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Renewables Obligation (Scotland) Amendment Order 2017 [Draft]
We move to agenda item 2. I welcome the Minister for Business, Innovation and Energy, Paul Wheelhouse. He is accompanied by Heather Stewart, who will assist him on the Renewables Obligation (Scotland) Amendment Order 2017, which is subject to the affirmative procedure. I invite the minister to make an opening statement.
Thank you very much, convener. Since its introduction in 2002, the renewables obligation has driven investment in renewable energy capacity across Scotland. Installed renewable capacity has risen year on year and now exceeds all other forms of electricity generated. Our renewable electricity output has almost trebled since 2006, and in 2016 it was equivalent to 54 per cent of the electricity consumed. As well as putting us on track to meet our interim 2020 emissions reduction target, investment in this area has facilitated substantive economic growth and job creation.
In 2015, the low-carbon and renewable economy generated £10.5 billion of turnover and supported 58,000 jobs, of which about 26,000 were in the renewable energy sector. The costs of funding the RO are recovered through levies on energy suppliers, which pass the cost on to consumers through their electricity bills.
As the costs of renewable support mechanisms are generally borne per unit of electricity, industries that are electricity intensive can see their costs increase significantly. That can place energy-intensive industries at a disadvantage when competing in international markets with businesses in jurisdictions where no such mechanisms are in place to support renewables. In response to that, in 2014, the United Kingdom Government announced that it would compensate certain energy-intensive industries for the indirect costs of the RO and the parallel feed-in tariff scheme. In the 2015 spending review, the UK Government subsequently announced a transition from a compensation scheme to an exemption scheme. Shaped by industries’ feedback, the exemption scheme is designed to improve investor certainty and the competitiveness of businesses by providing greater clarity, certainty and accuracy of support.
The Scottish Government supports measures to reduce the indirect costs from low-climate policies to help ensure the international competitiveness of energy-intensive industries. As such, we have sought to ensure that those industries operating in Scotland can benefit from the proposed Great Britain-wide exemption, while redoubling our efforts to decarbonise our economy more generally. However, in May 2016, we published a consultation seeking views on the proposal to implement the RO Scotland exemption. That ran alongside a UK Government consultation. In both consultations, views were sought from businesses and consumers across Great Britain.
Responses to our consultation showed strong support from stakeholders for a consistent approach to be applied across GB. A clear case was made that that was required to protect Scottish businesses from uncertainty and complexity, which could pose a direct threat to Scottish jobs and increase costs for consumers.
The amendment order for consideration by the committee today is designed to avoid any such threat to jobs. The approach is favoured by a majority in the stakeholder community, and it is fundamental to the successful and effective operation of the exemption for businesses that are located in Scotland. I do, however, acknowledge the concerns that have been raised by some stakeholders.
First, it is important to state that the exemption will not detract from the industries’ efforts to reduce direct emissions and improve industrial energy efficiency as part of our wider whole-system decarbonisation agenda for Scotland’s energy system. Energy-intensive industries will continue to be incentivised to improve their energy efficiency through participation in carbon markets such as the European Union emissions trading system. We are engaging with energy-intensive industries to support energy efficiency improvements through the delivery of the Scottish manufacturing action plan and the Scottish Government’s energy strategy, due for publication later this year, and with advice and support available from agencies such as Resource Efficient Scotland.
Secondly, and importantly, we recognise that non-eligible businesses and households will see a small increase in their electricity bills. The best estimate is that households could see a 0.2 per cent increase in their annual electricity bills—the equivalent of £2.30 per year—and large, non-exempt energy users a 0.6 per cent increase, which, of course, can represent a significant amount in some cases. Analysis also indicates that there may be a small increase in fuel poverty in the absence of any efforts to mitigate this. However, any such theoretical increase should be considered in the context of our wider actions to tackle fuel poverty among households and, in parallel, to help businesses reduce their energy costs.
The Scottish Government is delivering our 2016 programme for government commitment to make £500 million available over the next four years for improving energy efficiency and combating fuel poverty through Scotland’s energy efficiency programme. By the end of 2021, we will have allocated over £1 billion since 2009 to helping make Scotland’s homes cheaper to heat and reducing energy bills for householders. That funding will be used to build on the measures delivered through a range of UK and Scottish Government programmes to over 1 million households since 2008.
Our formal response to the final recommendations from the strategic working group and the rural fuel poverty task force was published in March this year. It confirmed that we would publish a consultation paper in autumn this year on a new long-term fuel poverty strategy. It will include proposals for a new overarching target, once the independent review of fuel poverty definition has reported. The strategy will feed into the development of a new warm homes bill, which we plan to consult on shortly and introduce in 2018. This package of measures will work to offset any increase as a result of the amendment and continue our progress in delivering warmer homes.
We have carefully considered the views of stakeholders, and the amendments that are contained in the order that is before the committee today are designed to support economic growth, international competitiveness and investment in Scotland as we progress towards our decarbonisation targets. They will ensure that energy-intensive industries operating in Scotland can benefit from the proposed GB-wide exemption, and they represent our continual efforts to support growth as we decarbonise our economy.
Before I formally move the motion recommending approval of the order, I am, of course, happy to respond to any questions that you, convener, or other members of the committee may have.
Thank you. Are there any questions from members?
Just a brief one: if the statutory instrument is not passed, will the UK order cover Scotland?
The issue that we have is the cost. If the UK Government moves its own order, the costs will still be borne by consumers and businesses in Scotland, but they will not have the benefits of the exemption that the energy-intensive industries would get from our order being agreed to today. In answer, the costs would be borne by electricity consumers but we would not get the benefits.
If there are no further questions, we will move to the formal debate on the motion to approve the affirmative instrument.
Motion moved,
That the Economy, Jobs and Fair Work Committee recommends that the Renewables Obligation (Scotland) Amendment Order 2017 [draft] be approved.—[Paul Wheelhouse]
Motion agreed to.
Thank you very much. We will record the result, and, in light of the timing, I invite the committee to agree that the clerk and I will produce a short factual report and arrange to have it published. Do members agree with that?
Members indicated agreement.
In that case, I thank the minister, Paul Wheelhouse, and the official from his team, Heather Stewart, for their attendance.
Thank you very much, convener and members.
I suspend the meeting for a few minutes to allow our witnesses to take their places.
09:40 Meeting suspended.Next
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