Enterprise and Lifelong Learning Committee, 20 Mar 2002

Meeting date: Wednesday, March 20, 2002

Official Report 229KB pdf

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Subordinate Legislation

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Electricity from Non-Fossil Fuel Sources (Locational Flexibility) (Scotland) Order 2002 (SSI 2002/92)<br />Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements (Modification) Order 2002 (SSI 2002/93)

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Fossil Fuel Levy (Scotland) Amendment Regulations 2002 (SSI 2002/94)

Agenda item 3 is consideration of three statutory instruments, on which we will take evidence from Ben Maguire, whose face is becoming familiar to the committee. I invite him to introduce the instruments.

The three statutory instruments are closely related. The first, the Electricity from Non-Fossil Fuel Sources (Locational Flexibility) (Scotland) Order 2002 (SSI 2002/92), provides some flexibility within the existing Scottish renewables obligation mechanism. The SRO obliged the two Scottish electricity companies, Scottish Power and Scottish and Southern Energy, to enter into contracts with renewables generators. Those contracts were specific to sites and renewables generation was limited to such sites. Although there has been considerable success in commissioning SRO projects, there is evidence that some improvement could be achieved by allowing contractors to relocate their sites to places where they could, for example, obtain planning permission.

The purpose of the order is to enable projects to be relocated within Scotland. It will have two benefits. First, it will improve the liquidity of the renewable obligation certificate markets that are to be introduced when the renewables obligation (Scotland) comes into force on 1 April. Secondly, it will generate additional funds to offset the fossil fuel levy. I will return to the matter in a minute or two.

The other two orders—the Electricity from Non-Fossil Fuel Sources (Scotland) Saving Arrangements (Modification) Order 2002 (SSI 2002/93) and the Fossil Fuel Levy (Scotland) Amendment Regulations 2002 (SSI 2002/94)—come as a pair and are also related to the Scottish renewables obligation. Under the SRO, the extra cost to Scottish Power and Scottish and Southern Energy of purchasing the output from the contracted renewables generators is met by a levy—the fossil fuel levy—that is raised on every electricity consumer in Scotland. From 1 April, the Scottish renewables obligation contracts—or most of them—will be eligible for the new renewables obligation. If we did nothing, Scottish Power and Scottish and Southern Energy would be in receipt of a substantial windfall—something in the order of £100 million a year—because the certificates would be tied to the electricity that they purchase under the Scottish renewables obligation contracts.

We had two options, the first of which was to exclude the Scottish renewables obligation contracts from the new obligation. The second option was to make arrangements to capture the benefit of the certificates and to use it to offset the cost to the consumer of the fossil fuel levy. The two orders are intended to put in place the second option, which is much more attractive as it would help provide liquidity within the ROC market as of 1 April 2002. It would also reduce the rate of the fossil fuel levy, which currently accounts for 1.2 per cent of Scottish electricity bills in Scotland. As of 1 April 2002, the Office of Gas and Electricity Markets has set the rate to be 0.6 per cent. As a result of the auction arrangements that are being put in place, that 0.6 per cent is likely to disappear altogether in the course of the coming year. The saving will mean that Scottish electricity consumers will not in effect be paying twice for the same renewables obligation.

Thank you. Do members have any questions?

I take it that the certificate is issued for a fixed place. Instead of allowing the companies to move, why not just allow the certificate to be flexible or simply issue a new certificate quickly? Is that not possible?

The original order made provision for contracts to be entered into against projects in specific locations. We had the choice of either introducing an order to allow some flexibility in the original order or making orders for each case that came our way. We thought that the method that we chose was the more appropriate.

Of the 109 contracts, are there many that would require that flexibility?

One hundred and nine contracts were awarded under the three SRO orders, of which 33 have been commissioned and a further seven are in the process of construction. That is quite a good uptake. We are aware of only one project that has a crying need for flexibility to be introduced. The biomass project on the island of Arran has obtained planning permission for a location other than that which was specified in the contract. It is possible that one or two other projects could take advantage of the relaxation of the provisions, but we do not expect people to be banging at our doors to do so.

Will the minister have the power to decide whether the flexibility should be exercised?

Yes.

I understand that the Subordinate Legislation Committee made no comments on the orders. As they are negative instruments, we are asked only to consider them, not to vote on them. Does anyone have any comments that they want to be recorded?

I was intrigued by the cover note's cryptic reference to a number of points that you were going to elaborate on.

First, that was a mistake, as it should have said "the clerk" rather than "the convener". Secondly, that cover note was simply a proviso because the Subordinate Legislation Committee did not discuss the instruments until yesterday. As the Subordinate Legislation Committee, which is under the convenership of my good colleague Margo MacDonald, decided not to make any comments or observations, that paragraph is now redundant.

I am content again.

Is everyone happy with the instruments?

Members indicated agreement.

Before I close the meeting, I remind members that there will be no formal meeting in the next three weeks, which must be a record for the past 18 months. The convention takes place on 15 April. I remind members that the next committee meeting is on 17 April, when we will take evidence from the minister.

Meeting closed at 12:04.