Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025

Monday 23rd June 2025 Lords Chamber

Motion to Approve

21:20

Moved by

[Lord Wilson of Sedgefield]

That the draft Regulations laid before the House on 2 April be approved.

Relevant document: 24th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument). Considered in Grand Committee on 17 June.

[Lord Wilson of Sedgefield (Lab)]

The House may recall that, on 12 February, the Government made a Statement confirming that we intend to introduce short-term support for large-scale biomass generators to ensure the UK’s continued security of supply. Following a robust public consultation process, we published our consultation response, which set out that legislative changes are needed to enable the Government to provide support to existing biomass generators through a new low-carbon dispatchable contract for difference. I should emphasise that while this instrument enables the provision of new support, the final decision on whether to do so will be made following the conclusions drawn from our thorough internal assessment and commercial negotiations.

The draft SI will enable a new low-carbon dispatchable CfD to be signed with existing biomass generators. That is not possible currently. It amends the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 such that a person is eligible for a CfD in respect of a biomass station where it is intended that the existing biomass station will continue to generate electricity. As is the case today, the Low Carbon Contracts Company —the LCCC—will be the counterpart to any new CfD.

The second amendment in the SI relates to sustainability. The Government support only the use of sustainable biomass, and we continue to review sustainability requirements so that we can remain aligned to the latest evidence. This instrument will amend the Electricity Market Reform (General) Regulations 2014 to allow the Secretary of State to direct the LCCC to implement amendments relating to sustainability obligations within the new CfD. This will mean that the Government can make changes to sustainability requirements within the new contract to ensure that they keep pace with the latest evidence. I should note that these regulations were originally laid before the House on 11 March but were relaid on 2 April to correct minor drafting errors.

I would like to outline the Government’s carefully considered position on large-scale biomass generation, which provides around 5% of the UK’s annual electricity generation. Current support for these generators, under CfDs and the renewables obligation, ends in 2027. I assure the House that the Government maintain an unwavering commitment to our energy security, and we will do everything we can to secure a reliable energy system, for now and the future, even if it means making hard decisions.

My department considered a range of factors before deciding whether to provide further support for these generators. First, we took analysis from the National Energy System Operator and have concluded that without further support for large-scale biomass the country could face security of supply risks between 2027 and 2031. Relying on alternative options to come online in this timeframe, such as building new gas plants, would carry significant risks.

Secondly, we undertook comprehensive analysis of the costs of biomass against alternatives. Our central projections indicate that, on the right terms and if playing a much more limited role than today, biomass generation can be the lowest-cost option for bill payers during this period.

Lastly, we will introduce strengthened sustainability requirements from the outset of any new agreement. Importantly, this SI will also allow the sustainability measures to be enhanced throughout the duration of the contract, in line with the latest scientific evidence or global best practice. These factors represent a substantial shift from past arrangements on sustainability and value for money.

We have also listened to stakeholders and recognise the strength of concerns about the use of unabated biomass. It is not a long-term solution. When such decisions arise in future, the Government will not be left in similar circumstances. Therefore, we will undertake the essential work on strong and credible low-carbon alternatives to ensure that we have proper options in four years’ time.

I acknowledge that the amendment to the Motion tabled by the noble Baroness, Lady Bennett, focuses on concerns about Drax. Earlier this year, the Government confirmed that we had agreed heads of terms for a new CfD with Drax. This instrument would enable that CfD, should a final decision be taken to provide it, but it will equally enable similar agreements with any other biomass generators. It does not guarantee that a CfD will be offered to, or agreed with, any biomass generator, nor specify the contract terms, including time limits, for any individual company. These draft regulations are about ensuring we have the option available to respond to security-of-supply needs and deliver low-carbon electricity to the grid at the lowest cost to the consumer.

Let me be clear that the proposed agreement with Drax would limit generation to times when the system and in turn consumers most require it. When renewable power is abundant, Drax will not generate and consumers will benefit from cheaper wind and solar energy instead. This means that Drax will be supported to operate less than half as often as it currently does. As a result, the deal would halve the amount paid in subsidies compared with existing arrangements—equivalent to a saving of nearly £6 per household in annual bills. When compared with the alternative of procuring gas in the capacity market, it will save consumers £170 million in subsidies each year.

The agreement also introduces tough new measures on sustainability, and we will appoint an independent adviser to support the development of policy and practice in biomass sustainability and to ensure that these keep pace with the emerging science and international landscape. However, this debate is about the legislation and not about Drax.

I thank the Secondary Legislation Scrutiny Committee for its report on this instrument. As I mentioned, this instrument is not specific to Drax; instead, it will enable support to be provided to Drax, or to any other biomass generators, should a decision be taken to provide it. As I have already noted, if the Government decide to provide support to Drax, that will offer substantially better value for money for consumers.

On the Select Committee’s comments on sustainability, I can clarify that the KPMG reports are internal fact-finding documents commissioned by Drax on existing sustainability requirements. The reports do not belong to the Government or to Ofgem; they belong to Drax. It is for Drax to decide whether to release them. Furthermore, the Department for Energy Security and Net Zero is considering the report of the House of Commons Public Accounts Committee on biomass, including its recommendations on Drax’s sustainability assurances. Work is under way to strengthen the monitoring, reporting and verification arrangements, and the department issued a full response to the Public Accounts Committee report on 16 June.

In summary, these draft regulations represent an important step in ensuring our energy security and protecting bill payers now and into the future. They make the necessary amendments to enable support to be provided to biomass generators when existing schemes end in 2027. This will enable us to maintain the UK’s security of supply, deliver value for money for consumers and enhance sustainability requirements. I beg to move that these regulations be supported by noble Lords.

Amendment to the Motion

Moved by

[Baroness Bennett of Manor Castle]

At end insert “but this House regrets that the draft Regulations fail to clearly identify their subject as the Drax wood-burning power station, and do not provide for a means for Drax to be held to account for its environmental impacts and costs; and further regrets that the Government have not justified the price premium offered to Drax or published key documents underpinning the Regulations”.

[Baroness Bennett of Manor Castle (GP)]

My Lords, as I think the Minister has already alluded to, this amendment to the Motion closely mirrors the comments made both by our own Secondary Legislation Scrutiny Committee and by the Public Accounts Committee. It regrets that these draft regulations

“fail to clearly identify their subject as the Drax wood-burning power station”.

I was listening closely to the Minister and, interestingly, I do not think I heard him say “Drax” until he got to speaking about the amendment. He spoke about the difficulty, as he saw it, of providing alternatives for Drax; as I think we all know, we are not going to suddenly magic up an alternative Drax out of nowhere that will suddenly start generating electricity for us. I refer noble Lords, and the many people who I know are listening, to the Secondary Legislation Scrutiny Committee reference to how this is about Drax—that is what it has to be.

21:30

I just want to explain a couple of things because many campaigners—people I have worked with over the best part of a decade—were really disappointed that I did not table a fatal Motion because they are so angry and upset about the environmental and financial disaster that this SI represents. By tabling an amendment to the Motion, I hoped—since we know the House is more inclined to vote on those—that I might see support from other parties in this House, but I have not seen that support, so we are where we are. I am waiting to see how the debate goes and what happens, and whether I decide to call a vote to put that on the record.

I note that there has been huge interest in this, perhaps especially, although not just, around an article in the Guardian on the weekend by Dale Vince, a former supporter of the Labour Government—possibly still a supporter; I am not sure—in which he expressed grave concerns.

To come to some of the other substantive points here, my amendment says that the draft regulations

“do not provide for a means for Drax to be held to account for its environmental impacts and costs”.

What does Drax do? It cuts down old-growth North American forests, which are converted into pellets in poor areas of America where there are awful public health consequences, then they are shipped across the Atlantic on diesel-powered ships to be burned at Drax. To say this is nothing like “green” is simply a statement of the obvious.

There is also the issue of costs; I am delighted to see the noble Lord, Lord Sikka, in his place, and I think he will get to that later. What we are talking about here is subsidies of £1.8 billion for burning 108 million trees. That is on top of the £6.5 billion Drax has already received for destroying 300 million trees.

The Government and the Minister will say this is an improvement on previous arrangements. Well, yes, but this is still not where we should be. We have a climate emergency—I have to refer to this. We have just come out of a June heatwave, and the figures tell us there will be 600 deaths just from that, with more almost certainly to come over the summer. Our farmers are facing an awful year, around the world the climate and nature crises are absolutely acute, and Drax is contributing to both of those.

The Minister referenced the KPMG report into Drax—we might almost describe it now as “the famous KPMG report into Drax”—and said, “Drax owns it”. But are the Government not the customer here? If the Government want to ensure the kind of sustainability that the Minister referred to, surely as a customer they could require that the KPMG report be published. It seems that a customer could very easily do that.

There are so many noble Lords here and I am aware of the hour, so I will just mention a couple of other things. I want to quote the Secondary Legislation Scrutiny Committee, because it is important that this sentence is on the record. Talking about the KPMG report, it says:

“We consider that this should”

be released

“before this instrument is debated and before Parliament completes its scrutiny of the draft Regulations”.

It is not me saying that—it is the Secondary Legislation Scrutiny Committee. Yet here we are tonight, and we do not have the KPMG report.

I want to mention just a couple of other things. The Minister has already talked about keeping the lights on. Well, there are renewable storage interconnectors, but, above all, there is far more work to be done on energy conservation. We see so much electricity being wasted in our society, and we need to see far more from the Government on this.

The Government are subsidising Drax. There is talk—it is only floating in the ether at the moment—that Drax might be looking to form independent contracts with data centres around the country. So the Government could be setting out to empower the continuation of the burning of wood, which creates 18% more carbon dioxide emissions than do coal-fired power stations. The Government could be subsidising something to ensure that there is even more of that.

This is an environmental disaster. It is a disaster for energy consumers and for the public purse. That is why I ask noble Lords to share their regrets about this statutory instrument. I beg to move.

[Lord Kerr of Kinlochard (CB)]

I am grateful to the noble Baroness for speaking in the way she did. I am a member of the Secondary Legislation Scrutiny Committee, which produced the report she referred to. I ought also to declare a former interest in that I was a director of a company that briefly, while I was a director, owned Lynemouth, a generator which could notionally benefit from this scheme. But, contrary to what the Minister said, these regulations are virtually all about Drax. As we said in our report,

“the main financial beneficiary of the proposed new arrangements would be … Drax … by far the largest biomass generator in the UK.”

I find these regulations remarkable in at least four ways. First, their presentation is remarkably shifty. The title, draft Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations, does not tip you off that what we are actually talking about here is massive subsidies for massive carbon dioxide emissions. We are talking about Drax. As the SLSC pointed out, it was also quite odd to produce an Explanatory Memorandum which never mentions the word “Drax”.

Secondly, the regulations are remarkable because the costs are remarkable. Drax has already enjoyed £6.5 billion of subsidy, and here we go with another £1.8 billion—over £1 million a day. The price of the electricity produced and sold, £113 per megawatt hour, is well above that paid for offshore wind farm electricity, also under similar contracts for difference. Thirdly, it is remarkable that the emissions are so high. As the noble Baroness, Lady Bennett, said, they are 18% higher than comparable coal-fired generator emissions. Drax will remain the UK generator producing the most carbon dioxide per unit of electricity produced.

Fourthly, it is remarkable that, whereas Drax used to be pushed as the site at some future date of a carbon sequestration and storage scheme, that has been dropped. That story does not exist any more. There is no CSS in these regulations. There is nothing about CSS, I assume, in the contracts with the company. The company has in fact paid off the staff who were working on CSS, so that story is dead.

Therefore, it is counterintuitive that Drax is still sailing under a green flag. It is a delight to hear a distinguished former leader of the Green Party denouncing that flag: it should not be on this pirate ship. Given the opportunity cost of the sequestration forgone in the forests of western Canada that are cut down, and the cash cost of processing that wood into pellets and shipping it across to the United Kingdom, the sustainability story about Drax was never particularly convincing. The Public Accounts Committee was quite right to say in its report of 25 April that:

“The current approach relies heavily on generators self–reporting the sustainability of the biomass they use and third–party certification schemes, giving a sense that generators are marking their own homework”.


It is more than a sense; they are marking their own homework. The report continues:

“Neither DESNZ nor Ofgem know whether the approach to assurance is effective in making sure biomass is from sustainable sources”.


They do not know.

Drax commissioned KPMG to write a report. The noble Baroness, Lady Bennett, referred to it, so I do not need to. The Minister says that it is not for the Government or Ofgem to pass it to us. The PAC said that it should be shown to Parliament—that it should be published. My committee, the SLSC, said that it should be published before this debate, which surely is right. The Minister’s argument is that it is not his to publish. He is the man who is awarding this enormous contract to the company—£1.8 billion. It is open to him to suggest to the company that it might assist the Government in deciding in favour of what the company wants, if the company were to do what Parliament has asked. However, that does not appear to have happened. We do not know what KPMG said because we are not allowed to see the report. That seems rather high-handed of the company and suggests that it may have something to hide.

There may be a case for Drax, which the Minister touched on when he talked about security of supply. He did not mention this, but that case could be dealing with the risk of a black start. Having these huge turbines turning up there could be convenient if you get a crisis and a black start. I could be persuaded that we need to keep this immensely expensive scheme going for security of supply, but it would have been more honest if the Government, in their Explanatory Memorandum for these regulations, had made that case, which they did not. Instead, we have their sustainability case—which does not fly, for the reasons given—to explain the astonishing cost of the scheme.

The selling of the scheme looked shifty; the refusal to produce the KPMG report on sustainability looks high-handed. The noble Baroness’s regret amendment was well justified and exactly right. Had she been in the mood to press for a vote, I would happily have voted for it.

[Lord Sikka (Lab)]

My Lords, I am really concerned about the legislation in front of us, because it seeks to extend subsidies to highly profitable corporations, at least until 2031. Inevitably, the major beneficiary is Drax, which is the UK’s single largest emitter of CO₂. In 2023, its electricity-generating operations generated 11.5 million tonnes of CO₂. Add to that the carbon emissions arising from shipping—transporting wood pellets—and it has also been destroying young trees and biodiversity. For that, the Government are going to reward it with possibly around £500 million a year, but some estimates are that it could be £2.5 billion by 2031.

21:45

Drax does not meet the social cost of its operations and it has published misleading information. In August 2024, Ofwat investigated Drax after whistleblowers revealed that it was burning wood from unsustainable sources. Drax was fined £25 million. Ofwat said:

“There are no excuses for Drax’s admission that it did not comply with its mandatory requirement to give Ofgem accurate and robust data”.

Drax has actually been sanctioned nine times since 2010 and fined £63.3 million, but it is still getting free money from the public purse.

Drax does not deliver value for money; every megawatt hour of electricity produced by Drax costs roughly more than double the price of electricity produced from gas. The Public Accounts Committee said:

“We are not convinced the transitional support agreement between DESNZ and Drax provides good value for money for consumers”.

I hope that the Minister can explain why, despite all this, the Government are providing free money to Drax. I am sure the Government are concerned about energy industry failures. There is unchecked profiteering. Wind farms are paid billions to turn off turbines and not produce electricity, because the UK does not have the infrastructure to transmit or store electricity. This free money has not benefited households or businesses. The UK has the fourth-highest electricity price in the world for households, and British businesses pay the highest electricity price in the developed world.

Of course, corporate executives are laughing all the way to the bank. The biggest beneficiaries are shareholders and company executives. Drax had pre-tax profits of £1.06 billion in 2024 and £1.01 billion the year before, boosted by subsidies of around £800 million a year. Last year, it paid £97 million in dividends and announced a £300 million share buyback programme. There is no means testing for corporate benefits, neither for Drax nor for any other corporation. So why are profitable companies being subsidised? Why do the Government not apply some kind of a means test to see whether they really deserve it?

People are being hit twice. First, there are higher household and business energy bills. Secondly, government departments themselves pay more for energy usage, so people have to pay higher taxes to cover those bills. It is a kind of a double whammy. Billions of pounds are being handed over without the Government acquiring anything in return. They could acquire an equity stake in return for subsidies in Drax or in any other company that receives subsidies. They could provide a repayable loan and these companies could perhaps repay that loan. But billions are being handed over without anything in return. Why make this kind of charitable donation from the public purse to highly profitable companies?

I am sure that the Government can make much better use of their scarce resources; instead of filling corporate coffers, the money could be used to end the two-child benefit cap and avoid the disability benefit cuts. So why do the Government favour corporate welfare over human welfare? I look forward to hearing the Minister’s reply.

[Lord Lilley (Con)]

My Lords, it is an unusual pleasure for me to be able to support the noble Baroness, Lady Bennett of Manor Castle, but tonight my cup floweth over, since I am also able to agree with the noble Lords, Lord Kerr of Kinlochard and Lord Sikka. I agreed with almost every word that both had to say. The noble Baroness, Lady Bennett, and I approach this issue from opposite perspectives. The noble Baroness is primarily concerned about reducing CO₂ emissions; I am primarily concerned about reducing the cost of energy. But we both reached the same conclusion that this statutory instrument is fundamentally indefensible.

The whole process of subsidising the Drax power station illustrates the absurdities to which net zero is leading us. It is not just the cost, or the pretence that we are reducing CO₂ emissions when this is the biggest emitter of CO₂ in the country; it is about all the attempts to cover up and obfuscate both the enormous costs and the minimal benefits. When you start believing in fairy tales—the fairy tale that achieving net zero will be costless—you end up denying reality and being economical with the truth.

Let me give a few examples of that obfuscation. The excellent report of the Secondary Legislation Scrutiny Committee, on which the noble Lord, Lord Kerr, sits, drew attention to the failure of the Explanatory Memorandum to even mention Drax. Yet it is over-whelmingly the major beneficiary from the proposed contracts for difference. Clearly, the department hoped we would not see that this was yet another bung to the company. That report also highlighted the repayment made by Drax of some £25 million. Yet there is no clear explanation of what exactly the company had done wrong that required that repayment. It is pretty clear that it is, in effect, hush money to cover up non-compliance with the sustainability regulations.

Another example is the reference in the PAC report Government’s Support for Biomass to the investigation conducted by Bloomberg in 2022, which concluded that Drax may previously have gamed the system to the detriment of consumers. It alleges that

“Drax shut down power generation and sold wood pellets on the open market to avoid paying back £639 million of subsidies as wholesale electricity prices spiked”.

Although the Department for Energy Security and Net Zero reassured the PAC that

“the new arrangements will be more robust, it did not offer any explanation of how it had made sure that there would be no loopholes that allow Drax to continue to game the system”.

Then there is the failure to publish the KPMG review of the Drax supply chain. The Secondary Legislation Scrutiny Committee called on the Government to publish that audit before this debate. I am not aware that the Government have done so. The Minister did not in his introduction explain whether he had done so and, if not, why. I will ask him to address that issue when he returns at the end of this debate. The report may not belong to Drax, but as the noble Lord, Lord Kerr, said, the Government are the customer. They insist on a number of conditions that Drax has to fulfil; they could easily insist that publication of that report is one of them.

Will the Government commit to reporting to Parliament the outcome of the independent audit commissioned by Ofgem? When I worked in the City as a financial analyst, if ever I came across a company about which there were so many unanswered questions, I would have guessed it was run by Robert Maxwell or someone of that ilk.

So, how much is Drax costing us? Since 2022, support for Drax has cost the Government—that is, the taxpayer—£6.5 billion. According to the consultancy Ember, that figure was rising at nearly £1 billion a year before this latest measure. This CFD will cost £113 per megawatt hour at the value of the pound in 2012, which has risen with inflation since then and will rise further in future. The PAC admits that that is

“far more than will be paid to offshore windfarms and other renewable generators”

under recently awarded contracts for difference.

The justification given by the company and, presumably, accepted by the Government is that electricity from Drax is dispatchable and therefore worth substantially more than intermittent electricity from wind or solar generators. That raises the question: why have the Government not accepted Professor Dieter Helm’s recommendation that all electricity generators should bid for the cost of firm power; that is, including the additional costs they will impose on the system for back-up power for when the wind does not blow or the sun does not shine? Instead, the Government palm us off with references to the levelised cost of energy, which is practically meaningless and not something that anyone ever pays.

Then we come to sustainability. Will the new sustainability criteria incorporated in the CfDs apply to electricity generated outside a CfD? CfDs will apply only 27% of the time. That is a question the PAC raised. Again, I hope the Minister will answer that when he replies to this debate.

The idea that burning wood pellets is sustainable, given that they emit more CO₂ per megawatt hour even than coal, is hard to credit, especially given the additional emissions involved in collecting the timber, drying it, pelletising it, and transporting it from western Canada, often across the continent and then across the Atlantic. The theory is that felled trees will be replaced and fallen branches would have decayed and emitted CO₂. I planted 30 trees around my house nearly four decades ago, not to mention more since, and it will be several decades before they are ready to fell. Lots of old branches that were lying around then are still lying around and have not yet rotted, perished and emitted their CO₂.

Anyone who thinks that sustainability is to be measured on a timescale of at least half a century, and probably a century, cannot seriously be arguing that we are in a climate crisis. If we have a century to get the CO₂ back that we are emitting now, we are not in a climate crisis. That, in effect, is what the Government are saying by asking us to go on subsidising Drax. I shall certainly support the noble Baroness, Lady Bennett, if she calls a vote on her amendment.

[Lord Birt (CB)]

My Lords, we are a remarkably united House tonight. I too support the amendment tabled by the noble Baroness, Lady Bennett of Manor Castle. I am not the first to say that the case for biomass is very weak. It is, in effect, a historical anomaly. As others have said, biomass emits more carbon than coal. As the noble Lord, Lord Lilley, just pointed out, it takes decades—perhaps half a century, perhaps even longer—to reclaim that carbon from the atmosphere.

Actually, Drax’s homework has been marked. Nobody has mentioned the remarkable and excellent “Panorama” documentary made by Joe Crowley just under three years ago, which demonstrated very clearly that Drax was burning primary ancient forests, which would be exceptionally difficult, if not impossible, to replace. That, in my view, is unconscionable. Nobody has said this so far, but Drax is not an organisation that inspires any confidence. For those who saw “Panorama”, it put up a remarkably weak case for what it was doing. Its handling of a senior executive whistleblower—again, not mentioned so far—was, to put it mildly, unsavoury.

I appreciate the difficulties that Drax presents for the Government. It is a major employer. It produces a significant share of our national electricity supply, as others have pointed out—we could not possibly close it down tomorrow—and it gives that energy supply on tap. The question for the Minister, which I hope he will address in his closing remarks, is: will the Government, who must have heard the passion, power and effectiveness of the arguments from across the House this evening, now consider a proper long-term plan for the phasing out of Drax and for reinvesting in real renewables?

[Earl Russell (LD)]

My Lords, I too speak in favour of the amendment tabled in the name of the noble Baroness, Lady Bennett, against the Motion tabled by the noble Lord, Lord Wilson of Sedgefield. This SI makes existing large-scale biomass electricity generators eligible for contracts for difference. The Government argue that that is needed to prevent security of electricity supply risks after 2027, when the current schemes for many biomass generators expire.

22:00

The Liberal Democrats firmly believe that biomass is not a form of renewable energy and should not continue to receive government support. Biomass is an incredibly inefficient, expensive and damaging-to-our-biodiversity method of producing electricity. We note particularly the Climate Change Committee’s seventh carbon budget’s recommendations, which confirmed unequivocally that there is no role for large-scale, unabated biomass generation at high load factors in the pathway beyond the expiry of the existing contracts in 2027. These regulations represent a painful and unnecessary compromise in our energy policy that will undermine our climate goals, squander taxpayers’ money, provide poor value for money for energy bill payers and serve to erode public trust in our net-zero goals.

I recognise a lot of the great work that the Government are doing to pull us towards net zero, but tonight across the House, for the first time in a long time, there is uniformity across all parties on this point of view. We recognise that the energy transition is an extremely complicated business and that we absolutely need to keep the lights on. We welcome the fact that the Government have reduced the subsidies by half, and we note the plan for BECCS, if that comes to be.

From the Government’s point of view, this is a transitional supply regime, but even with all these points, we fundamentally disagree with the approach that is being taken here. We feel firmly that subsidies should not continue beyond 2027 and that the money that is freed should be spent on renewable generation and long-term energy storage capacity so that we can provide the security of supply that the Government need. We want to see our contracts for difference used to benefit renewable energy generation to continue to reduce the UK’s dependency on fossil fuels. Investment in renewable energy is the only way, as the Government well know, to cut energy bills, lower our emissions and meet our energy security. Our manifesto is clear that we would ensure that 90% of the UK’s electricity is generated from renewables by 2030.

As we have heard, wood often come from unrenewable sources. Drax was supposed to be using waste products from forestry, but as we heard from the “Panorama” programme, there have been cases of cutting old-growth forests, which is absolutely unacceptable and should never have happened.

As pointed out by the Secondary Legislation Scrutiny Committee, clearly the subject of this SI is Drax, and it is not helpful to the debate that the word “Drax” is not used in the SI or the supporting documents. That is clearly what it is, and it is clearly what it is intended for. That is not a helpful start to taking this forward. We welcome the Government’s commitment to strengthen existing compliance and insurance regimes. We are deeply concerned about Drax’s record, and we are keen to make sure that Drax meets its environmental impacts and costs.

As we have heard, burning wood generates 18% more CO₂ emissions than coal. Drax itself produces a staggering four times the emissions of our last coal-fired power station. Last year, 13 million tonnes of CO₂, or 3.5% of UK total CO₂ emissions, came from Drax alone. This is not green energy. It is not good. It is not helping with our climate goals. Even if every single tree that Drax burns is replaced, it will take at least 50 years for those new trees to grow to absorb this carbon. That is fundamentally incompatible with our 2050 net-zero goals. It is bad for bill payers. It is bad for the environment. It is not a system that should be allowed to continue.

We recognise that it generates 5% dispatchable power. We think this money should go into renewable energy generation. We do not think that it provides value for bill payers. We also have concerns that key documents have not been published as part of this. These documents really do need to be published before the final SI comes forward. This is an essential element in having proper parliamentary scrutiny.

The Government are in a difficult position—I recognise that, and I recognise the need for dispatchable power—but I call on them to look for alternative solutions. Continuing to use Drax is not the answer. The simple truth is that we have to stop pumping CO₂ into the atmosphere, and the Government must look for alternative plans and means for doing this post 2027.

[Baroness Finn (Con)]

My Lords, I am grateful to the Minister for setting out the provisions of the instrument for us, and to the noble Baroness, Lady Bennett, for bringing forward this amendment. I thank all noble Lords who have contributed to the debate. As the noble Lord, Lord Birt, said, we are a remarkably united House this evening.

At first glance, this statutory instrument appears to be a modest continuation of established policy, extending the contracts for difference schemes to support low-carbon electricity and to maintain energy security. However, the context in which this instrument is being brought forward raises several serious concerns that deserve the full attention of the House. The current contracts for difference in renewables obligation schemes for biomass are due to expire in 2027. This instrument effectively paves the way for a new subsidy agreement, likely to last until 2031.

The Drax Group in particular, although not explicitly mentioned by name, is expected to be the principal beneficiary. I hear what the Minister said about this being about the legislation and not about Drax, but this does seem a little disingenuous. As the noble Lord, Lord Kerr of Kinlochard, said, these regulations are really all about Drax. The fact that this is not disclosed in the legislation itself, nor even in the Explanatory Memorandum, is a point rightly criticised by the Secondary Legislation Scrutiny Committee.

When public money is involved on this scale and given to a corporate entity, transparency should not be optional. That omission is not merely a technical failing; it obstructs parliamentary scrutiny, undermines public confidence, and weakens accountability in a policy area already under significant environmental and fiscal scrutiny. We do not question the Government’s intent or commitment to safeguard energy supply, but we should be candid about the trade-offs. Biomass is not a low-cost nor a convincingly low-carbon option, and serious questions remain about its long-term sustainability and effectiveness, as well as its role in the energy mix.

A number of noble Lords spoke about the subsidies received by Drax, and my noble friend Lord Lilley laid out a compelling case. According to the think tank Ember, Drax received £869 million in subsidies for biomass in 2024 alone. The proposed strike price for biomass under the new contracts for difference is expected to exceed £160 per megawatt hour—more than twice the strike price for offshore wind in the most recent contracts for difference allocation round, which averaged £57 per megawatt hour.

These are not trivial differences. Ultimately, these subsidies are paid for by consumers through their energy bills. If affordability is a government priority then it is worrying that the numbers do not appear to have been considered more carefully.

The Government have stated that sustainability standards will increase, albeit only from 2027, and that Drax will undertake a full audit of its supply chains. Those intentions are welcome, but the delay is difficult to defend if, as the Government admit, the current sustainability criteria are already insufficient. Furthermore, Drax was criticised in the other place for alleged attempts to deliberately conceal, as a number of noble Lords have mentioned today, the unsustainable sources of its wood pellets, and has thus far not responded to calls to publish the 2022 KPMG report on where the wood has been coming from. I absolutely hear what the Minister said about these being internal documents but, given that Drax is in receipt of considerable amounts of public money, publishing the report would surely allay concerns, and it is disappointing that Drax has thus far failed to do so. As the noble Baroness, Lady Bennett, pointed out, the SLSC has called for the release of the report prior to the legislation passing.

The Government themselves have acknowledged that biomass is not a long-term solution, yet they now propose to extend generous subsidies through to 2031, well beyond the expiry of the current schemes. That contradiction prompts a broader question: what is the Government’s long-term energy strategy? Where is the sustained investment in cheaper, cleaner technologies such as offshore wind, solar, tidal and energy storage, all of which offer better returns for consumers and for the environment?

In the light of these issues, I would be grateful if the Minister clarified the following. Was a full cost-benefit analysis conducted ahead of these proposals and will it be published? Are further changes to biomass eligibility under contracts for difference under active consideration? Will the Government commit to greater transparency in future secondary legislation, particularly where identifiable corporate beneficiaries stand to gain? This is not about opposing low-carbon generation—far from it; we support it—but, when billions of pounds of public money is at stake, climate benefits are uncertain and the cost to consumers is high, we must demand full transparency and sound policy rationale. I very much look forward to the Minister’s response.

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

I thank the noble Baronesses, Lady Bennett and Lady Finn, and the noble Lords, Lord Kerr of Kinlochard, Lord Sikka, Lord Lilley and Lord Birt, and the noble Earl, Lord Russell, for their contributions, and I thank the Front-Benchers for their summing up.

We are where we are with this. We have to play with the cards we have, and we cannot restock the deck because we have been left with this. We do not believe that biomass is a long-term solution to the country’s energy problems, but we are faced with a dilemma at the moment regarding security of supply, whereby 5% of the energy we use is provided and produced by biomass. That is something we have to consider. We know it is not a long-term solution, so we need to look at other sources of energy to replace it. That is what the Government are actively doing—it is part of our net-zero ambitions to do that—but we need time to do it, and to fill the gap we need this statutory instrument in order to go forward and secure that.

This Government are steadfastly committed to maintaining our energy security and protecting bill-payers now and into the future. The instrument under discussion today will enable us to reduce risks to security of supply in the late 2020s and early 2030s by facilitating short-term support for biomass. If this is pushed to a vote, noble Lords will be voting against security of supply. Additionally, the regulations allow for the further strengthening of sustainability requirements, to reflect the latest evidence, during the delivery of any support.

I hope I can deal with all the questions raised, but if not, I am sure that we can write to Members. Why did we not mention Drax? Supposedly this is about Drax and nothing else, but in fact it is about any biomass facility that can help fill the gap, such as Lynemouth in Northumberland. Other, smaller producers of biomass around the country can also have access to this—I know there have been discussions with Lynemouth—so it is not just about Drax.

Why have the Government agreed a high strike price for this asset? The new arrangement halves the level of consumer subsidy compared to existing arrangements, equivalent to a saving of nearly £6 per household in annual bills. The agreement is for a substantially lower reduced load factor. We want seed to be used for 27% of the time as part of the baseload—

22:15

[Lord Kerr of Kinlochard (CB)]

The alleged saving is compared with the current price, which is astonishingly high. It is a saving because the wholesale price of electricity all over is going down. The contracts for difference for wind power are now being set at a level about two-thirds of where they were a couple of years ago. This minor saving compared with the previous exorbitant level of subsidy should not be exaggerated.

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Lord for that intervention. We were not trying to exaggerate anything. We are comparing that with the fact that, if we do not do this, we will end up with the price of gas at £170 million per year compared with some saving to households. We have to bear that in mind as well.

There was talk about the outcome of Ofgem’s investigation into Drax. The recent comprehensive Ofgem investigation into Drax compliance entered its report in August 2024. It found no evidence that Drax had incorrectly received subsidy payments, and no subsidies were issued for unsustainable biomass. However, Drax accepted the findings of the investigation and made a redress payment of £25 million. Ofgem’s investigation was very comprehensive and included a careful review of the KPMG report, as well as a wider review of more than 3,000 other documents. Both the Government and Ofgem are confident in this conclusion. Moreover, Ofgem has required Drax to undertake a full international audit of the profiling data from its supply chain. I hope that answers the concerns that noble Lords may have.

To address the other points on the Ember report on Drax being Britain’s largest CO₂ emitter in 2023—this also answers the question about trees, and not all trees take four decades to grow—the carbon in biomass is emitted as carbon dioxide from the chimney of the power plant when the biomass is burned. However, the carbon dioxide emissions from sustainable biomass are part of the biogenic carbon cycle. Unlike fossil carbon, which was turned into gas or coal millions of years ago, the carbon released was recently absorbed from the atmosphere and is reabsorbed continuously through regrowth.

Woody feedstocks for bioenergy are typically low-value forestry—sawmill residue from trees that would have been felled regardless for higher-value usage. Therefore, in contrast with fossil emissions, we can consider sustainable biomass systems to be carbon neutral at the stack when taking forest growth, harvest and product use into account.

What you also have to realise with this SI is that one of the parts of it is about sustainability. Part of the contract is that biomass comes from 100% renewable sources, not 70%, so that is a massive increase. We will appoint someone to examine and look into the sustainability of the whole process.

We can have criticisms, and I think we all agree that we do not see this as the long-term answer to the energy problems that we have, but it is fair to say that we have to be realistic. We cannot be ideological purists. We could have an energy gap of 5%, and biomass provides 5% of our energy needs. We should not be blind to that fact. We are making improvements. It is about the regulations and not just about Drax; Lynemouth is talking about taking part in this process as well. It does not matter about the size of the biomass facility; they can all be part of this.

I finish by saying that the draft regulations in front of the House today will enable the Government to continue to deliver security of supply at the lowest cost for consumers, while protecting and enhancing vital sustainability measures. I commend the draft regulations to the House.

[Lord Birt (CB)]

There was a clear and welcome hint at the beginning of the Minister’s remarks that Drax was temporary, not here permanently. Are the Government considering framing an ordered plan, with a timeline to close down Drax?

[Lord Wilson of Sedgefield (Lab)]

I will get back to the noble Lord on that. I have said—and I think we all agree—that this is not the long-term future for our energy needs. But we have a shortage of supply, and this SI helps to fill that over the short term. In the meantime, we want to invest more in wind—offshore and onshore—tidal and all the other renewable energy sources. We need and want to do that, and this Government are committed to that.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I rise in a warm glow of unusual universal support from all corners of your Lordships’ House. Adding to the consensus from the Public Accounts Committee, the Secondary Legislation Scrutiny Committee and—as the noble Earl, Lord Russell, mentioned—the Climate Change Committee, we have heard that this statutory instrument is a really bad idea and a disastrous outcome. The noble Earl and many others made the point that we already have a huge problem with public trust in politics and the way the Government have gone about this has not helped.

I reassure the noble Lord, Lord Lilley, that if he looks at Hansard afterwards, he will see that I was expressing concern not just about the climate emergency and the carbon impacts but about the enormous costs being laid on the public purse.

I thank all noble Lords who have stayed until 10.22 pm now, and I also give special thanks to the staff we are keeping here to do this. I thank the Minister for his response. It has been a full debate, and I will not summarise it at length, but I will just reassure the noble Lord, Lord Kerr of Kinlochard, that it is not a new thing for me or the Green Party to seek to pull down the false flag of greenness attached to Drax. There is a photo of me from 2016—it is the oldest I can remember, but there may have earlier ones—standing outside the power station with a nice cardboard axe saying, “Axe Drax”, because it gets the message across so well.

I thank the noble Lord, Lord Sikka, for a typically forensic speech. “Means testing for corporate benefits” is a phrase I may borrow from him in future.

I agree with a fair amount of what the noble Lord, Lord Lilley, said, certainly in terms of Drax. However, I point out to the noble Lord that the problem here is not net zero but terrible government policy under successive Governments, which has worked out very badly. Of course, we have had many decades of terrible government policy towards fossil fuel companies, which have cost the Exchequer and the country an enormous amount.

I thank the noble Lord, Lord Birt, particularly for raising the excellent “Panorama” programme. I was very aware of the time, so I cut quite a bit out of my speech because I was confident that other noble Lords would pick that up in the debate.

I thank the noble Baroness, Lady Finn, for stressing the need for a long-term strategy. I do not think that the Minister answered that point, which was also raised in the later intervention by the noble Lord, Lord Birt.

I have a couple of points to make in responding to the Minister, and he is very welcome to interrupt me if he would like to provide further information. We have not heard about a long-term strategy; what we have had announced very recently in the spending review was that of the previously announced £8.3 billion, which was going to Great British Energy for renewables, £2.5 billion was taken away to go to nuclear. I shall not relitigate the issue of nuclear power, but I shall make the time point—that nuclear power will not be relevant in 2031, when this SI runs out, so it does not do anything to deal with that long-term strategy that fills in the gaps.

The Minister also said that they would have better scrutiny of Drax’s sustainability. I point to the Secondary Legislation Scrutiny Committee, which expressed concern about the ability of Ofgem and the department to hold Drax to account—so it is not just me saying that. The Minister did not make any reference to the comments of the noble Lord, Lord Kerr of Kinlochard, about carbon capture and storage, so I shall assume from that the Government have entirely given up on carbon capture and storage when it comes to Drax.

There is one last really important point, to respectfully correct the Minister when he spoke about carbon cycle and regrowth. We are now getting horrendously close to 1.5 degrees above pre-industrial levels of heating. As multiple noble Lords said, if the trees regrow—and that is a very large “if” in a changing climate, with huge problems with forest fires and so on—that carbon is captured decades later. That is not helping us to keep below 1.5 degrees, which we have practically lost, or below 2 degrees. Once we get into runaway territory, what happens decades hence will not help us very much at all. The carbon cycle argument simply does not add up; there is a time problem here that has not been resolved.

I come back to a comment made by the noble Baroness, Lady Finn. This is a statutory instrument that deserves the full attention of the House. I am acutely aware of the hour. I kept open the possibility of calling a vote, but I do not think that a vote at 10.27 pm would be any kind of measure of the views of your Lordships’ House—this debate has established those views very clearly on all sides of the House. With reluctance, I shall not call a vote. I beg leave to withdraw my amendment.

Amendment to the Motion withdrawn.

Motion agreed.

House adjourned at 10.27 pm.