Enterprise and Culture Committee, 09 Mar 2004

Meeting date: Tuesday, March 9, 2004

Official Report 204KB pdf

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Subordinate Legislation

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Renewables Obligation (Scotland) Order 2004 (draft)

Agenda item 3 is consideration of the draft Renewables Obligation (Scotland) Order 2004 and a motion on it. We are joined by Lewis Macdonald, the Deputy Minister for Enterprise and Lifelong Learning, who is accompanied by Neal Rafferty and Neil Stewart. I will give the minister an opportunity to say anything he wishes about the draft order, then members will be able to ask questions about it. After that, we will move to the formal debate on the motion.

Thank you, convener. I should say that Neal Rafferty and Neil Stewart are from the energy policy unit of my department.

It might be helpful if I first say something about the purpose of the renewables obligation (Scotland), which was introduced in 2002 to create a robust market in renewable energy. Given the healthy trading price of renewables obligation certificates and the current level of developer activity, it seems to have succeeded in meeting that objective.

As we wanted to ensure that the obligation continued to operate as originally intended, we concluded that it was necessary to review the working of the obligation at the end of year 1. I should stress that the review centred on the operation of the renewables obligation that Scotland was operating, and on whether the operation required any technical adjustments. We did not review either the policy or the purpose of the obligation itself.

We fully consulted interested parties in the industry to identify whether there were any technical areas where we could streamline the obligation; we have taken a number of their points on board. A further full-scale and more comprehensive review of the Scottish obligation and the equivalent English and Welsh obligation will take place in 2005-06.

On the basis of the review and the consultees' comments, we have laid the draft order. Rather than lodge several pages of technical amendments to the original order and ask members to compare it with the proposed changes, we have chosen to revoke the original order and replace it with an entirely new one. As I said, some aspects are completely technical and others are meant to clarify the order's intentions. If I may, convener, I will briefly run over the four or so significant areas that the order addresses.

Could you do so briefly, minister?

First, there have been changes to the rules on co-firing of biomass with fossil fuels in order to encourage the development of energy crops take-up in that area. As take-up has been slow in Scotland, we are extending the period in which it can happen to encourage that development. To balance that, we have placed limits on the amount of co-firing that individual generators can use to satisfy their obligation. We still intend to reduce and eliminate co-firing altogether by 2016.

Secondly, we seek to relax the rules to ensure that small generators and microgenerators can qualify for ROCs by counting their period of generation over a year instead of over a month. That will allow community renewables schemes or photovoltaic schemes in local communities to sell any surplus to the national grid and to obtain ROCs by doing so.

Thirdly, we are removing barriers to further development in locations where a scheme was created under the previous Scottish renewables obligation, which rewarded renewables generators differently. That change will enable further development on an SRO site, but we have introduced additional accompanying measures that will ensure that SRO contracts are fulfilled and that developers do not switch from an SRO to an ROS contract.

The final change allows for late payments to be made to the buyout fund under article 12. That is important because the buyout fund is the financial mechanism by means of which we incentivise renewables generators and raise revenues for non-renewables generators. The change reflects the fact that no facility is in place at the moment for collection of late payments. We have made adjustments that will ensure that such a facility is created.

The order gives certainty to those who are producing energy and electricity from renewable sources by certain methods. If I were to ask what the minister will do to incentivise other technologies that have not been incentivised sufficiently, such as tidal energy or the direct production of heat other than by means of electricity, I assume that he would say that there is nothing in the order to prevent that because it will come through in the review.

Absolutely. As they stand, the ROCs support a number of different technologies, including the marine technologies that the convener mentioned and biomass. The ROCs do not apply only to existing technologies; they are also in place as an incentive to the development of new technologies.

If it is felt that such technologies have to be incentivised more than other technologies, I assume that such a measure is not being closed off at this stage.

That is correct. The acceptance of this order this year will not prevent us from bringing forward an additional order next year. We do not need to wait for the major review if we choose not to do so.

Is the Scottish legislation the same as the UK legislation?

The broad principle is that we seek to keep them as close to identical as we can. The parallel consultation process on both sides of the border did not throw up any significant differences. The Department of Trade and Industry was able to take on board representations that were made south of the border after the consultation process, but we will not be able to do so before the 1 April deadline.

The differences will not have a significant impact in Scotland. They relate to the complete conversion of a fossil-fuel power station to a biomass station, for example. We would like to see the development of such a project, but as none of the generators in Scotland plan to do so in the next year or two, the changes will not have an impact.

The second change relates to co-firing and does not have any particular application in Scotland at present. We will return in a future order to both areas to restore an identical character to the two obligations.

I have two fairly brief questions. The date for the changes to the regime for co-firing biomass is some years away. What is the duration for growing short-rotation willow coppice, for example, so that it becomes ready for market?

We think that by setting the dates in question, we will allow for approximately three growing cycles. We are talking about four years for crop rotation.

What are the minister's plans to review the situation? Does he have a particular cycle in mind for re-examination of the matter and to see whether the changes that will be brought about by the order need to be revisited?

My officials are relieved to get to the end of this process, but they notified me some moments ago that they will soon begin the next process of review. It is an ongoing process. We intend to have a fairly fundamental review in 2005-06 and we will begin to address the issues in that regard soon.

I would like to ask another question about co-firing and the restrictions on how much biomass has to be put in to allow people to qualify. Can the minister explain why the restrictions exist? Am I right to assume that if there were two separate power stations—a conventional non-renewable station and a totally biomass station—the biomass station would qualify for ROCs? Obviously, the penalty would be paid on the other one. If the two forms of station were combined into a bigger co-firing power station, the benefit of the biomass contribution would not eventually be received even though the amount of CO2 sequestration and output is exactly the same.

In practical terms, the obligations and incentives are in place to encourage conversion from one mode to another. We anticipate that co-firing is transitional and involves a fossil-fuel generator taking on board as part of the mix a—we hope increasing—proportion of non-fossil fuel. We want to incentivise that and to encourage generators to do that because it is clear that such power stations represent a large part of the existing source of supply. We recognise that we want, ultimately, to move beyond the stage of co-firing and we have a set a target date for the end of the incentives and encouragements for co-firing for that reason. We recognise that the process of converting a large coal-firing station entirely to biomass may take some time. We want to enable and to incentivise that process as we go along.

If there are no further questions, I will ask the minister to move the motion.

Motion moved,

That the Enterprise and Culture Committee recommends that the draft Renewables Obligation (Scotland) Order 2004 be approved.—[Lewis Macdonald.]

Motion agreed to.

We now move into private session.

Meeting suspended until 15:58 and thereafter continued in private until 16:25.