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EE/S3/11/R3

3rd Report, 2011 (Session 3)

Subordinate Legislation

Remit:

To consider and report on the Scottish economy, enterprise, energy, tourism and all other matters falling within the responsibility of the Cabinet Secretary for Finance and Sustainable Growth apart from those covered by the remits of the Transport, Infrastructure and Climate Change and the Local Government and Communities Committees.

Membership:

Ms Wendy Alexander
Gavin Brown
Rob Gibson (Deputy Convener)
Christopher Harvie
Marilyn Livingstone
Lewis Macdonald
Stuart McMillan
Iain Smith (Convener)

Committee Clerking Team:

Clerk to the Committee
Stephen Imrie

Senior Assistant Clerk
Joanna Hardy

Assistant Clerk
Diane Barr

Subordinate Legislation

The Committee reports to the Parliament as follows—

1. At its meeting on 2 March 2011, the Economy, Energy and Tourism Committee considered the following affirmative instrument—

The draft Renewables Obligation (Scotland) Amendment Order 2011.

2. The details of the draft amendment Order and the explanatory notes can be found on the website of the Office of Public Sector information.1

Background

3. The Renewables Obligation (Scotland) Order (ROS), an affirmative order, was first made in 2002 under powers in the Electricity Act 1989, which were executively devolved (as regards Scotland) to the Scottish Ministers. The Order imposes an obligation on electricity suppliers to provide an increasing percentage of their supply to customers in Scotland from qualifying renewable energy sources.

4. In line with the wishes of the energy sector subject to the Order and those affected by its provisions, the ROS was introduced in almost identical terms to the Renewables Obligation Order 2002 (the ROO), covering England and Wales, which also came into force on April 1, 2002. Following reviews of its operation and to accommodate the introduction of a number of changes, the ROS has been revised and replaced or amended each April from 2004 through to 2010. For example, the ROS was amended in 2007 to introduce a system providing higher levels of support to wave and tidal generation located in Scottish waters.

5. The UK Renewables Obligations work by awarding generators of electricity from eligible renewable sources a number of Renewable Obligation Certificates, or ROCs, for each MWh (megawatt hour) of electricity they generate. Following important changes introduced in April 2009, ROCs are awarded to renewable generators in different numbers or “bands”, depending on technology. The certificates are a marketable commodity, and are bought by licensed electricity suppliers.

6. The market for ROCs is created by imposing an annual and increasing obligation on licensed electricity suppliers to provide a number of ROCs. Suppliers can demonstrate compliance with their Obligation by providing Ofgem with either the requisite number of ROCs, or by paying the buyout price, or by a combination of the two methods. The buy-out price is a fixed sum payable to Ofgem in lieu of providing ROCs; payments thus made constitute the buy-out fund.

7. The monies paid into the buy-out fund are shared between those suppliers who have provided ROCs, and in proportion to the number of certificates they produce. This means that those suppliers who are unable to produce ROCs effectively reward their competitors, driving the market value of ROCs and thus providing income for renewable generators.

Background to the 2011 Amendment Order

8. The 2011 Amendment Order proposes a number of changes to the ROS. These comprise:

  • The introduction of phased support for offshore wind projects;

  • The introduction of mandatory reporting against greenhouse gas and land sustainability criteria for solid biomass and biogas;

  • The introduction of mandatory sustainability criteria for bioliquids in accordance with the EU Renewable Energy Directive; and

  • An amendment to the definitions of enhanced wave and tidal stream power.

9. The changes in respect of offshore wind recognise and are based on the length of time that it takes to manufacture, install and commission projects of this type and scale. Offshore wind generators will be able as a result to register numbers of turbines within a project in five separate phases, over a maximum period of five years.

10. The sustainability criteria for solid biomass and biogas electricity will result in mandatory reporting against specified criteria from April 2011 for all generators above a certain size. In addition to the mandatory sustainability for bioliquids, the Order also inserts a new definition for bioliquids derived from fossil fuel, and requires generators using bioliquid to provide sustainability audit reports.

11. The UK order also contains an additional change which extends to Scotland. It inserts a definition of "bioliquid" into the renewables part of the Electricity Act 1989, andexcludes bioliquids produced fromfossil fuels from the scope of the definition of fossil fuel. These necessary changes can only be made at Westminster, and the Scottish Government has agreed with the UK Department of Energy and Climate Change that the UK order should extend these changes to Scotland.

12. The amendments to the enhanced wave and tidal stream definitions will limit the exclusion from eligibility under those definitions to projects which have received a capital or revenue grant funding award on or before 19 September 2008, the point at which the proposed levels for the enhanced wave and tidal stream bands were published for consultation.

Enabling powers

13. The ROS is being made under powers conferred by sections 32 to 32M of the Electricity Act 1989, as amended and introduced by the Energy Act 2008.

Consultation

14. Prior to its introduction in April 2002, the ROS was the subject of two consultations, the first between November 2000 and February 2001, and a formal statutory consultation between August and October 2001. Statutory consultations also preceded the introduction of all the revised ROS Orders from 2004. A consultation took place between September and December 2010 on the changes contained within the 2011 Amendment Order.

European Directive

15. The ROS, in tandem with the ROO, forms an important part of the UK’s compliance with article 3.1 of the European Directive on the promotion of electricity produced from renewable sources (Directive 2001/77/EC). Article 3.1 provides that member states shall take appropriate steps to encourage greater consumption of renewable electricity in pursuit of national indicative targets.

State Aid

16. All UK Renewables Obligation Orders require State Aid clearance as the recycling of buy-out funds to compliant suppliers is deemed by the European Commission to constitute a State Aid. An application has been submitted to the Commission by the Department of Energy and Climate Change for approval relating to the changes contained within the 2011 Orders across the UK, namely the measures proposed around offshore wind phasing and sustainability criteria for biomass and bioliquids. Separate approval for the Scottish Government’s proposed amendment to the enhanced wave and tidal stream definitions was received from the Commission in 2010.2

17. The Commission approved the amendments at the beginning of February 2011.

Financial Impacts

18. The ROS creates additional costs for electricity suppliers, which they can then pass through to industrial, business and domestic consumers as part of their electricity bills. By way of illustration, estimates published in previous years by Ofgem, the industry regulator, have forecast that the Obligation added around £12 to annual electricity bills in 2009/10, and that these costs could rise to around £20 per year by 2015. However, the extent to which the additional costs incurred by suppliers are actually passed through to each consumer group is a matter for the suppliers themselves, meaning that robust estimates remain difficult.

Business and Regulatory Impact Assessment

19. A Regulatory Impact Assessment was undertaken in relation to the draft Order.

Subordinate Legislation Committee Report

20. The Subordinate Legislation Committee (SLC) considered this instrument and agreed that no points arose in relation to the instrument.3

Motion

21. After the debate had concluded, the Minister moved motion S3M-7872—

That the Economy, Energy and Tourism Committee recommends that the draft Renewables Obligation (Scotland) Amendment Order 2011 be approved.

22. The motion was agreed to by the Committee.

Recommendation to the Parliament

23. As a result, the Economy, Energy and Tourism Committee recommends that the draft Renewables Obligation (Scotland) Amendment Order 2011 be approved.


Footnotes:

3 Subordinate Legislation Committee 11th Report, 8 February 2011.