Clause 36
Energy Bill
4:45 pm
Malcolm Wicks (Minister of State (Energy), Department for Business, Enterprise & Regulatory Reform; Croydon North, Labour)
I am grateful for the chance to talk about a part of the Bill that raises some issues, and to explain how we arrived at the formulation before us. We shall be talking about the renewables obligation at some length today, so I wish to provide the Committee with some brief background information about how it works.
The renewables obligation or RO requires licensed electricity suppliers to source a specific and annually increasing percentage of the electricity that they supply from renewable resources. The current level is 7.9 per cent. for 2007-08, increasing to 15.4 per cent. by 2015-16. It is expected that the obligation, together with exemption from the climate change levy for electricity from renewables, will provide support to industry of up to £1 billion per year by 2010. Suppliers will fulfil their obligation by presenting renewables obligation certificates, often known as ROCs, which are awarded by Ofgem to generators for renewable electricity. The generators then sell the ROCs either together with their electricity or separately. At present, all renewable generators are rewarded equally with one ROC per megawatt-hour.
The key reform in our proposed package of measures, which the Bill will give us powers to carry out, is the introduction of banding, so that technologies will be grouped and awarded with different numbers of ROCs per megawatt-hour. I am sure that we shall discuss the provision in more detail but, for now, I wish to focus on the amendment.
Amendment No. 24 would remove the power under proposed new section 32A(2)(d). The power is intended to enable the Secretary of State to require electricity suppliers in meeting their obligation to source a minimum proportion of their electricity from specified sources, descriptions of generating station or means of generation. It is necessary and should be retained. I want to describe first how the power is drafted and then deal with the concerns expressed over how it will be used.
Proposed new section 32A(2)(d) is a translation of an existing power. In reforming the RO under the new Energy Bill, we are repealing all the existing legislation and replacing it with proposed new sections 32 to 32M. I hope that that makes considering the entirety of the reformed RO legislation much easier. However, we have carried forward the existing legislation into the proposed new sections where the existing powers are still relevant. The subsection that we are considering now is one such case.
In the Electricity Act 1989, existing sections 32A(1)(b), (c) and (d) give the Secretary of State the flexibility to make provision so that only renewable electricity from certain forms of generation or renewable source can be used to satisfy the obligation. In other words, under the existing powers of the 1989 Act, the Secretary of State already has powers to focus the obligation on specific technologies or renewable sources if that is appropriate. To take a purely hypothetical example for illustration, he could use the power to require that a certain amount of the renewable electricity that electricity suppliers supply to meet their obligation must come from wave power.
Our challenge in creating the proposed new sections under consideration today is to ensure that the powers are translated so that they remain relevant to the new reformed RO, the changing renewables market and fast-developing renewables technologies. We have done that in two ways.
First, the references to the specified amounts of electricity counting towards the obligation need to be changed to reflect the fact that in future suppliers’ obligations will be expressed in numbers of ROCs, rather than the amount of electricity. The new provisions allow the Secretary of State, in an order, to specify that a number or proportion of the ROCs produced by an electricity supplier, in discharging the obligation, must be certificated in respect of certain types of generation.
Secondly, where the law previously allowed the Secretary of State to identify sources or descriptions of stations, we now need to be more flexible in order to take account of how technologies and ways of generating renewable electricity are developing and of how distinctions are becoming more subtle. Certainly, we need to do that in order to introduce banding. For instance, in the new RO we will make distinctions between on and offshore wind, energy crops and regular biomass, large and small installations, and so on. As we move forward, we might need to make further distinctions.
That is why we wish to allow scope for the Secretary of State to identify specific types of generation and to focus the obligation on them. That means that the power requires sufficient flexibility to allow him to pin down the types, sorts or means of generation, if any, that he wishes the RO to focus on. The references in proposed new subsection 32A(2)(c)(iii) and (iv) to
“specified ways, or...specified cases or circumstances”
provide us with that scope.
I hope that that explains how the new formulation of the power has been arrived at. Electricity companies want to know what it will be used for. I can confirm that it is not currently our intention to use it in order to focus the obligation so that suppliers would have to, for example, present a certain number of ROCs in respect of a single renewable technology, such as wind power. To a large degree, we anticipate that banding will allow us to provide the correct level of support to different technologies. However, given that the move to banding in the development of new technologies will add complexity to the renewables picture, we cannot rule out wanting to consult on using the power to boost a particular renewable type of generation as our policy evolves in pursuit of challenging targets. We certainly recognise that, before 2020, we will need to do more to support renewables in a changing and more complex environment.