Electricity Capacity Mechanism (Amendment) Regulations 2024

Debate between Lord Lilley and Earl Russell

Monday 20th January 2025 Grand Committee

[Lord Lilley (Con)]

My Lords, I want to use this as an opportunity simply to ask a question of the Minister. Why do we not take the advice of Professor Dieter Helm, in his review of energy policy, which was that instead of us providing the capacity mechanism centrally, we require anyone providing electricity into the system—wind generator, solar generator or whatever—from an intermittent source to provide firm power, in other words to pay for some capacity for the times when the wind is not blowing? If that were done, this whole arrangement would be unnecessary. We would have a much clearer idea of the total cost of intermittent energy if the supplier were also paying for some of the back-up capacity that is necessary to meet the occasions when intermittency prevents delivery of the power.

The only argument I have heard against this is that, if you do it wind farm by wind farm, the aggregate amount of capacity would be statistically greater than is necessary to meet the fact that some wind farms will be producing when others are not, but that surely can be overcome by saying that a certain statistical proportion of the necessary capacity should attach to any intermittent generator. Then we would have a more rational, more credible and more manageable system than the one that we have under these regulations.

[Earl Russell (LD)]

My Lords, this instrument revokes and alters several provisions of the assimilated EU regulations relating to the internal electricity capacity market. The draft regulations make changes necessary for the operation of the capacity market following our withdrawal from the European Union and they revoke the 10-year approval requirements. We do not oppose these changes—I just say that to start with.

Our electricity capacity market was introduced in 2014. The measure is designed to ensure that maximum output is always available and thus that we can maintain sufficient electricity capacity to meet future predicted demand, always ensuring the security of electricity supply. As we have heard, the capacity market covers generation, storage, consumer-led flexibility and interconnector capacity. It is about ensuring the security of this supply at all times. Auctions are held annually, one year and four years ahead of delivery, to ensure that we have supply when we need it and can meet future peak demand in a range of scenarios, based on advice from the capacity market delivery body, the National Energy System Operator.

The capacity market was originally approved when we were part of the EU and was made under the European Union’s state aid rules for a period of 10 years. Following our withdrawal, this requirement was brought in and enshrined in our domestic law as part of the assimilated electricity regulations. The capacity market will continue to be required to maintain the security of supply and investor confidence. This market will be of even greater importance as we seek to decarbonise our electricity generation by 2030 and, at the same time, see an ever-growing increase in electricity demand. The draft regulations revoke the requirement that

“Capacity mechanisms shall be temporary”

and

“shall be approved … for no longer than 10 years”,

and other references to such mechanisms being temporary. The draft instrument also revokes several provisions that require minor correction. As I said, we do not oppose the recommendations in the instrument, but I wanted briefly also to turn to some broader points.

As we seek to reach net-zero carbon generation by 2030 and beyond, the Government have a continued dependency on unabated gas and propose that carbon capture and storage should be used as a key part of our energy mix. Indeed, the clean power 2030 plan has around 35 gigawatts of unabated gas on standby for security of supply, and this requirement for gas capacity will remain throughout the early 2030s until more low-carbon dispatchable power comes on board to replace it. Although required, back-up reserve gas generation that is used intermittently and only when necessary is also very expensive, understandably. The Government have agreed to invest some £22 billion over the next 25 years in carbon capture technology to help make sure that we can have this unabated gas without adding to our greenhouse gas emissions.

The week before last there was a debate in the Chamber on the Science and Technology Committee’s report on long-term energy storage. We have also had a couple of Questions about the Russian shadow fleet and the attack on Baltic power cables. Of course, renewable energy is not always reliable, and everybody knows that it needs to be backed up by a wide variety of other sources to help ensure the security of supply. On that basis, can I ask the Minister about the Government’s proposed energy mix going forward to net zero and beyond? I am a little concerned that we continue to have this requirement: it is basically solar, wind and dispatchable gas backed by CCS and nuclear. Will the Minister say a word about how the Government will keep this mix under continuous review? I encourage them to invest in alternative renewable technologies, such as wave, tidal and geothermal, that are able to provide the dispatchable power that we need. What is the Government’s thinking on that?

We must also ensure that all the wind energy we generate is available and can be used. As I said, there is also a need to radically increase our medium and long-term energy storage, which is available to help us get through periods when other sources of renewable energy are not on tap. I hope that the reforms to the capacity market already announced will help make that happen. More must also be done to reduce demand; as the Government know, the best energy is the energy we never use.

Turning to this SI, I note that, as the Explanatory Memorandum says,

“there is a requirement to review the Electricity Capacity Regulations … at least every five years to determine whether they are meeting their objectives and remain fit for purpose”,

and I note that the Minister said the Government will continue to keep the controls in place. As we are going through such a rapid period of change, we welcome the fact that the Government have brought forward the plan to decarbonise our power generation by five years, but what consideration have they given to the need to review these mechanisms more than every five years? What might trigger that? What is the Government’s thinking on those matters?

Clean Heat Market Mechanism Regulations 2024

Debate between Lord Lilley and Earl Russell

Monday 20th January 2025 Grand Committee

[Lord Lilley (Con)]

They are of course three times more efficient on average—though not necessarily in cold weather. But electricity is four times as expensive as gas per therm.

[Earl Russell (LD)]

I welcome the intervention and will come back to the noble Lord on his point. During this transition, it will take a huge effort across government and beyond—and beyond the scope of this instrument—to meet the scale of these changes.

The regulations establish the new UK-wide heat market mechanism to promote the development of the market for retrofit installations of heat pumps in existing buildings. The CHMM is to launch on 1 April 2025 and run for an initial period of four years. In the interests of time, I will not go on too much, but there are two big changes from previous proposals. First, they propose to reduce the payment in lieu of any missing heat pump credits to £500 from the first year from the £3,000 proposed by the previous Government. Secondly, the period over which boiler sales are counted has been delayed to give the obligated parties more time to prepare. The Government have said:

“As set out in the consultation response published in November … We have also aligned the periods over which boiler sales and heat pump installations will generate obligations and credits, respectively, providing manufacturers with more time to prepare”.—[Official Report, Commons, Second Delegated Legislation Committee, 13/1/25; col. 4.]


The big change is that the new Minister has engaged and listened to industry and has managed to make some of the adjustments required by working in partnership. This approach has been welcomed by industry. Removing penalties and allowing more time is pivotal to finding common solutions. The approach of giving manufacturers more time to scale up the supply chain and expand sales without penalising customers is good and needs to continue while hitting some very ambitious and fast-approaching targets.

The ongoing relations with manufacturers and industry are clearly key to delivering this policy. How do the Government intend to continue these better relations while making sure that targets are met and that unnecessary costs are not passed on to consumers? I want to make it clear that this is not a boiler tax. The Conservatives, when this was their policy, were very keen that those words were not used to describe it.

Review mechanisms and relations with industry are crucial to delivering this policy. I note that any adjustments would require further legislation and that would change the whole impact assessment. Any increases in the target in future schemes would require further secondary legislation. I note that the Government have said that they will not force consumers and that this is about working in partnership. My worry is about the confidence that the Government have in the ability to deliver the volume of heat pumps required in the time available.

I would like briefly to ask the Minister about some wider points. The cost of getting a heat pump is still a barrier to entry. I welcome the fact that the Government have continued the £7,500 grant, which, to their credit, the Conservatives not only introduced but increased. Since that increase, we have had a remarkable uptake in the number of heat pumps. But, as we have heard, installing a heat pump is about a system-wide change. It is more than just installing a heat pump; often it involves under-floor heating and changing radiators. On average, this seems to be costing consumers at least an additional £5,000.

We have had some conversations as part of the GB Energy Bill about green mortgages. Are the Government considering finding ways that the additional costs, not just of heat pumps but other renewable energy technology, can be added to mortgages? Quality and innovation are clearly important as well, as is making sure that these are good-quality products.

The noble Lord, Lord Lilley, intervened on electricity market reform, and to some extent I agree with him. Our electricity is still very expensive—some of the most expensive in Europe. The Government’s policy is to get people away from gas and on to electricity. What plans do they have to make sure that electricity is affordable and to introduce social tariffs for those struggling to pay their bills?

On disinformation, misinformation and ignorance, according to the Government’s own policy document, only 51% of people in the UK know about heat pumps. There is disinformation and misinformation in this space—for example, that heat pumps do not warm our homes enough—so it is important that the Government have a strong public information campaign for the take-up of heat pumps, about what they are, how they work and what they do.

Finally, heat pumps can save the average household £300 a year, so they would go a long way towards Labour meeting its manifesto pledge. I wish the Government well, but these things are complicated.

Offshore Petroleum Licensing Bill

Debate between Lord Lilley and Earl Russell

Committee stage
Tuesday 23rd April 2024 Grand Committee

[Lord Lilley (Con)]

May I just add a few brief comments? I endorse what my noble friend Lord Moynihan and the noble Lord, Lord Bruce, have said.

I speak from a position of considerable ignorance. I used to know quite a lot about this but I know much less now. However, it seems that everyone is agreed that future fields will not be allowed to flare and vent and are not planning to flare and vent. So the first subsection of the proposed new clause to be inserted by Amendment 1 would legislate for something that is going to happen anyway.

However, the second proposed new subsection says that we should not allow any new fields until old fields have been prevented flaring. I do not see the relevance of the connection between the two. If we can stop old fields flaring and venting, we ought to. If we cannot, that is a problem, but what has it got to do with new fields, which will not flare and vent? Unless we have some explanation from the backers of this amendment of why they are linking the two, I cannot see why we should support it.

[Earl Russell (LD)]

My Lords, I rise to speak in favour of all the amendments in this group.

I start with the first amendment, which is in the names of the noble Baronesses, Lady Hayman and Lady Blake of Leeds, and the noble Lord, Lord Randall of Uxbridge; I have also put my name to it and support it. The amendment comes out of Alok Sharma’s amendment in the Commons; it was the one amendment that the Minister in the other place said the Government were prepared to go away and look at.

I take the points that have been made about what has been achieved under a voluntary mechanism. I also recognise that the new oil fields do not have this, but I would like to hear from the Minister and get a response from the Government as a productive one was not really given in the Commons. This is a real issue that needs looking at, and the Government may have real concerns about bringing this measure in for old fields.

My understanding is that some of this can be done by replacing methane with compressed air, et cetera. If there are concerns, I would like to hear them because, as we have heard, methane is 80 times more potent over 20 years than carbon dioxide. It is a huge greenhouse gas and the Government have signed up to the 2030 commitment to reduce it; indeed, the UK leads the world in some of these respects. So it would be good to see stricter regulations written in.

Progress has been made. The Government have committed to zero venting and flaring by 2030. Already, a near 50% reduction in flaring since 2018 has been achieved, but to put that in perspective, Norway banned venting and flaring in 1971, which is the year I was born. This is not rocket science; it is not difficult to achieve. While I recognise that progress has been made, I am 52 now, so we are 52 years behind Norway. These are powerful greenhouse gases, so we are waiting for this voluntary system to come in, but we need to take action: we need action at speed, at pace, to make sure that these things happen. I want to hear from the Minister whether he has ideas about how that can be done.

I recognise as well that the NSTA guidance currently states that there should be none for new developments and it should be phased out by 2030. However, the problem with this is that the enforcement is patchy and 2030 is still a long way off. It is a long time for us to be letting out these extremely powerful greenhouse gases, so I think something should be done at scale and speed to make that happen.

The Government argued throughout this Bill that they want to give the industry certainty, and that is one of the underlying themes behind the need to put forward these measures. My question to the Minister is why we are not doing that on venting and flaring. If this is about certainty for industry, and this involves industry having to invest to change and adapt, why are we not giving a clear steer—clear guidance, clear timetables—on the intention to do this? That would seem to be the sensible thing to do and the thing that industry would welcome the Government doing, so I call on the Government to do that and I support the amendment. I thank everybody who has spoken to it.

My Amendment 6 is a simple amendment replacing one word with another. It replaces “must” with “may”, but it goes to the very heart of the Bill. The story is that the Bill was cooked up over a boozy lunch as a way of dividing the Opposition. Who knows whether that is true or not but, if our energy crisis and energy security could be resolved by a two-clause Bill, I suspect that somebody might have done it before and that it would not have magically appeared when nobody else had managed to do it.

The Bill actually says that there is a duty to invite applications. I listened to all the debate in the Commons as part of my preparation for the Bill, partly because I am new to this place and am a bit sad, sitting there on the weekends, but I felt that this point was missed in the Commons, which is why I tabled this amendment. Having spoken to colleagues on the Opposition Benches, I kindly ask the Government to look at this probing amendment, because it is important to understand their motivations. They are putting this legislation forward, taking parliamentary time, telling us that it does things that are needed and are important, and I had to ask the House of Lords Library for a special briefing on the Bill because I was frankly astounded that it could be passed and never again would another North Sea oil or gas licence be agreed. How do these two things happen?

The Government are telling me that this is resolving our energy security and providing certainty, yet the Bill can pass and another licence can never be granted. I am confused about what the Bill actually does and have put forward this amendment in the hope that there is substance in the Bill and it is not just an attempt to divide the Opposition and destroy the consensus that existed on climate change. This is so important not just to the way we work here or in the other place but to the message that we send to the people of this country as we transition. We had the chief executive of the CCC on Laura Kuenssberg this weekend and have heard Alok Sharma; the Government have had resignations and this Bill has damaged our international reputation.

It is important that we understand what the Bill does if we are selling our international reputation for it. What does it do? What is the point of it and what does it achieve? My amendment is really an attempt to figure that out. That is why I have included it and I will question the Minister on that.

My Amendment 7 would mean that only companies that have publicly stated that they will invest in the green economy half the profits derived from winning an application can be invited to apply. I point out that 50% is a random figure—we can amend and debate that—but I believe in the green transition and in the need to protect these jobs. I believe in a just transition and that these things are extremely complicated. I also recognise that we will continue to have some dependence on oil and gas as we transition to net zero, not just for our energy needs but for lubrication and other industrial purposes.

I recognise that we will have oil and gas licences, but we must act at scale and speed to disinvest from oil and gas. We must leave as much of this stuff in the ground as we can. Once it is extracted, it may not count towards our net-zero targets, but it will for some other country after it has been sold on the international market, as 80% of it will be. It will be burned. We live on one planet and have one atmosphere. Emissions go somewhere and they will affect us. The idea that the Bill does no harm is not correct; it has consequences. A lot of oil and gas companies do not invest in the green economy in the North Sea, and they should. This amendment is simply an attempt to lay down a marker.

My Amendment 8 would mean that

“the OGA cannot invite nor accept an application for a seaward area production licence from a Russian oil and gas company”.

This point was raised by Richard Foord in the other place. It is my understanding that one Russian oil or gas company has a licence in the North Sea, when we have a war in Ukraine and continued threats to our European security. The Minister spoke quite clearly at Second Reading about the Bill providing for our energy security, but these Benches have questioned that because 80% of our oil goes into the international market.

This is a simple, clear, straightforward amendment that does what it says on the tin. If we are concerned about energy security, why are we allowing Russian oil and gas companies to bid for, win and run licences to extract our oil and gas, put it on the international market and perhaps even sell it back to us? The Government would then have to subsidise bill payers with billions of pounds to pay for it, in a vicious circle that helps no one. This amendment is clear, and I would like it to be agreed to.

Of the other amendments, I strongly support Amendment 9 on a marine spatial strategy. It is extremely important, and it is important that we plan for the future. If we are to have new oil and gas licences, it is important that we do not rule out the ability to have other green energy. I also support Amendment 10 in this group, but I apologise for getting a bit carried away and going over my time.