Renewables Obligation (Amendment) Order 2021

Lord Grantchester Excerpts

Tuesday 23rd March 2021 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for his clear explanation of the order before the House today. I also thank all the other speakers who have come forward with views and congratulate the noble Lord, Lord Kamall, on his interesting maiden speech. I look forward to many more insights from him on the energy sector and wider issues in the UK economy.

The renewables obligation has been one of the Government’s mechanisms to bring forward investments in renewable power to reform the energy market away from reliance on fossil fuels. It has been tremendously successful, as the Minister said. At initiation in 2002, it aimed to bring about 10% renewable energy by 2010. It has exceeded all expectations and presently about 30% of electricity supplied in the UK is generated via the scheme. All that is to be encouraged, and the effect on modernising the UK’s power supplies has been considerable.

However, along the way there have been several mishaps and distortions. The most pressing has been the balance of risks and costs between generators and electricity suppliers, which the Government have ignored for far too long and is now the subject of this corrective, restorative amendment. The mutualisation scheme, with a trigger threshold of £15.4 million, resulted in excess payments, as the noble Baroness, Lady McIntosh, said, of £53.4 million, £88.1 million and £31.4 million over the last individual three years falling on suppliers and their customers. Paragraph 7.3 of the excellent Explanatory Memorandum says that with a “notional value” of “£54.43 per ROC”,

“The total value of this support … was estimated at £4.5bn.”


The next paragraph explains how these excess mutualisation debts have arisen—a set of circumstances I remember well in my business’s energy supplies, with chaotic management and incoherent billing by my supplier resulting ultimately in the supplier’s bankruptcy. This amendment order is urgently needed to return the supply market to stable conditions again. We support it today for that stable environment.

An early attempt, introduced by Ofgem, was to set tougher entry tests for energy suppliers before they are allowed to trade. Can the Minister give any figures on how many companies have been denied access through these more stringent tests? It may be too early to reflect how important this element will be in complementing the order to make effective increases to stability. Has the Minister any comments to add about how these tests will substantially ameliorate the problems that businesses like mine will have experienced? I understand that a further two companies have gone bust this year, in addition to the 25 in recent times, resulting in nearly 2 million customers suffering disruption and the mutualisation fund to be paid increasing.

This order seeks as a solution to return the mutualisation threshold to 1% of the cost of the scheme, the initial level it was academically set at in 2005. For the 2021-22 year, the threshold will increase to £62 million. We agree that it restores a balance of risk between generators and suppliers that was established then and to which the consultation did not demur, even if the readjustment will be painful for many generators.

If the percentage is maintained at 1%, will that automatically nullify any future problems? It was originally set at that percentage under the academic assessment that it was at a level where mutualisation arrangements would not arise or be at a level only of immateriality. Does the Minister agree with that assessment— that the mutualisation trigger will return to being immaterial? Will the situation now stabilise? What checks and assessments will be put in place to monitor the effectiveness?

The country remains in a precarious situation in the climate emergency. The initial RO market has been closed to new entrants since 2017. The ceiling on limiting levies on the consumer through the LCF has been replaced by a blanket ban on new levies through the control on low-carbon levies this year.

Companies will be running out of time in their 15-year window periods to recover technology costs, yet the country needs further decarbonisation investments urgently. There will be an explosion in levy requirements resulting from the recent announcements on offshore wind and Sizewell C. The Government have announced confidence in the regulated asset base of the future funding models for these huge investments. While these considerations take us some way beyond this order, nevertheless, is the Minister confident that the regulatory support mechanisms will set robust parameters on the costs for consumers; and that fleet-of-foot, small-scale renewables schemes—and the innovations they may contain—will continue to be able to help with progress towards the necessary decarbonisations? There is a long way to go.