Draft Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022

Alan Brown Excerpts

Tuesday 28th June 2022 General Committees

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Robertson.

I take the view that the terms of the statutory instrument are quite benign. To be honest, I thought it was quite logical to extend the supply chain plan to the development of offshore floating wind. As the shadow Minister just said, the findings of the lighter touch questionnaire are also important to the development of floating offshore wind.

To me, it is critical that the supply chain plans are used to develop supply chains in the United Kingdom, and it cannot only be a tick-box exercise. The reference to UK content must mean exactly that and ensure that. In the past, the debate about offshore wind generation has centred on how the 60% content was measured, and whether companies were circumventing that requirement depending on where items were manufactured versus where they were fabricated. We must ensure that the proposals develop UK supply chain. The Government must work with companies to ensure that. If that means slightly higher CfD rates, I would argue that that is a price well worth paying if that means that UK supply chains are developed and expertise built up.

Scotland is already leading the world in the development of floating offshore generation, and the regulations and the target increase to 5 GW generation by 2030 are a great opportunity. That said, the 5 GW generation target for floating offshore by 2030, and the 50 GW target for total offshore generation, will need a lot more in terms of supply chain plans and development. We must look at grid charging in the round and anticipatory grid investment. We need an upgraded grid that is suitable for taking the planned 50 GW of electricity generation. That is key. We must look at the bigger picture, but I am largely in support of the SI, which seems logical to me.

--- Later in debate ---

[Greg Hands]

I am glad that we are in alignment on the need for supply chain plans. It is key to note that in its first phases, floating offshore wind will typically consist of significantly smaller projects. Therefore setting a different limit at which the supply chain must be submitted makes perfect sense if we are to capture floating offshore wind projects and make sure that there is taxpayer value for money. That is in all of our interests, not just the Government’s. We must make sure that we able to develop and cement our advantage in the UK. We have a fantastic technological advantage when it comes to wind. To start with, we have a fantastic geographic advantage, and making sure that we can cement our world leader position will depend upon making sure that there are good supply chains for those projects, which are necessarily smaller than fixed-bottom offshore projects. That is the reason for the different threshold.

Floating offshore wind is a technology on the verge of significant commercialisation and deployment within the next five years. Being at a key juncture in terms of its deployment means that certain emerging technologies, like floating offshore wind, have the potential to play a really important role in helping us to meet net zero. Bringing those projects into the supply chain process will allow BEIS to support the development of the associated supply chain at the earliest stage, by encouraging the industry to invest in competitive supply chains and accelerate cost reduction.

The hon. Member for Southampton, Test asked about engagement with the Crown Estate. I engage with it all the time, probably on a weekly or almost a fortnightly basis. I am happy to consider his specific point about the Celtic sea. That sea will be very important for us. At the moment, offshore wind has been a huge success for this country, but it has been predominantly an east coast and Irish sea phenomenon. It is very strong in Scotland, the north-east of England, Yorkshire, Humberside, East Anglia, the Irish sea, and north Wales gets a piece of the action. But the developments in the Celtic sea enable us to bring extra places around the United Kingdom, most importantly south Wales and the west country of England, into the offshore wind industry. Our position as the world leader, and as Europe’s largest installed capacity for offshore wind, is one of this country’s really great success stories of the past 10 years. To bring the Celtic sea into that development will help to level up and make this an all-UK effort.

[Alan Brown]

I do not have a problem with the development of the Celtic sea, but obviously we cannot forget about the North sea. For the record, there has been a discussion about the Crown Estate of England and Wales allowing for the generation of 4 GW, and there is also Crown Estate Scotland and the ScotWind leasing round. That latter round had bids for 25 GW of offshore energy, but National Grid ESO is only allowing for 10 GW of that in its forward planning, so that is a real disconnect. Will the Minister allow for the full deployment of that 25 GW of ScotWind leasing?

[Greg Hands]

The hon. Gentleman is quite right; BEIS and the UK Government put a lot of effort and support into the ScotWind process. Of course offshore wind off Scotland is incredibly important to the country as a whole, and floating offshore wind will be a big part of that. On Crown Estate Scotland, the hon. Gentleman may be aware that I was involved in a lot of the legislation for the devolution of the Crown Estate to Scotland under the Scotland Act 2016. I am familiar with a lot of the issues in relation to Crown Estate Scotland. We have an excellent relationship with it. While recognising that Scotland has been a massive part of the delivery of our fixed-bottom offshore wind, and will be a massive part of the delivery of offshore floating wind, it is good to get all of the UK in on the action when it comes to offshore generation.

We are investing up to £160 million for new, large-scale floating offshore wind ports and manufacturing. That is a big investment of Government money to make sure that we have a great future when it comes to floating offshore wind. The funding, boosted by private sector investment, will develop port infrastructure capable of mass-producing floating offshore wind turbines and installing them out to sea, reducing the need to import from overseas. That will create thousands of new jobs in the UK’s industrial heartlands and around our coasts. We have recently announced £31 million of UK Government funding to be matched by industry for research and development in this sector.

The hon. Member for Southampton, Test asked about the light-touch regime. Again, I think it is a question of balance. For the smaller projects, and to start with it will be predominantly smaller projects, we want to look at their supply chains. That is really important to us, but, equally, we do not want to make a regime that is too onerous on those smaller projects. That is why there is a lighter touch regime and questionnaire, but a deeper down, if you like, in terms of the size of the companies that must make supply chain plans. The consultation on the new supply chain questionnaire closed on 14 June. The Government’s response detailing the new approach will be published in due course, and the updated questionnaire and guidance will be published this summer.

I think I have covered the removal of the 300 MW threshold from floating offshore wind. I think I have answered a few of the points raised by the hon. Member for Kilmarnock and Loudoun, and I think the anticipatory grid will be a key part of the debate. The criticism is that National Grid does not currently allow for anticipation of when projects will come on and provide for the grid. Ofgem is actively looking at that, and I expect that might be a key part of future debate. There will be a big scale-up in electricity generation, especially as our electricity demand will double by 2050. We need to have more grid, more network, more transmission network and more distribution network to make that happen. To make sure that our system is fit for that will be a key part of the energy security Bill to be considered in this parliamentary Session.

I hope that my responses have provided the necessary assurances so that Members can approve the SI. The changes in the regulations are essential to ensuring that the next CfD allocation round, which will start in March 2023—the first annual round—is a really important reform to drive through more renewable energy in this country. The regulations will help to make sure that our supply chains and other parts of the process are as best supported as possible, to make sure that we support the pace of renewable deployment while continuing to ensure value for money for consumers. That is why I urge the regulations to be made now, ahead of the next CfD allocation round in next March, so that developers have certainty as to who will be eligible to take part and on what basis. I therefore urge the Committee to agree to the regulations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Contracts for Difference (Allocation ) and Electricity Market Reform (General) (Amendment) Regulations 2022.