The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)
I beg to move,
That the draft Electricity Capacity (Amendment etc.) (Coronavirus) Regulations, which were laid before this House on 20 May, be approved.
Before outlining some of the provisions made by this draft instrument, I will briefly provide some context. The capacity market is at the heart of the Government’s strategy for maintaining the security of electricity supplies in Great Britain. It secures the capacity needed to meet future peak electricity demand, in a range of scenarios, through competitive technology-neutral auctions, which are normally held four years and one year ahead of the relevant delivery year. This draft instrument, together with capacity market rules changes to be made, performs two broad functions. First, it will ensure that the capacity market remains compliant with its state aid approval by giving effect to Government commitments recorded in the state aid approval decision. Secondly, it will make temporary modifications to support providers in the light of the effects of coronavirus.
The context of the capacity market state aid approval is, briefly as follows. The EU Commission state aid approval of the capacity market in 2014 was annulled in November 2018 by a judgment of the general court of the Court of Justice of the European Union. This introduced the standstill of normal operations of the capacity market until October 2019, when the European Commission completed its reinvestigation of the capacity market and granted state aid approval. On the back of this approval, the Commission state aid approval in October 2019 recorded the Government’s commitments to make technical changes to the capacity market design, to reflect recent market and regulatory developments, including reforms that the Department for Business, Energy and Industrial Strategy had already identified through the statutory five-year review of the capacity market in July 2019.
John Redwood (Wokingham) (Con)
I am glad that the Minister has started with the very important context, because, of course, an 80-page EU document explaining the history and the requirements should have been appended to our documents. Why, however, do we think it a good idea to comply with the proposition that our interconnector imported energy has to increase from 4% to 9% of our total by 2021, when we should be going for self-reliance and resilience?
Kwasi Kwarteng
I know that my right hon. Friend is a noted sceptic about climate change—or he was, certainly, until very recently—but he will know that any country that, like us, wants to reach the net zero commitment will necessarily be reliant on much greater interconnector capacity, from Europe in many instances and sometimes from countries such as Norway that are outside the EU, than is currently the case. That is exactly why we are proceeding on this path.
John Spellar (Warley) (Lab)
Should we not be looking at the underlying proposition, given the enormous increase in renewables? Is it not absurd that we have been importing electricity through the interconnector while paying renewable companies, particularly those connected to wind farms but also to solar, to switch off because of low levels of demand? Is there not a disconnect in this market at the moment?
Kwasi Kwarteng
I think there are issues, which the right hon. Gentleman raises, with regard to pricing and the ability to have a much more flexible grid system. With respect, however, these regulations have nothing to do with that. That is a separate debate.
John Spellar
With respect, the Minister seems to be embedding the current dysfunctional system into new regulation. I fully accept that the Government have to do something about this because of EU decisions, but, equally, there does not seem to be, and I do not get the sense of, an understanding that this is a defective mechanism that needs to be reformed, and probably quite quickly.
Kwasi Kwarteng
The right hon. Gentleman is absolutely right that the system needs to evolve. We are looking at some of the smart pricing he alludes to and the flexibility of the system, and I am sure he will read our White Paper with interest. However, the issue of the flexibility of the system is not really germane to this statutory instrument on the capacity market, which, as he and my right hon. Friend the Member for Wokingham (John Redwood) know, is a technology-neutral device.
Jim Shannon (Strangford) (DUP)
Have the Government taken into consideration the demand on energy that will arise from their policy to build 100,000 houses a year over the next few years? Are the Government’s goals, as set out by the Minister, achievable, given that house building programme and the associated increase in population?
Kwasi Kwarteng
I think it is achievable, but what the hon. Gentleman is talking about is way outside the scope of this statutory instrument. As I have said, we are talking about flexible pricing; we are talking about the growth of renewables. This Government have committed to 40 GW of offshore wind power by 2030, which is a marked increase on the 30 GW ambition that we had. We are talking about nuclear as well—we have Hinkley Point. There are all sorts of generating power on the system. As I have said, we have a White Paper coming up, which talks about all these issues. Once again, with respect, I have to say that this is a very specific SI regarding the operation of the capacity market. The House will have plenty of time to debate other forms of electricity and power generation in the weeks ahead.
Alan Brown (Kilmarnock and Loudoun) (SNP)
Is it still not the point, as the Minister has said, that there needs to be greater flexibility, that the market needs to evolve and that he could therefore still be more ambitious with these regulations? If he is tying changes to state aid in the regulations to effectively temporary measures regarding coronavirus, it is quite clear that that is about flexibility and how he could approach that. Could he not have been a bit more ambitious with what is in these regulations?
Kwasi Kwarteng
All I can do is repeat the answer that I have given. These regulations reflect our past discussions about the operation of the capacity market. He and I and others in this Chamber will have plenty of time to debate a new system. I ask the hon. Gentleman to have a little patience. We have a White Paper coming up and it would be precipitous to have an extensive debate about these issues in legislation ahead of the publication of the White Paper. He has asked many questions about that, and I advise him to wait for the debate on the White Paper.
John Redwood
I do not know why the Minister referred to climate change in answer to my previous question. I was not talking about that and, as he says, it has nothing to do with the regulations, so may I have another go? Why have we agreed to more than double our importation of energy through interconnectors? Is it a good principle that we should be paying a capacity payment to foreign providers of electricity who want to sell us their surplus power, but who would not necessarily have it available when we wanted it?
Kwasi Kwarteng
In regard to climate change, my right hon. Friend will know that one of the big issues, or successes, that we have had in decarbonising electricity power generation has been through taking coal off the grid and having renewables. All the assessments that we have had and looked at show that an increase in interconnector capacity is part of that mix, just as nuclear is part of the mix, just as offshore wind and now onshore wind— the pot one auction—are part of the mix. All these things are part of the decarbonisation story of our power, and this is very important to us, which is why we have increased—or seek to increase—our interconnector capacity.
Kwasi Kwarteng
I was just anticipating further interventions. I will try to make some progress if I may. I want to turn in particular to the temporary modifications that the draft instrument seeks to make in recognition of the fact that coronavirus has made a big impact—a negative impact in some cases—on the ability of capacity providers to meet some of their obligations under the capacity market rules. The approach we are taking, in making temporary easements, is similar to that adopted to support capacity providers during the capacity market’s standstill last year, and these measures are fully accounted for in the draft legislation. As the disruptive effects of coronavirus may lead to more capacity providers facing termination of their agreements, this draft instrument will increase the time for capacity providers to appeal against notices to terminate their agreements to the Secretary of State. The legislation will also provide the Secretary of State with discretion to extend the time for capacity providers to comply with requirements in order to avoid a termination.
In conclusion, this draft instrument will ensure security of electricity supply by ensuring that the capacity market continues to comply with its state aid approval and by reducing burdens on capacity providers during the coronavirus pandemic. Furthermore, we fully believe that these changes will maintain absolute integrity and confidence in the market. On that basis, I commend the draft regulations to the House.
Kwasi Kwarteng
We have had a very wide-ranging debate—far more wide-ranging than any I can remember on secondary legislation. I suggest that many of these subjects would be better discussed in a fuller debate, of which we will have many ahead of legislation in the autumn. The White Paper I hope will come soon. I had not realised it was the first birthday of its putative publication, but I am sure that it will come soon, and we will witness many debates about energy policy.
Let me touch on a few things that hon. Members raised. I do not share the fear expressed by my right hon. Friend the Member for Wokingham (John Redwood) about interconnectors. Going from 4% interconnector capacity to 9% is not indicative of an encroaching EU superstate or anything of that nature. Any Energy Minister who wanted to hit those net zero targets would be looking at interconnector infrastructure. He will know, as will my hon. Friend the Member for South Thanet (Craig Mackinlay), that Germany does have a problem with coal, but the majority of our interconnector capacity comes from France, Ireland and Norway, which are actually doing very well in terms of clean power generation.
With respect to the remarks by the hon. Member for Southampton, Test (Dr Whitehead) about T-1 and suspension, it will not be 12 months de rigueur; it will be up to 12 months. Each and every exemption will be looked at on a singular, case-by-case basis. It is not true that year-long extensions will be given without regard to the circumstances. On emissions, I think we are going to have separate legislation—potentially secondary legislation—regulating or capping emissions, so again, I ask him to be forbearing and patient in respect to legislation regarding emissions.
The hon. Member for Kilmarnock and Loudoun (Alan Brown) talked about the demerits of nuclear, about hydropower storage and about floating offshore wind, all of which are fascinating subjects but I am afraid are outside the limited scope of this statutory instrument on the capacity market. However, I would be very happy to engage him in debate about many of those fascinating and interesting opportunities and innovations in the energy sector.
The Government continue to believe that the capacity market is the right mechanism for delivering security of supply at the lowest—
Alan Brown
One point I raised that was specific to the regulations was about ensuring that we do not get more diesel generators bidding into the capacity market. I mentioned the reduction in the minimum threshold from 2 MW to 1 MW. Will the Minister address that point?
Kwasi Kwarteng
Forgive me; the hon. Gentleman has raised some very specific points about our future energy policy, and I wish and hope that we can have a wider discussion on those specific points.
If I may reach a conclusion, these regulations are absolutely necessary to ensure the continued security of electricity supply. All our stakeholders in the market—the generators—say they want some security. The suspension of the market as a result of the judicial decision last year was very damaging and created a great deal of uncertainty. The SI deals with a lot of that uncertainty and is welcomed not only, I understand, by the hon. Member for Southampton, Test but across the sector.
John Redwood
But will the Minister confirm that we can legislate now for 1 January next year and have the system we want? This is only a very temporary thing if the Government come up with a sensible policy.
Kwasi Kwarteng
It is of its nature temporary. As my right hon. Friend will know from his long experience in Parliament, the last time we had an energy Bill was in 2013. The Government may well wish to introduce another energy Bill but, whether that is the case or not, there will be ample opportunity after 1 January 2021 to debate the future of our energy system. All the issues raised with regard to flexibility will be relevant, and I am sure that he and others will engage fully and enthusiastically in that debate.
The regulations are necessary to ensure continued security of electricity supply. They will also ensure, obviously, that the capacity market continues to comply with its state aid approval, which was granted last October but does not necessarily bind us forever and a day. The regulations also provide support for capacity providers during the coronavirus epidemic.
On those two grounds of state aid and dealing with the coronavirus pandemic, I commend the draft regulations to the House.
Question put and agreed to.
Resolved,
That the draft Electricity Capacity (Amendment etc.) (Coronavirus) Regulations, which were laid before this House on 20 May, be approved.