Official Report 569KB pdf
Renewables Obligation (Scotland) Amendment (No 2) Order 2026 [Draft]
09:30
Agenda item 2 is consideration of an affirmative Scottish statutory instrument—the draft Renewables Obligation (Scotland) Amendment (No 2) Order 2026. I refer members to paper 1.
I welcome Stephen Gethins, the Minister for Europe, External Affairs and Energy, and Scottish Government officials Matthew Lourie and Craig Egner. I invite the minister to make a short opening statement.
Thank you for having me along.
The SSI before the committee today will establish the legal framework for providing eligible businesses with exemptions from electricity policy costs in order to reduce their electricity bills and improve industrial competitiveness, and it will allow an amendment to be made to the renewables obligation level ahead of April 2027.
The British industrial competitiveness scheme—BICS—is a United Kingdom Government scheme that is designed to reduce electricity costs for eligible energy-intensive manufacturing businesses. BICS aims to improve the competitiveness of eligible businesses relative to their European peers by bringing electricity costs more closely in line with those that are faced by comparable businesses in European Union countries.
As members will be aware, high energy costs remain a significant challenge for many manufacturers and undermine competitiveness and investment. The UK Government estimates that around 825 businesses in Scotland could potentially benefit from BICS. It also estimates that BICS is expected to reduce electricity costs for eligible businesses by around £35 to £40 per megawatt hour. The instrument before the committee today will make the changes that are needed to implement BICS in Scotland.
Under BICS, businesses will begin to receive support from April 2027, when they will be exempt from paying the indirect costs of the renewables obligation and feed-in tariff schemes, which are now closed to new entrants. Those schemes were designed to incentivise renewable generation. From October 2027, businesses will also receive an exemption from paying the indirect costs associated with the operation of the capacity market, which is designed to ensure a reliable and continuous supply of electricity.
Implementation and management of the feed-in tariff and capacity market are reserved. However, the Scottish ministers are responsible for the legislation governing the renewables obligation Scotland scheme, and the SSI that we are discussing today will exempt eligible businesses from renewables obligation Scotland costs from April 2027 and will introduce the technical changes that are needed to enable that exemption to operate effectively.
The aim of the renewables obligation scheme, which closed to new entrants in 2017, is to increase renewable generation. The Office of Gas and Electricity Markets awards generators renewables obligation certificates for generating renewable electricity. Electricity suppliers need those certificates in order to meet legal annual obligations that are set by the UK Government. Because suppliers need them, generators can sell them and earn additional income. That additional revenue helps to support investment in renewable generation. Suppliers pass the costs that they incur on to businesses that they supply with electricity.
The proposed amendments will ensure that eligible businesses will be exempt from up to 100 per cent of the indirect costs associated with the renewables obligation scheme. They will support eligible businesses that operate in manufacturing frontier industries, including clean energy, defence, advanced manufacturing and key supply chain sectors that provide essential inputs to those industries, which include the chemicals and metals sectors. They will also maintain consistency across Great Britain, support market stability and ensure a level playing field for suppliers and generators that operate across borders.
Savings being made in the wider energy system—specifically through a change in how a renewables obligation is adjusted annually for inflation and the removal of carbon price support, together with United Kingdom Government Exchequer funding—mean that the amendments will not place any additional cost on consumers, whether businesses or individuals.
The technical change in the instrument creates the exemption and does not alter how the renewables obligation scheme works.
We consulted on the proposals and a majority of respondents supported the exemption. Those who did not raised concerns around the feasibility of implementation and the potential redistribution of costs to other consumers. We have worked with the UK Government to ensure that those concerns are alleviated through the offsetting of any additional costs to consumers and by ensuring that electricity suppliers are given enough time in which to make the necessary changes.
This targeted amendment supports industrial competitiveness while maintaining the effective operation of the renewables obligation Scotland scheme. It is necessary and proportionate to ensure that Scottish businesses benefit from the BICS in the same way as businesses do elsewhere in the Great Britain market.
Thank you, minister. Do members have any questions?
I looked into how the scheme was progressing in England and Wales, but I could not find much information about it. Will you outline what is happening there?
I understand that the UK regulations are being discussed in the House of Commons today and in the House of Lords tomorrow. The regulations should be passed by 16 November.
I am not confused, but I am wondering why we are considering the Scottish statutory instrument now when it will come before the chamber as an affirmative instrument, depending on what happens today. I presume that that is for technical reasons.
I should have said at the start that, because of recess, we were not able to have the usual briefing with officials.
Regarding the timescale, the UK regulations should be passed by 16 November, and that should be confirmed with us on 17 November. If the SSI is agreed today, that will allow alignment across the UK.
You said that the scheme closed to new entrants in 2017. However, the committee papers suggest that 825 businesses in Scotland could benefit from support. How do we know whether all those businesses are still eligible? Renewables move at a fast pace.
Yes, they do. We would expect to receive an update from the UK Government in due course.
Craig Egner, would you like to update the member on that?
Craig Egner (Scottish Government): Yes. The application process is open until the end of November. The minister mentioned that there are three schemes: the renewables obligation scheme, the capacity market scheme and the feed-in tariff scheme. The SSI is all about ensuring that the costs of those schemes are not passed on to those companies.
However, ultimately, it is for the UK Government to assess eligibility, determine whether those businesses fall within the correct industrial categories—we can come back to that—and assess whether they meet the additional requirements of the scheme. We should know that towards the end of the year. I believe that decisions will be made around January on who has qualified and who has not.
We understand that there are about 825 eligible businesses in Scotland and probably about 10,000 eligible businesses across the entire GB system.
We would be happy to keep you up to date on that, if that would be helpful to the committee. So much of this sits with the UK Government in terms of—
Yes, it would. I just want to put on record that I find it unusual to be considering the instrument when the application processes for various schemes are open. We are being asked to consider an SSI when the UK instrument has not yet gone through the Commons.
I have had to try to work through the detail of the issue over the past few weeks, so I can entirely understand that.
Much of this sits at UK level and remains reserved. We will need updates. I will be asking officials for updates, and I am really happy to write to the committee in due course when we receive more detail from the UK Government. I entirely understand and sympathise with your point.
I understand what you have said. You want to make the whole of the United Kingdom come under one scheme.
Yes, because we have one GB market.
I received an indication that the cost of the exemption would be borne by consumers. Where will the money come from? Will it be funded by the UK Government? Are you aware of any changes to Wednesday’s UK budget?
We are not aware of any changes to the budget; I am afraid that the chancellor has not yet given me sight of it.
I picked up in my opening statement that the costs would not be passed on to consumers. I am trying to find the relevant bit of my statement, but I cannot. However, we can assure you about that.
I appreciate what you have said about this so far, but one of the issues in the paper relates to eligibility for the BICS discount. The codes that relate to eligibility, including the standard industrial classification codes, are set by the UK Government. Is the Scottish Government notified about changes to eligibility? Do you have any concerns about the significant industrial incentivisation mechanism being controlled at that level? What engagement has there been and what is the awareness about how eligibility changes occur?
I engage with my UK counterparts regularly, especially on issues such as that, which involve—it is not so much a case of there being an overlap—significant areas of UK Government control. Eligibility changes are a matter for the UK Government. Craig Egner, can we give Mr Leask reassurance about that?
Craig Egner: Only by saying that we regularly engage with the UK Government. Ultimately, the codes for the sector all flow from the UK’s industrial strategy. However, we engage with the UK Government regularly on that, so we would be notified of any changes to eligibility.
The process is already open for applications. How many of the 825 potentially eligible businesses have applied already?
We will not know that until later. Your point relates to the one that Rachael Hamilton made, and we are happy to keep the committee posted. Again, so much of this sits with the British Government. We have made the regulations in order to keep things aligned and so that we are able to make the amendment in time for April 2027.
What is being done to ensure that eligible businesses know that they have to apply by 30 November?
We have been engaging with them.
Craig Egner: The UK Government has organised a number of schemes, and there have been a number of webinars to alert businesses to the fact that the scheme is out there. We can reach out to our UK counterparts again to ensure that everything is being done to promote the scheme and make people aware of the deadline for applications.
The Scottish Government has no additional powers for cost redistribution, but it can monitor. If we monitor and we realise that cost redistribution is having an impact on other businesses, what can we do?
First, we have been assured about cost redistribution, but we will have to make the case for that. The problem is that we do not have a huge amount of powers in that area. You and I might find that frustrating, but I have to work within the rules as they are, rather than as I might like them to be. However, to be fair, I met the secretary of state during the parliamentary recess and I will continue to engage with UK ministers. Officials engage as well. We are happy to keep the committee informed of that process.
Could we get assurances that, if you are monitoring and you find that the cost redistribution is having an impact on other businesses, you will report that to the committee, even though the Scottish Government has limited powers?
Yes. We do not envisage that happening, but, if it happens, we will be happy to report it to the committee. I will ask officials to make a note of that.
Good morning. I find the 25 per cent discount very interesting. Will that be permanent, so that we stay competitive with the EU? Will it end up flexing? If electricity in the EU gets cheaper, will the discount flex, or is it a fixed sum? I apologise, as I know you might not have the detail on that at the moment.
09:45
No, no—it is fine.
Obviously, ROCs are being phased out, so it is an issue that we are having to move on. There are other mechanisms, such as contracts for difference. Fundamentally, BICS is a UK Government scheme about maintaining competitiveness with the rest of Europe.
We will keep that under review. It is one of those slightly anomalous situations where we are administering the scheme but a large range of the powers remain at a UK Government level across the Department for Energy Security and Net Zero and the Department for Business, Innovation, Science and Trade.
I take it that the big problem is that there is still detail to see on that.
Yes, and the detail sits at a UK Government level, but we continue to engage and ask for that. Again, I am happy to share that with the committee when I get it.
I take it that the Scottish Government broadly welcomes the scheme because it reduces industrial energy prices. Is that correct?
Yes, convener. We welcome anything that helps to make our businesses more competitive, especially businesses that are energy intensive. I will continue to work with UK colleagues on that in as constructive a manner as I possibly can.
We have no more questions, so we will move on to agenda item 3, which is the formal consideration of the motion.
Motion moved,
That the Economy, Tourism and Energy Committee recommends that the Renewables Obligation (Scotland) Amendment (No 2) Order 2026 [draft] be approved.—[Stephen Gethins]
Do members wish to make any points?
I am reluctant—I do not think that I have enough information to nod this through, but I am going to. I find this very difficult, because we are being asked to consider something that I agree with, given the party that I come from, which should be adopted across the whole of the United Kingdom, but I think that there is not enough information there.
I asked the minister whether the cost of the exemption will be passed to consumers. It looks like the cost will be redistributed across the remaining customer base, which means that other industrial organisations and companies may bear the brunt, which would make them less competitive. Even though it is in the context of a United Kingdom scheme, I do not see that the change will be advantageous to Scotland, because it will not bring renewables businesses to Scotland.
I will continue to engage with the UK Treasury on the issue. As I said to you earlier, I recognise that issue, but a huge number of areas sit with the UK Government. I have to engage with the issue in a constructive manner, and I might find it a wee bit frustrating sometimes that we do not have more of those powers. However, once we know the number of companies that are affected, we will engage with the UK Government. I think that the issue sits with BIST.
We have been told that there will be no additional costs, but we will continue to engage with the UK departments, which will engage with the Exchequer. I sympathise with your points.
Thank you for your reassurance.
We will continue to engage with the committee on the issue.
I invite the minister to wind up and to press or withdraw the motion.
I press the motion.
Motion agreed to,
That the Economy, Tourism and Energy Committee recommends that the Renewables Obligation (Scotland) Amendment (No. 2) Order 2026 [draft] be approved.
Do members agree to delegate authority to me, as convener, to approve a short factual report on the instrument?
Members indicated agreement.
I thank the minister and his officials for their time today, and I briefly suspend the meeting to allow the minister and his officials to leave.
09:49
Meeting suspended.
09:51
On resuming—