Renewables Obligation Closure (Amendment) Order 2015

Countess of Mar Excerpts

Tuesday 3rd March 2015 Grand Committee

[The Deputy Chairman of Committees]

As the important players are back, perhaps we can make a start.

[Baroness Verma]

My Lords, I will continue from where I stopped and get my thread back.

The grace periods are not, however, designed to provide protection against the reductions in support that were set out in the last comprehensive banding review. The first grace period is for operators of generating stations that were granted preliminary accreditation by Ofgem on or before 13 May 2014—the day on which we published our consultation. The second is for generating stations where significant investments had been made on or before 13 May 2014. There was extensive engagement with the industry during the consultation period and we have listened and made changes to the eligibility criteria in response to its views. As a result, the requirements around grid connection, land rights and planning are now more aligned with the practical realities of solar PV project development processes and timelines.

The final grace period is for operators of generating stations that have been subject to grid connection delays that are outside their control. Again, the case for this grace period was made by the industry during consultation to reduce the risks to investments. It has been designed to align with that available to other technologies experiencing grid delays when the scheme closes to new generation in March 2017. This will enable Ofgem to take a consistent approach to the administration of the grace periods.

To benefit from one of those grace periods, the new generating station will need to be commissioned and accredited by 31 March 2016. To reduce the administrative burden, a decision on eligibility for both accreditation and the grace period will be taken at the same time by Ofgem. Similar grace periods for significant investments and grid connection delay will also apply to existing generating stations wishing to add additional capacity.

When the closure comes into force, we believe that there will still be a valuable route to market for large-scale schemes, with developers being able to apply for support under the contracts for difference regime. The announcement last week that five solar projects have successfully competed in the first auction round, all at less than £80 per megawatt hour—far below the support rate under the RO—indicates that the new allocation process can work for solar PV.

Those developers with projects at or below 5 megawatts are not affected by this closure and can continue to apply for accreditation until the scheme closes to all new generating capacity on 31 March 2017. That decision was taken on the basis of the available information, which suggested that they posed less of a risk to the levy control framework. However, consistent with our responsibility for managing RO expenditure under the levy control framework, we are closely monitoring deployment of sub-5 megawatt projects and will consider taking measures to protect it if deployment is growing more rapidly than can be afforded.

I am sure that noble Lords will agree that there is a need to avoid the kind of spending bubble we saw in the feed-in tariff scheme back in 2012, which still costs the levy control framework budget £300 million a year over and above what was originally planned to the solar PV sector. Our current assessment of expected deployment without intervention under the RO would cost up to £400 million a year more than our delivery plan projections and would cause us to exceed the levy control framework cap, putting at risk our commitment to deliver value for money to consumers. It is therefore important that we take steps now to ensure that large-scale solar PV remains affordable in the context of the RO and contracts for difference, not least because without action it is likely there would be little or no money for the early years of new contracts for difference, which has been shown to offer better value for money than the RO.

I commend the order to the House.