Draft Contracts for Difference (Allocation) (Amendment) Regulations 2026
(1 day, 17 hours ago)
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The Minister for Energy (Michael Shanks)
I beg to move,
That the Committee has considered the draft Contracts for Difference (Allocation) (Amendment) Regulations 2026.
The draft regulations were laid before the House on 20 April. They make several minor and technical amendments to improve the operational efficiency of the contracts for difference scheme during the assessment of applications. Subject to the will of Parliament, the Government intend to introduce those targeted and practical measures in time for allocation round 8, which opens on 20 July.
For the interest of Committee members, the CfD scheme is the Government’s flagship policy for supporting new low-carbon electricity generation in Great Britain. CfDs are awarded through annual competitive auctions, with the lowest-priced bids being successful. In March, in response to events in the middle east, my right hon. Friend the Energy Secretary outlined a package of measures to go further and faster on clean power, including bringing forward the opening of AR8 to July to provide certainty for clean energy investors.
The most recent allocation round, AR7, alone secured 14.7 GW of clean, home-grown generating capacity across 201 new projects. AR7 built on the success of AR6—out in September 2024—which secured more than 7 GW of renewable capacity across Great Britain. AR7 was the most successful renewables auction in European history. The reforms we introduced for AR7 boosted competition and investor confidence, and secured renewable capacity at strike prices 40% lower than the cost of building and operating a new gas power plant. Such achievements show how the CfD scheme—our key path to deliver on our mission of clean power by 2030—strengthens Britain’s energy security.
The regulations that govern the scheme are kept under review to ensure that they remain fit for purpose. The draft regulations will make the following three targeted amendments to improve the future operation of the scheme. First, they will enable the National Energy System Operator to correct certain types of error it makes during the assessment of applications by issuing new or amended qualification decisions, where evidence supports that. NESO, in its role as the CfD delivery body, assesses applications against the eligibility criteria and determines whether applicants qualify to participate in the competitive allocation process. As the CfD scheme has grown in popularity, the volume of applications has increased significantly, with several hundred submitted in recent allocation rounds. Eligibility checks are always robust, but larger numbers of applications increase the risk of errors in assessment decisions. This amendment will ensure greater consistency and fairness in how the eligibility requirements are applied.
Secondly, the draft regulations will enable NESO to consider additional information or documentary evidence submitted by applicants when examining appeals from non-qualification decisions. That change will help to avoid projects being disqualified for minor or trivial omissions from their applications. It should streamline the process and ultimately increase the number of participants in the auction, which will help us by driving greater competition and better value for money for bill payers.
Thirdly, the regulations clarify how NESO is to treat applications where eligibility has not yet been decided by the point at which the regulations require NESO to proceed with the auction. In the light of operational experience from AR7, this amendment will remove some ambiguity in existing regulations.
Finally, the draft regulations provide for procedures or information relating to the implementation of several of the measures that I have just described to be set out in the contract allocation framework—a statutory document that contains the eligibility criteria and rules governing how NESO must allocate CfDs in an allocation round. The Government published a draft of the framework setting out the proposed requirements for AR8 on 1 June, and invited stakeholder views. The final version will be published in early July, before the round opens to applications.
These amendments received strong stakeholder support in a recent public consultation, which showed broad recognition that the changes will improve the experience of applicants during the assessment process, support more effective competition and secure better value for money for consumers. This approach reflects our continued close engagement with industry in the development of the CfD scheme. By building on the foundations that we laid in AR7, the draft regulations will strengthen the procedures and simplify the operation of the scheme, which will drive progress towards clean power by 2030, while of course helping us in our No. 1 mission of securing value for money for bill payers. I commend the draft regulations to the Committee.
Greg Smith (Mid Buckinghamshire) (Con)
It is always a pleasure to serve under your chairmanship, Mr Stringer. The lens through which we must view any legislation on contracts for difference, including the draft regulations before us, is one that asks: what do contracts for difference mean for all our constituents who ultimately pay the energy bills?
The Opposition oppose forcing families and businesses to pay even more money to subsidise wind and solar developers, which I am afraid is precisely what happened in the last allocation round for contracts for difference, which the draft regulations amend. My Conservative colleagues and I warned Ministers for months that wind and solar developers would take advantage of the Government’s blind commitment to building more clean power, regardless—I repeat, regardless—of the cost. What was the result? Prices that were far higher than those agreed in the previous allocation round, higher than the average cost of electricity the year before, and the highest in over a decade.
The Government are locking in uncompetitive electricity prices for decades to come. Britain already has the highest electricity prices in the world, and it is now clear that it is the cost of the excess capacity, curtailment, batteries, storage systems and interconnectors, as well as the imports of gas needed to offset the intermittency of renewables and the subsidies that developers are extracting to pay for this, that are driving up prices in the long term. It is a reality that seemingly everyone but the Government have come to accept, with energy bosses giving a pointed warning to Parliament last year that the price of electricity could be higher in 2030 than it is now even if gas were free, because of these rising network and policy costs.
If the Government believe that their policy will lower energy bills in the long term, can the Minister promise that the maximum strike prices agreed in allocation round 8 will be lower than the price of gas-powered electricity last year, and lower than the strike prices agreed in previous allocation rounds? If the Minister cannot answer those straightforward questions, how can the Government continue to claim that their policy is lowering the cost of energy, when the available evidence suggests otherwise?
Today’s draft regulations may involve just a number of minor technical amendments, and His Majesty’s official Opposition will not divide the Committee today, but the bigger picture to which the draft regulations speak should be of concern of all members of the Committee, and all Members of the wider House.
Edward Morello (West Dorset) (LD)
It is a pleasure to serve with you in the Chair, Mr Stringer. I will leave the Minister to respond to all the inaccuracies in the shadow Minister’s speech. The purpose of the draft regulations is not to alter the underlying policy objectives of the CfD scheme but to improve the administration and operation of the allocation process. As the number of applications has increased significantly in recent allocation rounds, the complexity of assessing those applications has also grown.
The three principal changes introduced by the draft regulations are all positive. Allowing NESO to correct certain administrative errors that it may make during the assessment of an application should reduce the risk of projects being incorrectly assessed due to procedural mistakes. Permitting NESO to consider additional documentary evidence or information when reviewing first-stage appeals from applicants whose projects have initially been deemed to be non-qualifying should ensure that decisions are based on the fullest possible information and that applicants are treated fairly. Finally, the draft regulations clarify how pending applications should be treated where eligibility decisions remain outstanding at the point at which the allocation process must move forward. This follows operational experience from allocation round 7 and provides greater certainty for future rounds.
The Liberal Democrats support reforms that strengthen and improve the operation of the CfD scheme and accelerate the transition to cleaner and cheaper renewable energy. We will continue to support the expansion of fixed-price renewable contracts to break the link between electricity prices and gas prices, but although we support the draft regulations, we believe that further reforms of the CfD framework should be considered, including extending the lifetime of CfD contracts from 15 to 25 years, and moving all older renewables obligation contracts on to the CfD scheme.
Michael Shanks
I welcome the comments of both hon. Gentlemen, in particular those of the hon. Member for West Dorset, who spoke to the actual draft regulations. I thank him for his support. I also thank the official Opposition for their support for all that we do in energy policy, or so it seemed from the speech of the shadow Minister, the hon. Member for Mid Buckinghamshire.
The hon. Member for West Dorset spoke about increasing the CfD lifetime, but we did extend the CfD from 15 to 20 years. We recognised the impact on the cost of investment, which brought down—or played a part in bringing down—some of the bid prices into the auction. We will maintain those changes into AR8 before we open the round.
On the more general points that were made, I think that there is a moment here to reflect. AR7 was the most successful renewables auction that we have ever had. Crucially, however, it was an auction that brought in prices 40% lower than those for building and operating new gas. That was before the situation in the middle east arose. I do not have the actual figure for what the difference would be now, but we can all safely assume that with the price of gas where it is today, it would be a significantly higher saving now than it was then.
That is the truth of the hon. Member for Mid Buckinghamshire saying that he opposes forcing families to pay more; what he is proposing is to force families to pay for gas, which is significantly higher in price right now, and is often much higher. He is gambling that at some point in the future gas prices might come down, so everything will be okay. We are determined not to drive forward our energy system in that way. From an energy security point of view, there has never been a clearer argument than what we are facing right now. Only four years ago, we faced exactly the same question with Russia’s invasion of Ukraine. We have to learn the right lessons, not continue to make the same mistakes.
The last point that I would make—with your patience, Mr Stringer, because none of this is in the draft regulations—is on curtailment and storage. The hon. Gentleman is right to highlight the cost of building the grid, but as much as I would love to take credit for this Government for building the renewables projects that are generating clean power in this country, the truth is that most of them were built under the previous Conservative Government. I give the Conservatives credit for that, even if they do not wish to give it to themselves. What they did not do, however, was build the grid to connect those projects up. We were left with generation right across the country and a grid that was completely out of phase.
A lesson for us to learn from the 14 years of Conservative Government is to build the grid to connect the clean power to households, to connect the economic growth opportunities that we need badly, and to get us off the fossil fuel rollercoaster as fast as possible, so that we are not forcing families to pay sky-high prices for gas, which we can never control. That is what the draft regulations help us to achieve, and I commend them to the Committee.
Question put and agreed to.