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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