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Renewables Obligation (Amendment) Order 2010

My Lords, the purpose of the order is to make some changes to the renewables obligation, encouraging a higher level of renewable generation and providing increased support for offshore wind. Decarbonising our energy system is more important than ever. By 2020 we want to be firmly on track towards achieving our commitment for an 80 per cent reduction in carbon emissions by 2050. Renewable energy from water, wind, sun and sustainable biomass will play a crucial role in making that happen and be vital for our energy security in years to come. That is why the Government have been instrumental in pushing for effective and binding EU targets, and have published a UK action plan for achieving our legally binding target of sourcing 15 per cent of our total energy from renewables by 2020. We will need radically to increase our use of renewable electricity, heat and transport to meet that challenging target, and large-scale electricity generation will have to play a central role. The renewables obligation is the Government's main mechanism for supporting the generation of renewable electricity in the United Kingdom. The order builds on what has been achieved thus far and will help to drive forward the additional generation necessary to meet our share of the target. Since its introduction in 2002, the RO has incentivised significant amounts of eligible renewable electricity. In 2008-09 there were 5,100 stations accredited under the RO, generating 19 terawatt hours. We have seen the amount of onshore wind electricity more than double since April 2006, delivering 6.2 terawatt hours. For the first time, more electricity has been generated by offshore wind sites in England than was generated by onshore wind. But we now need it to deliver even more. The changes that we are introducing apply to England and Wales. Scotland and Northern Ireland are bringing in complementary orders which will work together to create a United Kingdom renewables obligation. Perhaps the most significant change, and perhaps the most welcome, is the increase in the level of support from 1.5 renewables obligation certificates per megawatt hour to two ROCs per megawatt hour for offshore wind stations for capacity accredited between 1 April 2010 and 31 March 2014. That increased support will apply to the whole station accredited within the period or to all the additional capacity accredited in the period. It therefore includes any turbines that form part of the station or the additional capacity, even if some of those turbines are yet to be installed. Offshore wind is an important technology for the United Kingdom and is expected to play a vital role in meeting our renewable energy targets. We are now number one in the world for offshore wind. It is crucial that we maintain the momentum and ensure that investment is attracted to the UK. We have worked closely with industry in developing the change. After commissioning a study into the costs of offshore wind and extensive consultation, we are confident that projects will now receive the right level of support to proceed. In accordance with our grandfathering policy we intend that, once a station or additional capacity qualifies for the two ROCs, the electricity that it generates should remain eligible for that level of support for 20 years from the date of accreditation, subject to the 2037 end date. The order also allows us to take the steps to give investors the long-term certainty necessary to incentivise them to invest in new generation up to 2020. As announced in the Pre-Budget Report, the extension of the lifetime of the renewables obligation by 10 years to 2037 will ensure that projects in technologies such as marine and round 3 offshore wind, due to come online from 2017, will be able to benefit from RO support. However, in light of that extension, we are mindful of the need to avoid overcompensation and ensure value for money to the consumer, so we have limited support to a maximum of 20 years. This will apply to stations that receive full accreditation on or after 26 June 2008, which will receive support for 20 years or until 2037, whichever is the sooner. A further period of 20 years' support will apply when capacity is added to any generating station—again subject to the 2037 end date. As is currently the case under the Renewables Obligation Order 2009, generating stations accredited before 26 June 2008 will continue to receive support until 31 March 2027. In order to allow renewable electricity generation to grow as much as possible, we have also removed the 20 per cent cap on the size of the obligation, and increased the level of headroom—that is, the set margin between predicted demand and supply of ROCs—from 8 per cent to 10 per cent from the 2011-12 obligation period, to ensure the stability of the market for renewables obligation certificates. This increase in the level of headroom builds on our commitment to making the ROC price more stable and predictable. This not only provides greater certainty to investors but helps to ensure that in future years the consumer is not paying more than required to bring on this renewables generation. Given the current economic climate, I am sure that noble Lords will agree that these considerations are extremely important. Over the past few years we have introduced a number of changes to the RO in order to make it easier and more attractive for microgenerators to join the scheme. Despite these however, we recognise that it remains better suited to professionals in the energy sector. The Government are therefore introducing a feed-in tariffs—FITs—scheme from 1 April this year to support the generation of low-carbon electricity by small-scale projects up to a maximum of 5 megawatts. Offering a fixed level of reward for each unit of electricity generated should provide the simplicity and certainty required to encourage households and communities to generate their own electricity from low-carbon sources. In anticipation of the FITs scheme coming into force, the order removes from the RO all microgenerators in the technologies that will be eligible to claim FITs, so that they can join the new scheme from its start. As FITs will be a more appropriate support scheme at the microgeneration scale, we intend for it to replace the RO completely in providing support for generators up to 50 kilowatts in anaerobic digestion, hydro, solar photovoltaic and wind power. Microgenerators in other technologies will of course remain eligible to receive support through the RO. It is a slightly different story at the small scale—covering generators above 50 kilowatts and up to 5 megawatts in capacity—because the appropriateness of either the RO or FITs will depend on the circumstances and preferences of the individual generator. That is why small generators who joined the RO on or after 15 July 2009 and before the FITs scheme comes into force will be able to elect to transfer to FITs during a defined period. Small generators who had already joined the RO before 15 July 2009 will remain in the RO, and new small generators at this scale after the FITs scheme comes into force will need to make a one-off choice as to which of the two schemes they wish to join. We are making a few small technical and administrative changes to the order to improve the way the RO works. For example, we have clarified when ROCs can and cannot be issued and revoked, and excluded landfill and sewage gas from sustainability reporting, because we do not believe that any value is added in requiring reports for those sources. We have consulted extensively on these changes, which have been warmly welcomed by the renewables industry. However, I must point out that—as with previous renewables obligation orders—we have notified the European Commission about the amendments that we intend to make to the RO for state aids purposes, and we are awaiting its response. We intend that the order will come into force on 1 April. The changes that I have presented to the Committee put us on a firm path to developing our renewable electricity industry, which will be vital for decarbonising our energy supplies. I commend the order to the Committee.