Electricity Supplier Payments (Amendment) Regulations 2026

Lord Whitehead Excerpts

Tuesday 17th March 2026 Grand Committee

Moved by

[Lord Whitehead]

That the Grand Committee do consider the Electricity Supplier Payments (Amendment) Regulations 2026.

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

My Lords, you have got me again. These draft regulations were laid before the House on 2 February 2026. I trust that since they are very technical in their nature and very modest in their effect, they will be agreed, because they are an essential element of making sure that our supplier payments and supplier collection work well for the future; they are an integral part of how the system works, so I hope that they will meet with general agreement.

This statutory instrument amends regulations concerning the levies used to fund the operational cost budgets for the Low Carbon Contracts Company and the Electricity Settlements Company. Before I proceed, I apologise to the Committee for the enormous number of acronyms that will no doubt emerge during this debate and in my speech. Let me start with the LCCC and the ESC, which I have already explained.

The LCCC administers the contracts for difference scheme on behalf of the Government under the Energy Act 2013. Under that Act, the LCCC also administers schemes modelled on the contracts for difference, including the dispatchable power agreement, the DPA, and the low-carbon dispatchable contracts for difference, or LCD contracts for difference. The LCCC also acts as the revenue collection counterparty for the regulated asset base for new nuclear under the Nuclear Energy (Financing) Act 2022.

It is anticipated, subject to future policy decisions and the will of Parliament, that the LCCC will conduct additional work to support government energy objectives under the Energy Act 2013. This includes work on a new scheme supporting the deployment of large-scale power bioenergy with carbon capture and storage electricity generators, work relating to DESNZ’s proposals to support nuclear generation, and work relating to DESNZ’s proposals to potentially support landfill gas generation.

The ESC administers the capacity market scheme. Those schemes will incentivise the significant investment required in our energy infrastructure to keep costs affordable for consumers and help to deliver our clean power mission, while keeping our energy supply secure.

Contracts for difference—CfDs—provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost for consumers. AR7, the most recent CfD auction and the seventh to date, secured a record 14.7 gigawatts of new clean energy capacity across Great Britain, making it the largest round ever delivered. It brought forward a diverse range of renewable technologies while delivering a good deal for bill payers. The LCCC is currently signing 197 CfDs with projects that were successful in this auction.

Dispatchable power agreements—DPAs—under the Energy Act 2013 are agreements modelled on CfDs. They have been designed to instil confidence among investors in power carbon capture and storage projects and incentivise the availability of low-carbon, non-weather dependent dispatchable generation capacity. The LCCC signed its first DPA on 19 November 2024 for the Net Zero Teesside Power project. This pioneering project in the north-east aims to build the world’s first commercial-scale gas-fired power station with carbon capture and storage.

Over the next three years, the LCCC is expected to sign additional DPAs, which will drive the private sector investment required to bring forward further power carbon capture and storage projects by the mid-2030s. The LCCC will be the counterparty for these DPAs, as it was originally for CfDs, and funds have been included within the budgets to support this role.

The LCCC also signed its first low-carbon dispatchable CfD—LCD CfD—with Drax Power Ltd on 4 November 2025. This agreement will ensure that Drax generates electricity when needed between 2027 and 2031, thus bolstering our energy security. It is also a good agreement for consumers, saving them around £6 per year on their household bills compared to previous arrangements.

The Government also agreed heads of terms with EP Lynemouth Ltd on 6 February 2026 for an additional LCD CfD. If a full contract is concluded in the following month, this will further bolster our energy security by ensuring that Lynemouth continues to generate when needed between 2027 and 2031. Funds have been included in the budgets to support the LCCC’s role as the intended counterparty for this LCD CfD, as well as its role as counterparty for the existing contract with Drax Power Ltd.

The revenue collection contract with Sizewell C Ltd, the first project to use the regulated asset base—RAB—model for new nuclear, became effective on 4 November 2025, and funds have been included in the budget to cover the LCCC’s operational costs as a revenue collection counterparty for the RAB. As noble Lords can see, this all amounts to a large amount of additional work and activity for the LCCC, which is important in terms of this particular SI.

Turning to the ESC, the capacity market is tried and tested and is the most cost-effective way of ensuring that we have the electricity capacity we need now and in the future. It provides all forms of capacity and the right incentives to be on the system, delivering capacity when needed by increasing generation or by turning down electricity demand in return for guaranteed payments. The capacity auctions held to date have secured the capacity we need to meet the forecast peak demand out to 2028-29. A T-1 auction is currently ongoing and a T-4 auction will take place next week, securing most of the capacity we need out to 2029-30. In both the CfD and capacity market schemes, participants bid for support via a competitive auction that ensures that costs for consumers are minimised.

In the DPA, agreements are allocated through a process involving competitive assessment, followed by shortlisting then a final stage of bilateral negotiations between project developers and DESNZ. In the LCD CfD, contracts are agreed following a structured negotiation process between DESNZ and the generator. This process ensures that only those contracts are signed that offer value for money for consumers and include strict sustainability criteria.

Revenue collection contracts under the RAB model are agreed through a structured process involving DESNZ, Ofgem and the LCCC. These contracts provide a stable, regulated revenue stream to projects during construction and operation. In turn, we expect the RAB to lower the cost of financing for nuclear, one of the biggest drivers of new project costs, resulting in better value for money to consumers.

The LCCC and ESC’s effective administration of the CfD, the capacity market and other schemes to date has demonstrated their ability to deliver such schemes at least cost to consumers. It is in part for this reason that the LCCC has been working with DESNZ and other departments to develop new schemes for incentivising deployment of more low-carbon technologies. For example, the LCCC has supported DESNZ in the development of incentives for bioenergy with carbon capture and storage. Although this has not been confirmed, contracts for such projects could potentially be entered into following a process established under the Energy Act 2013. Were DESNZ to move forward with this option, the LCCC would need to undertake activity to prepare for acting as the counterparty in the next three years. Consequently, funds have been included within the budget for this purpose.

The LCCC and ESC are mindful of the need to deliver value for money, as their guiding principle is to maintain investor confidence in the schemes they deliver while minimising costs to consumers. They have taken a number of actions to date to reduce costs, such as bringing expertise in-house rather than relying on more expensive outside consultants. It is because of actions like that that CfD operational costs per contract are expected to fall by 27.3% per CfD across the budget period, despite the growing size of the CfD portfolio. It is a similar narrative for the ESC, which expects the number of capacity market electricity meters to exceed 1.2 million over the budget period, a 450% increase on current meter numbers. It estimates that costs per meter will fall by 23% over 2025-26 to 2028-29. The operational cost budgets for both companies were subject to consultation, which gave stakeholders the opportunity to scrutinise and test the key assumptions in the budgets and, importantly, ensure that they represent value for money. Subsequently, the budgets remain unchanged.

In conclusion, to summarise this rather detailed and technical narrative, the LCCC has done a great job in managing as the counterparty for taking money in for contracts, giving money out and balancing between the two—and, indeed, when it runs a surplus it gives it back to the companies that are paying the money back in. Its activities have changed very substantially over the years, and the levy that goes into those companies has not changed since 2022. Therefore, it is right that the levy coming into the LCCC and the ESC for the expanded work that they do is reviewed, which is what the Government have done, to make sure that the LCCC can cover its costs for the relevant financial years up to 2029-30.

I assure the Committee that the Government are also mindful of the uncertainties involved in setting a budget for the next three years, such as world events impacting energy demand and policy decisions on new schemes that have not yet been taken. Consequently, DESNZ will keep the companies’ budgets under careful review throughout the budget period to ensure that costs to consumers are minimised. I commend these draft regulations to the Committee.

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[Lord Whitehead (Lab)]

I thank noble Lords for, as I have said on previous occasions, their valuable, extensive and wide-ranging contributions to the debate. I am similarly tempted to follow the wide-ranging comments that have been made—some of which I agree with and a lot of which I do not—but I do not think that this is the place to undertake that particular debate.

As noble Lords have reflected on, this SI is, in essence, about a practical and straightforward measure to ensure that the body that administers the working of the CfDs and an increasing amount of further contracts—acting as the counterparty and the proper regulatory body to make sure that there is value in all directions from the money that is collected—simply has the wherewithal to make sure that it can do that job. As I have said, the levels of that wherewithal were set in 2022 and have not been revised since then. They really need to be revised so that we are not in a position where the taxpayer has to come in and bail out the LCCC or similar bodies, come 2028-29, if they do not have sufficient funds to administer the contracts in the way they should.