Economy, Energy and Fair Work Committee

Meeting date: Tuesday, October 30, 2018

Official Report 788KB pdf

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Subordinate Legislation

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Renewables Obligation (Scotland) Amendment Order 2018 [Draft]

I welcome the Minister for Energy, Connectivity and the Islands, Paul Wheelhouse, and also Stewart Matheson, who is the senior policy adviser on electricity networks and regulation at the Scottish Government. We now turn to the Renewables Obligation (Scotland) Amendment Order 2018 and I invite the minister to make an opening statement.

Thank you, convener; and I also thank you, committee members and the clerks for allowing me the flexibility to appear late in your meeting today. I appreciate that you have had a long meeting, so I am grateful for your forbearance.

The order before the committee will, if approved, result in a minor amendment to the Renewables Obligation (Scotland) Order 2009. Before turning to the amendment itself, it might be helpful to provide a little bit of background to the renewables obligation order. There are three renewables obligation orders—one covering England and Wales, another for Northern Ireland, and one for Scotland. The orders place an obligation on United Kingdom electricity suppliers to source an increasing proportion of the electricity that they supply from renewable sources.

Renewables obligation certificates—ROCs for short—are awarded to eligible renewable generators in respect of the output that they generate. Suppliers can buy ROCs and use them to demonstrate that they have met their obligation, or they can pay a fixed sum into a buyout fund for each ROC or SROC—Scottish renewables obligation certificate—that they either cannot or choose not to present.

The obligation, as intended, has provided a hugely effective incentive for renewable generators, with capacity across Scotland having reached 10.3GW, as at the end of quarter 2 of this year. Indeed, the final figures for 2017 show that renewable generation supplied the equivalent of 69 per cent of Scotland’s electricity consumption—a record high level that is slightly higher than the figure quoted in the document, because since it was published we have had updated base figures.

Successive Scottish Governments have largely maintained an approach that is consistent with the other UK obligations. However, there have been important exceptions where we have tailored the Scottish obligation to better reflect Scotland’s particular needs and priorities. For example, in April 2009 we introduced enhanced ROC bands for wave and tidal projects in Scotland, and in April 2014 we introduced two new enhanced ROC bands to provide additional support for innovative offshore wind projects in Scotland.

The committee will recall that those devolved powers were curtailed by the Energy Act 2013, and the contracts for difference mechanism has now replaced the renewables obligation as a means of supporting new renewable capacity. However, although the obligations across Great Britain were closed to new capacity from April of last year, they will continue to run until 2037 for eligible projects.

I now turn to the content of the order itself. When the UK renewables obligations were closed in March 2017, changes were introduced that allowed generators to add capacity at accredited sites. That additional capacity would not be eligible for SROCs, but nor would it affect the eligibility of the existing capacity at those sites. However, article 17(4) of the Renewables Obligation (Scotland) Order 2009 has the effect of preventing any accredited hydro stations from adding capacity where that takes the declared net capacity of any such station above 20MW.

Our amending order will rectify that and allow hydro generating stations in Scotland to add extra renewable capacity while retaining their eligibility for Scottish ROCs only from the originally accredited capacity at their site. That will allow any generators who choose to do so to increase their renewable capacity and production without creating any additional costs for consumers. It will also bring hydro generating stations in line with all other technologies and allow them to compete on a level playing field.

We expect that the order is likely to have limited application, since it will be of relevance only to hydro generating stations that were accredited before 2002 and which are able to increase their declared net capacity above 20MW. Although its impact may be modest, it nonetheless provides a means to encourage additional renewable electricity generation in Scotland, which I believe is an equitable and sensible amendment.

Before I formally move the motion recommending the order, I am, of course, happy to respond to any questions that you or your fellow committee members have, convener.

12:45  

 

 

We have received evidence from SSE, which is responsible for the vast majority of the power schemes that have downgraded from a capacity exceeding 20MW. My understanding is that SSE has sold all its hydro assets to Drax.

ScottishPower has sold its assets; SSE still retain its assets.

Ah, I see. My apologies–I got it wrong.

You have come up with scenarios in which the likely impact on generation is low, medium or high. What factors will influence the impact?

Mr Andy Wightman raises a fair point. We think that SSE is unlikely, at this stage, to make amendments to seven out of its eight sites that had their capacity curtailed as part of the impact of the previous policy position.

We believe that one of the other developers, SIMEC, which has the Kinlochleven hydro scheme, which serves the former Alcan smelter at Lochaber that the Liberty House Group now owns, will potentially increase capacity. The Office of Gas and Electricity Markets has made the point that, in order to be compliant, there will need to be either separate metering to fully record and make sure that there is no overclaim on the ROCs or it will, on a pro rata basis, allocate over the total production from the site revenue through ROCs to that proportion that is eligible to receive ROCs.

The developers will have to make an individual judgment on whether that leaves them in a better or worse position. It will be a commercial decision on the part of SIMEC as to whether it goes ahead at Kinlochleven. At least by removing the barrier, the order would allow SIMEC to make a decision and to potentially take things forward, if it believes that increasing capacity is the right thing to do. Similarly, SSE has not ruled out doing that at some future point but, at this stage, it has indicated to us that it is not likely to proceed.

The overall impact will be modest. There will potentially be an additional 10MW of hydro capacity at Kinlochleven. If all sites were to go down the route of reinstating the original capacity, there would be an additional 55MW of hydro generating capacity. That would be done without any additional cost to consumers, which is an important point.

The bottom line is that the order would remove a barrier, but it is up to the private generators to decide whether they wish to take advantage of it or not.

Mr Wightman is absolutely correct about that.

I appreciate that the order is about hydro schemes, but is there any likelihood that it could impact on constraint payments in the onshore wind sector?

We do not believe so. That is an important point in terms of the capacity on the grid and at a local level. There has been discussion about the increased capacity that is needed at Lochaber to allow any increased capacity in the hydro plant to transmit electricity to the grid. The investment that would be needed there is a commercial matter between SIMEC and, in this case, SSE.

We do not believe that there would be any direct impact—or, at least, I am certainly not aware that there would be any; I will ask Stewart Matheson to confirm whether that is the case. There are individual contractual relationships between developers and the distribution network operators in relation to receiving grid capacity, so an arrangement is already in place. Those would trump any additional capacity that came in; SIMEC would have to argue for that separately with SSE and not eliminate the previous arrangements that are in place for existing sites and areas.

With your forbearance, convener, I invite Stewart Matheson to comment on the matter.

Our assumption is that, as part of that decision-making process, SIMEC would consult the local network operator—which, as the minister said, in this case is SSE Networks—on the available grid capacity. The assumption would be that, for SIMEC to proceed with the project, sufficient grid capacity for it to export additional energy would have to be available. The impact of constraint payments would depend on whether there were wind generators in the vicinity that may be competing for similar grid capacity. However, our assumption is that SSE Networks would support the project only if there was sufficient grid capacity for additional hydro generation and existing wind generation.

One additional point is that if the Kinlochleven site is upgraded, primarily that power will be directed towards the smelter there. The smelter is very energy intensive, so there is a high concentration of demand for electricity in that locality. Therefore, the occasions on which the site will transmit net electricity into the grid may be limited, certainly initially at least, given the needs for electricity consumption there. I suppose that if the smelter did not operate at some point in the future, there would be an issue about unused capacity locally having to be transmitted into the grid, but I hope that we will never reach that point.

Is there a reason why the change has not been made before?

That is a good question that has been raised a number of times by individuals. People have queried why the particular provision was introduced in the first place. It is fair to say that the de-rating of the plants was an unintended consequence of the original legislative change back in 2002, which was intended to allow a strand of activity to take place that would help hydro fleet owners to reinvest in renewing their estate. The original order actually helped to unlock significant investment from SSE and Scottish Power in renewing their existing hydro fleet, so it had a positive effect, but the unintended consequence was that several sites de-rated their capacity in order to come under the 20MW threshold, which has resulted in the situation today in which we have an unfortunate barrier to their growing their output at a time when the world needs us to generate more renewable energy; it is an odd anomaly. I hope that the order will remove that anomaly so that hydro sites will be able to operate on a level playing field with all other technologies.

As there are no more questions, we will move to formal consideration of the motion. I invite the minister to formally move motion S5M-14103.

Motion moved,

That the Economy, Energy and Fair Work Committee recommends that the Renewables Obligation (Scotland) Amendment Order 2018 [draft] be approved.—[Paul Wheelhouse]

Motion agreed to.

In light of the timing, do members agree that I along with the clerks will produce a short factual report of the committee’s decision and arrange to have it published?

Members indicated agreement.

Meeting closed at 12:53.