Energy Bill

Written evidence submitted by ScottishPower (EB 27)

Introduction

1. We welcome the opportunity to respond to this inquiry. ScottishPower is a major UK energy company with network, generation and retail supply interests; it is the leading UK developer of wind power, and part of Iberdrola, a global international utility company and the world’s leading renewables developer.

2. In the current three year plan Iberdrola is targeting investment of £1.3billion a year in the UK, some 41% of the Iberdrola Group’s global investments. This planned investment is predominantly in respect of network upgrade and enhancement to maintain security of supply, and in renewable generation to support progress with decarbonisation.

3. Continuing confidence in the UK economy and an energy market based upon a stable regulatory and policy regime is key in underpinning this investment commitment. This is vital to enabling ScottishPower to play its part in delivering the transition to a lower carbon energy system that maintains security of supply.

4. With over 1.6 GW of operational onshore wind capacity across the UK (the majority of which is located in Scotland), our response is focussed on Part 5 of the Energy Bill relating to onshore wind.

Part 5 of the Energy Bill – Wind Power

5. We fully recognise that sensitive and appropriate siting of onshore wind farms is vital. We also agree that the local planning system is the right way to address this. We are therefore supportive of the steps being taken by the Government in Clause 79 of the Bill to ensure that local communities are properly empowered in the development process.

6. By way of additional background, we also fully support the Government’s approach of introducing competition to deliver the best outcome for consumers and consider that harnessing competition under the Electricity Market Reform (EMR) programme has led to significant benefits. This is demonstrated by the first Contract for Difference (CfD) auction last year where the strike prices were well below the administered strike prices. (Indeed, our own East Anglia ONE offshore wind project was successful in securing a CfD in this first Allocation Round - we were awarded a CfD for 714 MW of capacity at a price below £120/MWh (14% below the administered strike price for delivery in 17/18)).

7. Prior to the development of the new CfD mechanism under EMR, the Renewables Obligation (RO) has been key to providing the necessary investment signals to bring forward significant levels of wind power development to support the UK in progressing towards the decarbonisation of the power sector, as well as meeting its obligations under the EU Renewable Energy Directive.

8. As was recognised throughout the development of the EMR programme, it is vital to ensure that there is a smooth and stable transition from the existing RO regime to the new CfD mechanism and allocation framework. This means that any changes to the existing RO support scheme should be implemented in a way that provides sufficient foresight for investors and appropriate protection for significant investment committed in good faith, so as not to lead to stranded investment. This is vital to not undermining investor confidence in the longer term.

9. Thus, whilst recognising the Government’s Manifesto pledge to ending new subsidy for onshore wind, we have welcomed the Government’s commitment to bringing forward legislative provisions (associated with the early closure of the RO to onshore wind) which are aimed at providing grace periods to protect investors against significant stranded investment. We welcome the provision of grace periods aimed at enabling those projects to progress that had made a substantial financial commitment, as demonstrated by them holding planning consent, and appropriate access to grid and land at the relevant date. Whilst there might be scope for the technical improvement of these provisions during the process of legislative scrutiny, we consider that the general framework of the Government’s grace period provisions, as currently proposed, is broadly appropriate.

Legislative passage and looking forward

10. In order to provide the clear forward visibility that developers need on the overall regulatory and policy framework, we consider that it is now vital that the Energy Bill progresses through its Parliamentary process as swiftly and smoothly as possible. This would then enable the Government to focus on the longer term outlook and ensuring that there is a clear and sustainable investment framework that allows for the competitive participation of the range of renewable technologies so as to deliver progress towards decarbonisation as cost-effectively as possible.

11. Looking forward, we welcome the Government’s commitment to setting out further detail on the three CfD Allocation Rounds that have been announced for the period up to 2020 (along with the associated roll forward of the Levy Control Framework into the 2020s), so that cost-effective investment planning can be progressed. In this context, we also welcome the Government’s commitment to engaging with the industry on the prospects of investment in onshore wind without subsidy where it has local support. We are committed to continuing to play a constructive role in the important policy development work in this area so as to ensure an appropriate route to market in such cases.

February 2016

 

Prepared 3rd February 2016