Draft Electricity Capacity (Amendment) Regulations 2021

Alan Whitehead Excerpts

Monday 12th July 2021 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Stringer, although I fear that there will not be much chairmanship of today’s proceedings required. I say that because the instrument is pretty much wholly non-contentious. It makes a number of sensible revisions to how the capacity market works, particularly in respect of those aggrieved would-be capacity market entrants who have been excluded from participating in capacity markets, often not for terribly sensible reasons—it will ease that problem considerably.

The instrument does not make any major changes to the operation of the capacity market. It essentially does a number of things that will undoubtedly make the operation of a capacity market a little more straightforward.

We need to draw a distinction between this SI, which makes, shall we say, some lubrication easements for the capacity market, and the principle of the capacity market itself. That is where we start to get into areas of controversy: the Minister mentioned just how important and central the capacity market is to the Government in their management of the energy market as a whole. I would say that, on the contrary, the capacity market at the moment is mainly an arrangement to provide free money for a number of providers who probably would provide anyway. They get money for being around to guarantee that they will provide. I might also note that that is not actually to provide any energy for anybody—it is to guarantee that they will be there, should the need arise for capacity to be provided.

We have seen in the capacity market, which is now about seven years old, a number of instances in which some quite perverse outcomes have occurred in the market provision. For example, one is the inclusion of nuclear power in the capacity market auction process when, as most people will know, it is actually very difficult to switch a nuclear power station off so that it does not provide. A nuclear power station bidding into the capacity market arrangements, and saying that it will provide, is the most egregious example of free money for doing what it would have done anyway.

The original purpose of the capacity market was largely to ensure that the price under capacity restraints would not go to such a high slot outside the major hour-by-hour provisions. Investors might fear that the Government would intervene if energy prices got high enough to have an effect on capacity, when there were tight capacity margins. That has not materialised. There are no tight margins these days, generally speaking. Indeed, as the market progresses with further provision of capacity and interconnection, that will be even less of an issue. The low price of capacity market auctions indicates, among many other things, that capacity margins—

[The Chair]

Order. We have plenty of time, and while I do not wish to test my skills in the Chair too much, and the hon. Gentleman is making some very interesting points, I remind him that the debate should be limited to discussion of the instrument in question.

[Dr Whitehead]

Thank you, Mr Stringer. I intend to bring my remarks to a close shortly. Subject to your guidance, I think that my remarks are generally in line with the statutory instrument, because these are considerations for the better running of a capacity market that has problems ahead. The wider and the narrower issues are related for that reason.

The Minister has heard me speak about the capacity market before. It is due for a second five-year review shortly. The last review, in 2019, when it had been operating for five years, was, I thought, a pretty complacent document. It did not address a number of the issues that I have started to explore this evening. Although the changes that we are talking about today are pretty non-contentious and straightforward, and have the support of the Opposition, I hope that the Minister will accept that there remain wider controversies about the capacity market, and that she will take them as seriously as possible, particularly in that second review. I hope that she will consider whether the market is the best mechanism for ensuring a reliable capacity supply in future; she will know that various alternatives, such as a strategic reserve, were mooted when the capacity market originally came in. I hope she will look at that very seriously when the wider issue comes up for debate at a not-too-distant time. Meanwhile, I look forward to a number of other non-contentious debates as we secure marginally better working of the present system, pending arrangements for a future system that is fit for purpose.