Draft Contracts for Difference (Sustainable Industry Rewards and Contract Budget Notice Amendments) Regulations 2026
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The Committee divided: - Ayes: 12 / Noes: 1 - Question accordingly agreed to.
The Minister for Energy (Michael Shanks)
I beg to move,
That the Committee has considered the draft Contracts for Difference (Sustainable Industry Rewards and Contract Budget Notice Amendments) Regulations 2026.
It is a pleasure to serve under your chairship, Ms Jardine, and it is wonderful to see so many Scots reunited for this debate. The draft regulations were laid before the House on 5 February; I should say from the outset that they still carry the legacy name of this policy, although it is now known as the clean industry bonus. I will briefly set out three things: first, the purpose and direction of the clean industry bonus; secondly, how the draft regulations help us to evolve the contracts for difference scheme; and thirdly, why funding under the scheme is now conditional on applicants adhering to the fair work charter, which I will come to in a moment.
First, the purpose of the statutory instrument is to amend regulations governing the clean industry bonus ahead of allocation round 8. As I am sure Members are aware, the contracts for difference scheme is our main renewable energy support mechanism. The clean industry bonus offers additional CfD revenue to offshore wind developers who invest in UK factories and ports needed to deliver offshore wind, driving investment in our industrial heartlands. Offshore wind developers have rightly prioritised reducing costs, but the CfD scheme was missing a mechanism to ensure that investments went back into the UK, and to cleaner factories, so that consumers got both clean power and local jobs. That goes to the heart of this Government’s mission to deliver not only clean power but our industrial strategy.
Funding under the clean industry bonus is allocated through a competitive process that is run ahead of the main CfD round, with awards given out for the best value investments in the UK or for cleaner supply chains. Payments are released only on delivery of those commitments.
In the most recent allocation round 7, £204 million was allocated through the clean industry bonus, which crowded in £3.4 billion of private investment—that is £204 million for £3.4 billion of private investment into supply chains and ports in the UK, delivering a strong return on public investment. The scale of private investment leveraged by the clean industry bonus represents an unprecedented vote of confidence in the UK’s supply chains, compared with previous allocation rounds.
Let me set out the direction of travel in the draft regulations. The aim is to make targeted, practical improvements to the operation of the scheme for allocation round 8, such as simplifying the application process and clarifying how budgets and delivery rules operate. The draft regulations also provide a legislative basis for making the subsidy conditional on fair work, ensuring that investments come with a commitment to good-quality jobs. The aim of the scheme’s operational improvements is to speed up the process and reduce the administrative burden by diminishing the volume of paperwork required, as well as clarifying budgets and rules, such as if events outside an applicant’s control derail their project. The draft regulations also set a sunset clause on the scheme, meaning that no CIB can run after 31 December 2028 without further parliamentary scrutiny.
In the coming allocation round, we are also thinking beyond just offshore wind; the scheme will be extended to onshore wind projects in allocation round 9, and the regulations have been amended to make that possible. The period before introduction will give industry a small amount of lead-in time to get ready. Taken together, these changes improve and widen the scheme, as we speed up the delivery of renewables.
Thirdly, on fair work and skills, the most significant change in allocation round 8 is that clean industry bonus applicants will need to sign up to the offshore wind fair work charter, which is a series of commitments to improve worker voice and representation and health and safety in the offshore wind industry. If an applicant wants to apply for the subsidy, they will have to sign the charter. This was designed by industry and trade union representatives, and it reflects their constructive engagement. I thank the representatives from both the industry and the trade unions, who engaged constructively in pulling this together.
The purpose is very simple: if we are going to give public money, it should help to improve the quality and security of jobs in the offshore wind industry. It will mean that workers and communities across the country reap the rewards of offshore wind and that the sector becomes an even more attractive place to work amid fierce competition for skills. The charter builds on forthcoming commitments in the Employment Rights Act 2025, in particular by asking that the offshore wind sector proactively implement voluntary access agreements for trade unions. It also includes a commitment to strive for best practice health and safety standards that go beyond the legal minimum.
Our commitment to good jobs through the clean industry bonus does not stop at the fair work charter. We are pressing ahead with a skills investment fund that will help develop the skills needed for the clean energy transition. The idea is that offshore wind developers pool together skills funding and initiatives, rather than relying on individual projects trying to address particular short-term needs. The Government and the offshore wind industry have agreed that they will work together to set that up by 2027; that will be funded by existing developer contributions to the supply chain, not by any new money. Once that skills and investment fund is up and running, developers may be asked to contribute to it as a condition for taking part in the CIB and CfD schemes. That way, the bonus can drive improvements in how the offshore wind sector addresses fair work and skills, while continuing to fund UK industrial heartlands.
As I have set out, the regulations build on the strong foundations achieved in allocation round 7. They ensure that the clean industry bonus continues to drive supply chain growth in support of clean home-grown power. They make targeted improvements to the operation of the scheme and, crucially, ask that public funding supports public goods such as fair work and investment in skills. Taken together, the measures support the Government’s mission to make Britain a clean energy superpower, to lead in producing affordable clean energy and to support the creation of good jobs right across the country. I commend the regulations to the Committee.
Andrew Bowie (West Aberdeenshire and Kincardine) (Con)
It is a pleasure to serve under your chairship, Ms Jardine. The primary purpose of the statutory instrument appears to be twofold: to extend the scheme to onshore wind and to put ringfenced spending on a statutory footing for nascent technologies such as floating offshore wind. We also see some technical adjustments in the extension of the sunset clause and the altering of timeframes, alongside amendments to the Electricity Market Reform (General) Regulations 2014 to uphold financial minimum standards as a prerequisite for the release of payment.
The clean industry bonus scheme was introduced by the current Government in 2024 to promote investment in domestic supply chains, although it of course follows the excellent work of the previous Government to reduce our reliance on foreign supply chains. However, there is irony here on multiple accounts. First, it was only following immense pressure from the Conservative party official Opposition—and from the other place—that the Government were persuaded to amend their flagship legislation introducing Great British Energy, in order to prevent investment in supply chains with proven links to slave labour. I am immensely pleased that the Government U-turned on that, as taxpayers’ money absolutely ought not to be spent on importing solar panels from China manufactured in horrendous conditions in regions where slave labour is proven to be commonplace.
We should be promoting domestic supply chains, building domestic capacity and seeing investment to benefit British workers and British communities. Nowhere is that more evident than in the north-east of Scotland, home to a world-leading energy industry and supply chain. The irony there is the Labour Government’s reckless disregard for our home-grown supply chains in the north-east of Scotland. They are the very same offshore logistics specialists, subsea cabling manufacturers and workforce that the Government claim to need more of, yet the Government have shown them nothing but disdain since getting into office. At a time of maximum geopolitical uncertainty, our domestic oil and gas sector deserves support. If the Government wish to support domestic energy supply chains, I suggest that the Minister starts there.
The statutory instrument broadens the scope for allocation to technologies other than offshore wind, facilitating the inclusion of onshore wind in allocation round 9. If the Government were as interested in securing domestic supply chains they would have been much better doubling down on nuclear, which has the most secure supply chain of any power generation technology. Yet the Government cancelled the third large-scale nuclear power plant that we signed off at Wylfa. After all the effort it took to get Hinkley and Sizewell’s development consent order across the line, we find ourselves with no pipeline for large-scale nuclear projects in this country. We should be under no illusion that this scheme represents yet another subsidy for wind developers, on top of the subsidies that the Secretary of State already handed to them through the renewables obligation scheme—which we have committed to scrapping in its entirety—and on top of the subsidies that they received through their CfDs.
This instrument also puts on a statutory footing the protected allocation of funding for certain technologies, such as floating offshore wind. The Department’s explanatory memorandum explains that that is
“to safeguard some investment in a newer technology with higher costs in its exploratory phase and to support investment in the supply chain”.
Although I do not wish to stand in the way of the statutory instrument today, I reiterate the fundamental irony in the Government’s attempt to invest in domestic supply chains while accelerating the decline of industry across the country, particularly in the North sea, and refusing to double down on large-scale nuclear, all while the Secretary of State signs secret deals with China.
Kit Malthouse (North West Hampshire) (Con)
Notwithstanding the comments from my hon. Friend the Member for West Aberdeenshire and Kincardine, I am a little alarmed by this statutory instrument and its implications for my residents in North West Hampshire. I have a number of questions for the Minister.
My understanding is that this scheme was originally established in the aftermath of the disruption to supply chains caused by the conflict in Ukraine. There was significant concern about the ability of the offshore industry to continue, so the subsidy was put in place on a supposedly temporary basis. That was to allow for the uninterrupted development of an industry that had hitherto been working quite well, but was suffering at that point.
This statutory instrument, however, turns that temporary subsidy into a permanent feature of the landscape. We are voting through, colleagues, a permanent subsidy to the wind industry. [Interruption.] Well, there is no sunset clause; that has been taken out. There is no review mechanism—there is nothing. If the Minister wants to intervene on me, I am quite happy to be corrected, but as far as I can see this is an open-ended subsidy scheme through the CfD system. My questions are configured around that assumption.
First, could the Minister confirm that there will be no annual parliamentary vote on this subsidy? Normally, a subsidy to an industry would expect to come through direct expenditure from the Department for Energy Security and Net Zero, the Department for Business and Trade or whatever it might be. This is being funded through the supplier obligation levy, which is a direct levy on consumer bills. There is no approval by the House of the budget. In fact, I think it is just approved administratively—it is what it is. The consumer will pay, whether we like it or not. If the Minister could confirm that, that would be great.
As I understand it, the budget for AR7 was about £544 million. Could the Minister confirm for us the projected budget that the Government expect for AR8, and therefore how much my residents in North West Hampshire can expect to be added to their electricity bill to pay for this statutory instrument?
Much of the Government’s case for extending what is—let us be clear—an industrial subsidy is that there is a very high leverage. I looked at the maths, and the leverage of private sector to public sector is about 16:1. How was that number reached? I could not see in the impact assessment what the maths was, what assumptions had been made or whether this had been independently verified. Is there some kind of National Audit Office examination of that number? I have been a Minister myself, and I was always very sceptical about these public-private leverage numbers. They are often promoted by the industry looking for the subsidy, and make their way into these sorts of impact assessments without any kind of checking. I would be grateful to understand what the assumptions were.
Could the Minister also confirm that this is now a permanent feature of the landscape—that there is no sunset, statutory timeline, let or control? People will effectively just bid through the CfD system, the subsidy will make up the difference, they get to build their onshore, floating offshore or whatever wind it might be, and my constituents and I have to pay no matter what.
Then I wanted to ask a bit about this fair work charter. I understand that the Government are very keen on employees’ rights. We should all make sure that people are treated with respect in employment, but using a statutory instrument effectively to extend employment regulations seems very odd. I wonder whether that will be an ongoing feature of the landscape for statutory instruments such as this and whether we can expect a kind of extension of regulation by stealth.
I am sure these regulations are perfectly amenable, but their being contemplated in a small Committee of Members, rather than on the Floor of the House, as the Employment Rights Act 2025 was, or indeed going through both Houses in all their pomp, seems to me a slightly sneaky way to get around proper Government scrutiny. I would be very interested if the Minister could point me, please, to the specific statutory authority that permits the use of CfD contracts to impose employment standards on developers and their supply chains. If he cannot point me to that, what is the legal authority, please, for that being included in this statutory instrument?
Finally, CfDs were designed originally to bring down the cost of alternatives. That was the original plan. Yet what we are voting on today will do precisely the reverse: raise the cost for me and my constituents. I wonder how the Minister can justify that at a time of difficulty for so many of our constituents with the cost of living. If this industry is as attractive to the private sector as he says it is, why does it need the subsidy in the first place?
Michael Shanks
I will address a few things. There were some contradictory comments from different Members of the same party: on the one hand, we should support the supply chains, but on the other, the Government should do nothing to actually build them up. I will come to that point, because—
Michael Shanks
That is how we end up with absolutely no industry left in the country. That is what we are trying to rebuild after 14 years of it falling apart.
I will turn to the specific points. First of all, the shadow Minister, the hon. Member for West Aberdeenshire and Kincardine, made a good point about the strength of supply chains in the north-east of Scotland; I will be in Aberdeen again on Thursday. One of the key things that the North Sea Future Board has taken as a real priority is how we map those supply chains, not just over oil and gas but over what could come in terms of offshore wind, decommissioning, hydrogen and carbon capture. For too long, the pipeline of future projects that that supply chain could be redeployed on has not been clear enough. As a result, we have been losing out on contracts that could be dealt with here in the UK. We are determined to try to fix that, because there are significant supply-chain opportunities, but we need to make it easier for companies to take those up.
The shadow Minister and I always agree on new nuclear, although we slightly disagree on how much he achieved when he was the Nuclear Minister—but I will not mention that, because I want us to work co-operatively on nuclear. New nuclear is incredibly important. As he is right to say, the supply-chain benefits in the UK from nuclear are substantial: thousands and thousands of jobs in communities right across the country, not just in proximity to Sizewell or Hinkley, are contributing in different ways to building what are phenomenal engineering projects here in the UK.
The small modular reactor fleet that the Government not only consulted on but have actually delivered—and are delivering—will result in even more supply-chain jobs across the country as well. The shadow Minister and I also agree that we would like to see some of those SMR projects being built in Scotland, with even closer supply chains in Scotland as well, but we first need to change the Scottish Government in May; I am glad that he will be supporting a vote for Scottish Labour on 7 May to do that.
The shadow Minister also raised a number of other points about the supply chain that I think are right. It is absolutely right to say that floating offshore wind is an expensive technology, but we are at the cutting edge of its development. We have a real opportunity to do something differently on deep-sea wind, which we were not able to do on fixed-bottom wind, to have the supply chain here in the UK. We have the biggest pipeline anywhere in the world; we have one of the biggest projects in the world. That is an opportunity for us to deliver on that innovative supply chain, but it takes investment for that to happen.
The right hon. Member for North West Hampshire asked a number of genuine questions, which I appreciated. First, the regulations themselves very clearly set out the sunset clause as 31 December 2028. This will be eligible for the allocation rounds before that date; if we wanted to continue the scheme beyond that, we would have to come and update these regulations again, but it is not an unlimited fund.
On the projected budget for AR8, I cannot get into projected budgets because they are driven by the initial allocation that is set, and then by the bids that come in. In AR7, we reformed the process so that we could see the bid stack in order to see what projects were in that option round, although they were anonymised. That resulted in the budget getting us the output of offshore wind that we did, at a price that was 40% cheaper than new-build gas. That is what we should hold on to: the AR7 option round was cheaper for consumers than the equivalent would be.
I remind right hon. and hon. Members that there is no option to not build new energy infrastructure in this country. We have two choices: we either double down on gas, and the world as it stands right now is a reminder of why that would be a mistake; or we build renewables. There is no option to build nothing. There is a cost for consumers, regardless of what we choose to do. There is also a huge cost for consumers of building the grid that the previous Government failed to build for 14 years, which we are now determined to do.
On the fair work charter, there is no compulsion on any developers to bid into the clean industry bonus. If they want to participate in the contracts for difference auction, they are very welcome to do that. If they want to participate in the clean industry bonus and have public support for supply chains here in the UK, then they should conform to the requirements of that scheme. We think it is absolutely fair to say that if the hard-working people of this country are putting money into building those factories, fair work should be at the heart of it. I am surprised, frankly, that in 2026 anyone would think that fair work is something that we should not support by any means necessary.
Kit Malthouse
As I think I said, I agree that people should be treated with respect; my question was more about why it is being done through this particular route. For the Government to legally have grounds to include what we are discussing as part of, effectively, a procurement process, there has to be a statutory basis on which they are doing that; it cannot just be shoved through on a non-universal basis. I was asking for the authority on which it is included.
I am sorry if I misread the time limits regulation. Could the Minister confirm that, if the Government give notice before 31 December 2028 for 12, 15, 19 or 120 more rounds to come, they will then be able to continue post that deadline? So they can in fact manufacture a deadline.
Finally—rather than my having to intervene again; I hope you will bear with me, Ms Jardine—could the Minister confirm to colleagues what he said: we are being asked to vote today for higher energy bills for our constituents in perpetuity, or certainly for the next few years, as a result of this instrument? Just so everyone is clear: you are voting for higher bills.
Michael Shanks
I thank the right hon. Member for his second speech in the debate.
Kit Malthouse
I was trying to save time; I can intervene more if the Minister wants.
Michael Shanks
I understand the point. First of all, I have been really clear. This regulation, as it clearly sets out, comes to an end on 31 December 2028. We will come back to the Committee to update the regulations should we wish to continue the scheme. We have run AR7—it was a successful scheme. Obviously, we want to monitor what happens in AR8 and AR9. We may be able to devise other schemes. It may be that by then that our industrial strategy has delivered the supply-chain benefits across the UK and that that is not necessary, but supply chains do not come out of nowhere.
The shadow Minister, the hon. Member for West Aberdeenshire and Kincardine, made one other point that I wanted to come back to. When we left Government, two supply chain companies were building solar in this country. When we took back Government in 2024, there were none. If we want to have supply chains in the UK, we have to support and invest in them. That is not just a cost. It also delivers good jobs across the country, and our energy security.
On the question about raising bills, the right hon. Member for North West Hampshire is quite wrong. The outcome of building the clean power system is that we will bring down bills, but we have to be able to build it and that means supply chains here in the UK as well, because the rest of the world is also in a race to build clean energy infrastructure.
Michael Shanks
It is a no, because the counterfactual, of relying on gas, as his party is so determined to do, would put up everyone’s bills significantly. We are the ones bringing down bills, and on 1 April all our constituents will see that the decisions this Government have made will reduce their bills by 7%.
There are a number of points in this statutory instrument that I could go over again; in the interests of everyone’s time, I will not. I reinforce the point that we believe that if we are building an energy system for the future here, we should deliver the good jobs and industrial benefits that come with that. That should not be a controversial argument, but it seems that it still is. If we want to have an industrial strategy, we cannot be agnostic, sit on the sidelines and hope that someone else will do it—we have to drive it forward. If we want our constituents to have good, well paid jobs across the country, helping build the energy system, we have to do something about it. This Government are doing that, and I commend the regulations to the Committee.
Kit Malthouse
On a point of order, Ms Jardine. I do not mean to be difficult, but the Minister has not answered all the questions I posed—not least about the assumptions of the 16:1 leverage, which is apparently the big bonus coming in. I also do not know whether it is appropriate for us to vote on what is effectively an open-ended budget. Fundamentally, the impact I am most worried about is the one on my constituents—that I am not going to be able to tell them how much this will cost them; that is quite a significant hole in the Government’s argument. I am not aware of other statutory instruments where we vote for an open-ended budgetary allocation that our constituents will have to pay for, whether they like it or not.
I have time this afternoon. If you, Ms Jardine, want to suspend the sitting while the Minister goes and finds the answers to those questions, I am quite happy for that to happen. It seems to me disrespectful for us to rattle through something that will have an impact quite soon on people’s electricity bills.
The Chair
Thank you. That is not a matter for the Chair but the right hon. Member’s comments are on the record, and I have taken note of them. It is appropriate now for us to move on.
Question put.