Renewables Obligation Certificate Scheme

Kerry McCarthy Excerpts

Wednesday 5th March 2025 Westminster Hall

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Kerry McCarthy)]

It is a pleasure to see you in the Chair, Dr Murrison, as always. I thank my hon. Friend the Member for South West Norfolk (Terry Jermy) for securing this important debate. I think it is a marker of an MP who is going to achieve things for their constituents that they show persistence and an imaginative approach to lobbying on issues that are important to their constituents. The fact that he has already had the farming Minister down to visit the site and that, having dealt with one Government Department, he has now also secured this 90-minute debate in Parliament, his first Westminster Hall debate, is a sign of somebody who I know will be persistent in all the right ways. I pay tribute to him for that.

I will deal with some of the contributions from hon. Members before I address the more general questions. Some of the issues raised today are the responsibility of the Department for Environment, Food and Rural Affairs, as shown by the farming Minister’s visit, but it is important to look at that circularity and my hon. Friend the Member for South West Norfolk spoke very eloquently about the co-benefits of the site: it is not just about energy production. I can tell him and my hon. Friend the Member for Suffolk Coastal (Jenny Riddell-Carpenter) that we are acting at pace to try to deal with issues such as pollution of our waterways, and agricultural run-off, protection of our chalk streams and so on are very much part of that. While that is not a matter for me directly, when we look at energy projects we always look at the co-benefits.

We have had a number of debates on this issue. When I was shadow Minister I replied to a debate—I am sure the hon. Member for Strangford (Jim Shannon) was there, because he always is—led by a Lib Dem colleague of the hon. Member for Inverness, Skye and West Ross-shire (Mr MacDonald), on consumer energy prices in the highlands and islands. Point were made then about the difference in pricing and how expensive it can be to heat homes there. I am pretty sure that the Minister for Energy has replied to debates on similar subjects since we got into Government, but the hon. Member raises a valid point.

I can give the hon. Member for Strangford, who has raised the question of the CfD regime before, the assurance that the Lords Minister from the Department for Energy Security and Net Zero met his Northern Ireland counterpart before Christmas to discuss it; I am told that that dialogue continues. The hon. Gentleman will also, I am sure, be pleased to know that the Minister for Energy will be in Belfast tomorrow—we have an inter-ministerial group from the devolved Administrations that moves around. I discussed the agenda with the Minister for Energy last week and the Department of Agriculture, Environment and Rural Affairs will be very much involved in those discussions. I can assure the hon. Gentleman that we are not ignoring Northern Ireland; it is very much on our radar.

[Jim Shannon]

Not for one second did I think the Minister was ignoring Northern Ireland—that was never the case. I just wanted to ensure that the relationship we have within this great United Kingdom of Great Britain and Northern Ireland played a clear part. I was aware that the Minister for Energy is coming to Northern Ireland tomorrow and that he has regular discussions with the regional Administration, and that tells me why we are better off as part of this great United Kingdom of Great Britain and Northern Ireland—always better together.

[Kerry McCarthy]

I should have known the hon. Gentleman would be on top of things and would be aware of the Minister for Energy’s visit, but it is important that we have that continual dialogue and that the hon. Gentleman comes along to these debates to ensure that the Northern Ireland voice is heard.

I do not want to go too far off piste from the subject of the debate, but to respond to what the Lib Dem spokesperson, the hon. Member for Westmorland and Lonsdale (Tim Farron), had to say, I am an MP from Bristol, so the Severn estuary, the Severn barrage, the Severn tidal lagoons or whatever are very much on my radar. I went up to the Orkneys last summer to look at what they are doing on harnessing wave energy there, and it was very interesting.

On grid capacity, we know that grid capacity is a real issue, in terms of both our ambition for clean power by 2030 and our wider industrial decarbonisation. The Secretary of State likes to talk about the “four horsemen” standing in the way of us getting there, and grid is very much one of those. We have brought in Chris Stark, the former chief executive of the Climate Change Committee, to head up mission control on that issue, and he is working daily on how we can unblock and accelerate projects within the grid.

To the hon. Member’s point on farmers, I agree with giving farmers support to diversify, and energy from waste or anaerobic digestion and so on is part of that. I met two of the DEFRA Ministers earlier this week—although it might have been last week; it all becomes a bit of a blur—and I am in constant conversation with them about how we can work together on that and on our local power plan, which will be part of GB Energy. Hopefully there will be pots of money available for some of those community projects in rural areas, possibly on farms that he has talked about.

I understand that the company that my hon. Friend the Member for Stafford (Leigh Ingham) mentioned, GE Vernova, is doing innovative things on grid solutions. That is the sort of high-tech new approach that we need if we are to solve the problems that we have talked about, and I congratulate her on speaking up on behalf of a company in her constituency.

Turning to the actual debate, the experience of recent years has reinforced what we already knew: we cannot rely on fossil fuels. We need clean power to reduce vulnerability to volatile global fossil fuel markets, to give us energy security and reduce the cost of energy, and to tackle the climate crisis. That is why one of the Prime Minister’s five missions is to make Britain a clean energy superpower by delivering clean power by 2030 and accelerating to net zero. Electricity generated by renewables and nuclear power will be the backbone of a clean electricity system by 2030.

I have told the hon. Member for West Suffolk (Nick Timothy) how disappointed I am with the Opposition’s U-turn on this issue. I understand the position they are coming from and that there has been a change from the stance that they adopted in Government, but I have not heard from him what the answer is for our future energy security. What is the answer to dealing with the global fossil fuel markets? What is the answer to tackling the climate crisis? What is the answer to bringing down bills in the long term?

[Mr Angus MacDonald]

I wonder if the Minister could put herself in the position of somebody from the island of Skye who wakes up in the morning, opens his windows, and sees beautiful mountains in the background —it is always sunny there and there are no midges. He sees the wind turbines, but then he goes and looks at his heating and realises he is paying four times as much to get energy from those turbines. Meanwhile, there is negligible community benefit coming to that area. Can she position herself in that person’s or that household’s shoes?

[Kerry McCarthy]

As I said to the hon. Member, that issue that has been debated numerous times here, and it is not really the subject of today’s debate—but nice try on getting it in there. He might want to secure his own Westminster Hall or Adjournment debate on it. As I said, it is very much on our radar to look at the fairness in the system and to make sure that energy is affordable for everybody and that there are community benefits as we roll out that clean power ambition. All those issues are talked about in the Department on a daily basis.

Before I move on from the hon. Member for West Suffolk, I will say that the urgent question on carbon budget 7 was not granted because there is a process for the Government to respond to the analysis given to us from carbon budgets, and we will follow that process. First, though, we have to deal with the carbon budget delivery plan. Before looking to CB7, we must look at how we meet the obligations contained in current carbon budgets.

The previous Government were taken to court because their plan was not deemed adequate. They presented another plan, and the courts again found that it was not adequate, so we now have a deadline from the courts to produce our carbon budget delivery plan this year to show that we are back on track. That is very much our first priority. I am sure that once that is published, we will debate that and then carbon budget 7 as well, but we have to show that we are back on track before we start looking into the future.

[Melanie Onn]

The Opposition’s new-found position is apparently anti-ideological, but I have just read the article in the Telegraph—not my usual source of news—and it is in fact deeply ideological. Furthermore, it now sets the Opposition against the reality of industry in coastal and remote communities that has been generating the jobs, apprenticeships and investment that have long been requested and needed by those communities.

[Kerry McCarthy]

My hon. Friend makes a valid point. I wonder whether the Opposition spokesperson has spoken to businesses on this matter because, in all my conversations with businesses, both in opposition and now in government, it is clear that they want certainty. They need a stable investment environment if they are to make long-term decisions. They cannot invest in renewable energy, in industrial decarbonisation or in the economic growth this country needs without certainty. We know that one reason why we are in the economic situation we are is the lack of stability and the economic chaos at times under the previous Administration, particularly under the predecessor of my hon. Friend the Member for South West Norfolk. Therefore, certainty is what we need to have. Business is crying out for that.

In places such as Grimsby, it is particularly important to have a place-based solution to the current situation, showing what the energy transition would look like in such places. I urge the hon. Member for West Suffolk to take a bit of a tour, to talk to businesses and people who are trying to get much-needed investment into places such as Grimsby, and to see—I am not quite sure what his proposals are—what he can say to them on how to get long-term investment.

[Nick Timothy]

Of course we talk to business all the time. I talk to businesses in my constituency and we have been talking to businesses and organisations representing the more energy-intensive manufacturing businesses in this country. They are clear that energy costs have been too high, partly because of issues such as high carbon prices. They are very concerned about the prospect of the carbon price rising under this Government. The hon. Lady talked about global fossil fuel markets—I have heard the Energy Secretary say that a lot when he has referred to global gas markets. There is no single global gas market in the way he describes. Prices for fossil fuels are so much higher in Europe than America, which is much more dependent on fossil fuels than we are, because of policy choices. Therefore, can she guarantee that we will have a lower carbon price than the rest of Europe by the end of this Parliament?

[Kerry McCarthy]

I understand that the hon. Member asked the Secretary of State that question at the last DESNZ orals and I think he also raised it when we were opposite each other in a statutory instrument Committee. I refer him to the answers that were given then. I think we should get on—I am going to try to talk about the renewables obligation for a while and not be distracted.

The scheme played a fundamental role, as already noted, in getting the UK to where we are now on renewable energy generation. Combined, the UK-wide RO schemes support nearly 32% of the UK’s electricity supply, providing millions of UK households and businesses with a secure supply of clean energy. The scheme is now closed to new capacity, for reasons I will come on to.

Thetford power station, in the constituency of my hon. Friend the Member for South West Norfolk, has been accredited since the first day of the RO, back in April 2002, so it has so far received Government support for nearly 23 years. Over that time, it has generated more than 5.8 TWh of low-carbon baseload generation. That has been a valuable contribution to our transition to net zero. It has also increased our security of supply by generating home-grown energy. As he said, the station has provided 100 jobs in his constituency and co-benefits in handling poultry litter.

The station has another two years of support before its time under the RO ends, in March 2027. We are aware of the concerns about the future of the station once that support ends and my hon. Friend has done an excellent job in outlining those concerns today. My officials have repeatedly engaged both with the owners of the Thetford plant, Melton Renewable Energy, and with DEFRA officials to discuss those concerns.

To explain the overall context, as I have said, the RO has done sterling service in bringing forward the successful large-scale renewable energy sector that we see in the UK today. That has paved the way, as my hon. Friend the Member for Great Grimsby and Cleethorpes (Melanie Onn) said, for the cost reductions that we have seen over the last few years under the contracts for difference scheme, but its time has passed. The energy landscape has evolved since the scheme was launched in 2002 and it no longer provides the market incentives or the value for money that the transition to clean power requires.

The RO was designed to support renewable energy-generating stations during the early stages of development and generation, and to allow the recovery of high capital costs. For that reason, RO support is often significantly higher than that provided under successor policies such as contracts for difference. We must always bear in mind that consumers pay for the scheme through their electricity bills, and delivering value for money for them is essential. For that reason, we do not plan to extend RO support.

As I said, support under the RO for the early adopters, such as Thetford power station, lasts for 25 years. Stations accredited later in the RO’s life receive support for up to 20 years. All support will end in March 2027, when the last assets fall off the scheme and the RO finally closes, so Thetford—as I am very aware—has two years to run. The limits on the length of support were imposed to balance the need to provide investors with important long-term certainty—for 25 and then for 20 years—with the impact on consumers.

Although we do not consider extending the RO to be a viable option, I assure my hon. Friends that I understand their concerns. In some cases, generating stations may be able to continue generating electricity on merchant terms once their RO support ends, and continue until the end of their operational life. However, some generators have told us that their stations will not be economically viable without Government support.

We are conducting further analysis and assessment to better understand the issue, including the implications for consumer bills and the clean power mission. My officials are working with DEFRA to consider whether there is a case for intervention for biomass-fuelled stations, taking into account the electricity system and the supplementary environmental benefits that some stations provide. That work is in addition to the robust value for money assessments that we undertake to ensure any possible support is in the interests of bill payers.

I appreciate that Melton Renewable Energy and my hon. Friend the Member for South West Norfolk are looking for early answers, but I must stress that no decisions have yet been made and we are happy to continue the conversation with him.

[Jenny Riddell-Carpenter]

Is a potential bridging loan being considered by the Department for the replacement of the ROC?

[Kerry McCarthy]

I am not aware of the detail of what has been discussed as an option, so I am afraid cannot comment on that. I think it would be wrong to speculate on what the solution will be, but those conversations will continue.

To conclude, renewable energy is critical to our mission to make the UK a clean energy superpower. We understand the concerns of some generators coming to the end of support under the RO and we are looking at ways to maximise the output and potential of those RO sites, while also considering the impact on consumer bills.

I again thank my hon. Friend the Member for South West Norfolk for securing this important debate. I am happy to continue the conversation in the weeks and months to come.