My Lords, the renewables obligation, or RO, is a long-standing support mechanism to encourage the generation of electricity from renewable sources in the UK. It is designed to ensure that it provides effective support for the renewables sector as a whole and is managed within the department’s levy control framework. As noble Lords will know, that sets annual limits for the overall cost of the department’s levy-funded policies, enabling the Government to meet our renewable energy and decarbonisation targets while providing value for money to the consumer.
Solar PV is an important part of the renewable energy portfolio, and the sector has seen strong growth in recent years due to support from the RO and the small-scale feed-in tariff scheme. In 2013-14, we saw record levels of new capacity, with the industry maintaining strong levels of deployment at both domestic and large scales. Thirty-seven per cent of all RO accreditations by Ofgem were attributable to solar, amounting to more than 1 gigawatt of capacity.
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Our solar strategy, published last year, set out the actions that we will take in partnership with the industry to ensure the sector’s ongoing success. Although in many ways this progress is good news, making a valuable contribution to our renewable electricity generation, noble Lords have raised concerns about its impact on the levy control framework budget and the need to introduce cost control measures. Back in 2013, when we published the Electricity Market Reform Delivery Plan, we set out a potential range of between 2.4 and 4 gigawatts for large-scale solar, a range assessed as being affordable which we expected to support through the RO and through contracts for difference by 2020. However, following our consultation last year, we now expect significantly more deployment and, without intervention, we estimate that between 6.6 and 10 gigawatts could be deployed. That poses a significant risk of breaching the levy control framework within the next two years, putting at risk our commitment to deliver value for money to consumers.
Thiedraft order would amend the RO closure order to close the scheme early to large-scale solar—above 5 megawatts—across Great Britain from 1 April 2015. It would apply both to new generating stations and to existing stations that wish to add additional capacity that would take them over the 5 megawatt threshold.
As well as controlling costs, however, the Government are committed to protecting investors who have already made significant financial commitments. That is why the order provides for a number of grace periods that will enable new solar stations, and existing stations wishing to add additional capacity, to continue to be eligible for the RO after 31 March 2015 if they meet the eligibility criteria.
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