Renewables Obligation (Amendment) Order 2013

Lord Teverson Excerpts

Wednesday 6th March 2013 Grand Committee

[Lord Grantchester]

I thank the Minister for her comprehensive explanation of the order before the Committee. She has correctly identified it as the main financial policy mechanism for encouraging large-scale renewable electricity generation to put it on a sustainable footing as part of the UK energy mix. The order updates the band support levels, introduces new power sources and increases the importance of certain fuels such as biomass. I certainly support the order. A lot of what the noble Baroness has said is eminently sensible and can agreed by noble Lords all around the Committee. It will help to deliver the UK target of 15% from renewable generation by 2020. It will help UK energy security by reducing reliance on imported fossil fuels. It will assist in the conversion to cleaner generation and it will deliver on decarbonisation targets. It will also help to secure necessary capital and supply chain investment and, not least, it will help to deliver good value for money for consumers.

That said, the Government have presided over a rather disruptive process. There have been public disagreements between Ministers in the noble Baroness’s department and challenges with the Treasury. These do not engender the certainty that is so necessary to the industry if it is to invest with confidence. Uncertainties remain over elements of biomass and solar generation which will be subject to further separate consultation and orders. It is extremely damaging to the industry’s confidence if it experiences constant downward revisions of its support and to the targets of the renewable transport fuel obligation as well as the carbon reduction targets. Can the Minister confirm that the target under the renewables directive is safe? New renewables stations will be ineligible from 1 April 2017. This amending order increases generation per annum to 79 terawatt hours a year by 2017, as explained in the Explanatory Memorandum. However, the target for 2020 is 108 terawatt hours a year. By what measures is the Minister confident that the shortfall of 29 terawatt hours per year will be generated?

One of the key points of the order before us is that from 2014 onwards, support for large-scale renewable electricity will be through a new feed-in tariff with a contract for difference scheme, as proposed under the forthcoming Energy Bill. Does the Minister agree that there is a need for a smooth and well managed transition from the renewables obligation to the contracts for difference regime? If there is any delay for whatever reason, can she confirm that the RO scheme can be extended to give investors the certainty that projects which need longer timeframes have the necessary clarity in terms of levels of support that are needed for their investment?

In its examination of this order, the Secondary Legislation Scrutiny Committee noted that the lives of some existing coal-fired generating plants, which had been expected to close due to carbon emissions reduction targets, may be extended through support to convert to cleaner biomass generation. The committee asked for clarification on how the banded support would allow this to happen. In its reply, the Minister’s department pointed to Ofgem’s Electricity Capacity Assessment 2012, which identifies a tightening of generating margins from 15% this winter to 4% in 2016. While it makes sense to utilise existing stations and convert them, perhaps I may suggest to the Minister that not only may this delay decarbonisation targets, it will delay the necessary urgent investment in fit-for-purpose energy generation. Are the Government seeking the flexibility that will allow them to rely on coal as a back-up supply to help keep the lights on? Is that the more pressing reason, and will it comply with the industrial emissions directive, which replaces the large combustion plant directive with more stringent emissions limits, that is to come into force from 1 January 2016?

Having made that point, I note that both the Committee on Climate Change’s bioenergy review and DECC’s own energy strategy conclude that coal firing with biomass offers a cost-effective way to decarbonise existing coal-fired power stations. The Explanatory Memorandum is also correct to point to energy efficiency and demand reduction as important elements in the calculation of targets that renewable generation needs to fill. However, I do not see any figures in the Explanatory Memorandum to clarify that. Previously, I have asked the noble Baroness for her assessment of the success of the Green Deal and other measures to reduce demand. Is she now able to come forward and put any figures on these measures?

There is much in this order to consider and I welcome the support increase to five ROCs for both tidal stream and wave. That should help reduce the risks of not achieving decarbonisation targets. I welcome the section on rural-proofing within the context of the Government’s overall reforms of the planning system.

The final issue of importance concerns bioenergy crops. Quite rightly, there is anxiety over land use that may be taken away from food crops, and deforestation may also result. The use of palm oil has already been excluded from supply chains. Could the Minister clarify that her department’s bioenergy strategy has now taken account of the sustainability standards recommended in the RO recognition of the environmental assurance scheme’s requirements? To sum up, I support the order and would be grateful if the Minister could give reassurances on the points that I have raised.

[Lord Teverson]

My Lords, I must admit that when I saw this order on the Order Paper, got a copy of it from the Printed Paper Office and opened it, I thought it was my maths O-level paper all over again. It took me back I will not say how many years to that dreaded moment. I passed in the end but it was quite a struggle. The formulae in the order as I went through it got more and more complicated: E=MC² was rather simple by comparison. I hope the people that have to interpret this have a lot more time and mathematical and computerised power than my brain normally does.

I thank my noble friend for going through the order and particularly for highlighting something very important to the south-west and my part of the world: the wave side. Yes, DECC and the Government have put that back up to five ROCs but what is important about this, which my noble friend did not mention, is that that has put it back on a par with what they pay in Scotland. We in the south-west can now compete with our northern brothers and sisters in terms of marine energy. I very much welcome that.

One of the particularly good things about this is that we are moving into a much more professionally and better managed transition in terms of ROC values. I know that ROCs are about to disappear anyway but we are able to make measured and predicted changes in the regime to keep investor confidence, yet knowing that we will have the mechanism to, we hope, keep these numbers within what I thought was a very good settlement in terms of the levy control framework between DECC and the Treasury. That was a good outcome. I hope this approach now means that we will not have that backwards and forwards in trying to second-guess in the short term, and that we have an environment where the investor community is able to put its money where its mouth is—and where our mouth is—in getting renewable capacity, and that that actually happens.

My main question is very much the same as that of the noble Lord, Lord Grantchester. We have a marvellous list here of all the technologies that there are in renewables, some of them which even I forget about. Some, like co-firing bioliquids sounds definitely like something I would not want to get involved in but there are some really interesting technologies there. A number of them are biomass-related and I would also be interested to know where the Government have got to in terms of these quite complicated supply-chain issues around sustainability. It is sometimes all too easy to condemn everything and to give excuses for things not to happen, rather than to bring them forward. However, sustainability is important, and I am very interested to hear my noble friend’s comments in response to my question and to that of Lord Grantchester.

[The Duke of Montrose]

I would like to raise a couple of small questions. One is out of curiosity. We all understand that Scotland administers its own renewable energy regime and the quantities of ROCs that are administered. However, when it comes to providing the certificates, can the Minister tell us whether this is done centrally? Is a Scottish ROC equivalent to an English ROC, and able to be traded across the border? When we get to this horrible question of a referendum in Scotland and Mr Salmond asks whether the Scots want to be devolved, will they suddenly find themselves having to set up ROC administrations that they do not presently have? I am sure that if that is the case, it will be one of many aspects that have not been costed.

The other point comes from what the Minister said about the extent to which the Government expect to have a conversion of coal power stations to biomass. If conversion does take place to the full extent that the Government anticipate, how much of the biomass required is available from the UK and how much might have to be imported?

[Lord Teverson]

Before my noble colleague sits down, I would like to say something important about co-ordination between Scotland and the south: we definitely need a ROC concert.

[Baroness Verma]

My Lords, I was trying to recover from that helpful contribution that we have just had from my noble friend. I begin by thanking all noble Lords for their support for this order and very much welcome what they have said in recognising the great benefits that it will provide.

I was slightly disappointed that the noble Lord, Lord Grantchester, does not recognise that it brings greater certainty for investors, simply through what we are trying to achieve. The expected benefits initially will be £20 billion to £25 billion in 2013-17. That gives greater certainty to investors, given that they will know that they are working towards the contracts for difference in the Energy Bill.

I will answer some of the questions that the noble Lord has put down, as have my noble friends, but if I fail to answer any questions I will write to noble Lords and make sure that there is a copy in the Library. The noble Lord, Lord Grantchester, asked about the Green Deal. It is on track and doing very well. However, because I was not expecting a question on the Green Deal, I do not have the specific figures here with me. If he will allow me, I will also write to him on those figures and give him an update on where we are.

The noble Lord asked whether the target is safe. I can assure the noble Lord that it is. The target is unchanged and there are no plans to change it. He also asked if I am confident that the shortfall of 29 terawatt hours will be met. Through the contracts for difference, we expect that target to be met and, through our capacity mechanisms, to have some capacity in lieu in case there is ever a shortfall. Of course, we will have greater discussions on this when the Energy Bill arrives in our House.

The noble Lord also asked if the RO would be extended to allow a smooth transition to CFDs. We have no plans to extend the RO. The EMR and the CFDs are on track and we are working very closely with industry to ensure that the transition is as smooth and secure as possible.

The noble Lord also asked if coal would continue as a back-up supply. I have just mentioned the new-capacity mechanism and this will be a matter for that mechanism, rather than the renewables obligation, but renewables, particularly biomass, will have an important role to play in keeping our old coal-powered stations open in a much more sustainable way.