Draft Modifications to the Standard Conditions of Electricity Supply Licences - Merits of Statutory Instruments Committee Contents


Thirty-fourth Report


Instruments drawn to the special attention of the house

The Committee has considered the following instrument and has determined that the special attention of the House should be drawn to it on the grounds specified.

Draft Modifications to the Standard Conditions of Electricity Supply Licences

DATE LAID: 8 JUNE 2011

PARLIAMENTARY PROCEDURE: NEGATIVE

Summary: The Feed-in Tariffs ("FITs") scheme is the Government's main policy measure to encourage the deployment of small scale low carbon electricity generation in Great Britain. These draft licence modifications introduce new bands and reduced tariffs for solar photovoltaic ("PV") installations greater than 50kW. They also introduce new bands and increased tariffs for Anaerobic Digestion ("AD") schemes of less than 500kW (EM paragraph 2.5). The Government has decided to make the changes to the PV tariffs because there is evidence that uptake of larger scale solar PV has been higher than expected, and it could push the expenditure on the scheme above that allocated for it in the 2010 Spending Review. The changes to the farm-scale AD are because the uptake there has been lower than expected. The Government is aware that the decision will be unwelcome to those involved in large scale solar PV projects who disagreed with the proposals relating to PV in the consultation. The Committee has received a number of submissions explaining that there will be a significant negative impact on the UK solar industry. These submissions are published in full on the Committee website.

This Draft Instrument is drawn to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.

1. The Feed-in Tariffs ("FITs") scheme is the Government's main policy measure to encourage the deployment of small scale low carbon electricity generation in Great Britain. The FITs scheme was implemented in part through licence modifications to amend the Standard Licence Conditions of electricity supply licences, requiring suppliers of electricity with more than 50,000 domestic customers to offer FITs to all accredited small scale (capacity of 5MW or less) generators of electricity using an eligible low-carbon energy source. The licence modifications were made on 31 March 2010 under sections 41-43 of the Energy Act 2008, which provide powers to modify the operating licences for electricity distribution and supply companies granted under the Electricity Act 1989 (Explanatory Memorandum (EM) paragraphs 2.1 and 2.2).

2. These draft modifications introduce new bands and reduced tariffs for solar photovoltaic ("PV") installations greater than 50kW. They also introduce new bands and increased tariffs for Anaerobic Digestion ("AD") schemes of less than 500kW (EM paragraph 2.5). The draft instrument is subject to a 'draft negative' procedure - the Secretary of State must lay a draft of the modifications before Parliament, and if no resolution is made within a 40 day period not to approve the draft, the Secretary of State may make the modifications in the form of the draft. It has been laid with an Impact Assessment (IA) and was announced by Lord Marland (Parliamentary Under-Secretary of State, Department of Energy and Climate Change) in a Written Statement [HL Deb 9 June 2011 WS 37-38] ("the written statement").

Reason for the changes

3. The IA says that since the FITs scheme was launched, the capital cost of solar PV has fallen substantially, with costs now approximately 30% lower than assumed at the time of the scheme development; and that the modelling undertaken over a year ago predicted uptake of solar PV solely at the domestic scale for the first three years and no large scale PV deployment. It also says that there is now evidence that uptake of large scale solar PV is likely to be significant if the Government does not intervene to reduce tariffs; and at the same time, deployment of farm-scale AD has been lower than expected, potentially as a result of higher than expected technology costs, but also due to non-tariff related reasons (IA page 1). The 2010 Spending Review ("the Spending Review") had said that there are spending parameters within which the FITs scheme must operate, and stipulated that the scheme must make 10% savings in 2014/15 compared with original projections. The EM says that the higher than expected deployment could push the FITs scheme uptake considerably above trajectory and make the savings committed to in the Spending Review difficult to achieve (EM paragraph 2.3).

4. The Department of Energy and Climate Change ("DECC") consulted on proposals for licence modifications between 18 March and 6 May. A review of the entire FITs scheme was also announced on 7 February 2011. The written statement says that the evidence from the consultation shows that demand for FITs has grown so substantially that it now significantly exceeds the amount of funding available during this spending review period. The Government has therefore decided to proceed with its proposals - reducing tariffs for solar PV installations larger than 50 kilowatts and stand-alone installations, and increases for farm scale AD.

5. Given that the draft modifications will make significant changes to a relatively new scheme, DECC will wish to learn any lessons from their approach to the initial modelling of the FITs scheme.

Impact on large scale PV projects

6. The Government is aware that the decision will be unwelcome to those involved in large scale solar PV projects who disagreed with the proposals relating to PV in the consultation. However, the Committee has received submissions from the following five organisations:

(i) Low Carbon Group: they have written on behalf of 58 interested parties who either have specific interests in solar projects in the UK which receive FITs, or who take a strong organisational interest in the development of the UK solar industry to help meet the environmental and economic objectives we promote. They say that: the proposals for solar developments over 50kw require greater scrutiny as 81% of respondees disagreed with the proposed tariff bands in the consultation; projects over 50kw, 150kw and 250kw capacities are unlikely to be built beyond 1 August 2011; and there will be a devastating impact on community energy schemes;

(ii)  Mo3 Power: they are a developer of solar PV projects. They make a number of detailed points, including: the announcement of the proposals - even before any amending legislation was passed - caused immeasurable harm to their business; regulators in other jurisdictions have reduced FITs for similar projects, but have done so using downward tapers, in order to add certainty for investors and project owners; and the Government are rushing through the legislation without providing any real sense of where policy is going more generally;

(iii)  Solar Trade Association: they are a trade association representing the solar industry in the UK with over 450 corporate members. Their submission seeks to outline the impact of the measures contained within the revised legislation, and the contribution to the UK economy of what they describe as a supportive FITs regime for PV at all scales could bring. This includes analysis of the popularity of PV, as well as the impact of solar on employment, and the overall benefit to UK plc; and

(iv) Alectron Investments Ltd and the Anderson Family: who make broadly similar points to Mo3 Power.


The submissions are published in full on the Committee website at: http://www.parliament.uk/business/committees/committees-a-z/lords-select/merits-of-statutory-instruments-committee/publications/




 
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