UKELA CCEWPRound-up of Climate Change

Regulation

Becky Clissmann

Editor, PLC Environment

Practical Law Company

10 October 2012

PLC disclaimer

Agenda

CRC Energy Efficiency Scheme (CRC) – Becky Clissmann Feed-in Tariffs (FITs) - Becky Clissmann Renewables Obligation (RO) - Becky Clissmann Renewable Heat Incentive (RHI) - Tom Bainbridge Electricity Market Reform (EMR) - Tom Bainbridge Nigel Cornwall, founder of Cornwall Energy – Are the

Government’s climate change and energy policies heading in the right direction or indeed anywhere at all?

CRC

What is the CRC?

A mandatory emissions trading scheme for large, non-energy intensive UK businesses and public sector organisations

Aims to reduce carbon dioxide emissions and encourage energy efficiency

Came into force in April 2010

Divided into 7 Phases

CRC Timeline

What do participants have to do?

Identify if they are covered and register Identify their CRC emissions and submit a Footprint

Report Purchase allowances to cover CRC Emissions for the

forthcoming year Monitor CRC emissions during the year and submit an

Annual Report Keep an Evidence Pack to support reports Surrender allowances equal to their CRC emissions

Using the Annual Reports, the scheme administrator will produce a league table ranking all the participants

What emissions covered?

Who does the CRC apply to?

Organisations that meet the qualification criteria for the relevant phase

Qualification criteria A “CRC participant” includes any organisation or

group organisation who: Was supplied with electricity via at least one

Settled Half Hourly Meter in the qualification year (2008 for the Introductory Phase)

Had aggregate electricity supplies via Half Hourly Meters in the UK which equalled or exceeded 6,000 MWh in the qualification year

Organisations affected by the CRC

Private sector Single companies

Groups Grouped under the Highest Parent Undertaking (HPU) Need to appoint a Primary Member (aka Account Holder) Complex rules round possibility of disaggregating certain subsidiaries

(“Significant Group Undertakings”)

Overseas organisations

Joint ventures

Franchises and other distribution agreements

Example of a group participant

X

X

XX

Public sector Mandated Participants: Disaggregation for government departments possible

Organisations designated as a "public authority" in the Freedom of Information Act 2000 (FOI) and the Freedom of Information (Scotland) Act 2002 (FOI(S))

Local authorities Schools County Fire Authorities Companies and other bodies in which they have a controlling interest

The Crown Executive Agencies and non-departmental bodies Fire Authorities Police Authorities NHS Universities

Organisations affected by the CRC

Buying allowances Introductory Phase Fixed price sale – 1st one April 2012 - allowances sold at £12/tonne

Phase 2 onwards? 2 Fixed Price Sales?

Registry account

Secondary market – a participant with surplus allowances can sell to other participants

Safety valve - if participants didn’t buy enough allowances in the sale and can’t get more allowances from the secondary market, they can ask the scheme administrator to buy EU ETS allowances on their behalf. These are then converted to CRC allowances and the EU ETS allowances are cancelled

Additional allowances can be sold or banked for use in the following compliance year (although not between Introductory and second phases)

What is the league table?

Ranks participants

Reputational driver

Based on 3 metrics Early action metric

Absolute metric (measure of change)

Growth metric (change in emissions per unit of turnover/revenue)

The Committee on Climate Change’s report: advice to the government on the second phase – September 2010

The government’s Spending Review – October 2010

DECC review/consultation to simplify the scheme – November 2010

DECC – 5 discussion papers – January 2011 DECC detailed proposals to simplify the

scheme and responses to the consultation – June 2011

DECC – Consultation on simplifying the CRC – March 2012

Its all changing….!

Qualification criteria based on electricity supply through Settled Half Hourly Meters (Settled HHMs)

Changes to the Supply rules including: Ability to claim unconsumed supply limited… but Landlords still responsible for

supply Number of fuels reduced from 29 to 4 Emission factors same as for GHG reporting Residual percentage rule and requirement to produce Footprint Reports and

RML removed Overlap with CCAs and EU ETS reduced Electricity Generating Credits will be scrapped

Changes to the Organisational rules including: Businesses to participate in “natural business units” Disaggregation possible for any subsidiary at any level , at any point in first year

of a Phase and annually thereafter Concept of SGU removed so no reporting in Annual Reports Changes to Designated change rules so only cover Participants and Participant

Equivalents Landlords will remain responsible for supplies of energy to their tenants – small

exception where land leased for tenant to build on Trusts treated as undertakings and therefore separate from other trusts with

same trustee

Summary of the changes

Sales of allowances changed so that: 2 Fixed Price Sales each year – one

forecasting sale and one retrospective sale No Safety Valve Banking of Allowances will not be permitted

across Phases Deadline for surrender moved from July to

September

Reporting and record keeping rules changed

Some reports scrapped Records kept for less time

No decision on Performance League Table yet

Appeals to be delegated to the First-tier Tribunal

Summary of the changes (2)

In the March 2012 Budget, the government said that if it is not possible to achieve very significant cuts in the administrative burdens, it would bring forward proposals in autumn 2012 to replace the CRC with an alternative environmental tax. If it decides to replace the CRC, it will engage with businesses before the autumn to identify potential alternatives to the CRC.

NB revenue stream for Treasury

Stakeholder event in June 2012

Defra’s announcement on GHG reporting for listed companies – July 2012

Will CRC be scrapped?

Change

Ahead !

Timing

Consultation closed on 18 June 2012

Decision on scheme in “autumn” 2012

Government aiming for amending legislation to be in force by April 2013 when Phase 2 begins

Renewables Obligation

Renewables Obligation

How does the RO work?

Background Renewable Energy Directive 2009 (RED)

EU target of 20% by 2020 UK target 15% by 2020

Utilities Act 2000 amended the Electricity Act 1989 to allow orders to be made to oblige electricity supplier to purchase a %age of their electricity from renewable sources

Renewables Obligation Order 2009 as amended by 2010 and 2011 orders RO runs until 2037 but now limited to 20 year’s support Aimed at large generators UK wide - 3 complementary schemes in UK for E&W, Scotland and NI – ROCs fully

fungible

Administrator – Ofgem

Obligation Placed on licensed electricity suppliers Level of obligation increases each year and is the higher of the fixed target or

headroom Expressed as the number of ROCs to be submitted for every MWh of electricity

supplied – currently 0.158 ROCs per MWh for 1 April 2012-31 March 2013 

How does the RO work?

ROCs Can get between 0.25 ROCs and 5 ROCs for every MWh generated Currently 26 bands – different technologies and levels of ROCs - generally more

established technologies get less ROCs and the newer emerging technologies get more support

NB Co-fired ROCs cap – only up to 12.5% of a supplier’s obligation Valid for obligation period for which they were issued and for the following obligation

period - Banked ROCs can only be used to meet up to 25% of a supplier’s obligation Banding levels reviewed every 4 years unless reason for early review

Accredited generators Not defined – electricity deemed to have been generated from eligible renewable

sources if generated from renewable sources and not generated by an excluded generating station

Grandfathering Same, fixed level of support under the RO for 20 years from when they are first

accredited Protect investment decisions made in relation to a generating station on information

available at the time. Applied following the introduction of banding and applies also to banding reviews Some technologies are not grandfathered

Interaction with FITs ROCs - is for large scale generation >5MW NB where technologies are not covered by FITs

microgeneration is supported under the RO get 2 ROCs/MWh

FITs is for microgeneration and small generation <5MW

Transitional provisions in RO Order 2010 for when FITs were introduced in April 2010

DECC announced that their proposal on removing small generators choice between the two schemes due to take effect from 1 April 2013, will not be taken forward

Additional capacity – if over 5MW mark will be able to get support under the RO.

How will the RO change?

ROBR 2011/12 Consultation - Oct 2011 Response - July 2012 Draft RO Order 2012 – August 2012

Significant banding changes: Onshore wind – smaller changes than thought Large scale solar no immediate cut but now consulting again Significant increases for some marine technologies – up to 5

ROCs New biomass conversion band Co-firing band split into 3 (standard, mid and high range Support for EfW retained at 1 ROC/MWh instead of 50%

reduction originally proposed

How will the RO change?

FITs CfDs

How will the RO change?

FITs CfDs

First FIT CfD payments made

2012 2013 2014 2015 2016 2017

Transition period

Vintaged period

2037- - - - - -

First FIT CfD contracts signed

RO closes to new accreditations and additional

capacity at existing stations

RO ends

FITs

How do FITs work?

Ecotricity check s the household is eligible for

FITs using the MSC certificate and registers

the installation in the central FIT registerOfgem

Central FIT

Register

Ecotricity

National Grid

© Practical Law Publishing Limited 2010.

MSC certified equipment

and installer

Householder uses MSC

accredited equipment and

installer. Installer registers

household on Central FIT

register.

Householder gets MSC

certificate

Ecotricity pays the household for

electricity generated and electricity

exported to the grid.

Household pays for electricity

imported from grid in the usual way

Householder exports

electricity to the grid

when it is not using

what it generates

How do FITs work? Background

Powers in sections 41-43 of the Energy Act 2008 to introduce FITs.

(Feed-in Tariffs (Specified Maximum Capacity and Functions) Order 2010 (SI 2010/678) as amended

Modifications to the Standard Licence Conditions of Electricity Supply Licences

The scheme went live on 1 April 2010

Administrator is Ofgem

What generation covered? The scheme applies to small scale installations (less than 5MW)

5 technologies: anaerobic digestion hydro projects of 50kW or less domestic micro CHP (pilot programme with 2kW electrical capacity of declared net

capacity (DNC) or less) solar PV (roof mounted or stand alone) wind (building mounted or free standing turbines)

Tariffs Guaranteed payment by electricity supplier for both generated

and exported electricity FIT generators can choose export tariff or market rate Deemed export for very small-scale installations (≤30 kW) FIT generators “locked in” to tariff in year of installation Degression – PV and wind tariffs will decrease between 2013 –

2020 Tariff lifetimes vary from 10 years (micro CHP) to 25 years for

solar PV Linked to RPI Review

Installations on business or domestic properties can benefit

Receipt of FITs payments can be assigned

FIT are not taxable income for householders

Extensions – additional capacity at tariff rate for entire capacity at eligibility date

How do FITs work?

Who pays? FIT installations must find a supplier through

which they will be paid

Mandatory FIT Licensees - >50,000 domestic customers

Voluntary FIT Licensee

Levelisation process - the cost of FITs is borne by all licensed suppliers

Up-front costs not covered

How do FITs work?

FITs application process

© Practical Law Publishing Limited 2010.

Check site characteristics and select technology

MSC certified registration

Are you installing generating equipment with a DNC of more than 50 kW or is your chosen technology anaerobic digestion?

ROO-FIT accreditation

MSC certified installers installs MSC certified

technology and gives MSC certificateFind a FIT licensee to provide FIT services and

send a written request for MSC certified

registration FIT licensee verifies MSC certification and

eligibility and registers installation in central FIT

register

Ofgem sends confirmation notification

Opt-out of export tariff

Agree statement of FIT terms

FIT payments start

Apply to Ofgem for ROO-FIT accreditation after installation

Ofgem verifies eligibility and gives ROO-FIT accreditation number

Find a FIT licensee to provide FIT services and request

registration

FIT licensee verifies eligibility and ROO-FIT accreditation

and registers installation in central FIT register

How will FITs change? Originally reviews to coincide with ROBR – first review was

expected April 2013

February 2011 – Early Comprehensive Review announced

March 2011 - Fast track for large scale solar & AD

October 2011 – Phase 1 Comprehensive Review (smaller-scale solar PV)

December 2011 - Solar PV companies and FoE successful JR challenge to consultation

Secretary of State for Energy and Climate Change v Friends of the Earth and others [2012] EWCA Civ 28

February 2012 – Phase 2A (solar PV cost control) and 2B (non-solar technologies and FITs scheme issues)

FITs data to date 248,010 renewable installations have been

registered since 1 April 2010

1,091 MW of Total Installed Capacity has been registered since 1 April 2010

A total of £46,869,264.23 in FIT payments were due to generators in the quarter 1 January 2012 to 31 March 2012

92% of the total installed capacity under the scheme to date is photovoltaic and 5% is wind

26% of the total installed capacity relates to commercial properties and 69% to domestic properties

Source Ofgem FIT update issue 8/June 2012

For more information contact:

Becky ClissmannEditor, PLC Environment t: +44 (0)7814 470364 e: becky.clissmann@practicallaw.com or for a free trial contact e: info@practicallaw.com t: 020 7202 1220 http://uk.practicallaw.com/