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Written Statements

Volume 575: debated on Monday 10 February 2014

Written Statements

Monday 10 February 2014

Energy and Climate Change

Offtaker of Last Resort

I can announce that we intend to publish before recess a consultation on the Government’s proposal for an offtaker of last resort mechanism, which will support investment in independent renewable electricity projects.

This Government are committed to delivering greener energy at least cost, as well as ensuring ongoing security of electricity supplies. The Government’s electricity market reform (EMR) programme provides an ambitious package of measures to incentivise the investment needed to replace the UK’s ageing electricity infrastructure with a more diverse and low-carbon energy mix. Up to £110 billion of capital investment is needed from now until the end of the decade. The Government’s objectives for EMR are to: ensure a secure electricity supply; ensure sufficient investment in sustainable low-carbon technologies; and minimise costs to, and ensure value for money for consumers.

It is imperative that independent renewable generators are able to access the energy market and help deliver this goal. The offtaker of last resort will be vital to improve the route-to-market options for such generators, which will help unlock a significant pipeline of projects and bring essential competition, diversity and innovation to the market.

The offtaker of last resort will provide eligible renewable electricity generators with a guaranteed “backstop” route-to-market at a specified discount to the market price.

The document published will outline all the key design details for the offtaker of last resort mechanism and will be accessible at: I will also be depositing copies of the consultation document in the Libraries of both Houses.

Renewables Obligation

The Government consulted on the transition from the renewables obligation (RO) to the contract for difference (CfD) between 17 July and 26 September 2013. Following analysis of responses, we then carried out a further more detailed consultation between 7 and 28 November 2013 on the arrangements for grace periods at the RO closure date. A combined Government response to both consultations will be published later this month.

The Renewables Obligation (Amendment) Order 2014 laid in draft in Parliament today will implement a large part of the outcome of the consultation on the RO transition. In particular, this order will:

a. prevent duplication of support between the renewables obligation and the investment contracts and contracts for difference provided for under part 2 of the Energy Act 2013;

b. establish procedures under the renewables obligation for the exercise of the choice of support in certain circumstances between the renewables obligation or the investment contracts and contracts for difference.

The same order includes provisions on biomass sustainability, which implement part of the Government response (full name and publication date). It is intended to bring the biomass sustainability provisions into force by 1 April in time for the start of the next RO “obligation period” (1 April-31 March). For this reason. Government are laying this amending order in advance of publication of the combined Government response to the RO transition and grace period consultations. The RO transition policy decisions implemented by this order are set out below.

The choice of scheme available to new renewable generating stations and to additional capacity at existing RO generating stations will take place at the point of a project’s application for either the RO or CfD or at the point of signature of an investment contract. This policy remains in line with the RO transition consultation.

To ensure that no one project can receive support from both schemes for the same renewable electricity, developers applying for the RO will be required to provide a self-declaration which will then be subject to verification via data-sharing between national grid as the CfD delivery body, and Ofgem as RO operator. This policy has been adjusted from that proposed within the original consultation in response to respondents’ statements that the previous proposals would constitute an excessive administrative burden on renewable generators.

The choice of scheme for additional capacity at RO-accredited stations means that it will be possible for one generating station to have some capacity receiving support from the RO for its electricity generation, and some separate capacity receiving support under a CfD for its electricity generation. To ensure that no electricity generation can receive support under both schemes, and to prevent developers from switching generation between schemes in response to price fluctuations, net electricity generation and fuel usage in the RO and CfD schemes at these stations will be kept distinct and separate. This policy has also been adjusted slightly in response to consultation responses; the arrangements for metering input electricity will allow pro-rata formulae under certain circumstances, in recognition of the fact that some forms of input electricity are impossible to meter separately.

RO-accredited biomass co-firing stations will have the option of applying for a CfD as biomass conversions, in order to incentivise such stations to increase their overall renewable electricity generation. Such stations also had the option of applying for an investment contract under FID enabling for renewables, while applications for that process were open. This policy remains as set out in the RO transition consultation.

Offshore wind projects which are already accredited within the RO, and which are registering wind turbines in phases under RO phasing arrangements, will be able to transfer some or all of their unregistered wind turbines to a CfD, if successful in a CfD application. This provides maximum flexibility and minimises the risk of an investment hiatus for offshore stations at the present time. This policy remains as set out in the RO transition consultation.

No other stations or capacity within the RO will be entitled to leave the RO in order to apply for a CfD, as this would undermine the overall operation of the RO, which is a market-based mechanism.

These policies received the support of a majority of respondents to the RO transition consultation. Further detail will be provided in the Government response to be published later this month, along with full information on the RO transition and grace period policies not implemented by the amending order.