Renewables Obligation (Amendment) Order 2021

Lord Moynihan Excerpts

Tuesday 23rd March 2021 Lords Chamber

[Lord Moynihan (Con)]

My Lords, I warmly welcome my noble friend Lord Kamall to his place on the occasion of his maiden speech. I look forward with interest to his contributions, not only to the proceedings today but in future. He has chosen a good subject because this order is welcome. As Minister for Energy when the Government introduced the first non-fossil fuel obligation, almost—I dare to say—30 years ago, it set the framework for welcome successor initiatives, one of which we are debating this afternoon. Today, the renewables obligation scheme is considerably, and understandably, more complex but nevertheless welcome. It comprises three elements, including the scheme under consideration this afternoon, namely that covering England and Wales.

I will concentrate my few remarks on the representations made by Citizens Advice in its response to the Government regarding proposed changes to the utilisation arrangements under the renewables obligation scheme. I agree with the proposals put forward in the Government’s consultation and call for evidence regarding the proposed changes to mutualisation arrangements under the scheme. However, I would appreciate the opportunity to hear from the Minister more about the thinking behind the Government’s response to the request to require more frequent renewables obligation payments by suppliers. This request was made to offer more protection to consumers and generators and to constrain bad debts from escalating more quickly.

We have all seen that the financial strain on suppliers has led to energy supply company failures, affecting over a million energy customers. Such failures result in financial detriment as well as stress for consumers whose energy supply company fails, and higher costs mutualised among all consumers. The largest unexpected costs come from renewable obligation mutualisation, placing additional financial strain on energy suppliers, and resulting in higher costs for consumers.

Does my noble friend the Minister take the view that his order restores the balance of risks between suppliers who set aside money to pay their renewables obligation and suppliers who do not? It is my view that a more regular supplier payments schedule, as is the case in other schemes, would be a constructive way of reducing overall risk rather than shifting risk from suppliers to generators. Requiring more frequent payments, in addition to Ofgem’s principles-based rules around financial responsibility and the Government’s proposed changes to the RO mutualisation threshold, remain approaches worthy of further review. So, in the interest of clarity, can my noble friend the Minister provide the House with further insight as to what happens if there is a shortfall in the buy-out fund and suppliers do not meet their obligation?

Finally, will the Minister take this opportunity to clarify the Government’s thinking as to how they balanced the responses to the consultation exercise, where there was clearly a significant discrepancy between views? Those in favour of the proposal to link the mutualisation threshold to the annual cost of the scheme were in stark contrast to the majority of respondents with an interest in electricity generation, who disagreed with the proposal, believing it would lower the value of ROCs, since lowering the value of ROCs by raising the threshold would make it harder to recoup the costs from suppliers when there was a shortfall in the fund.