Electricity Capacity (Amendment) (No. 2) Regulations 2025
Debate between Lord Wilson of Sedgefield and Baroness McIntosh of Pickering
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, these regulations were laid before the House on 3 June 2025.
I am most grateful for the opportunity to join this Committee’s proceedings today. This instrument seeks to make technical improvements and changes to the capacity market scheme, the Government’s main tool for ensuring security of electricity supply in Great Britain.
The Committee may recall that in December 2024, the Government published the clean power action plan, setting out that the capacity market must be reformed to provide clear and viable routes to decarbonisation for unabated gas, enable low-carbon flexible capacity, and incentivise investment in existing capacity. As set out in the clean power action plan, by 2030, unabated gas will account for less than 5% of total generation. However, we will need sufficient flexible capacity to meet system need, such as when renewables are not generating. While we continue to rely on unabated gas as the main mature, reliable technology capable of providing the flexibility needed to balance the system, we are committed to driving deployment of low-carbon alternatives and providing routes for unabated gas capacity to decarbonise in future. Before I turn to the provisions in greater detail, I will first outline some background to the capacity market.
Great Britain’s capacity market was introduced in 2014 and is designed to ensure that sufficient electrical capacity is available to meet future predicated demand, to maintain security of electricity supply. The capacity market is a well-established, technology-neutral scheme in which existing and new-build electricity capacity receive revenue based on capacity.
Participants secure agreements through auctions which require them to make capacity available at times of system stress. It is our main tool for ensuring security of electricity supply. It provides all forms of capacity with the right incentives to be on the system to deliver when needed. It covers generation, storage, consumer-led flexibility and interconnection capacity.
Through capacity market auctions, held annually, one year and four years ahead of delivery, the capacity needed to meet future peak demand under a range of scenarios is secured, based on advice from the capacity market delivery body—the National Energy System Operator.
Since its introduction in 2014, the capacity market has contributed to investment in just under 20 gigawatts of new, flexible capacity needed to replace older, less efficient plants as we transition to a net-zero economy. To date, the capacity market has been successful in ensuring that Great Britain has adequate electricity capacity to meet demand and continues to be required to maintain security of supply and provide investor confidence. To ensure that the capacity market continues to function effectively, regular adjustments are made to the implementing legislation, based on the day-to-day experiences of operating the scheme and wider developments in the energy sector.
This draft instrument makes changes to nine regulations to deliver technical improvements and changes that support the functioning of the capacity market which have been identified and explored through consultation. This will ensure that the regulations remain clear for market participants and that the legislation remains up to date to enable us to better deliver this security of supply mechanism.
The draft instrument does this by making several revocations to expired provisions relating to the scheme, which include revoking references to transitional auctions which are no longer applicable, the temporary standstill period which occurred in 2019, and time-limited relief given to scheme participants in relation to coronavirus.
The draft instrument will also introduce a new process to establish a decarbonisation pathway for unabated gas plants currently in long-term capacity market agreements. It will allow gas plants to exit their agreements without penalty and transfer to a dispatchable power agreement, facilitating conversion to gas-fired power with carbon capture and storage once the technology is available. This will better align the capacity market with the Government’s clean power objectives and provide gas plant operators with a future decarbonisation route for their assets.
The Government conducted two robust public consultations on the measures in this instrument. The first considered reforms to the capacity market to strengthen security of supply and enable flexible capacity to decarbonise. The second considered reforms to modernise the capacity market and improve the participation and delivery assurance of consumer-led flexibility. Both these government consultations were published towards the end of 2024.
Respondents were broadly supportive of the proposals included in the instrument. A number of technical amendments to the capacity market rules were consulted on at the same time as the regulations and have also been made. These support the implementation of the regulations for the capacity market and were laid before the House on 3 June 2025.
To conclude, this draft instrument introduces a number of technical changes that will enable the continued efficient operation of the capacity market, so that it can continue to deliver on its objectives. These reforms will be critical if we are to achieve clean power by 2030. They will improve security of supply by ensuring the modernisation of the capacity market and making the legislation as clear as possible for all scheme participants. They will also support decarbonisation of unabated gas and enable the rapid acceleration of low-carbon flexible capacity. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I have only one brief question in thanking the Minister for moving this statutory instrument so eloquently. In his opening remarks, he referred to the responses to the consultations, particularly the first. I quote paragraph 7.2 of the Explanatory Memorandum:
“42 responses were received from a variety of stakeholders… Respondents were broadly supportive of the proposals”.
In times gone by, responses to consultations were published on the internet; I do not know whether that is still the case. That the respondents were “broadly supportive” indicates that some of them were not supportive. Can the Minister clarify? I just wonder what criticism there was and for what reason, if any, the Government did not revise the statutory instrument in any way. Otherwise, they are very sensible regulations, and I support them.
Electricity and Gas (Energy Company Obligation) (Amendment) Order 2025
Debate between Lord Wilson of Sedgefield and Baroness McIntosh of Pickering
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, this order was laid before the House on 11 June. This Government remain steadfast in their commitment to ensuring that homes are warmer, more energy efficient and more affordable to heat. At the heart of this endeavour lies the warm homes plan, a comprehensive and long-term strategy to reduce energy bills, alleviate fuel poverty and enhance our national energy security. I am pleased to note that this plan is underpinned by a significant investment of £13.2 billion, as announced by the Chancellor. This funding will support the deployment of insulation, solar panels, heat pumps and other technologies that will help households reduce their energy consumption and costs.
However, it is not enough to look to the future. We must also ensure that the schemes we have in place today are delivering as effectively as possible. The energy company obligation, ECO4, and the Great British Insulation Scheme, GBIS, are central to our current efforts. These schemes place obligations on larger energy suppliers to deliver energy efficiency improvements that result in measurable bill savings for households. ECO4, as noble Lords will know, focuses on whole-house retrofits for vulnerable and fuel-poor households. GBIS, by contrast, is designed to deliver one or two insulation measures to a broader group of households, including those not eligible for other forms of support.
Since their respective launches, these schemes have delivered tangible results. ECO4 has supported over 248,000 households with more than 800,000 measures. GBIS, launched in 2023, has already reached 80,000 households. These are not insignificant achievements. Nevertheless, it has become clear that GBIS in particular is not on track to meet its original delivery targets. Despite recent improvements, the pace of delivery has remained below expectations. Without intervention, we face the very real prospect of underdelivery, leaving thousands of households without the support they need.
That is why this statutory instrument introduces a series of mid-scheme changes which are both necessary and proportionate. The most significant change is to allow up to 75% of a supplier’s GBIS target to be met through the reassignment of annual bill savings achieved under ECO4. This is not, I emphasise, a lowering of ambition; it is a pragmatic adjustment that reflects the realities of delivery while preserving the integrity of the GBIS.
To ensure fairness and consistency, a conversion factor will be applied to reassigned savings. This will ensure that the GBIS remains on time, on target and within its original cost envelope. I would also like to reassure noble Lords that these changes will not result in any additional cost to consumers; the funding is already accounted for under the price cap set by Ofgem.
In addition to this core change, the instrument introduces several other improvements. These include updates to technical standards, greater flexibility in the combination of insulation measures and a new requirement to provide households with information about smart meters. These changes are designed to enhance the effectiveness of the schemes and to support our broader fuel poverty target.
Turning to consumer protection, I must address the issue of non-compliance in the installation of solid wall insulation, which my noble friend Lord Hunt brought to the attention of the House earlier this year. I am pleased to report that the expanded programme of checks, overseen by Ofgem, is progressing well. Where issues have been identified, they are being addressed.
We are also developing a more coherent and robust framework for consumer protection, which will be set out in full as part of the warm homes plan in October. This will address the current fragmentation in oversight and provide greater clarity and assurance for households.
As I conclude, I thank the Secondary Legislation Scrutiny Committee for its consideration of this instrument which ensures that the GBIS and the ECO4 scheme deliver what they were designed to deliver: warmer homes and lower bills. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I once again thank the Minister for presenting and introducing the statutory instrument before us. I declare my interest as honorary president of National Energy Action, which, as I think the Minister will realise, is based in Newcastle, not a million miles from where he used to represent.
I welcome the fact that the regulations propose to upgrade homes. I understand that upgrades and renovations such as this will attract VAT. The impact assessment does not show whether VAT has been applied. I am having a little campaign. I cannot launch it here because I have already launched it, but I would like to refer to it, if I may. It is not party policy, so it is my own little personal campaign, but our Front Bench here may want to adopt it as our policy.
If we were to reverse VAT and put VAT on new build, zero-rated VAT on renovations would mean that we would have an increasing supply of older housing stock, which, I imagine, is just the type of housing stock that the Government intend to benefit from the proposals here. Therefore, the question is to what extent will VAT be attracted and why do the figures in the impact assessment not show whether VAT is included? If the figures are VAT-free, VAT will have to be added to them, obviously increasing them by 20% under the current plans.
I will make a general comment about the warm homes discount that I was able to share with the Minister’s predecessor and that I wish to share with him in his new position. I welcome the fact that there is a warm homes discount. I regret that the sum involved, £350—I said this under the last Administration, when my own side were in government, and I repeat it now for the benefit of the current Government—has been that figure for a considerable time. Why have the Government chosen not to increase it for those who are clearly identified as being in the deepest of fuel poverty? That figure, I understand, is not being increased, but the Government have decided to give to a broader new raft of homes the smaller amount of £150.
Overarching National Policy Statement for Energy
Debate between Lord Wilson of Sedgefield and Baroness McIntosh of Pickering
Lord Wilson of Sedgefield (Lab)
I thank every noble Lord who has taken part in this debate. It has been really interesting and a lot of points have been touched upon. It just shows how important everybody considers this subject. It is about securing the future of the country, if not the world. I pick up a point that the noble Baroness, Lady McIntosh made. As you can probably tell from the accent, I am from the north-east of England as well and live in the countryside. I remember that, when I was growing up, if you looked out of my bedroom window, you could see the Yorkshire Moors in the distance, a pit heap down the hill and two lines of pylons, which are still there. The pit heap is not there. It has been reclaimed. If you do not come from the area, you would not have known it was ever there. The Yorkshire Moors are still there on the horizon and are just beautiful. Now I live a bit further away from where I grew up. I overlook the Dales, the Yorkshire Moors still and the Vale of York, so I am well aware of what it is like to live in the countryside and how important it is that get this planning right.
Reflecting publication of the Clean Power 2030 Action Plan, the overarching energy NPS will be updated to bring clean power 2030 front and centre as the primary policy that the NPSs enable. The changes also provide guidance to developers and examining authorities who submit their applications for onshore wind applications under the NSIP regime. Reflecting these policy changes, and the others outlined today, the updated NPSs provide greater clarity to developers, statutory consultees and decision-makers to speed up the planning process and help achieve this Government’s clean power 2030 target.
I will respond in turn to noble Lords and the right reverend Prelate. I will do my best to try and answer the questions and, if I cannot, I will write to noble Lords. I welcome the comments of my noble friend Lord Grantchester, particularly on the work of Great British Energy and the National Wealth Fund. The noble Baroness, Lady Coffey, and the noble Earl, Lord Russell, raised the point about having the details of the public consultation responses to these documents. The Government are undertaking analysis of the consulting responses in parallel with the parliamentary process and, at this stage, we are not in a position to provide details on the responses. The Government intend to publish a response to the public consultation on the NPSs later this year.
I can assure noble Lords that the new approach to strategic network planning will consider long-term system needs, and recommend the necessary transmission upgrade, looking forward to 2050. It will be informed by the strategic spatial energy plan and closely linked to the regional energy strategic plans, which will provide the necessary regional and distribution plans. The updates to the NPSs in relation to the energy from waste, alongside the Defra statement of 30 December 2024 on the publication of the Government’s Residual Waste Infrastructure Capacity Note, will help to ensure that the Government deliver the right waste infrastructure to support the transition to a circular economy and the Government’s commitment to meeting net-zero targets.
The Government have set the 100-megawatt NSIP threshold for onshore wind projects, following technological advancements in turbine technology. Over the past 10 years, the rated capacity of turbines used in UK projects has doubled to around 5 megawatts on average, with some of the largest projects proposing 6-megawatt or 7-megawatt turbines. The 100-megawatt threshold ensures that only the largest and most important projects that are genuinely nationally significant enter the NSIP process. Mid-sized projects can then progress using the quicker and cheaper local planning route. On 4 July, the Government published updated voluntary guidance on community benefits for onshore wind in England, setting expectations that developers pay community benefits of £5,000 per megawatt of instalment capacity per year for the operational lifetime of the project.
The 10-year infrastructure strategy commits the Government to greater integration and coverage of sectoral spatial plans, which will help to provide clarity to industry. This includes developing guidance to support the production of sectoral spatial plans. The newly created National Infrastructure and Service Transformation Authority will work closely with departments, regulators, arm’s-length bodies and local delivery partners to identify spatial trade-offs and synergies between infrastructure policies, plans and decisions in England.
Issues of capital spending plans and a green belt review are matters for the Treasury, but I will write to the noble Lord, Lord Grantchester, on that point. The Government consulted on the land use framework earlier this year, and we are currently considering responses to the consultation.
In relation to the question on what the Government are doing on batteries and funding, batteries have a vital role to play in decarbonising the power sector by 2030. They help to balance the electricity system at lower cost and maximise the output from intermittent low carbon generation, such as solar and wind. Thus they minimise investment in new generation capacity and network upgrades to meet peak demand.
The Government have outlined their plans for deployment of battery storage in the Clean Power 2030 Action Plan and we will work with industry, NESO and Ofgem to build on those actions through the clean flexibility road map announced in the action plan. The most recent capacity market auction awarded £1.5 billion in current prices of capacity market agreements for battery storage, with new-build batteries securing agreements of up to 15 years.
I thank the noble Lord, Lord Howell, and others for their comments regarding my noble friend Lord Hunt. I have covered his brief in this place. He has whipped his last session, which was in this Room. I know from experience and from what noble Lords have said that he was all over these issues. I think he will be a big miss on our side and for the House of Lords on these issues. I only hope I can fill the gap for a while.
The noble Lord spoke about the importance of nuclear power, in particular SMRs, to the energy mix. The Government are committed to delivering a new golden age of nuclear. The Government have committed £17 billion across the spending review period to the most ambitious nuclear new-build programme for a generation. Once small modular reactors and Sizewell C come online in the 2030s, combined with Hinkley Point C, more new nuclear will be delivered to the grid than over the previous half a century combined.
On SMRs, noble Lords will be aware that the new national policy statement on nuclear energy, EN-7, brings SMRs into the infrastructure planning regime for the first time. EN-7 criteria apply to all types of nuclear, including SMRs, and provide crucial new flexibility and certainty for the nuclear industry to work within.
The choice of European pressurised water reactors at Sizewell C will allow us to apply lessons learned during the construction of Hinkley Point C. The impact of these lessons learned is already being felt at Hinkley Point C. EDF reports that reactor two is being built 25% faster than reactor one. Once complete, the two EPRs at Sizewell C are estimated to power the equivalent of 6 million homes for 60 years, while making our energy supply cheaper and more secure.
On Sizewell C, financing is on the regulated asset base, RAB, model. We anticipate this model will ultimately bring significant savings for nuclear projects as the risk-sharing with consumers will lower the overall cost of financing when compared with the contracts for difference model. RAB is a tried and tested model used across UK utility networks, as well as large-scale projects, such as the Thames Tideway tunnel. Yesterday, EDF confirmed its 12.5% stake in the project. We have strong interest from a range of investors and will look to bring the process to a close shortly.
Unabated gas will continue to play a back-up role throughout the transition to clean power, ensuring security of supply. This means we will retain sufficient capacity until it can be safely replaced by low-carbon technologies.
Hydrogen transport and storage infrastructure will be critical to the development of the hydrogen economy and to meeting the Government’s net-zero and climate budget goals. It can support the clean power mission by enabling H2P to support electricity consumption. There is an urgent need for new carbon capture and storage infrastructure to support the transition to a net-zero economy, for which the NPS has clearly set out its support.
The right reverend Prelate the Bishop of Norwich raised the issue of high connection costs for churches seeking to decarbonise their heating. The connection quotes he mentioned were provided by the local distribution network operator. However, such connections can also be provided by independent connection providers, which may prove to be cheaper and faster. The NPS clearly sets out that, in order for a project to be economically viable as a combined heat and power plant, a generating station needs to be located sufficiently close to end-users with heat demands.
On undergrounding, the Government’s position is that overhead lines should generally be the starting presumption, except for in nationally designated landscapes, where undergrounding should be the starting presumption. Overhead lines are much cheaper to build, with undergrounding costing an estimated four and a half times more than overhead lines, according to a study published in April by the Institution of Engineering and Technology. The cost of building this infrastructure is borne by electricity bill payers so it is paramount that we keep costs down. In addition, overhead lines are much quicker and easier to build, cause less environmental damage, are much easier to maintain and repair and are easier to interconnect with existing circuits.
In response to the points regarding delivering the network ahead of the need, the new approach to strategic network planning will see NESO develop transmission network recommendations based on long-term modelling of energy generation and demand from the strategic spatial energy plan chosen pathways. The aim of this is to enable delivery of the network ahead of need.
I turn to some of the points made by the noble Baroness, Lady Coffey. I shall write to her on some of her more specific points. She will also understand that I will not make reference to projects in the planning stage, as it would be inappropriate for me to comment. The environmental principles policy statement has been considered throughout the NPS update process and due regard will be given to it prior to the final NPS being laid before the House. The NPSs do not set out where energy infrastructure should be located, as it is for industry to propose new energy infrastructure projects that it assesses to be viable, within the strategic framework set out by the Government.
The habitats regulation assessment and appraisal of sustainability are carried out on the framework set out in the NPSs. It is for individual projects to carry out their own environmental assessments, as they are required to do so by law. To ensure that development is undertaken to meet demand across the country, NESO is developing the strategic spatial energy plan. It will identify optimal locations for energy generation and storage infrastructure, taking into account a range of factors, including technology costs, distance from demand centres, cost of transmission and cross-sectoral demands on land. The plan will be published for consultation in the second quarter of 2026, providing the opportunity for all to provide feedback. The DESNZ is working closely with other government departments to ensure that the SSEP interacts cohesively with the creation of other sectoral plans and spatial strategies, such as the land use framework.
Regarding the points made by the noble Baroness, Lady McIntosh of Pickering, the Government have noticed the concerns of the Energy Security and Net Zero Committee that insufficient time was given to it to undertake parliamentary scrutiny of these three draft energy NPSs, and that the committee has made recommendations in that regard. We will address these as part of the Government’s response to the committee on the report.
EV charging in rural areas is an important point but a matter for the Department for Transport, and I suggest that the noble Baroness engages with it on this issue.
On the impact of electromagnetic fields from pylons, all overhead lines produce electric and magnetic fields, which, as stated in the national policy statements, can have direct and indirect effects on human health. However, the balance of scientific evidence over several decades of research has not proven a causal link between EMFs, which are produced by all power lines, and cancer or other diseases. Nevertheless, to prevent known effects, the International Commission on Non-ionizing Radiation Protection developed health protection guidelines in 1998 for both public and occupational exposure. Government policy is that exposure of the public to EMFs should comply with these guidelines, and all planning applications for overhead lines should show evidence of this compliance.
On standing charges, the Government will work to ensure that there are clear marked frameworks that promote effective competition and deliver an affordable, secure and reliable energy system. Government support for specific technologies and projects will depend on clear value for money for consumers and taxpayers.
On community benefits for the countryside, we will ensure communities directly benefit from the clean energy infrastructure they host. On 21May, we published a working paper on community benefits and shared ownership of low-carbon energy infrastructure.
The noble Earl, Lord Russell, while accepting a lot of what was said in the statements, asked whether the focus on 2030 will reduce focus on paused 2030 projects. The capacity set out in the clean power action plan will be used to create a pipeline of viable projects to meet clean power by 2030 and beyond to 2035. In 2026, we will also publish a strategic spatial energy plan, looking at the future energy system from 2031 to 2050.
On the noble Earl’s point on climate resilience, he will join me in welcoming yesterday’s publication of the Government’s resilience plan. I mentioned it in the debate on the Statement on Heathrow. The NPS set out that the applicants should demonstrate that their proposals have a high level of climate resilience built into them. We are also aware that agrivoltaics—the integration of solar with arable farming—is a rapidly developing industry, and the Government are working to understand the opportunities to exploit this technology. Subject to the outcome of Defra’s rapid evidence review on the potential of agrivoltaics, we will work together with the solar sector to explore future research, demonstrations and opportunities for those systems in the UK.
On the noble Earl’s point on the Holford and Horlock rules, the National Energy System Operator is currently developing the new set of electric transmission design principles, which will be subject to public consultation.
On the points made by the noble Baroness, Lady Bloomfield, on optimising the network, the strategic network plans carried out by NESO, such as the centralised strategic network plan, will take a holistic view of the network upgrades. These recommend network upgrades optimised by balancing environmental and community impacts alongside deliverability and economic cost. The CSNP, for example, will recommend whether a route a route should be offshore, onshore or HVDC underground.
The noble Baroness is aware that our national policy statement on nuclear will enable nuclear and industrial decarbonisation by supporting smaller nuclear projects. In addition, we are providing a pathway for privately led nuclear projects to be deployed.
Every family and business in the country has paid the price for Britain’s dependence on foreign fossil fuel markets, which was starkly exposed when Putin invaded Ukraine. British energy customers were among the hardest hit in western Europe. The Government’s clean power mission is the solution to this crisis. By sprinting to clean homegrown energy, the UK can take back control of its energy and protect both family and national finances from fossil fuel price spikes with clear, affordable power.
Baroness McIntosh of Pickering (Con)
I quite understand that the Minister will not comment on a specific planning application but the point about battery storage plants being highly flammable is of deep concern. If he can write to me, that is fine. Also, how is the electricity that has been stored to be sent to the grid? Will that again be via overhead pylons?
Lord Wilson of Sedgefield (Lab)
With great pleasure, I will write to the noble Baroness on that point.
Social Energy Tariff
Debate between Lord Wilson of Sedgefield and Baroness McIntosh of Pickering
Lord Wilson of Sedgefield (Lab)
The consultation has just ended, and we expect to make an announcement in due course. The question is about a social tariff, but if you look at organisations such as National Energy Action, you will see that there is no one definition of a social tariff. We are doing everything we can in the circumstances to extend the warm home discount to as many families as possible.
Baroness McIntosh of Pickering (Con)
My Lords, speaking as honorary president of National Energy Action, I ask the Minister: would it not be better to increase the warm home discount for those households already eligible—it has not been increased for about the last three to five years—rather than extending the same amount, a very small amount, to a larger number of households? Increasingly, those living in fuel poverty really need more than the £300 available.
Lord Wilson of Sedgefield (Lab)
I welcome that question; we have to balance increasing it for a certain number of people with widening it out to as many people in fuel poverty as possible. The Government are doing the right thing by extending it from about 2.7 million to 6 million people in fuel poverty—to people who would have received no payment whatever.