Renewables Obligation (Amendment) Order 2018 — House of Lords, 2018-07-09
Topic: Energy
Oliver Michael Robert Eden (Conservative, Centre-right): My Lords, this draft instrument seeks to amend the Renewables Obligation Order 2015, which provides the framework for the operation of the renewables obligation scheme in England and Wales. The purpose of this draft instrument is to control the costs to consumers of supporting new large-scale generation from two types of generating station: biomass conversion stations and co-firing stations. Biomass conversion stations are former coal plants converted to run wholly on biomass. Co-firing stations run on a mixture of coal and biomass The renewables obligation scheme has been the main financial mechanism to incentivise large-scale renewable electricity generation in the UK. It is now closed to new biomass co-firing and conversion projects, but existing projects will continue to receive support up to 2027. The scheme does not provide direct cash payments to renewable generators. Instead, it operates through a system of tradable renewables obligation certificates. Ofgem issues renewables obligation certificates to generators in relation to the renewable electricity they generate. Generators sell these certificates as tradable commodities An annual obligation is placed on electricity suppliers to present a certain number of these certificates to Ofgem, the scheme’s administrator, in respect of each megawatt hour of electricity they supply to consumers. It is assumed that the cost to suppliers of complying is passed on to consumers through their energy bills. The renewables obligation scheme has been highly successful, with over 25,000 stations across the UK, and generation equivalent to 22% of the UK electricity supply market. However, the Government are committed to keeping energy bills as low as possible for consumers Biomass co-firing and conversion generating stations have an important transitional role in decarbonising the electricity grid and can generate at high levels more or less continuously. However, stations accredited under the renewables obligation scheme can increase the amount of biomass they use quickly, and without any prior notification. This could significantly increase support costs. The Government acted in 2014 to discourage deployment of new generating capacity by removing grandfathering for certain co-firing and biomass conversion generating stations. Grandfathering gives guarantees of support, but despite these changes, evidence in 2017 suggested that significant unforecast generation was still likely. Without intervention, we estimate that the additional spend under the renewables obligation would increase average household bills by up to £2 a year. Business users with low electricity consumption would see increases of up to £140 a year, and the bills of energy-intensive industrial users would increase by up to £53,000 a year To control these costs, this draft instrument applies annual caps on the number of renewables obligation certificates that certain stations or units can receive. Capped stations are not protected by grandfathering policy. The number of certificates these stations can receive in each obligation year will be capped at 125,000 certificates for each combustion unit of which the station is comprised. Mixed generating stations combine capped units and exempt units which continue to benefit from grandfathered support. The total cap for the station will be an estimate of the number of certificates likely to be issued for generation by the exempt units during the obligation year, plus an allowance of 125,000 certificates for each of the station’s capped units The instrument also makes technical changes unconnected to biomass conversions and co-firing. First, it brings certain combined heat and power stations into line with an existing requirement to provide a declaration that subsidy will not be claimed under another support scheme. Secondly, it clarifies that existing greenhouse gas trajectories in the 2015 order apply equally to electricity-only dedicated biomass stations and to those with combined heat and power. Lastly, it corrects some minor typographical errors In conclusion, the Government are committed to keeping energy bills as low as possible for consumers, while cutting greenhouse gas emissions and supporting economic growth. The flexible-cap mechanism implemented through this order balances the interests of generators and consumers. Stations will be able to optimise generation across their units. If generators decide to maximise output at their exempt, grandfathered units, there will be no restriction on the number of certificates for those units, provided the capped units remain within their allowance. This flexibility will allow units to generate more when electricity demand is highest. The cap protects consumers by limiting the number of certificates that will be issued. The size of the obligation for electricity suppliers is set each year, based on the number of certificates expected to be issued. The obligation for this year takes account of expected generation under the caps. Future obligations will do the same. The caps will not cause a shortage of certificates, nor a rise in their value. I commend this order to the House.