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New renewable support bandings give certainty to wind, Scottish Government claims

The Scottish Government will provide certainty to onshore wind developers by guaranteeing financial support under the Renewables Obligation (RO) until 2017 "unless new evidence on costs emerges", it has announced.14 Sep 2012

Scotland's Energy Minister, Fergus Ewing, said that although rates would be cut to reflect "the success and reduced costs this sector is enjoying" the Scottish Government did not plan to carry out an interim review of the costs of providing support. Ewing was commenting alongside the publication of the Scottish Government's response to the Renewables Obligation Banding Review. A previously unscheduled review of the costs of providing support in England and Wales is due to take place in 2014, according to an announcement by the Government in July.

Energy law expert Euan McVicar of Pinsent Masons, the law firm behind, said that relief among hydro-electric generators would be "less equivocal" following the Scottish Government's decision to retain support at current levels rather than introduce cuts, as announced in England and Wales.

"This is hugely positive for hydro in Scotland where there are a number of schemes that could benefit from the [Renewables Obligation Certificate (ROC)] support that have been shelved pending this review," he said. "The Scottish Government's response to the review does recognise that provisions of the current legislation already allow Scottish Ministers to review banding levels on an interim basis if there is a significant change in generating costs. However, the eventual outcome on wind will be welcomed by the wind industry insofar as the consultation makes it clear that the new support level is intended to apply for a full four years and does not place the same emphasis on an interim review as the [Department of Energy and Climate Change (DECC)] response did."

The RO is the main financial support mechanism used by the Governments to encourage the development of large-scale renewable electricity generation projects. It places an obligation on suppliers to source an increasing proportion of the electricity they supply to customers from renewable sources. Banded ROCs were introduced in 2009, changing the RO from offering a single level of support for all renewable technologies to one where support levels vary in relation to the cost of developing that technology and its future potential.

The draft Energy Bill, currently before Parliament, proposes replacing the RO from 2017 with a new system of feed-in tariffs with contracts for difference (FiT CfDs) which will offer producers of low carbon power a fixed price for energy supplied to the National Grid. Payments will be made with reference to a technology-dependent 'strike price' and a market reference price, protecting consumers by "clawing back" money from generators if the market price is higher.

In a statement to Parliament, Ewing said that the Scottish Government's desire was to keep bandings in Scotland as consistent as possible with those in the rest of the UK. However, he said that in certain areas a different course of action was "necessary and in Scotland's interests".

Support for hydro generation will remain at one ROC per megawatt hour (MWh) generated, rather than the proposed cut to 0.7 ROCs/MWh as proposed in the rest of the UK. Support for onshore wind will be reduced by 10%, to 0.9 ROCs/MWh.

Other changes announced by the Government could see the introduction of a new support band for "innovative offshore wind deployment in deep waters", following consultation; as well as the removal of support from April 2013 for biomass, or wood-fuelled, stations with a total installed capacity greater than 10MW which do not capture and use the heat they produce. The cut will not apply to stations which already had planning permission before the banding review consultation was published.

Ewing said that the results of the review were "vital to continued investment in renewable generation across Scotland", and would add to the country's existing competitive advantage in the renewables sector. The existing RO had helped to almost triple renewable output in Scotland over the previous decade and had attracted around £2.8 billion of investment since 2009, he said.

"Scotland has astounding green energy potential and vast natural resources, and we have a responsibility to make sure our nation seizes this opportunity to create tens of thousand of new jobs and secure billions of pounds of investment in our economy," he said. "Today's announcement will allow us to continue along that path."

The Scottish Government would, he said, shortly consult on the same terms as the UK Government on issues such as solar photovoltaic (PV) banding, additional cost controls for biomass and the future of support for certain types of small-scale generation.

Energy law expert Euan McVicar said that although not everybody would be pleased with the announcements, overall they showed "continuing support for renewable in Scotland" and would generally be seen by industry as more supportive than DECC's response in July.

"A further consultation on whether there should be additional support for innovation in offshore wind deployment in deeper Scottish waters will be welcome news," he added. "This might help provide an incentive for further collaboration between Scotland's world-leading oil services industry and the renewables industry."

Separately, Ewing called on the Government to ensure that Scotland maintained its existing power to apply a Scottish approach to supporting renewables as part of its proposals for electricity market reform. Introducing a debate on the draft Energy Bill, during which MSPs unanimously backed a motion calling on both Governments to work together on the reform programme, Ewing said that Scottish discretion over RO support levels had allowed investment, development and deployment in the sector to boom in Scotland.

"The Scottish Energy sector is essential to Scotland's present and future social, environmental, industrial and economic wellbeing and growth," he said. "We have targeted [existing support mechanisms] to reflect Scottish priorities such as our enormous wave and tidal energy potential. Properly designed, we believe the new proposals could allow similar discretion - but they must be at least as effective as the current support framework, and we must maintain our discretion to set the right support levels and to target that support where it is needed."