New Clause 29 - Simplification of Renewable Energy Certificates for microgeneration

Climate Change and Sustainable Energy Bill – in a Public Bill Committee at 4:45 pm on 28 February 2006.

Alert me about debates like this

‘For the purposes of enabling individuals installing microgeneration equipment to obtain access at minimum cost and administrative burden to Renewable Energy Certificates, the Electricity Act 1989 (c. 29) shall be amended as follows—

(a)in section 32 (3) (a), for the words “generated by” substitute “generated or deemed to be generated by”,

(b)in section 32A (1) (b), for the words “generated using” substitute “generated or deemed to be generated using”,

(c)in section 32A (1) (c), for the words “generated by” substitute “generated or deemed to be generated by”,

(d)in section 32A (1) (d), for the words “generated as” substitute “generated or deemed to be generated as”,

(e)in section 32A (1) (g), for the words “generated by” substitute “generated or deemed to be generated by”,

(f)in section 32B (2) (a), for the words “has generated” substitute “has generated or is deemed to have generated”, and

(g)in section 32B, at end insert—“(4) An order under section 32 may specify the conditions under which a certificate issued under subsection (2) may certify that a generating station is deemed to have generated an amount of electricity from renewable sources.”.’.—[Mark Lazarowicz.]

Brought up, and read the First time.

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith

I beg to move, That the clause be read a Second time.

Photo of Joe Benton Joe Benton Labour, Bootle

With this it will be convenient to discuss the following: Government new clause 35—Renewables obligation: issue of green certificates.

Government new clause 36—Renewables obligation: issue of green certificates: further provisions.

Government amendment No. 37

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith

New clause 29 deals primarily with the simplification of renewable energy certificates for microgeneration. I am aware that in due course the Government will make suggestions to simplify the so-called sale and buy-back agreements—or indeed to remove the need for them in appropriate circumstances—and to allow for what is called amalgamation, effectively pooling a number of individual microgenerating units so that they can be treated as one rather than requiring each to be considered separately.

It has been pointed out to me by those in the industry who are concerned with the issue that such proposals will still not remove some fairly onerous administrative provisions for those who wish to claim renewable energy certificates for microgeneration. For example, there is a requirement for an additional meter that must be read each year, and the meter might not be the responsibility of the supplier who provides the customer with the electricity that they purchase. That drives the need for two meter readings, both of which must be processed, thereby increasing the transaction cost.

I am also told that for some reason there is a requirement that the renewables obligation certificate meter must be read within an 11-day period that most frequently happens to fall during the school holidays, which does not assist people who want easy access to the renewables obligation certificate meter. It has been suggested that the approach should be to allow instead a proper product and installation standard-based approach, whereby the technology type is tested and fitted to an approved standard. Based on that assessment of the type, it would be possible to assess what renewables obligation certificate should be granted in the case of the consumer in question. That would greatly reduce the transaction costs to which I have referred.

The new clause would not require the Government to introduce the type approvals system; it would merely remove a legislative block preventing the introduction of such approvals without new primary legislation. Those who want to see that change accept that the proposal needs more work, and my new clause  is therefore essentially a probing amendment to ask the Government to consider how best to move towards allowing type approval for renewables obligation certificates. If type approval were allowed, it would certainly assist the take-up of microgeneration by domestic and small-scale consumers.

Photo of Gregory Barker Gregory Barker Shadow Spokesperson (Environment, Food and Rural Affairs)

I shall speak to new clauses 29, 35 and 36. We know that the Government intend to table their own amendments on removing the need for sale and buy-back agreements and allowing for so-called amalgamation, effectively pooling together a number of individual generating units so that they can all be treated as one.

Such proposals, however, would still not remove some fairly onerous administrative provisions for those wishing to claim ROCs. For example, there is a requirement for an additional meter, which must be read each year. Moreover, that meter might not be the responsibility of the supplier who provides the customer with the electricity that they purchase. That drives the need for two meter readings, both of which must be processed, which arguably doubles the transaction costs. There is also currently a requirement for the ROC meter to be read within an 11-day window bang in the middle of the Easter school holidays. In addition, the rounding feature for ROCs means that any output between 500 kW of annual energy and 1,499 kW is the same: it is rounded to one ROC.

We believe that the solution is to allow a proper product and installation standard-based approach, whereby each technology type is tested and fitted to an approved standard and appropriate random checks are applied. On that basis, a matrix of product installation types can establish whether a particular installation deserves one or two ROCs each year. The supplier can then redeem that number of ROCs for the duration of the microgenerator’s operation. That completely avoids all the transaction costs that were referred to earlier—and if the process in Whitehall is expensive, it must be incredibly expensive to carry out the process that I have outlined.

The final point is that we are not at this stage asking the Government to introduce such a system of type approvals; we are merely asking them to remove a legislative block that would prevent its ever being introduced without primary legislation. I entirely accept that there is much more work to do on this matter, the detail of which, with the proposed primary legislative change, could be dealt with through the renewables obligation order. That may never happen if the Government choose otherwise.

We need to have the relevant discussion over the next year or so, before a decision is made, but we do not want to have to start the primary legislation process all over again simply to remove a block and then have to go through the secondary legislation route as well. Surely it is a much better and more efficient use of parliamentary time to get the first blockage removed now, while the opportunity exists, without prejudice to the question whether the matter will be seen through in secondary legislation.

With respect to new clauses 35 and 36, the Government came forward in 2005, as part of a review of the renewables obligation, with three proposals on small generators: first, allowing agents to act on behalf of small generators through the process of accreditation in claiming ROCs and allowing them to be issued to agents; secondly, allowing agents to amalgamate the output of small generators; thirdly, removing the requirement for a sale and buy-back agreement for generators who generate electricity for their own use.

There was strong support for those proposals during the review consultation. The changes should be non-controversial and, I hope, enjoy cross-party support. The Bill introduces enabling powers so that the renewables obligation order can be amended to allow for the proposals. There should be consultation on the detail of the proposals prior to the amendment of the renewables obligation order. Subject to primary legislation receiving parliamentary approval, it is intended that those changes will be made to the order from 1 April 2007.

In the context of the renewables obligation, small generators are defined as those with a declared net capacity of 50 kW or less. It is essential to allow agents to act on behalf of small generators and to amalgamate output. Currently, agents are not allowed to act on behalf of small generators, which means that small generators must complete the required administrative arrangements such as gaining accreditation and claiming ROCs themselves. Also, ROCs could be issued to agents who could then sell them on on behalf of a generator instead of issued directly to the generator, who would have to sell them on. For small generators, those administrative processes can be burdensome, particularly when generating electricity and claiming ROCs are not part of their core business. If we are really going to give microgeneration a jump start, we must deal with not only the financial incentives but the administrative burden.

It is likely that generators who are currently able to claim only very small numbers of ROCs in a year may be put off by the administrative burdens involved in achieving a small benefit gain. In particular, the proposed change will help generators whose output is very low, who would not normally be in a position to claim few if any ROCs. We hope that such an amendment will allow a market for agents to emerge—agents who are familiar with the process of accrediting renewable stations and claiming ROCs, and who can achieve economies of scale by acting for large numbers of small generators.

In this way we hope that in future small generators can gain the benefits of the renewables obligation without the current administrative burden. That would be greatly in the spirit of co-operation. However, there would be no requirement for small generators to use an agent if they did not wish to do so. Those who wanted to act for themselves would be perfectly entitled to continue to do so.

The removal of sale and buy-back agreements for small generators is also important. The renewables obligation defines the obligation in terms of the supply  of electricity to customers in Great Britain. As a result, there is a requirement that generators that consume their own electricity must first sell it to a supplier, before buying it back for their own consumption. The removal of that requirement for small generators would simplify their administrative arrangements. In addition, they need to obtain a sale and buy-back agreement, which acts as a barrier to some small generators in claiming renewables obligation certificates or establishing stations. The proposals would give us the power to remove that barrier as well as enable small generators to sell surplus electricity that they do not consume—to a private wire network, for example.

Such issues are technical and administrative, and I am largely persuaded that if we are really to encourage microgeneration, there is a great case for a wholesale review of the process. However, what is proposed would be a very good start, and given the context of this Bill and what we are able to do at this point in time, I hope that the Minister will take the new clauses on board.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry 5:00, 28 February 2006

The Government are keen to amend the renewables obligation to ensure that microgenerators can more easily access the benefits that they deserve. I shall speak later to the amendments that I have tabled to achieve just that. I have some concerns about new clause 29, however, which was tabled by my hon. Friend the Member for Edinburgh, North and Leith, and the reputational risk that it could have for the smooth functioning of the renewables obligation.

The new clause would allow the obligation order to be amended so that microgenerating equipment could be “deemed”—that is the crucial word—to have generated a certain amount of electricity each year. The effect would be to remove the need for microgenerators to demonstrate that electricity has indeed been produced. Evidence of renewable generation is a fundamental requirement to take advantage of the significant benefits of the renewables obligation. The generating equipment may well have been type-approved and in certain circumstances generate at a certain level, but that is not a guarantee that it will be properly installed or that when it breaks it will be fixed. Nor do those factors take into account the siting of the equipment, so there would be less incentive on the owner to install their equipment in the best location.

The support provided by the renewables obligation to the renewable sector is of course significant, but I do not wish to put at risk the credibility of the system by providing further support without clear evidence that renewable generation has taken place. Such a situation would reflect badly not only on the microgeneration sector, but on the integrity of the obligation itself, and I want to avoid that.

I understand the arguments that the proposals would reduce the administration involved in a small generator’s having to take meter readings, and that increasing the certainty of income from renewable obligation certificates—ROCs, as they are known—would improve incentives for microgeneration.  However, it is important to note that since the obligation’s introduction in 2002, the Government have taken measures to provide better access to its benefits, including an amendment to the legislation that allows small generators the choice between making monthly or annual claims for the ROCs. In the light of the comments that have been made, I place it on record that there is no compulsion to read the meters in the middle of the Easter holidays, although a point was made about that. There is more flexibility than some have suggested.

Those opting for annual claims simply have to provide Ofgem with a reading at the start and finish of an obligation period. They are also sent a reminder to do so by Ofgem about a month beforehand. I do not believe that that is an unreasonable burden. New clause 29 would also allow for the renewables obligation order to be amended so that generating stations could be deemed to have generated a certain amount of electricity each year. The power proposed is broad and general, rather than specific to microgenerating stations, but the intent of the proposal is clear. My concern remains the same: removing the need for generating stations to demonstrate that renewable electricity has indeed been produced would take us further than we would wish to go.

The amendments to which I shall speak shortly will introduce further real benefits by allowing agents significantly to reduce administrative burdens for smaller generators and by removing the requirement for a sale and buy-back agreement with an electricity supplier. Those changes can reduce the requirement of a small generator to the simple provision of a meter reading once a year to claim the benefit of ROCs through an agent.

Sitting suspended for a Division in the House.

On resuming

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

I am sorry if I have delayed the Committee, Mr. Benton. There was some suggestion that there would be a second vote, but it did not transpire.

As I was about to say, I am happy to explore further the ideas that inspired the new clauses and, in particular, to assess the recommendations made by the distributed generation co-ordinating group. However, it would be sensible to undertake that further work before putting specific provisions in primary legislation, so I must oppose new clause 29.

I turn now to new clauses 35 and 36 and amendment No. 37. Hon. Members who are familiar with the renewables obligation will be aware that it is a fairly complex measure, as the provisions before us demonstrate. I believe that the policy behind them, though, is a simple one. New clause 35 would provide  an enabling power to allow the Renewables Obligation Order 2002 to be amended in a way that would bring significant benefits to generators.

The changes would allow agents to act on behalf of small generators through the process of accreditation and claiming of ROCs. They would allow ROCs to be issued to agents and would allow agents to amalgamate the output of small generators. They would remove the requirement for a sell and buy-back agreement for small generators who consume some or all of their generation. During 2005, a review of the renewables obligation took place that involved two consultations on various issues, including those that I have outlined, and there was strong support for the proposals, not just among generators, but among electricity suppliers.

Allowing agents to act on behalf of small generators, not just in the accreditation process, but in the claiming and issuing of ROCs, would remove a level of administration that we know can be a burden. The additional change of allowing agents to amalgamate output would allow small generators to benefit from the renewables obligation by joining forces with others in the same boat, when previously they may not have generated enough to make claiming ROCs worth while. Currently, many individual small claims for ROCs are required, but in the future it would be possible for agents simply to submit one large claim—a significant reduction in administration for all concerned. There is also an opportunity for a market to emerge in agents who would have the expertise to gain the most benefit from the obligation, particularly through economies of scale.

It is important to note that we do not intend the use of agents to be compulsory. They would simply allow small generators to have greater flexibility when accessing the benefits of the obligation. Any changes to the renewables obligation order would be subject to statutory consultation, and that is where the detail of the proposals would be addressed.

The removal of the sell and buy-back agreement is a little less self-explanatory. Under current legislation there is a requirement that if generators want to consume electricity that they have generated themselves, and claim ROCs, they must first sell the electricity to a supplier, before buying it back for their own consumption. It is clear that that is not only an administrative burden—indeed an administrative absurdity—for small generators, but could be a barrier to their making ROC claims or establishing generating stations.

The proposed provisions are for enabling powers to allow the renewables obligation order to be amended to remove the sell and buy-back requirements for smaller generators. They would also allow the order to be amended to make it easier for small generators to claim ROCs for electricity that they do not consume themselves, including where the electricity is sold within a private wire network. As with the proposals for agents, the removal of the sell and buy-back requirement will be subject to a statutory consultation which will set out the detail of the proposal.

I hope that the Committee agrees that the proposed provisions will make it significantly easier for microgenerators to gain the access to the benefit of the obligation that they deserve. New clause 36 contains a number of additional provisions relating to the operation of the renewables obligation, which will assist the effective working of the amendments introduced by new clause 35. Amendment No. 37 changes the long title of the Bill to take account of the fact that it will now include measures relating to the renewables obligation.

I therefore oppose new clause 29, and I urge acceptance of new clauses 35 and 36, and of amendment No. 37.

Photo of Mark Lazarowicz Mark Lazarowicz Labour, Edinburgh North and Leith 5:30, 28 February 2006

The Minister’s comments have convinced me, so I shall not press my proposals and I welcome the Government amendments—they represent a significant opportunity to extend microgeneration. It may be a technical area, but it is one that could make a real difference for many potential consumers by allowing them to take up microgeneration. That is warmly to be welcomed and I believe that it will soon make a significant impact on the industry.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.