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Energy Act 2008

Commentary on Sections

Section 37: The Renewables Obligation

115.Section 37 substitutes sections 32 to 32M in the Electricity Act 1989 in place of sections 32 to 32C. The new sections incorporate all amendments made to the Renewables Obligation (RO) in primary legislation since 2002, as well as the further additions and amendments proposed by this Act.

New section 32

116.New section 32 defines the RO and provides a power for the Secretary of State and the Scottish Ministers to make a renewables obligation order detailing how the RO will operate in practice. The process for Parliamentary approval in the Westminster and Scottish Parliaments of the order by affirmative resolution is set out in sections 32L(2) and (3).

117.Subsection(6) sets out the new obligation which may be imposed on electricity suppliers in the relevant part of Great Britain. The existing obligation requires specified electricity suppliers to provide evidence of the supply of a certain quantity of electricity from renewable sources. The new obligation requires electricity suppliers to submit a certain number of ROCs during a specified period. The number of ROCs to be submitted will be calculated in respect of the total amount of electricity of any kind (i.e. renewable or non-renewable) supplied by a given supplier in that period.

New section 32A

118.New section 32A enables an order to specify how the level of the obligation is to be set. In particular, the order will:

  • specify how the number of ROCs which an electricity supplier must produce to the Authority for a given period is to be calculated;

  • allow scope to provide that ROCs issued in respect of electricity generated from different renewable sources or different types of generating station can only be used to discharge the obligation up to a certain number or a certain proportion of a supplier’s obligation (this allows for a cap on the contribution made by particular technologies such as co-firing of biomass by coal-fired power stations);

  • determine how the amount of electricity supplied by electricity suppliers to customers is to be calculated. The size of a supplier’s individual obligation is generally based on its electricity sales.

119.Subsection (3) provides that suppliers cannot produce the same ROC more than once as evidence of complying with the obligation.

120.Subsection (6) provides, among other things, for the order to enable suppliers to ‘bank’ a specified number of ROCs acquired during a current obligation period which can then be presented to the Authority in a later obligation period. This power is to allow suppliers to hold over ROCs where, for example, for business process reasons they do not manage to present ROCs by the due date or if they have more ROCs than they need to meet their obligation for a given period. The order can specify the proportion or numbers of ROCs that may be held back for any period.

New section 32B

121.New section 32B provides for the issue of ROCs by the Authority. It enables the order to set out the criteria for their issue. Section 32B also sets out what ROCs are to certify. Subsection (3) provides for a ROC to certify that the amount of electricity stated in the certificate is from a renewable source and that it has been supplied to customers in Great Britain or the part of Great Britain stated in the certificate. It also sets out a number of alternative matters which ROCs may be required to certify.

122.Subsections (5), (6) and (8) provide for ROCs to be issued in respect of total quantities of renewable electricity generated by more than one generator, which facilitates the issue of ROCs to agents acting for small generators.

123.Subsections (7) and (8) allow ROCs to be issued where renewable electricity has been generated but not sold through a licensed supplier in accordance with 32B(3) so long as that electricity has been used in a permitted way.

124.Subsections (9) and (10) set out what is meant by permitted way. This is where (i) the electricity which has been generated has been used by the operator of the generating station; (ii) where electricity is provided through a private wire network to customers (for example where a generator supplies electricity to customers on a neighbouring industrial estate); (iii) where the electricity has been provided to an electricity network in circumstances where its supply to customers cannot be demonstrated (for example, where a small generator produces excess electricity which it is unable to consume and the electricity automatically “spills” onto an electricity network). The definition of a private wire network is set out in subsection (11).

New section 32C

125.New section 32C allows the order to exclude specified renewable sources or descriptions of generating stations from eligibility for ROCs, or to confine such eligibility to a proportion of electricity from specified sources. For example, large hydroelectric plants that have been running for over fifty years can compete in the wholesale electricity market without any additional incentive from the RO.

126.Subsection (4) provides for generating stations using both fossil fuel and renewable sources to be able to claim ROCs only for the proportion of electricity generated by the renewable source. The order will specify how the proportion is to be calculated, and the consequences for issuing ROCs to a generating station where it uses more than a certain proportion of fossil fuel during a period.

127.Subsection (8) replicates provisions in the existing legislation for the RO. It requires the order to preclude the issue of ROCs in certain circumstances where the Northern Ireland Authority is not satisfied that the electricity has been supplied to customers in Northern Ireland.

New section 32D

128.New section 32D creates a new power to enable the Secretary of State, through the order, to set bands. Changing the obligation in this way will enable different levels of support to be provided to different technologies and, in particular, will enable the order to provide higher levels of support for less mature, emerging technologies, such as offshore wind and biomass.

129.Subsection (1) provides that the order may specify how much electricity each ROC is to certify as having been supplied. In particular, (as subsection (2) explains) the amount may vary as between different types of renewable sources or technologies. So a ROC issued in respect of “Source A” could certify a different amount of electricity from a ROC issued in respect of “Source B”, based on the band in which that particular technology or renewable source is placed

130.This banding power will thus allow for different technologies and renewable sources to be awarded ROCs for either greater or lesser amounts of electricity. For example, the Secretary of State and the Scottish Ministers may decide that a generating station using a certain renewable source or technology will have to generate 0.5 MWh of electricity to get 1 ROC. Equally the Secretary of State and the Scottish Ministers may decide that other generating stations using another renewable source or technology will have to generate 4 MWh of electricity in order to qualify for 1 ROC.

131.Subsection (4) sets out the matters to which the Secretary of State and the Scottish Ministers must have regard before setting bands in the order, namely:

a)

the costs associated with generating electricity from renewable sources and the cost of transmitting or distributing that electricity;

b)

the income that generators using renewable sources receive from generating electricity or from activities associated with the generation of electricity;

c)

the impact of the exemption from the Climate Change Levy for those generators;

d)

the likely impact of the proposed banding in securing the growth and development of renewables generation and associated industries;

e)

the likely effect of the proposed banding on the number of ROCs issued by the Authority and the impact on the ROC market and on consumers;

f)

the potential contribution of electricity generated from each of the various renewable sources to the attainment of any target relating to the generation of energy generally, or of electricity in particular, which arises from a target imposed by, for example, an EU Directive.

132.Subsections (7) and (8) provide that after the first order with banding provision is made, any subsequent order with banding provision cannot be made except where a review of banding is carried out in accordance with the terms of the order.

133.The purpose of allowing the bands to be reviewed is to ensure that they can be amended to reflect changes in the costs of technologies in the marketplace as markets mature. Subsection (8) provides that the order can authorise the Secretary of State and the Scottish Ministers to review the bands at: (a) intervals set out in the order or (b) where one or more specified conditions are met. This could, for example, enable the Secretary of State and the Scottish Ministers to review the bands on an “emergency” basis. An emergency review may be triggered if there is an unforeseen significant change, for example, in the marketplace (for example, to grid connection costs); a new support scheme is introduced; a new technology comes forward, or there is over-compliance with the obligation.

New section 32E

134.New section 32E introduces a power to make transitional provisions in relation to existing projects once a renewables obligation order containing banding provision is introduced. For example, it may be desirable to protect existing investments by enabling most existing generating stations which have been financed under the Renewable Obligation Order 2006 to continue to be awarded 1ROC/1MWh once banding is introduced. Subsections (1) to (3) provide that transitional provision may be made either when banding is first introduced or when it is revised.

135.Subsections (4) (5)and (6) provide that, for generating stations which are in receipt of statutory grants and are specified in the order, the banding provisions may be made conditional on giving up any entitlement to grant (and repaying sums paid under it). Provision might be made, for example, whereby the operator would have a choice between keeping the grant and continuing to receive 1 ROC/MWh for its generation or returning the grant and receiving more ROCs per MWh once banding is introduced. Subsection (9) defines the meaning of statutory grant.

New section 32F

136.New section 32F provides for an electricity supplier to be able to discharge its renewables obligation (to the extent provided for by the order) by presenting Northern Ireland Renewable Obligation Certificates which are issued by the Northern Ireland Authority for Utility Regulation (“the Northern Ireland authority”). The Northern Ireland authority administers the RO in Northern Ireland. The practical effect of this provision is that it allows the obligation in Great Britain to work alongside the obligation in Northern Ireland thereby providing a single market for ROCs across Great Britain and Northern Ireland.

New section 32G

137.New section 32G provides for the order to make provision for electricity suppliers to discharge their obligation by paying a ‘buyout’ price to the Authority. Subsection (1)(b) provides for late payments made by electricity suppliers to the Authority to be used towards discharging the obligation too. Subsection (2) provides for the buyout price to be determined through the order and subsection (3) allows the buyout price to be linked to, for example, the Retail Price Index.

138.Subsections (5) to (8) provide that an order can make arrangements to require electricity suppliers to make additional payments where there is a shortfall in the amount due into the buyout fund for a particular obligation period. These additional payments are referred to in the current renewables obligation order as mutualisation payments. They arise in circumstances where an electricity supplier cannot fulfil its obligation and is unable to make a buyout payment; for example, if a supplier goes into administration. Additional sums are then required from the remaining electricity suppliers to cover the amounts that would have been paid by the insolvent supplier. Subsections (9) and (10) define shortfall for these purposes.

New section 32H

139.Subsection (1) requires that payments made to the Authority in respect of the buyout fund and late payment fund be paid to electricity suppliers using an allocation system specified in the order. Subsection (2) allows for these payments to not be made where the money in the fund is instead used for the purposes set out in Section 32I (which relates to the recovery of the Authority’s costs in administering the RO). Subsection (3) allows for these payments to be made to specified categories of electricity supplier only.

140.Subsection (4) allows an order to specify that if certain circumstances are met, monies in the late payment fund will be held over till a later period. This is intended to provide for situations where, typically, sums in the late payment fund are so small that the bank charges incurred by the electricity suppliers of receiving this money would be larger than the amounts received. In this situation the payments could be postponed, for instance, until the following year and paid out with the money for that year. The order may specify the amounts which may trigger such a carry over.

New section 32I

141.New section 32I is a new power which enables the order to specify that a proportion of the money received into the buyout fund and late payment fund from electricity suppliers can be used by the Authority to cover some or all of its costs of administering the RO in England, Wales and Scotland. Money from the buyout fund could also be used by the Authority to make payments to the Northern Ireland authority to cover some or all of the costs incurred by that authority of administering the RO in Northern Ireland.

New section 32J

142.New section 32J enables the order to provide for the Authority to require electricity suppliers and others (who may include electricity generators and agents acting on behalf of generators) to provide certain information in relation to their participation in the RO.

143.Subsection (3) introduces a new power which allows the order to require operators of stations generating electricity wholly or partly from biomass to provide information relating to the biomass. This information could, for example, relate to the source of the biomass and the circumstances under which it is grown. The purpose of this provision is to enable the Authority to gather and make public information on sustainability. If generators fail to provide the information in the time and form specified, the Authority may be empowered to postpone the issue of ROCs until such time as the information has been provided, or not to issue ROCs at all.

New sections 32K and 32L

144.New section 32K enables the order to make general provisions about a number of matters, including transitional provisions. New section 32L concerns the procedure for making an order and requires the Secretary of State and the Scottish Ministers to consult the Authority, the National Consumers Council, electricity suppliers subject to the RO, appropriate electricity generators and such other persons as the Secretary of State considers appropriate before making an order. As at present, both the order for England and Wales and the order for Scotland will be subject to affirmative resolution procedure. In addition, there is a statutory requirement to consult before the power is exercised.

New Section 32M

145.New Section 32M provides definitions for various terms within the preceding sections, including a definition of what constitutes a renewable energy source. That definition, in subsection (1), includes ‘waste of which not more than a specified proportion is fossil fuel’ as a renewable source for these purposes.

146.Subsection (2) enables the order to define ‘waste’ and say how the fossil fuel element of waste is to be determined. The provision is designed to enable energy from waste generators to benefit from the renewables obligation by making it easier for them to claim ROCs in respect of the non fossil fuel element contained in waste.

Section 38: Section 37: supplemental provision

147.Subsection (1) of section 38 enables the requirement to consult under section 32L of the Electricity Act 1989 (as inserted by section 37) to be satisfied by consultation which takes place before commencement of section 37 or the passing of the Act.

148.Subsections (2) and (3) of section 38 enable the making of consequential amendments to certain references to Northern Ireland legislation contained in sections 32 to 32M. The Government anticipates that these references will need to be updated if the Northern Ireland legislation is amended to take account of changes made by this Act.

Section 39: Existing savings relating to section 32 of the Electricity Act 1989

149.Section 39 amends section 67(1)(c) of the Utilities Act 2000. This provision confers on the Secretary of State a power to modify, preserve, replace or otherwise deal with arrangements made pursuant to non fossil fuel obligation (NFFO) orders under section 32 of the Electricity Act 1989 in its original form. The amendment clarifies that the Secretary of State’s powers under this provision extends to any arrangements which have replaced the original arrangements.

Section 40: The Northern Ireland renewables obligation

150.Subsection (1) of section 40 amends section 121 of the Energy Act 2004. Section 121 permits the Authority to carry out, on behalf of the Northern Ireland Authority, functions conferred on the Northern Ireland authority under or for the purposes of Articles 52 to 55 of the Energy (Northern Ireland) Order 2003. These functions relate to the administration of the RO in Northern Ireland. The amendments made by this section ensure that the Authority can continue to act on behalf of the Northern Ireland authority even if Articles 52 to 55 are amended by an order under Article 56. Article 56 confers power to amend Articles 52 to 55 to reflect any changes made to the corresponding legislation for Great Britain.

151.Subsection (2) ensures that the power in Article 56 of the Energy (Northern Ireland) Order 2003 to amend articles 52 to 55 of that Order, extends to making provision corresponding to the amendments made by section 37 (i.e. the new sections 32 to 32M of the Electricity Act 1989).

152.Subsection (3) applies where an order is made under Article 56 amending articles 52 to 55 of the Energy (Northern Ireland) Order 2003, and, by virtue of changes made by that order, a Northern Ireland Renewables Obligation Order is made under Article 52 of the Energy (Northern Ireland) Order 2003 (“the NI RO order”). It provides that the consultation requirements which have to be satisfied before the NI RO order is made may be satisfied by consultation carried out before the Article 56 order came into force or this Act was passed.

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