Draft Electricity Capacity (Amendment) Regulations 2021

(Limited Text - Ministerial Extracts only)

Monday 12th July 2021 General Committees

[The Chair]

We have moved to 1 metre-plus social distancing in General Committees. Members should still sit only in places that are clearly marked. Mr Speaker has stated that, unless Members are exempt, they should wear masks in Committee, except when speaking.

[The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)]

I beg to move,

That the Committee has considered the draft Electricity Capacity (Amendment) Regulations 2021.

It is a pleasure to serve under your chairmanship, Mr Stringer.

The draft regulations were laid before the House on 21 June. Before I outline their provisions, I will briefly provide some context. The capacity market is at the heart of the Government’s strategy for maintaining security of electricity supplies in Great Britain. It secures the capacity needed to meet future peak electricity demand under a range of scenarios through competitive, technology-neutral auctions, normally held four years and one year ahead of the relevant delivery year. Those who win capacity agreements, known as capacity providers, commit to providing capacity during period of system stress in exchange for capacity payments. Capacity payments are funded by electricity suppliers, who recover the cost from electricity consumers. Since its introduction in 2014, the capacity market has succeeded in ensuring secure electricity supplies at a low cost to consumers.

To ensure that the capacity market continues to function effectively, we regularly make adjustments to legislation, based on our experience of managing the market’s annual cycle. This instrument makes three technical improvements that will address issues that we encountered over the past year. A number of capacity providers had agreements terminated last year but were unable to transfer their obligations to other providers through the secondary market due to legislative barriers. The instrument aims to remove those barriers, and so improve the flexibility of the secondary trading regime, making it easier to replace capacity that closes prematurely and at short notice, and reducing risk to security of supply.

In the past year, there were a large number of appeals by prospective capacity providers whose applications to participate in the capacity market had been rejected. This was often for minor administrative errors. The instrument aims to make it clearer that the capacity market delivery body, the organisation that administers the capacity market, can accept information that corrects such errors when determining these appeals. This will reduce the risk of applicants being rejected for minor administrative errors, and prevent a detrimental impact on competition in the auctions.

Finally, we recently introduced new requirements on capacity providers that, if not met, could result in reductions to their agreement lengths. Given that such a reduction could have a significant impact on the viability of capacity providers’ projects, it is right that those in that situation have the right to appeal. The draft instrument will therefore allow capacity providers who have had the duration of their agreement reduced as a sanction for non-compliance with certain requirements the option of appealing the decision to the Secretary of State.

Alongside this instrument, we have put forward an amendment to the capacity market rules; it was laid before the House on 5 July. The amendment makes necessary changes that complement this draft instrument and a number of other technical improvements; most notably, it updates carbon emissions limits and extends some coronavirus easements, both of which were introduced last year.

In conclusion, this instrument introduces a number of technical provisions that are intended to address issues identified through the annual delivery cycle of the capacity market, and that are therefore necessary to enable its continued efficient operation. I commend it to the Committee.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank the hon. Gentleman for his remarks, which were careful and considered, as ever, and for his support for the statutory instrument. The Government continue to believe that the capacity market is the right mechanism at the moment for delivering security of supply at low cost to consumers, but we will of course continue to review it and ensure its ongoing efficient and effective operation in the years ahead. I absolutely note his point that the next review will be an opportunity for consideration as our energy mix continues to change to include more renewables and cleaner energy sources. It will be an opportunity to think about whether the capacity market continues to be the right tool.

The draft regulations respond to three specific technical issues that we have encountered in the past year in operating the capacity market. They introduce increased flexibility for market participants and the capacity market delivery body, so that the market continues to deliver its objective of guaranteeing secure electricity supplies at the lowest cost to consumers. I therefore commend them to the Committee.

Question put and agreed to.