My Lords, the renewables obligation—which I shall now refer to as the RO—is currently the Government’s main mechanism for supporting renewables electricity generation in the UK. In July 2011, as part of the electricity market reform White Paper, we confirmed our intention to close the RO to new generating capacity in 2017 and to make the transition to contracts for difference, or CFDs, as the new support mechanism for large-scale, low-carbon electricity generation.
The order is consistent with our overarching policy of transition towards CFDs with an aim of avoiding an investment hiatus. It introduces change in two main areas: setting the date of closure of the RO to new generating capacity, and the implementation of grace periods with respect to that closure date. The order sets the closure date of the RO as 31 March 2017. The closure date will not affect capacity that has been accredited under the RO before the closure date, and generating capacity will continue to receive its 20-year period of support under the RO or until 31 March 2037, whichever is the sooner.
Following the Committee’s earlier approval of the six EMR instruments, the Government expect CFDs, the new support mechanism for large-scale, low-carbon electricity generation, to open for applications in the autumn. From that point until 31 March 2017, any new eligible renewable generating stations will have a choice of entering either of these supported schemes. Renewables projects are generally large infrastructure projects which take several years to develop and construct. Like any large infrastructure project, they can be subject to construction delays. Some renewable projects, such as those using new or emerging technologies or those constructed in difficult environments, could be
at a much greater than average risk of delay. Others that are simply due to be completed close to the RO closure date may be deterred if factors beyond their control risk delaying them and stopping them getting support.
A two and a half year transition period may not be long enough to prevent a hiatus in investment in these kinds of projects. The order will therefore implement a number of exceptions to the closure date to cover projects against specified delay risks. These are clearly defined grace periods, and they will provide a set period of time after the closure date in which the projects benefiting from the grace period will be able to enter the RO.
The order provides the following grace periods: a 12-month grace period for projects of any technology delayed due to grid connection delays or due to delays to works on radar stations or radar equipment; a 12-month grace period for signatories of CFD investment contracts if the contract is later terminated due to reasons relating to state aid or due to changes made to the investment contract in the light of the standard CFD terms and conditions issued by the Secretary of State; and a 12-month grace period for advanced conversion technologies and offshore wind projects designed to give them sufficient assurance, in advance of full clarity on the CFD, to move forward towards final investment decisions on the basis of RO support. It also provides grace periods of 18 months for dedicated biomass projects, with or without combined heat and power; and an 18-month grace period for offshore wind generating stations in Scottish waters using test and demonstration wind turbines or floating wind turbines.
I hope that I have assured noble Lords that we appreciate the value and importance to industry of maintaining a clear and coherent RO scheme across the UK and the greater certainty it will bring to those looking to develop renewable projects in our overall transitional arrangements, and in a way that ensures value for consumers. The grace periods within the order are key to investor confidence and to the progress of renewable electricity projects due to complete construction in late 2016 and early 2017. I beg to move.
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