Renewables Obligation Order 2006

rose to move, That the Grand Committee do report to the House that it has considered the Renewables Obligation Order 2006 [17th Report from the Joint Committee and 24th Report from the Merits Committee]. The noble Lord said: The Government are bringing forward this order to make some changes to the renewables obligation. The Government regard the development of a range of renewable energy sources as a vital element in reducing carbon emissions and addressing climate change—and the renewables obligation is our key mechanism for achieving this development. The energy White Paper sets a goal to put ourselves on a path to cut the UK’s carbon dioxide emissions by 60 per cent by around 2050, with real progress by 2020. The Government have a clear target that 10 per cent of electricity should come from renewable sources by 2010. The renewables obligation encourages electricity suppliers to source an increasing proportion of power from renewable sources. It is already securing effective exploitation of wind resources—in 2005 we surpassed all records for installed new capacity. We are also seeing other new renewable generating capacity coming through, such as the 100 megawatt Glendoe large hydro scheme and the 44 megawatt dedicated biomass power station at Lockerbie. It is schemes such as this which, when built, will contribute to the challenge of tackling climate change. It is clear that the RO is working well and we want this to continue. The order is a result of a review of the RO which took place in 2005. This review made good a commitment set out in the energy White Paper to look at the obligation once it had been in place for three years. At the heart of this review has been our determination to maintain investor confidence in the obligation. We have not been looking to fundamentally change the RO but to ensure that it continues to work well by introducing changes to improve its effectiveness. These changes are, in the main, about the processes and administration of the RO. There are also changes which we hope will help deliver more renewable generation from biomass and mixed-waste fuels. Let me spend some time outlining each of the changes. As I have already mentioned, the order also makes some changes to the rules on biomass and energy from waste. Under current rules, it can be difficult for generators to demonstrate the purity of the fuel they are burning to the level required. At the moment this level is set at 98 per cent. In other words, fuel made of animal and plant matter can contain up to 2 per cent contamination. An example of such contamination could be the glue and paint contained in wood which has been used to make furniture in a kitchen. To allow a wider range of fuels to be eligible under the RO and prevent such material going into landfill, we propose to reduce the level of biomass contained in a fuel to 90 per cent. We also propose that RO eligibility be extended to include those mixed-waste generators which use combined heat and power. The reasoning behind this change is that CHP is more costly than electricity-only generation from wastes, but is a more energy-efficient use of fuel. This change will provide support only for the biomass element of waste fuel. I turn now to the administrative amendments and simplifications in the order. First, with regard to the introduction of a pre-accreditation procedure for generating stations which have not yet been commissioned, this amendment is intended to provide developers with certainty that a project will be eligible for support under the RO once built. Without this certainty, development and financing of new renewable projects can be difficult. The second change to the administrative process is to provide Ofgem with increased flexibility when dealing with ROC claims. Current rules prevent Ofgem using discretion when dealing with the issuing of ROCs for late claims or claims based on erroneous data. This can result in incorrect numbers of ROCs being issued, or in some cases their not being issued at all. Providing Ofgem with increased flexibility will allow a more common-sense approach to be applied in these situations. The third and fourth changes are about simplifying the measurement of fuels—a reduction in the amount of sample data which biomass generators have to submit to Ofgem each month, and a clarification to the legislation to make it clear that offsite measurement is acceptable. For both these changes, Ofgem would need to be satisfied of certain conditions for a generator to be issued with ROCs, and guidance on the changes is being developed through the DTI/Ofgem Biomass Fuels Working Group. The fifth change will alter the timing of the compliance process which suppliers have to go through each year. The compliance process will now start a month sooner. This will reduce the time between the end of an obligation period and the recycling of the buyout fund. The benefits of this are twofold—cash flow to ROC holders will increase, while there will also be a decrease in the risk of supplier default impacting on the size of the buyout fund. The sixth change will increase transparency in the ROC market. It places a requirement on Ofgem to publish figures on ROCs claimed by generators but not yet issued. This increased transparency will allow market participants to take into account delays in ROC issue which can sometimes occur. Finally, there are two minor technical changes. First, generators will be allowed to confirm annually rather than monthly that renewables electricity on which ROCs are claimed has been supplied to customers in the UK. Secondly, there will be a change to close a potential loophole relating to the claiming of ROCs in relation to the use of hydrogen from renewable sources. I recognise that these administrative changes are quite complex in places, and I reassure noble Lords that they have been fully consulted on and enjoy the support of the renewables industry. Noble Lords will be aware that this order was debated in the other place at the beginning of the month. During that debate, my honourable friend the Minister for Energy announced that as part of the ongoing energy review, the Government will revisit the rules on co-firing set out in the renewables obligation. I will not dwell on this matter as it is not part of the changes we are discussing today, but I think it sensible to be clear that we are not ignoring concerns which have been raised and that we will consider whether any revision of the co-firing rules is appropriate. As we are briefly touching on issues outside the order, I would also like to mention an issue that was consulted on as part of the review of the obligation but is not being taken forward in the 2006 order. I refer to whether allowing easier access to the level of obligations by small generators is appropriate. A number of proposals were examined as part of the review, all of which received wide support from industry. These changes, however, require primary legislation before they can be put into the order. We are hoping to make these changes through the Climate Change and Sustainable Energy Bill and have introduced government amendments to that effect. I beg to move. Moved, That the Grand Committee do report to the House that it has considered the Renewables Obligation Order 2006 [17th Report from the Joint Committee and 24th Report from the Merits Committee].—(Lord McKenzie of Luton.)