Draft Electricity Supplier Obligations (Green Excluded Electricity) (Amendment) Regulations 2023

(Limited Text - Ministerial Extracts only)

Monday 27th February 2023 General Committees

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)]

I beg to move,

That the Committee has considered the draft Electricity Supplier Obligations (Green Excluded Electricity) (Amendment) Regulations 2023.

It is a pleasure to serve under your chairmanship this evening, Sir Edward. The regulations were laid before the House on 8 February 2023. The draft instrument makes an amendment to the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 and the Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015.

The amendment removes a condition on the contracts for difference scheme that derives from the European Union’s state aid approval of the scheme. It will remove the availability to electricity suppliers in Great Britain of a partial contracts for difference scheme cost exemption, which currently allows for an electricity supplier’s cost obligations to be disproportionate to the supplier’s market share. The contracts for difference scheme is the Government’s flagship renewable electricity support scheme. It has been hugely successful in driving the substantial deployment of renewables at scale in Great Britain while rapidly reducing costs to electricity customers.

Payments to electricity generators supported by the contracts for difference scheme are funded through a compulsory levy on electricity suppliers in Great Britain, known as the supplier obligation. Individual companies contribute to the cost of these schemes in proportion to their share of the GB electricity sales market. Electricity suppliers can seek a partial exemption from these costs for renewable electricity generated in an EU member state and supplied to customers in GB.

Our aim in making the change is to address the distortion created by the exemption, and to remove the incentive for GB suppliers to import renewable electricity generated by EU member states. The exemption will continue to apply to electricity supplied up to and including 31 March 2023. The green excluded electricity exemptions were introduced as a condition of the state aid approvals granted by the European Commission to the CfD scheme.

The UK having left the EU, the Government believed it was appropriate to undertake a review of the exemptions, so that the UK could continue to ensure equal opportunity for all potential trading partners. This change is a result of that review, and it will ensure that all suppliers subject to the supplier obligation levy pay an amount that is more proportional to their market share.

The Government, in consultation with industry, see a clear rationale for the removal of the green excluded electricity exemption from the CfD scheme. The change will bring about closer alignment between a GB electricity supplier’s market share and its proportion of the CfD scheme cost. Subject to the will of Parliament, the arrangements will come into force on 1 April 2023. By removing the exemptions, we are delivering on one of the Government’s priorities, which is to address the legislative legacy of our EU membership. I commend the regulations to the Committee.

--- Later in debate ---

[Andrew Bowie]

I thank hon. Members for their contributions. The hon. Member for Southampton, Test, made some good and sensible points on the SI and the policy. It is only right and proper that companies provide evidence that they are importing electricity. This SI was brought forward following extensive consultation with industry, and we expect companies to do the right thing. In terms of sustaining extra costs, those suppliers who have used the exemption will pay the scheme a cost in closer proportion to their market share. There are more suppliers who will benefit from this change than not. The change is considered to be very minor. The extra cost that the companies will pay will be minor, and we do not suspect that it will be in any way a disincentive for them to declare that they are importing energy.

I welcome the fact that the hon. Member for Kilmarnock and Loudoun put on record that he considers CfD to be a success. I agree: it certainly has been a success. Indeed, we have only to look at my constituency and the number of wind turbines springing up off the coast of Aberdeenshire. On grid connections and the cost for electricity generation in Scotland, he knows that there is a trade-off, and that consumers in Scotland pay less as a result of the higher charges being placed on electricity generation. That is not to say that there are not issues that need to be addressed. I agree that there are, and we should look at them. I hear loud and clear his comments on tidal stream energy. In fact, I have been to see the exciting developments in Orkney, and I look forward to doing more on this.

[Dr Whitehead]

Will the Minister give way?

[Andrew Bowie]

I will, given that we have taken up so little time so far.

[Dr Whitehead]

I am grateful to the Minister for giving way. He passed over my point about whether the suppliers will get a payout from the LCCC when the difference between the strike price and reference price is inverted from its normal position. If they will, how much will that come to?

[Andrew Bowie]

I am terribly sorry: I will have to write to the hon. Member on that point, but I will get an answer to him in the next couple of days, because it is important that it is answered.

I hope that I have given hon. Members the necessary assurances to approve the statutory instrument. As I said, the changes in these regulations will mean that a supplier in GB will pay a proportion of the CfD scheme cost that is closer to its market share; will remove the condition imposed on the British scheme by the European Commission; and will remove the incentive for GB suppliers to import EU-generated renewable electricity. They must be made now, ahead of the end of the scheme’s reporting period on 31 March, so that electricity suppliers and the scheme administrators can plan accordingly.

Question put and agreed to.