Draft Electricity Capacity Mechanism (Amendment) Regulations 2024
(2 days, 20 hours ago)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Michael Shanks)
I beg to move,
That the Committee has considered the draft Electricity Capacity Mechanism (Amendment) Regulations 2024.
Good morning and happy new year to all members of the Committee. It is a pleasure to serve under your chairmanship this morning, Mr Efford.
The instrument revokes and alters several provisions of the assimilated regulation 2019/943 of the European Parliament and of the European Council of 5 June 2019 on the internal market for electricity relating to the capacity market, which from now on I shall refer to as the assimilated electricity regulation. Before I outline the provisions of the draft regulations, I shall briefly give some context.
Great Britain’s capacity market was introduced in 2014. It is designed to ensure that sufficient electricity capacity is available to meet future predicted demand, to maintain security of electricity supply. It is our main tool for that purpose, providing all forms of existing and new-build capacity with the right incentives to be on the system when we need them. It covers generation, storage, consumer-led flexibility and interconnection capacity. Capacity markets auctions are held annually one year and four years ahead of delivery to ensure that we have supply when we need it and to meet future peak demand in a range of scenarios, based on advice from the capacity market delivery body, the National Energy System Operator.
Since its introduction, the capacity market has contributed to investment in just under 19 GW of new, flexible capacity needed to replace older, less efficient plant as we transition to the net zero economy. The capacity market was originally approved under European Union state aid rules for a period of 10 years. Following the UK’s withdrawal from the EU, a requirement in EU law for approval of up to 10 years was brought into our domestic law as part of the assimilated electricity regulation. To date, the capacity market has been successful in ensuring that Great Britain has adequate electricity capacity to meet demand, and it continues to be required to maintain security of supply and investor confidence. This will be increasingly important as further sectors of the economy are decarbonised through the transition to net zero, increasing demand for electricity.
The draft regulations revoke and alters certain provisions relating to capacity mechanisms in the assimilated electricity regulation, including article 21(8), which requires that
“Capacity mechanisms shall be temporary and shall be approved for no longer than 10 years”,
and other references to such mechanisms being temporary. The draft instrument also revokes several provisions that require minor correction following changes made for the UK’s withdrawal from the EU, or that impose requirements that are no longer considered to be necessary. We are making these changes now because of the ongoing need for the capacity market to ensure sufficient investment in reliable electricity capacity.
The domestic subsidy control regime was introduced after our withdrawal from the EU. It does not require subsidy schemes to be granted an approval or to be limited for a specified period. The approval requirement in the assimilated electricity regulation does not, therefore, reflect our post-EU exit arrangements. It is of course important to keep the capacity market under review, and there are several controls in domestic legislation, such as the Secretary of State’s discretion not to hold auctions, as well as a statutory requirement to review the capacity market every five years, which provides an opportunity to review the need for the scheme. They will all be retained in the domestic capacity market legislative framework.
The draft instrument revokes and alters certain provisions related to capacity mechanisms in the assimilated electricity regulation, including the requirement for an approval lasting no longer than 10 years and references to capacity mechanisms being temporary. The aim is to ensure that our domestic legislative arrangements reflect the continued operation of the capacity market, which is Great Britain’s main mechanism for ensuring security of electricity supply. I commend the draft regulations to the Committee.
Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
It is a pleasure to serve under your chairmanship, Mr Efford. Good morning and happy new year. It is good to be back in this Committee dealing with yet another piece of delegated legislation.
The draft regulations make changes necessary for the operation of the capacity market outwith the EU and sensibly revokes the 10-year approval requirement. On that basis, I do not oppose it and we will not stand in the way of business today.
The capacity market scheme was introduced in 2014, as part of the electricity market reform, to ensure security of electricity supply by providing payments for reliable sources of electricity generation capacity, or in some cases for reduced demand. In 2013, the Government identified that while introducing renewable energy sources into the energy mix,
“The amount of gas capacity we will need to call on at times of peak demand will remain high, with potentially significant amounts of new gas generating capacity required by 2030.”
That prediction rings true, and truer still when we acknowledge the intermittent nature of weather-dependent renewable energy sources such as wind and solar. That is why in a speech made at Chatham House in March, the shadow Secretary of State, my right hon. Friend the Member for East Surrey (Claire Coutinho), called for new unabated gas power plants, to make sure that we can keep the lights on when the wind is not blowing and the sun is not shining.
As the NESO report states:
“Around 35 GW of unabated gas (broadly consistent with the size of the existing fleet) will need to remain on standby for security of supply. This requirement for gas capacity will remain throughout the early 2030s until larger levels of low carbon dispatchable power and other flexible sources are able to replace it.”
Indeed, its “Clean Power 2030” plan sets out the intention to reform current market mechanisms such as the capacity market to
“help enable the continued operation of unabated gas for security of supply.”
This will, however, be more expensive due to the sporadic use of gas as a result of the dominance of renewables. The capacity market will provide income to combined cycle gas turbine plants, which will produce only 5% of overall generation, requiring much higher capacity prices.
As the Secretary of State charges toward grid decarbonisation, it is imperative that we retain our capacity for gas generation and maintain the capacity market scheme to facilitate that, but due to the decisions made by the current Government it will be more expensive —one of the many pitfalls of their “renewables at any cost” approach. I am sure we will soon debate this at greater length and in greater detail; it is not for today’s Committee. We have no problem with the specific provisions of the draft regulations before us.
Michael Shanks
I thank the shadow Minister for his support. I have no doubt that in 2025 we will have many debates on the “Clean Power 2030” action plan, and I look forward to hearing his support for our work. As I said in opening the debate, the draft regulations are technical in nature. They are about ensuring security of supply long into the future, and I hope the Committee will support them today.
Question put and agreed to.