1. UKELA CCEWP Round-up of Climate Change Regulation Becky Clissmann Editor, PLC Environment Practical Law Company 10 October 2012

2. PLC disclaimer

3. 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?

4. CRC

5. 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

6. CRC Timeline

7. 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

8. What emissions covered?

9. 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

10. 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

11. Example of a group participant X X X X

12. 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

13. 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)

14. 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)

15.  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….!

16.  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

17.  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)

18.  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 !

19. 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

20. Renewables Obligation

22. 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

23. 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

24. 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.

25. 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

26. How will the RO change? FITs CfDs

27. How will the RO change? FITs CfDs First FIT CfD payments made 201220132014201520162017 Transition period Vintaged period 2037 - - - First FIT CfD contracts signed RO closes to new accreditations and additional capacity at existing stations RO ends

28. FITs

29. 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 register Ofgem 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

30. 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)

31.  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?

32.  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?

33. 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 certificate Find 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

34. 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)

35. 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

36. For more information contact: Becky Clissmann Editor, 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/ becky.clissmann@practicallaw.com