1. The Scottish Executive is fully committed to the increased development of renewable energy across Scotland. This commitment recognises the potential environmental and economic benefits that renewable energy can bring. Scottish Ministers have set challenging targets for the generation of electricity from qualifying renewable energy sources - 18% of electricity generated in Scotland as a proportion of demand to be from renewable sources by 2010, rising to 40% by 2020. A recent report by our Forum for Renewable Energy Development in Scotland ( FREDS) estimated that this could amount to up to 6 GigaWatts of installed renewable capacity (although this should not be viewed as a cap)
2. The Renewables Obligation (Scotland), or ROS, is the Executive's main policy instrument for delivering more renewable electricity generating capacity in Scotland. It operates alongside a host of other measures, both here and at the UK level, designed to encourage the development of renewable sources of energy. The ROS creates an incentive for the development of new renewable electricity generating capacity by requiring licensed suppliers to supply increasing proportions of renewables electricity.
3. The ROS was introduced, following full consultation, on 1 April 2002 in parallel with the identical Renewables Obligation Order 2002 ( ROO) covering England and Wales. Amendments were made to the Obligations in 2004 and 2005, at which time there was an equivalent Obligation also introduced covering Northern Ireland. Together, the UK Renewables Obligations create a strong market for and an incentive to build new renewables generating capacity.
The 2005/6 Review
4. This current review of the UK Obligations stems from a commitment contained in the UK Energy White Paper published in 2003. Our preliminary consultation paper for this review, published in April and available from http://www.scotland.gov.uk/Topics/Business-Industry/infrastructure/19185/200506ROSCons, contained a number of proposals for change to the ROS. Most of these applied to all three UK Obligations , and included proposals to change the eligibility rules governing energy from mixed wastes, the potential to reduce the support available to lowest cost technologies, a consideration of future Obligation levels and a number of potential changes to the operation and administration of the market and legislation.
5. However, we also consulted on two separate potential changes relating exclusively to Scotland. The first of these was, in response to an explicit recommendation from the Scottish Parliament, that the ROS might be amended to provide additional support to emerging technologies, notably wave and tidal energy.
6. We received a large number of responses to this proposal. A majority were opposed to such a change being introduced, on the grounds that it would be a departure from one of the key principles upon which the ROS is based (that of supporting the most economic forms of renewable generation), and that it could have a negative impact on investor confidence. Those against change did acknowledge that these technologies needed support, but felt that it should be provided outside the ROS. Those in favour of awarding "multiple ROCs" explained that large scale deployment of wave and tidal devices was essential to attracting private and utility investment and driving down costs, and that the current support on offer would not be sufficient to achieve this.
7. The Executive has considered these responses very carefully. While we acknowledge that a change of this nature would represent a departure from the original design of the Obligation, this does not seem to us be a clinching argument for retaining the status quo. At the same time, we agree that investor confidence is vital to the continued success of the market that the ROS has helped establish. However, the discussions which we have had with stakeholders have strengthened our view that the market would be strong enough to accommodate a carefully designed change of this nature.
8. We also accept the argument that the existing levels of support for the marine sector will not be sufficient, and that developers and potential investors require certainty over the availability of long-term support if the sector is to develop in a way which will meet Ministers' ambitions for wave and tidal energy in Scotland. Finally, while we acknowledge the calls for such support to be delivered directly to the sector by the Executive, we do not believe that we could do so at the same time as meeting our commitments to develop the other technologies necessary to produce the diversity of supply to which Ministers are committed.
9. As a result, we believe that there would be merit in altering the ROS to provide increased support in the form of additional ROCs to output from wave and tidal energy devices only. We do NOT intend to proceed with this change as part of the current review. Indeed, the first step will be for us to scope and commission work aimed at establishing the precise level and duration of any support that might be awarded in this way. We believe that by doing so, we will be able to limit any potential impacts on investor confidence. Following this work, we would look to consult on our findings and proposals, with the intention that any subsequent changes would take effect from April 2007. This will give the sector and wider market considerable time in which to prepare, and means that there are no further implications in terms of the current review process. We will make a further announcement in due course.
10. We also consulted on a potential change to the current definition of energy crops within the Obligation, i.e. that it be widened to include material from sustainably managed forests. The majority of respondents to this point were in favour of the change, although many linked this support to the change being made across all three Obligations. We consider that the case for change is strong; however, there is time yet until the co-firing restrictions, which would bring such an amendment into play, take effect. We also believe that there would be merit in allowing more time to consider the results and conclusions of current UK studies on bioenergy. Consequently, we agree that we should defer consideration of this amendment for the time being.
The Statutory Consultation
11. The Electricity Act 1989 requires us to consult before an Order is made under section 32 of that Act. The proposals for change to the ROS to which this statutory consultation apply are identical to those being considered for the other UK Obligations, having been developed and agreed in consultation with UK policy colleagues. Accordingly, a full breakdown of those proposals can be found in the paper prepared by colleagues in the Department of Trade and Industry, available from http://www.dti.gov.uk/consultations .
12. Briefly, the topics being covered are summarised as follows:
(i) Effectiveness of the Obligation - considers responses to the preliminary consultation on the effectiveness of the Obligations in the development of additional renewables capacity.
(ii) Energy from Mixed Wastes - invites views on a number of limited changes to the eligibility rules for ROCs in relation to electricity generation from mixed wastes. We should stress that our view is fully consistent with that expressed in the UK Statutory Consultation paper, i.e. that although we do not view the Obligation as the correct vehicle through which to do so, we remain willing to explore alternative ways in which to promote and support additional energy generation from the biomass fraction of residual, post-recycling mixed wastes.
(iii) Lower Cost Renewable Technologies - invites views on best means of reducing support for lower cost renewable technologies over time.
(iv) Obligation levels beyond 2015/16 - sets out our agreed position on the issue of future decisions on the profile of the Obligations beyond 2015/16.
(v) Combined Heat and Power - invites views on how CHP is handled in the context of the Obligations.
(vi) Operation of the ROC Market / Administrative Issues - outlines way ahead on number of operational and administrative issues, including means by which Obligation might be amended to support / include smaller generators.
13. Included alongside this covering letter are a Regulatory Impact Assessment and a consolidated version of the ROS, which incorporates the changes and new provisions necessary to implement the amendments being proposed as part of this consultation. The draft Order is set out as published for consultation purposes only - further legal advice will be taken on drafting the final version, and its contents may change.
14. We would welcome views from our stakeholders on all of the issues raised, by Thursday 1 December. These should be sent, along with any questions about policy issues raised in the document, by email, letter or fax, to:
Neal D Rafferty Energy Policy Unit
2 nd Floor
5 Cadogan Street
15. We would be grateful if you could clearly indicate in your response which questions or parts of the consultation paper you are responding to as this will aid our analysis of the responses received.
16. This consultation, and all other Scottish Executive consultation exercises, can be viewed online on the consultation web pages of the Scottish Executive website at http://www.scotland.gov.uk/consultations. You can telephone Freephone 0800 77 1234 to find out where your nearest public internet access point is.
Handling your response
17. We need to know how you wish your response to be handled and, in particular, whether you are happy for your response to be made public. Please complete and return the Respondent Information Form (enclosed with this consultation paper at Annex C) as this will ensure that we treat your response appropriately. If you ask for your response not to be published we will regard it as confidential, and we will treat it accordingly.
18. All respondents should be aware that the Scottish Executive are subject to the provisions of the Freedom of Information (Scotland) Act 2002 and would therefore have to consider any request made to it under the Act for information relating to responses made to this consultation exercise.
Next steps in the process
19. Where respondents have given permission for their response to be made public (see Annex A), these will be made available to the public in the Scottish Executive Library and on the Scottish Executive consultation web pages. We will check all responses where agreement to publish has been given for any potentially defamatory material before logging them in the library or placing them on the website. You can make arrangements to view responses by contacting the SE Library on 0131 244 4565. Responses can be copied and sent to you, but a charge may be made for this service.
What happens next ?
20. Following the closing date, all responses will be analysed and considered along with any other available evidence to help us reach a decision on the issues identified within this paper. The responses received will inform progress towards the amendments to the ROS discussed in the UK Statutory Consultation paper being finalised and brought into force on 1 April 2006.
Comments and complaints
21. If you have any comments about how this consultation exercise has been conducted, please direct them to us using the contact details at paragraph 14.