Renewables Obligation (Amendment) Order 2011

Lord Marland Excerpts

Wednesday 23rd March 2011 Grand Committee

Moved By

[Lord Marland]

That the Grand Committee do report to the House that it has considered the Renewables Obligation (Amendment) Order 2011.

Relevant document: 16th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

My Lords, this is a slightly more inspiring subject than the last one, I must admit. The changes brought about by this order are essential to ensure that the mechanism continues to operate effectively and efficiently. We have committed to being the “greenest Government ever”. A key part of this is our drive to meeting our EU target of generating 15 per cent of all our energy from renewables by 2020. I appreciate that this target is challenging and ambitious. It will require a fivefold increase from the 2009 levels in overall renewable electricity across electricity, heat and transport. Specifically for the electricity sector, which the renewables obligation is designed to support, we will need 25 per cent to 30 per cent of our electricity to come from renewables by 2020—a significant increase from the 6.7 per cent generated in 2009.

We are making good progress, however. We are on track to meet the first interim target of generating 4 per cent of our energy from renewables by 2011-12 and we currently have 25 gigawatts in the renewable electricity pipeline. A strong spending review settlement reaffirmed our commitment to achieving the target with the £200 million provided for developing low-carbon technologies, including £60 million for offshore wind manufacturing infrastructure at coastal sites. That is just one example of the investment we are making to ensure we reach our goal. Since 2002, the renewables obligation has been the Government’s main mechanism for incentivising investment in large-scale renewables. In that time it has succeeded—and I pay credit to the previous Government—in more than tripling the level of renewable electricity in the UK, and it currently supports around 6.3 gigawatts of accredited capacity.

This order introduces three main changes to the RO: offshore wind phasing, the extension of biomass sustainability reporting and implementation of mandatory sustainability criteria for bioliquids. These amendments will ensure that the RO mechanism can continue to build on what it has already achieved. Offshore wind phasing has the potential to play a highly significant role in achieving our renewables targets. In a November 2010 Ernst & Young report, the UK was rated number one in the world for its attractiveness to the offshore wind industry and we want to ensure we capitalise on that potential.

The order will therefore allow offshore wind developers accrediting after 31 March 2011 to phase the support they receive under the RO, with each phase receiving the full 20 years of RO support. This will ensure that offshore wind developers are not adversely affected by the long construction periods of such projects and the issues of seasonality involved with building in a marine environment. Developers will be able to register up to five phases of turbines, over a maximum of five years, with a requirement to register a minimum of turbines equivalent to at least 20 per cent of the accredited installed capacity of the station in the first phase to ensure that maximum deployment is brought forward as quickly as possible.

Biomass, too, has a key role to play in enabling us to achieve our targets with the potential for around 30 per cent of our overall target coming from biomass power and heat. However, we need to ensure that in meeting our targets we do so in a way that protects our environment and is sustainable. We are therefore introducing mandatory sustainability criteria for generators using solid biomass and biogas. This will require a minimum 60 per cent greenhouse gas emission saving for electricity generation using solid biomass and biogas. In addition, the criteria will place general restrictions on using materials sourced from land with a high biodiversity value or high carbon stock.

However, we want to limit the burden these criteria place on generators and, as such, a two-year transition phase will apply. Mandatory reporting against the criteria will be required from April this year, with eligibility for biomass and biogas to receive support under the RO being linked to meeting the criteria from April 2013. This will allow generators time to familiarise themselves with the criteria and reporting process before the criteria are explicitly linked to ROCs.

We are also conscious of not unfairly burdening small generators. Therefore, while generators over 50 kilowatts will still be required to report against the criteria, all generators below 1 megawatt will be excluded from the full scope of the scheme and will not need to comply with the criteria to qualify for ROCs from 2013. In addition, the sustainability criteria will not apply to the use of biomass and biogas made from waste, landfill gas or sewage gas.

Concerns about sustainability are not present just here in the UK but have similarly been reflected at European level. Therefore, the final amendment brought about by this order is the introduction of sustainability criteria for generators using bioliquids, in line with our requirement to transpose mandatory sustainability standards for bioliquids in the 2009 European renewable energy directive. From 1 April this year, we will require electricity generated using bioliquids to meet the criteria set out in the directive in order to be eligible for ROCs. To demonstrate compliance, generators will need to provide Ofgem with evidence that the bioliquid meets the sustainability criteria, and there is a requirement for this evidence to be independently audited. We will open the RO to bioliquids partially derived from fossil fuel, such as biodiesel, given that it is eligible under the directive, providing those bioliquids can meet the sustainability criteria. However, ROCs will be awarded on the biomass portion of its energy content only.

Concerning the devolved Administrations, the changes we are introducing apply to England and Wales. Scotland and Northern Ireland are bringing in separate but complementary orders that will work together to create a UK renewables obligation. I can confirm that the changes I have set out before you today have been subject to the European state aid approval process, for which, I am pleased to announce, clearance was granted in early February.

This Government are, of course, committed to supporting renewables investment. We will therefore maintain the RO by protecting investments made under it and are also consulting on the best means to transition from the RO to the new support mechanism introduced through electricity market reform, on which we have just finished our consultation. We will be advising about it later. The changes being introduced to the RO by way of the order being debated will therefore ensure that it continues to operate in an effective manner for those protected investments. I commend the order to the Committee.

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Finally, perhaps I may ask the Minister to reassure the Committee that when he looks at the various options for biomass, in particular, as well as bioliquids, the preferred option will be the one that delivers certainty around sustainability criteria, which people have been seeking for some time and on which the previous Government were working. The preferred option should also have the right balance between the burdens on industry and the light touch, and ensuring that our expansion in biomass generation, to which we all subscribe, will not be at the cost of the environment in this country or elsewhere.

[Lord Marland]

My Lords, we have heard two very eloquent extremes of attitude. The noble Lord, Lord Reay, as always, comes from a standpoint of his concern about onshore wind, which obviously we respect. It is very much for the local communities themselves to establish whether this is the right option for them. Clearly, in Cornwall, the noble Lord, Lord Teverson, with two stoves in his home—I think he will be known as “two-stoves Teverson” from now on—would obviously welcome onshore wind in the neighbourhood. I can only imagine that up on the Solway Firth, that glorious Turner landscape, the noble Lord, Lord Reay, would not.

The principle point here in terms of wind and alternative energy sources is that we have to deliver energy security for this country. I do not think anyone would doubt that, given the fluctuation in oil prices at the moment and the reduction in our North Sea capability. Renewables have to play a fundamental part if we are to achieve our 2050 pathway, which shows that, for more than double the amount of electricity required, we need energy and electricity from all sources. That is what the Government are setting out to do. The ROC programme pump-primes the renewable generation which is so important.

The noble Lord, Lord Reay, asked some extremely valuable questions: for example, what is the present installed capacity for accredited offshore wind turbines? I can confirm to him that it is 1.32 gigawatts of offshore, which is the amount accredited under the RO. ROCs are eligible on generation only when the turbine is generating, which is when they are paid. We hope that that is good news and that we are not just throwing money at them, particularly, as the noble Lord points out, when they are not generating.

In terms of the aggregate subsidy that is guaranteed over the next 20 years, that requires quite a lot of predictive analysis which we are working on as a department, as the noble Lord would expect. I would like to provide him with that information later, if he does not mind, but the current cost of the ROC system of subsidy for 2009-10 was in fact £1.1 billion—I think that the noble Lord said £1.4 billion—of which £142 million rather than £200 million was provided for offshore. The figures are not readily available for future years.

Another question asked by the noble Lord, Lord Reay, was: what percentage of electricity was generated at present by offshore wind? I cannot tell him what it is at present, but in 2009 it was 0.5 per cent and that is going up exponentially as a number of offshore wind turbines are installed. As an aside to the excellent defensive points made by the noble Lord, Lord Teverson, it is quite interesting that in our manifesto document, for example, we were against the importation of wood for these purposes but were told by the World Trade Organisation that we could not possibly do that. I know that the Liberal Democrat manifesto differed from ours, so we can see immediately the benefits of this great coalition.

I am grateful that the noble Lord, Lord Grantchester, supports this order. He asked whether we should be extending it to wave and other forms of marine activity. We should of course be reviewing that and I am grateful that he pointed that out. A lot of the work we are doing here is building on some of the activity that the previous Government carried out. He asked about the devolved Administrations and, as noble Lords would expect, we are on a very similar footing with them. As I pointed out, they make independent decisions but we have very good relationships across the piece, for which I am grateful to our officials. There is very little that can be put between us.

The noble Lord also asked who was in favour and who wanted us to go further, or not as far. It would be wrong to go through the list of people on one side or the other, so suffice to say that, as with most of us in this Room, broad agreement was achieved in getting to this. Clearly, some would have wanted us to go much further and others would not but that is what is done in consultation. We are permanently consulting in our department on the activity that goes on. We seem to be doing it every day. The certainty of the sustainability criteria is absolutely fundamental and I am so grateful to the noble Lord for bringing up that point. I hope that that deals with the substance of the questions and that this statutory instrument finds favour with the Committee.

Motion agreed.