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Renewables Obligation (Amendment) Order 2014

Volume 753: debated on Monday 17 March 2014

Motion to Consider

Moved by

That the Grand Committee do consider the Renewables Obligation (Amendment) Order 2014.

Relevant documents: 22nd Report from the Joint Committee on Statutory Instruments, 34th Report from the Secondary Legislation Scrutiny Committee

My Lords, the renewables obligation is the Government’s main mechanism for supporting renewables electricity generation in the UK. The obligation has been the subject of previous change, the most significant being the introduction of banding of support for different technologies in 2009.

The changes that I put before the Committee today are less radical. They are about offering renewable electricity generators a choice between support under the renewables obligation and the contract for difference, while protecting consumers by ensuring that no generation can receive support from two schemes at once. They are about strengthening the sustainability reporting requirements for biomass used for electricity generation.

The order introduces changes in two main areas: the transition away from the renewables obligation to the new contract for difference, and the move to greater carbon savings and increased sustainability of the biomass used. As noble Lords will be aware, the Government expect the new contract for difference to open for applications this autumn, subject to parliamentary assent and state aid approval. The renewables obligation will remain open to applications until 31 March 2017 to allow for a period of transition in which eligible new renewable capacity will have a choice between the two support schemes. The renewables obligation will then run for a further 20 years to support the capacity already accredited within it.

The changes within this order set out a straightforward process for applications for the renewables obligation during the transition period, when both the renewables obligation and the contract for difference will be open for applications. Renewable generators will be required to choose which scheme to apply for, and will declare as part of their application that they are not also applying for the alternative scheme. This declaration will be subject to checks through data sharing between Ofgem and the National Grid as the contract for difference delivery body.

Once a generator has applied for a scheme for a particular generating station or generating capacity, they will then not be able to withdraw that application and apply for the other scheme instead. However, if the application fails for any reason, the generator will then be able to apply for the other scheme. This process involves minimal administrative burden on both the generator and the scheme administrators, while giving consumers and the Government assurance that no capacity will be supported through both schemes.

This choice of scheme is open not only to new renewable generating stations but to additional capacity at existing stations where that capacity is more than 5 megawatts. Generators will also be able to apply for a contract for difference for additional capacity of this sort after the renewables obligation closure date.

These provisions ensure that generating stations already within the renewables obligation which have the opportunity to expand are able to do so, making efficient use of existing generating resources. For similar reasons, biomass and offshore wind stations accredited within the renewables obligation will also have the opportunity to enter some capacity into a contract for difference under certain circumstances.

The dual scheme facilities which result, with some capacity supported by the renewables obligation and some by a contract for difference, will be required to meter electricity generation and measure fuel usage separately under each scheme. Again, Ofgem and the contract for difference counterparty will work closely together to ensure that only the generation from capacity within each scheme will receive support under that scheme.

The Government will lay further statutory instruments before noble Lords in coming months to take forward other aspects of transition policy. These include a renewables obligation closure order, which will set the date of closure of the renewables obligation to new capacity and implement grace periods for that closure date. These grace periods have been developed partly in response to concerns raised by noble Lords during Energy Bill debates last year and are key to investor confidence during the transition period.

In addition, the Government intend to lay a consolidated version of the renewables obligation order before the House later on in the year, implementing some final elements of transition policy relating to biomass conversions and to the capacity market.

The Government are committed to achieving sustainable, low-carbon bioenergy deployment. The use of effective sustainability criteria forms a key part of the Government’s approach and is essential for the public acceptability of biomass.

The order strengthens the reporting requirements and introduces audit requirements for solid biomass under the renewables obligation. This will enable generators to familiarise themselves with the sustainability criteria and put appropriate compliance systems in place ahead of the Government’s intended introduction of mandatory sustainability standards in 2015.

Those changes will encourage the use of biomass that delivers genuine greenhouse gas emissions savings compared with fossil fuel use and is sourced from land that is sustainably managed, not from land with a high biodiversity value or carbon stocks. The main changes to the biomass sustainability criteria introduced within the order include reporting against a tighter minimum greenhouse gas emissions savings target for new dedicated biomass generating stations and preventing larger generating stations making use of the various default values for greenhouse gas emissions from solid biomass. In future, stations producing more than 1 megawatt will have to report actual values, and we encourage the use of the greenhouse gas calculation tool made available by Ofgem.

The order also introduces new sustainable forest management criteria for virgin woodfuel based on Defra’s UK timber procurement policy, UK-TPP, for central government. The current land criteria were designed with sustainable agriculture in mind, rather than forests. The UK timber procurement policy draws on established sustainable forest certification schemes that cover a range of environmental and economic issues relating to forests.

The forest management criteria also provide for bespoke evidence to be provided by generators to demonstrate compliance where forests are not certified by a recognised scheme. The land criteria for biomass that is not wood will remain in line with the land criteria set out in the EU renewable energy directive.

The order introduces new reporting requirements to provide greater detail about any non-waste wood that is used and where it has come from. This includes the name of the forest, the species of wood and the forest or land management practices that were used. There are also new reporting requirements on the previous use of land in the case of energy crops and the standardisation of the units that are used to report the volume and mass of the biomass.

The order will bring in a new audit requirement for generating stations over 1 megawatt that use solid biomass or biogas. This is based on the audit requirement that already applies to generating stations using bioliquids. It provides for an independent assessment of these stations’ performances against the sustainability criteria. The audit requirements have been brought more closely in line with similar requirements applying to transport biofuels under the renewable transport fuels obligation to provide greater consistency across schemes.

There are a number of exceptions from the reporting requirements and from the sustainability criteria for biomass fuels such as municipal waste, landfill gas, sewage gas and manure. That reflects their lower sustainability risks. Our intention is that the contracts for difference awarded under the first delivery plan period for bioenergy will follow the same approach as the sustainability standards set under the renewables obligation. Our aim is to ensure that bioenergy offers a genuine reduction in greenhouse gas emissions, that this reduction is cost effective, and that the biomass is produced sustainably and contributes both to our renewables target and to ensuring energy security.

Our sustainability criteria have taken into consideration the European Commission’s recommendations in its 2010 report. However, our approach departs from the Commission’s report in areas where we recognise the need for more robust sustainability criteria to help us to deliver our UK policy priorities of maximising the carbon savings from bioenergy, minimising the environmental risks and making best use of the biomass resource available, both for energy and non-energy purposes. Being robust also means being mindful of the need to develop criteria which are realistic, measurable and deliverable.

I understand that an order has been laid before the Scottish Parliament which introduces similar changes to the renewables obligation in Scotland on both biomass sustainability and transition. I also understand that the Northern Ireland Executive will bring forward an order introducing changes on biomass sustainability later on, as the contracts for difference will not be introduced in Northern Ireland until 2016.

I am sure that all noble Lords will appreciate the value and importance of offering a choice of scheme to the renewables industry during this important period of transition towards the contract for difference, and I therefore commend this order to the House.

My Lords, I will be very brief. In general, I welcome this order and thank the Minister for presenting it to us so well.

I want to delve into the question of the sustainability aspect, and how that ties in with European regulations. I note that on page 7 of the impact assessment, at the bottom of paragraph 4, it says,

“The EU mandated the sustainability criteria to be used for bioliquids and transport biofuels under the Renewable Energy Directive. However, the EU left the introduction of sustainability criteria for solid biomass and biogas used for electricity and heat to the discretion of each member state, subject to compliance with EU Treaty rules, such as the internal market”.

I would be interested to hear from the Minister, in very general terms, what other EU states are doing on sustainability. I would be interested to understand in particular whether, when power stations with biomass want to import biomass from another EU member state, we can insist—under the single market, which is mentioned there—that those products comply with UK standards as opposed to the originating EU state requirement.

My Lords, I declare an interest in various forms of energy as detailed in the register, including both coal and forestry. I welcome what the Minister said about improvements to the requirements on auditing, sustainability and reporting, but I draw her attention to a report in the Mail on Sunday last weekend on exactly where the fuel for Drax biomass is coming from in the Carolinas. It is clear that whole trees are being logged for that. I draw her attention also to a report that came out last month from the International Council on Clean Transportation, which stated:

“Consistent with earlier studies, we find that pathways based on whole-tree logging in forests offer little or no climate mitigation over 50 years. We also show that reduced impact logging does not deliver GHG savings within 50 years. These bioenergy feedstocks are not good candidates from a climate policy point of view”.

I would just continue the debate with those points.

My Lords, I am grateful to the Minister for introducing these changes to the RO. They cover two issues: the non-duplication of being able to receive funding through both the RO and CFDs, which seems eminently sensible and an important tidying-up. On the sustainability of biomass, this is obviously a complicated issue, but I say in response to the comments made by the noble Viscount, Lord Ridley, that we have to keep a sense of proportion about this. There is a danger that we start to confuse the CO2 emitted from the chimney of a biomass plant with the fossilised CO2 that comes from the burning of fossil fuels. One is a function of the flow of biospheric carbon, meaning that trees absorb carbon while they are growing and then emit it when they are burnt. This has been happening since man crawled out of a cave and is not of the order of magnitude that we see with the fossil-fuel impact, whereby one is taking carbon stored over many millennia and releasing it into the atmosphere. I am glad that the noble Viscount made reference to the article in the Mail on Sunday because there is a real danger that we are slipping into a misunderstanding whereby we equate CO2 from a chimney with adding to the stock in the atmosphere. That would be regrettable, because biomass does not contribute in the same way as fossil fuels.

However, we are of course keen that all biomass should be sustainable and I think that we all agree that its best use is probably not in power generation but in the generation of heat. Therefore, CHP plants and use of biomass in district and smaller-scale heating is probably the most sustainable use. We also face the great challenge of reducing the carbon intensity of our power sector. There are sustainable sources of biomass out there from well managed forestry. We have used forestry to a far greater extent for paper production. While that is decreasing, we are now seeing an increase in use for energy to displace fossil fuels. That cannot be something that we want to stop; it is something that we want to manage, with good, strong reporting. It creates livelihoods; it creates income. Management of forests is a well established form of economic activity and we should not seek to stop it.

It strikes me as slightly odd that the Minister should state that municipal waste has a lower sustainability impact, because much of the calorific content of municipal waste comes from plastics, which are obviously a fossil fuel. I am trying to avoid the singling-out of biomass for special treatment when other forms of energy are not perhaps treated in the same way. It is true that biomass should be under scrutiny because it is a less energy-dense form of material and its upstream emissions can therefore have a disproportionate impact, but it is also true that we do not add on the life-cycle emissions to gas—LNG, for example, has a different carbon intensity if taken on a whole well-to-wheel basis from natural gas or fracked gas. We do not load our normal carbon accounting to those fuels, yet we do with biomass. I am arguing in favour of proportion and trying to get the balance right.

This is especially important in the UK as we consider how we are to meet our targets at 2020. I am sure that the demise of a couple of high-profile biomass projects—the Eggborough project and the REA’s dedicated biomass project—will not have escaped the Minister’s attention, both signalling that they are no longer seeking to pursue renewable options. That raises questions, because it means that we might be more reliant on more expensive forms of renewable power. It would be regrettable if that were the outcome: that an overzealous approach to biomass forces us into ever more expensive options. With offshore wind, we have the added cost of having to make sure that we have security of supply and back-up. Biomass has at least one very strong benefit, and that is its firm power. It can be stored, it is reliable and it will be there when the wind is not blowing and the sun is not shining. As I said at the beginning, we are keen that all biomass is sustainable, so we welcome the proposals. It is all about getting the proportion right and treating biomass fairly, relative to other sources.

I want to raise just one other issue. The noble Baroness referred to the fact that we have further changes to the RO coming forward. I have had representation from the Low Carbon Finance Investment Group that DECC has recently raised the possibility of introducing competition into the RO and that, in line with the desire to move towards competitive auctions in the CFD, it was mooted that we might require some form of competition in the RO. This would be a significant change and not one that would be welcomed, because it would almost certainly be retroactive in its application.

Therefore, I would like some reassurance from the noble Baroness that, although it has been put out that we might seek to do this to the RO, this is not the case. I am sure that it would significantly change the way in which the instrument operates to its detriment. Those are the comments that we see. This is an order that we welcome because it is tidying up, but it raises some concerns and I hope that the Minister will be able to make some reassuring statements.

Before the noble Baroness sits down, I may have misunderstood what she said, but as far as an infrared beam is concerned, is there really a difference between a carbon dioxide molecule that came from burnt gas and one that came from burnt wood?

No, absolutely not. It is about the flow, compared to the stock. I am sure that CO2 values differ throughout the year and a large part of that depends on how much foliage we have. CO2 is not permanently in the atmosphere, it is sucked in and out, depending on the atmosphere and the biosphere and how those interrelate. What we are doing with fossil fuel, as noble Lords will know, is extracting carbon that was once stored and releasing it very rapidly into the atmosphere, which is changing its composition. Concentrations in the atmosphere are now at record levels, touching 400 parts per million, and they have not been at that level for many hundreds of thousands of years.

My Lords, I am grateful for the support of all noble Lords—my noble friends and the noble Baroness—for the changes that we are making. A couple of questions have been raised that I will endeavour to answer quickly. My noble friend Lord Teverson asked if other member states were doing similar things, in line with our standards. We are aware that the Netherlands, Denmark and Germany are introducing their own criteria, but imports from the EU would be required to meet our standards here. We propose to notify these standards under the technical standards directive to ensure that we can insist that fuels used under the renewables obligation meet our standards. I think that should reassure my noble friend that we are maintaining our standards.

My noble friend Lord Ridley mentioned the Mail on Sunday article. Unfortunately I did not read it but will take my noble friend’s word about its content and the argument that biomass is dirtier than coal. We need to reflect that in all the debates we are having around bioenergy—biogas and alternative sources of fuel. We need to ensure that we work towards a cleaner availability of fuel. There will be debates either way, and we need to discuss it fully and properly.

It is absolutely right that there are questions still to be answered and which need a proper and thorough debate. I am sure noble Lords are all up for that debate but would say to my noble friend that the argument that biomass is dirtier than coal is only based on the model assumption that all wood removed from the forest, including the high-value, high-quality sawlogs used in energy, does not make it any dirtier. Perhaps that is a debate for another day.

The noble Baroness, Lady Worthington, asked about early RO closure and competition. My notes say that no decisions have been taken on any changes to the RO, and the Government would obviously seek to protect companies that have made significant financial commitments from the impact of any changes. However, we will have consultations on this and will invite comment on whether and how to make any changes that might affect stakeholders. I am sure we will reflect on that and then respond on that basis.

I thank noble Lords for their contributions. I will read Hansard very carefully tomorrow because we go into the extreme of technicality when I discuss anything like this with the noble Baroness, Lady Worthington. If there is anything outstanding, I of course pledge to write to all noble Lords. I think that we are seeing two very important changes today, the first on transition and the second regarding biomass, to encourage a greater delivery of carbon savings. On that note, I commend the order to the Committee.

Motion agreed.