Subordinate Legislation
Renewables Obligation (Scotland) Amendment Order 2014 [Draft]
We move to item 2. I welcome the Minister for Energy, Enterprise and Tourism, Fergus Ewing, who is joined by three Scottish Government officials. Olive Hogg is a solicitor in the directorate for legal services, Fiona Hepplewhite is policy manager for electricity market reform and Neal Rafferty is deputy head of the energy policy unit. Welcome to you all.
Minister, do you want to say something to introduce the draft order?
Yes. Thank you, convener. I have come fresh from the launch of Bannockburn live, which is going to be a terrific success, as I know we all wish it to be. Thank you for the invitation to be here this morning.
The renewables obligation or RO drives investment in renewable electricity capacity across the country. Since its introduction in 2002, renewable electricity capacity across Scotland has almost quadrupled. Indeed, the final figures for 2012 show that renewable generation accounted for an equivalent 40 per cent of gross Scottish electricity demand, putting us well on our way to achieving our interim target of 50 per cent by 2015. We need to ensure that the upward trend continues. We want to see more generation coming from offshore wind, wave and tidal energy—sources in which Scotland has a huge competitive advantage and can create world-leading industries. Of course, the renewables obligation mechanism is due to be replaced by a new system of support based on a contract for difference. I will come on to talk about that later.
The amendments in the draft order are designed to ensure that the RO legislation remains fit for purpose and that we continue to attract investment in new technologies and developments across Scotland in a way that is both cost effective and sustainable. As is customary, we have proposed the same amendments, generally, as will apply across the rest of the United Kingdom. That approach is favoured by a majority and is fundamental to the successful and effective operation of the mechanism. However, as has been the case on previous occasions, there are some important exceptions to that approach.
The most prominent exception is our decision to introduce two new bands to provide additional support for innovative offshore wind generation from, first, test and demonstration centres and, secondly, pilot projects that comprise non-fixed or floating turbines. Those new and higher bands are explicitly limited to apply to offshore wind turbines that are innovative and new to the marketplace. They are aimed at reducing the costs of generation from such sources, enabling them to make a greater contribution to meeting our binding European Union targets.
We have already seen a commitment from Statoil to develop its Hywind pilot project off the coast of Peterhead. The Crown Estate’s leasing round for floating offshore wind will conclude in the coming weeks, and we hope that a number of other developers will secure exclusivity rights to pursue developments in Scottish waters and bring economic benefit to these shores.
The new offshore bands have been introduced and costed on the basis of the capacity that we expect to come forward between now and the order’s closure in 2017. However, there are no limits or thresholds within the provisions.
The remaining changes that are set out in our amending order mirror the changes that are being made to the other UK obligation mechanisms. The first of them relates to tighter biomass sustainability criteria. The committee might remember from last year, when we introduced a 15MW cap on biomass, that we were considering the introduction of tighter sustainability standards under the RO. The amendment order introduces those changes, which are designed to ensure that biomass material is sourced responsibly and in a way that minimises or eliminates adverse impacts.
The order amends the information that is to be provided, on a per consignment basis, to the Office of Gas and Electricity Markets—Ofgem—by all stations over 50kW that use solid biomass and/or biogas. That includes the introduction of a timber standard, which is focused on sourcing wood from legal and sustainable sources, and a tighter greenhouse gas threshold for dedicated biomass stations that were accredited after 1 April 2013. It also creates a new requirement for generating stations of 1MW and above to provide an independent sustainability audit report for solid and gaseous biomass, which will report against greenhouse gases, land criteria and the timber standard.
Those reporting and audit requirements will enable generators to become familiar with the sustainability criteria before the introduction of the further amendments that will be made next year to make compliance with the sustainability criteria mandatory for generating stations of 1MW and above. The order also refers to the latest combined heat and power quality assurance standard, which has been tightened to reflect improvements in the efficiency of such schemes.
As the committee knows, the RO mechanism is due to be replaced by a new system of financial support that is based on contracts for difference. The process of reforming the UK electricity market seems to have been running for as long as most of us can remember, but there are still important decisions to be made. We have expressed concerns that the design and limits of the contract for difference mechanism will restrict the opportunities to develop the renewables industry in Scotland and that, as a result, we risk losing out on jobs and investment. We continue to press the UK Government to provide a clear and ring-fenced commitment to support the delivery of meaningful renewables capacity.
UK ministers have taken powers in the Energy Act 2013 to close the renewables obligation across the UK, meaning that the RO in Scotland will close from 2017. The next three years will be an important transition period, as developers and investors adjust from the tried and tested RO to the entirely new and innovative CFD. The order will partly implement those important transition arrangements. They are largely technical changes, which allow developers to make a one-off choice between the RO and the new CFD scheme in certain circumstances. The changes will also prevent duplication of support for the same electricity by ensuring that generation that is supported under electricity market reform is not eligible for renewables obligation certificates.
In conclusion, the changes will improve the efficiency and sustainability of the obligation and will ensure that the legislation remains fit for purpose. In the remaining time available for the RO, we want to continue to attract investment in the right kind of projects and continue the progress that we are making towards meeting our important targets while keeping cost increases for consumers to a minimum.
Before I formally move the motion recommending that the order be approved, I am of course happy to respond to any questions that members might have.
Thank you for that detailed explanation. I will take questions from members.
I have questions about biomass, which is an issue that I have followed in the past. In your comments and in the policy note, you referred to the latest combined heat and power quality assurance standard, which you say has been tightened to reflect improvements in the efficiency of such schemes. Will you give more detail on how it has been tightened?
It has been tightened with a new requirement for a minimum heat efficiency of 10 per cent. The combined heat and power quality assurance standard, which, to those in the know, is known as the CHPQA, includes a minimum primary energy saving of 10 per cent and an overall efficiency of at least 35 per cent for schemes of more than 25MW electricity capacity.
Following the consultation that was held, have there been further discussions with the wood panel industry about concerns over supply? Does the Government intend to continue to monitor that on an on-going basis?
I have had extensive discussions with the timber products sector, including the wood panel industry. We think of Norbord in my constituency and in Plean in central Scotland, I think, Egger in Ayrshire and the wider sawmill sector. In addition, the timber growers have a plain interest, of course, as does the forestry sector.
The topic is extremely important. Obviously, we want to ensure that the interests of all those who require to source Scotland’s timber for various purposes can be accommodated. In particular, the analysis of the supply side suggests that, over the next 10 years, additional availability could average between 700,000 and 1 million green tonnes per annum compared with current production. That suggests that wood fuel supplies should not pose a barrier to further development of the heat sector in Scotland, especially as we have, unlike south of the border, the 15MW cap for CHP electricity-only schemes. That is a further safeguard. The CHP schemes that have been approved in Grangemouth and Rosyth also have the requirement that there must be a strategy that the Scottish ministers have approved, of course. I think that the intention there is to import timber rather than use home-grown timber and risk displacing the legitimate interests of the timber and panel products sector. We will, of course, keep that closely under review.
I was particularly interested in the sustainability audit report requirement for the biomass stations. Will that be a broad requirement for them to report? I know that there have been criticisms of some of the off-the-shelf sustainability accreditation methods from non-governmental organisations in particular.
Yes. I believe that the new audit requirement that the RO is introducing will be applicable to certain schemes. With the convener’s permission, Fiona Hepplewhite, who is one of my officials, will be able to give a little bit more detail to Mr Biagi, if that is in order.
Fiona Hepplewhite (Scottish Government)
The independent audit requirement for biomass will follow a programme that is similar to that for the bioliquids audit report that is currently in place. Basically, land criteria, greenhouse gases and all the things that are reported on will need to be reported on on a monthly basis, and the report will be independently verified by an auditor. There will be a robust audit of the monthly information that is provided, and in a year’s time that will be mandatorily linked to the ROC issue.
Good morning, minister.
Under the heading “Biomass sustainability”, paper 3 mentions
“Amendments to land criteria so that energy crops grown under the Energy Crops Regulations 2000 or an equivalent scheme are automatically treated as meeting the land criteria for solid and gaseous biomass”.
Will you expand on what would be involved in that particular automation? Does that mean that no checks are carried out on that happening and that it would just happen?
No checks carried out on what?
Exactly. What would the checks—
No. What is your question?
That is my question. If that is automatic, no checks will be carried out to see whether the energy crops comply with the 2000 regulations.
I am not absolutely sure that I understand the question. With the convener’s permission, I will perhaps bring in Fiona Hepplewhite in a moment.
The provisions that are being introduced are consistent with those that are being introduced across the UK after extensive consultation with all stakeholders involved and a great deal of thought. They involve a cautious approach that is designed to ensure that appropriate sustainability standards that apply more generally across the sector, I think, are applicable here, and that new sustainable forest management criteria for the use of wood fuel are prescribed and introduced by the regulations, as set out in the timber standard. I think that those in the industry are already familiar with that process.
Fiona Hepplewhite might be able to provide some more information, if that would be helpful.
12:00
The energy crops regulations are English regulations. The other scheme was designed to include any scheme such as the single farming payment that might take into account crops that are grown in Scotland. Any information that would need to be provided would have to go through an audit report, and through the land criteria that Ofgem collects. It is not an automatic guarantee that the crop would come under the scheme, but if it is supported by other Government schemes, it would meet the land criteria.
Okay. Thank you.
I have been asked to look at a company in my patch that has created submersible offshore turbines. Could you or one of your officials expand on what the order means for innovation? I know that you alluded to that, but I wondered whether you could expand on it.
As I explained, the order offers two new bands for innovative offshore wind that will apply to Scotland only. The 2.5 ROCs band aims at supporting generation from offshore test and demonstration sites that are deploying innovative and new-to-market turbines. The band that is set at 3.5 ROCs is for pilot projects consisting of turbines that are not fixed to the sea bed, such as floating turbines or those that deploy tension deployment systems.
Let us take each of those two measures in turn. In order to develop and reduce the costs of offshore wind, there needs to be test and deployment. That is part of the process of engineering, testing and getting the cost down. We are fortunate in having Andrew Jamieson of the Offshore Renewable Energy Catapult, whose efforts are solely devoted to reducing the costs of offshore wind. The majority of people in the industry believe that it should be perfectly possible to reduce those costs, but there are challenges.
An essential ingredient of meeting those challenges is to test the product. It is impossible to try out new turbine designs unless there are testing and demonstration sites. It is difficult, if not impossible, to do that entirely in a commercial setting so there needs to be a particular stimulus for test and demonstration sites. That is a fairly widely accepted analysis.
Why are we doing this for floating offshore sites? First, in Scotland, we have deeper waters so, if we think about it, deploying fixed turbines is inherently more expensive because we need to use more steel and concrete in more difficult conditions. The costs might be greater than they would be in some of the alternative fields in England, to take our neighbours as an example.
Shortly after I became minister in 2011, I enjoyed a breakfast with Fred Olsen in Orkney after a visit to the European Marine Energy Centre, and he put it to me that we might want to consider promoting Scotland as an area for floating offshore generation by implementing a scheme that would allow us to be the test centre for floating offshore wind turbines.
I mentioned Statoil in my introduction. It has pursued its Hywind project since, I think, 2009. That is a demonstration of a floating offshore turbine that has succeeded in the sense of showing high reliability rates of generating electricity. The company now wants to use a site called the Buchan deep, which is off Peterhead, to move to the next phase of that demonstration of its floating offshore turbine by trying it out in the more testing waters at that site. Statoil wants to do that in Scotland, and we hope that it will also be encouraged and persuaded to use a number of Scottish businesses and a Scottish port—Kishorn—to carry out a substantial part of the work that will be involved.
There is a second rationale, which is this. At the moment, as is known, most of the major offshore wind applications are on the east coast, substantially for reasons of proximity to ports but also because of the nature and conditions of the sea. The conditions on the west coast are even more challenging. However, if the innovative offshore floating technology can be further developed—it is already a success; it is not a prototype but is already generating electricity—that will open up the possibility, subject of course to respecting the legitimate rights of fishermen, who, I emphasise, have been there for centuries, of considering options for deploying turbines on the west coast of Scotland as well as the east coast.
In those two respects, we have a strategic interest and objective in taking the measure forward. It is particularly appropriate to Scotland for the reasons that I have mentioned, and we would like Scotland to be at the centre of what could be an exciting new method of harnessing the power of the wind offshore.
Thank you—that is encouraging. It certainly paints a brighter picture for the company concerned.
I have a couple of follow-up questions on the enhanced ROC payments for experimental offshore wind. I think that everyone supports the principle of developing offshore wind with a view to reducing the costs, which are at present quite substantial, as you are aware. I am aware of three test sites that are either proposed or in construction—one at Methil, one at Hunterston and one just north of Aberdeen. Would they benefit from the proposal?
If developers wish to deploy or continue to deploy turbines that meet the provisions in the RO, we would expect the answer to be yes. The developments at Hunterston and Methil have been broadly welcomed by all political parties as part of a necessary process, as I have described, so we would expect the answer to be yes.
I am not sure to what extent I am permitted to comment on the Aberdeen case, given that it is still sub judice, so I had better not comment on that, if you do not mind. That is the approach that I have adopted before and I think that it was remarked upon favourably by m’learned friends.
As a matter of general practice, offshore test berths are required because testing is required, so we need to find places to do it. We have found places to do it, and now we want to move on to the next stage and actually see it done.
On the issue of public resources supporting these projects, various pots of money have gone into the work from Scottish Enterprise and, perhaps, European funding. Can you tell us how much public money has been spent so far on the projects?
I can go away and come back with a note for the committee. If we are talking about Hunterston, Methil and Aberdeen and dealings with companies, I do not have that information to hand because it is perhaps not immediately germane to the RO. However, this is a matter of some public interest, and I can say that the cost of the total RO in the UK—every single ROC and every single megawatt of electricity generated from renewables in the UK—is £27 per household, which is set to rise to £63 by 2020. The measure that we are discussing today, were it to be adopted to its absolute maximum, would add 60p or 70p to that.
Thank you. As there are no further questions, we move to agenda item 3. I remind the minister’s officials that they may no longer participate on the record. I invite the minister to move—and, if he wishes, speak to—the motion.
Motion moved,
That the Economy, Energy and Tourism Committee recommends that the Renewables Obligation (Scotland) Amendment Order 2014 [draft] be approved.—[Fergus Ewing.]
Motion agreed to.
Are members content for the convener and the clerks to prepare a short factual report and arrange to have it published?
Members indicated agreement.
I thank the minister and his officials. We will continue, but you are free to leave.
I will depart. Thank you.
Land Registration etc (Scotland) Act 2012 (Commencement No 2 and Transitional Provisions) Order 2014 (SSI 2014/41)
I remind members that we are still in public session. We are now on item 4.
Do members wish to raise any issues on Scottish statutory instrument SSI 2014/41? If not, is the committee content for the order to come into force?
Members indicated agreement.
Just before we move into private session, I put on the record our thanks to the clerk to the committee, Stephen Imrie, who is moving on to pastures new after long service to the committee. I am not sure whether that entitles him to a medal for long service, but I express our thanks to him for all his years of service to the committee and his support to all of us—me as convener and the other members. We wish him every success in his new position.
Members: Hear, hear.
He will have to get a new shirt. [Laughter.]
With that, we move into private session.
12:11
Meeting continued in private until 12:13.