DECC: Biomass and Grandfathering

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DECC
This statement may only appear on the parliamentary intranet.

WRITTEN MINISTERIAL STATEMENT DAVID KIDNEY MP: PARLIAMENTARY UNDER SECRETARY OF STATE FOR ENERGY AND CLIMATE CHANGE
3 FEBRUARY 2010 BIOMASS AND GRANDFATHERING

My noble Friend the Minister of State for Energy and Climate Change today made the following statement.

The UK is committed to a massive expansion of renewable energy and a thriving, bioenergy industry is key to our goals. Indeed, bioenergy could supply up to half of our renewable energy needs by 2020 – for heat, electricity and transport.

Used wisely, energy from biomass will reduce CO2 emissions, make our energy supplies more secure, and create new industries and green jobs.

Biomass offers wider gains too. Over the next decade it can replace petrochemicals as the source of chemicals and other high-value products, as well energy.

Increasingly, the fuel for the new bio-economy will be waste materials, including municipal waste diverted from landfill.

Biomass supplies will need to increase significantly to deliver the step change we want and in the short term at least we will be reliant on imports. It is essential that those supplies are sustainable. The Government is determined to ensure that biomass, whether imported or produced in the UK:

- delivers real and substantive CO2 savings,
- uses land responsibly avoiding damaging land use change, and
- does not undermine global food supplies or inflate prices.

We are working hard for global sustainability standards on this basis; and we will ensure that these principles are applied to biomass used to generate energy in the UK. We will implement the sustainability criteria set within the Renewable Energy Directive for biofuels and bioliquids and are pushing for early resolution within the EU of how to deal with indirect land use change effects.

With sensible, robust controls in place, the UK has a lot to gain from biomass energy. I am informed by industry that they expect to be able to deliver 5GW of dedicated biomass, energy from waste, gasification and anaerobic digestion projects over the next few years – some £13 billion worth of investment.

And industry wish to ensure that developers have a stable regime in which to invest.

To help achieve this, I propose to look again at one aspect of support for biomass electricity under the Renewables Obligation. With most technologies our policy is not, as a rule, to change the level of ROC support once a generating station is accredited by Ofgem – i.e. support is "grandfathered". This is not currently the case for biomass. I am aware our current policy not to grandfather the support given for biomass electricity under the Renewables Obligation has caused significant investment concerns within the industry.

We made the decision not to grandfather biomass in 2008 due to the fact that unlike other technologies supported by the Renewables Obligation, biomass electricity generation faces ongoing fuel costs which are subject to market fluctuation in an immature market. We recognised the need for flexibility to consider the impact on biomass prices when setting the banding levels, and that led to increased support for all biomass generators, not just new entrants, on the introduction of banding as a result. In fact, we doubled support for AD and dedicated biomass with CHP.

The feed-in-tariffs for small-scale electricity, announced on 1 February, include tariffs for Anaerobic Digestion of 11.5p per kw/h up to 500kW and 9p per kw/h between 500kW and 5MW. These tariffs are grandfathered, index linked and will be available to generators accrediting at least until 2013. From 1 April this year, AD generators who need the security of a fixed rate for electricity they generate, will be able to choose to join the Feed-in-Tariff scheme rather than the Renewables Obligation.

Given the risk that investment will not come forward, DECC will review the policy on grandfathering and prepare a statement before the end of March.

This review will also consider what action the UK can take to introduce sustainability standards, following publication of the European Commission's report on biomass expected this February.

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