In spite of that, the renewables obligation is scheduled to close in March 2017.The hon. Gentleman also asked me about what would happen to smaller projects that might come forward after that date. It is important to emphasise that everyone has always known about the scheduled closure date of March 2017. It has not been recently sprung on the industry or investors; it has been out there for some time. Generators who want to add small-scale capacity at existing renewables obligation stations still have some time in which to do so before the closure date. Any additional capacity of any size will be eligible for a 12-month grace period if it suffers from delays involving grid connection, radar and other factors of that kind. There is still time.
The hon. Gentleman asked about the way in which data will be kept and shared between Ofgem and National Grid. My Department runs a delivery group with Ofgem and National Grid. We maintain a close assessment of the data that are held and the way in which they are shared. I am confident that that can be done effectively, although obviously it is important to monitor the situation closely.
Regarding biomass, the hon. Gentleman asked about the calculator. Work is in hand on that. We hope to publish it in the first half of 2014. We have been busy adding new scenarios to the calculator following a peer review. For example, there is the scenario for the use of wood pellets sourced from north American forestry residues—they would otherwise be burned as waste and represent a potentially large source of biomass—which showed genuine greenhouse gas emissions savings. We are introducing sustainable forest management criteria and a new requirement for additional information on wood type and quality and on the regional management practices. We are also considering the best way to account for forest carbon stocks for future policies. All those actions will help us to monitor and address the risk of any negative indirect impacts from increased wood fuel use for energy. I want to dispel any suggestion that the
calculator is being somehow suppressed or delayed because the results it is showing are not positive. That is not the case, and we hope to publish the calculator in the first half of this year.The hon. Gentleman asked me about the notification process to the Commission under the technical standards directive. We hope to begin that notification process later this year in sufficient time for that to apply before the 2015 deadline. He asked me two or three other questions, which I would like, if I may, to reply to in writing, rather than attempting to reply to them now off the cuff. They were quite detailed. If I could help by giving way now, I will do so.
Tom Greatrex: Obviously some of the questions are detailed, so I would appreciate a written reply. I may be misjudging the Committee, but other Members may also be interested in some of the answers. If he could write to all members of the Committee, that would be helpful.
Michael Fallon: I will certainly do that. These are important subjects, and they are important for those outside the House who have an interest in this industry.
In conclusion, I hope that the Committee appreciates, so far as the transition period is concerned, the importance of offering a choice of schemes to the renewables industry as we move from the RO to contracts for difference. I hope they see that the sustainability provisions in the order provide a much clearer route for delivering greater greenhouse gas savings from biomass electricity generation and for enhancing the sustainability of the biomass used. I am grateful for the hon. Gentleman’s comments and questions, and I undertake to reply to those that I have not yet replied to. I will circulate my reply to you, Mrs Brooke, and to every member of the Committee. I hope that the Committee will agree the order.