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Renewables Obligation (Amendment) Order 2011

Volume 726: debated on Wednesday 23 March 2011

Considered in Grand Committee

Moved By

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

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.

I shall say a word or two about this order. In itself, it is not very significant or pernicious and, given that these subsidies for offshore wind-generating stations are going to be paid in any case, I have no objection to them being paid in phases as the order provides. However, I strongly object to the underlying policy requiring these subsidies to be paid in the first place. Mostly, I find myself in opposition to onshore wind farms, which are of course ferociously opposed from one end of the country to the other—not by the noble Lord, Lord Teverson, but by many others. Besides ruining the lives of some who live in close proximity to them, they do irreparable damage to our wonderful rural landscapes.

Offshore wind is obviously less offensive in both those respects, although I sometimes feel that Turner, for example, would not be too pleased to see how some of the estuaries and wild foreshores he lovingly painted have been desecrated and had their romance and natural appeal, as in the Solway Firth, systematically degraded by this industrial intrusion. However, the factors I wish to emphasise are their uselessness and expense.

As a result of the harsh weather we have experienced in recent winters, it has been brought home to virtually everyone in the country that when the demand for electricity is at its very highest, the contribution from wind power is at its lowest. In fact, it may be close to zero for days at a time. Therefore, we must always be able to supply all the electricity we might ever require—it is required at the moment—by other means. Nor is the contribution from offshore wind produced more efficiently than that from onshore wind; far from it.

Last year, the load factor for offshore wind—the percentage of installed capacity that is generating over the year—fell, at 26 per cent, just below that for onshore wind. So much for the fatuous claim, which is sometimes made by Ministers when attempting to justify their scheme of surrounding these islands with a ring of turbines, that wind is one of our great natural assets. I calculate from the Digest of United Kingdom Energy Statistics that wind power contributed somewhat less than 3 per cent of the electricity generated last year in the UK. I should think not much more than 1 per cent was from offshore wind. Perhaps my noble friend the Minister could confirm or correct that figure, as it does not seem to be separated off in that digest of statistics.

Moreover, that miserable achievement is only possible thanks to the subsidies for offshore wind, which have now been raised to twice the level paid for onshore wind. That requirement is hardly surprising, given the obviously far greater difficulties in constructing and maintaining turbines in deep salt water rather than on land. The effect of the subsidy, paid for ultimately by the electricity consumer, is that the offshore electricity producer receives no less than three times the market rate for all the electricity he produces, and is guaranteed that rate for 20 years. What is the installed capacity of all existing commissioned and/or accredited wind turbines today, and what amount of subsidy are they guaranteed for the rest of their lives, in aggregate, assuming that current load factors continue? If my noble friend is not able to answer that question this afternoon, I shall table it as a Written Question.

I have recently read the renewables obligation annual report for 2009-10. It is an interesting document, but I can hardly recommend it to noble Lords for light reading. The ROC system is one of the most sublimely complex and opaque subsidy systems ever devised by the bureaucratic mind. No doubt that very fact gives it a certain political value. From it and from ministerial answers to Written Questions, I think I have gleaned that the cost of the ROC system last year was approximately £1.4 billion and that the share in that of offshore wind amounted to approaching £200 million. Could my noble friend confirm those figures? If so, could he say what he expects them to be this year?

One thing is for sure, that the intention of Her Majesty’s Government—hell-bent as they are on achieving their impossible renewable energy targets—is that these figures should expand massively in the years to come. In answer to a Written Question in this House in January, the Minister gave his department's estimate that by 2020 the subsidy cost for the ROC scheme would be more than £5 billion a year. I believe that the Government should do what the Dutch Government have announced they intend to do, which is to remove all subsidies from offshore wind and, in so doing, abandon their previous renewable energy target. By contrast, our Government still pursue a policy which will ensure that more of our industry departs overseas, that ever more people sadly plunge into fuel poverty and that the return to the age of freezing in the dark is brought closer. For those reasons, it is with a heavy heart that I witness the adoption of this ostensibly harmless amendment order.

My Lords, I do not think I will reply to the noble Lord, Lord Reay, but I agree with him profoundly that wind turbines are fantastic and are a great asset to much of the countryside for visitors to Cornwall. However, there are issues for those who live near them which we must recognise, although once they are there I do not think people notice them too much.

I want to concentrate on something completely different. I welcome the efforts by the Government and by the Minister to ensure that the issue of sustainability of biomass fuels is taken on board and is concentrated on. Two or three years ago, we found that biofuels in the transport area were the great salvation for decarbonising our economy but because of the many valid issues around food security and rising food prices, the substitution of fuels for food became a lot more contentious. Although I believe that biofuels are an important part of the future, they have to be seen to be sustainable, otherwise what is the point?

The importance of the order is that we get in front of the curve in this area and assure the public that, with the increasing use of biomass, they are sustainable. I have two wood-burning stoves in my house which I hope are sustainable; they appear to be and I am told they are, although they come from Somerset and are trucked down to Cornwall rather than produced locally. We have to be careful as the public perception of what is sustainable in regard to biomass, particularly wood, is not always what it should be. Strange as it may seem, sometimes it can make sense to bulk-ship wood in the right condition across oceans rather than cut down local forests. In terms of transport solutions to carbon production, that can sometimes be best. I am sure that that is taken into account but I welcome this order.

Once again, I thank the Minister for introducing the renewables obligation order today. It is an extremely important order as the renewables obligation is crucial in driving forward the development of renewable electricity generation through various support mechanisms. We are in broad agreement with the order. The provisions concerning the phased development of offshore wind generation are sensible and build on Labour’s legacy in laying the foundations and ensuring that the ROCs cover the whole lifespan of a project.

The situation at Dogger Bank, where there may be some 2,000 turbines, requires phasing so that the early capacity can be rewarded while the later development can still qualify for the full 20-year payment period permitted to receive ROCs. As wind power is at the vanguard of renewable technologies, will we need similar orders to encourage investment in other technologies, such as wave and tidal generation?

This part of the order is to be welcomed. Set against wider electricity market reform, signals to facilitate cost-effective investment in all forms of low-carbon generation must be supported. It is a complex balance reviewing the roles that a carbon price, an emissions performance standard, a revised renewables obligation, feed-in tariffs, capacity mechanisms and other interventions should play in achieving our goals.

The challenge in the order today relates to the sustainability criteria for biomass and bioliquids. Deliberations between Defra and DECC will have been informative in assessing whether we have the balance right in defining the sustainability criteria. We must ensure that we do not produce negative adverse implications for land use management or for the transfer from food production into biofuels or biomass oil, and that must be the case both domestically in the UK and internationally. There are several options for the Minister to consider when looking at how to achieve that balance, and the question for the Committee to consider is whether we have that balance right.

The issue of cost efficiency is key and the provisions will not satisfy everybody. Some organisations will say that we must go much further and put sustainability criteria at a higher level. Of course, that will have implications, and not only for the UK. If all we do is transfer the problem to other EU nations, that will simply drive our greenhouse gas problems abroad. I hope that the Minister will elaborate a little on the representations that he has heard during the 12-week consultation both within DECC and in discussions with Defra Ministers and other organisations. Will he tell us who is broadly content with the proposals, who thinks that they should go further and who thinks they have gone too far? Who thinks that the burdens are too great? That will help us to decide whether we have the balance right.

The Minister said that this order will be subject to endorsement by the devolved Administrations. Will he illuminate the Committee about whether there have been any differences of opinion among the devolved Ministers in terms of input into the formulation of the sustainability criteria? Were the Welsh, Scottish or Northern Ireland departments in a different position? What was the nature of the discussions that have brought us to this point today, or was there broad consensus from the outset that the right balance was achieved between avoiding the imposition of undue burdens on businesses, the regulatory framework and delivering legally sourced, sustainable biomass and bioliquid crops?

Earlier, I mentioned marine and tidal power and asked whether a similar approach can be adopted. Paragraph 7.6 of the Explanatory Memorandum states how that could work. I can see the sense in that. The 50 kilowatt exemption is eminently sensible. We do not want to drive new or smaller investors from this potential market. It is right to exempt essentially domestic installations. However, in the intervening time, will the Minister also consult with those industries which are not directly involved in biomass generation and so on, and which have an interest in what happens with the ROCs regime and the development of this industry?

The drive towards biomass is not only about sustainability about where we source our biomass product from internationally but about domestic sustainability. The established timber industry and the wood panel industry in this country are concerned that their products, including some good quality wood that should not be burnt for biomass but should be used for other purposes, might be squeezed or priced out of the markets, and that there might be genuine job implications that do not appear in the impact assessment.

The impact assessment focuses exclusively on sustainability in land use and the sourcing of timber. It does not consider the other externalities of the possible impacts on the wider timber production sector in the UK. Will the Minister say whether there have been discussions, especially in the light of the forestry proposals recently brought forward? Will he also expand on the rationale for including fossil-fuel derivatives in the bioliquids in the eligibility for ROCs? Why would one include fossil-fuel derived products in biofuels and reward them with ROCs?

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.

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.

Committee adjourned at 6.08 pm.