Renewables Obligation Order 2006 (Amendment) Order 2007

rose to move, That the Grand Committee do report to the House that it has considered the Renewables Obligation Order 2006 (Amendment) Order 2007. The noble Lord said: The Government are bringing forward this amendment order to make some changes to the renewables obligation. There is strong and indisputable evidence that climate change is happening and that manmade emissions are its main cause. We have set ourselves some tough targets with a goal of putting ourselves on a path to cutting the UK’s carbon dioxide emissions by 60 per cent by around 2050, with real progress by 2020. Our domestic targets are, of course, now further reinforced by the EU agreement last week to source 20 per cent of EU energy from renewables by 2020. The Government regard the development of a range of renewable energy sources as playing a vital element in contributing to this target and so addressing climate change; the renewables obligation is our key mechanism for achieving that. The renewables obligation places a requirement on electricity suppliers to source an increasing proportion of their sales from renewable sources. Since the introduction of the renewables obligation in 2002 we have more than doubled renewable generation and, year on year, we are seeing increasing amounts ofnew capacity coming through. In 2004, there was240 megawatts of new wind build. That increased to 446 megawatts in 2005 and to over 630 megawatts in 2006. Neither is it all about wind. Last year work started on the 100 megawatt Glendoe large hydro scheme, the first large-scale conventional hydro plant to be built in 50 years. We are also seeing a newer type of technology being utilised, such as the building of new dedicated biomass power stations in Lockerbie and Teesside. These will provide around 70 megawatts and more than 300 jobs between them. It is schemes such as these which when built will contribute to our renewable targets and tackling climate change. The renewables obligation is working well but in order to bring on more generation from emerging renewable technologies, such as offshore wind and wave and tidal, we announced as part of last year’s energy review a number of long-term changes; in particular, banding the RO to provide differentiated support to different technologies and extending the level of the RO to 20 per cent. Those are long-term changes, however, and the earliest they can be introduced is April 2009, subject to parliamentary approval. Meanwhile, we want to ensure that the RO continues to work effectively. The order before the Grand Committee does not attempt to change the RO in any fundamental way but introduces some limited changes that will improve its effectiveness. These changes are mainly about the processes and administration of the RO. They stem from consultations carried out as part of the 2005 RO review as well as last year’s energy review. There are also changes that we hope will ensure the continued development of the energy crop market in the UK and a small change to biomass fuel measurement. Let me spend a little time outlining each of the changes. I will take them in the order that they appear in the amending order. The first change is to provide a new definition for energy crops. This new definition will mean that if an energy crop is planted after 31 December 1989 and is either Miscanthus (elephant grass), Salix (willow) or Populus (poplar), there will be no need for the generator to produce evidence demonstrating this when it submits its claim for renewable obligation certificates—ROCs—to Ofgem. The change will reduce the administrative processes that generators using these named energy crops currently have to undertake. These crops invariably are used for energy purposes and as such have very limited alternative markets. The second amendment is to the treatment of biomass fuels. Under the current legislation, if a power station burns two fuels, one where 94 per cent of the energy content derives from biomass and the other where 88 per cent of the energy content derives from biomass, the power station is unlikely to be eligible for ROCs. The proposed change to the RO would resolve this difficulty because if a power station burns more than one fuel stream, then as long as 90 per cent of the total energy content of those fuels is derived from biomass the generator will be able to claim ROCS. The third amendment is a further change for generators burning energy crops. As I mentioned earlier, in the long term the Government are looking to band the RO, and that was announced in the energy review last year. The change to the RO that we are proposing today is to ensure that the UK’s energy crop market continues to develop between the energy review announcement last year and the possible introduction of banding. Co-firing is the most economic technology eligible under the RO. To limit the amount of subsidy it receives the current legislation sets out caps on the amount of ROCs from co-firing with which a supplier can meet its obligation and, from 2009 onwards, requires a minimum percentage to be sourced from energy crops. If our proposals for a banded RO were introduced in 2009, the caps on co-firing would be lifted and support levels for non-energy crops reduced. However, until then, this interim change would allow a change to the co-firing rules to enable co-firing of energy crops outside the existing co-firing caps. This means that ROCs awarded for the co-firing of energy crops would not contribute to a supplier’s 10 per cent co-firing limit, creating an additional market for energy crops and so removing the need for the minimum energy crop percentages that would have been required from 2009 onwards. The next change is an administrative simplification for all generators participating in the RO. Currently, to claim a ROC a generator has to demonstrate that the electricity has been generated and supplied in the UK. That means that where a generator—and this particularly applies to microgenerators—is consuming its own electricity, it has first to sell it to a supplier before buying it back for its own consumption. To do that, generators have to enter into a contractual arrangement called a sale and buyback agreement. That is an administrative burden that we would like to remove. The amendment to the RO means that generators who are consuming their own electricity will now be able to claim ROCs for that without the administrative necessity for a sale and buyback agreement. The next three changes apply just to small generators; that is, generators which are 50 kilowatts and under. Last year’s energy review made it clear that the Government are committed to the long-term future of microgeneration and the Government’s microgeneration strategy sets out our policies to promote greater uptake of these technologies. Although the RO is designed for large-scale deployment of renewables, small generators are also able to participate. These changes are designed to reduce administrative barriers to accessing the benefits of the RO that small generators may experience. The first of these is to allow agents to act on behalf of small generators, not just in the RO accreditation process but also in the claiming and issuing of ROCs. This will remove a level of administration which we know can be a burden. The second change is to require that where agents are acting on behalf of one or two small generators, they amalgamate the output of those generators. This will mean that small generators can benefit from the RO by joining forces with others in the same boat where previously they may not have generated enough to make claiming ROCs worth while. Not only will that reduce administrative burdens but there is also an opportunity for a market for agents to emerge. These agents will have the expertise to gain the most benefit from the RO. While these changes will allow small generators to use an agent, there will be no compulsion to do so. That means that small generators can continue to operate on an individual basis if they so wish. The final change is a further administrative simplification. Small generators have the option to make monthly or annual claims for ROCs. However, if they wish to make annual claims, under current rules, newly accredited generators must provide a minimum notification period to Ofgem. Depending on the timing of this, it can mean that not all their output can be counted towards their ROC claim. We therefore propose to amend the legislation so that there is no minimum notification period for newly accredited small generators which wish to make annual ROC claims. Instead they will simply need to notify Ofgem at a point of their choosing as long as it is prior to their first annual ROC claim. I recognise that some of these amendments are technical and fairly detailed. I would like to reassure noble Lords that these changes have been the subject of a statutory consultation which received broad support from the renewables industry. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Renewables Obligation Order 2006 (Amendment) Order 2007.—(Lord Evans of Temple Guiting.)