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

Alan Whitehead Excerpts

Tuesday 28th June 2022 General Committees

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

The CfD proposals are essentially non-controversial and in the main pretty straightforward and minor amendments to the CfD regime. As the Minister said, those changes will be of particular relevance to the forthcoming changes in the allocation rounds, which will transfer to an annual basis. The arrangements for applicants who are applying for favour under those particular rounds will change from a year’s duration to nine months, which will have a positive effect in making sure that those allocation rounds are carried out sensibly and reasonably. I am particularly pleased to see that change. Indeed, the Government have said that the arrangements that applicants make can be carried over to subsequent applications without being rewritten. That means that those who do not succeed in one particular allocation round are not faced with an onerous new series of actions in the forthcoming round.

I am not quite so taken with the other part of the regulations, which relates to the conditions under which floating wind must undertake supply chain plans to be eligible for the allocation rounds. I am sure that the Minister is absolutely on top of the fact that floating wind is largely new technology, which is making serious and considerable innovations and differences to the circumstances under which wind is deployed. The fixture is anchored rather than attached to the seabed and its technology is therefore available for application in much deeper sea areas, because it is not subject to the jacket and base that essentially applies to shallow seabed areas—essentially the case in most of the North sea.

The floating wind generation that is being developed for England and Wales will be largely sited in the Celtic sea, a predominantly deep-water area between Ireland, Wales, Devon and Cornwall and the west of England. The location of that generation is such that supply chains are not well developed. The back-up infrastructure for those developments is not well advanced, for example, in terms of the availability of ports for the development of the necessary infrastructure, given that the platforms on which floating wind installations are fixed are not easily imported from many other places. Those platforms will have to fabricated at port, and there are various issues relating to the cables and the lack the necessary infrastructure.

It is clear that floating wind generation is developing under circumstances where the supply chain is not favourable to its support. When an offshore development applies for inclusion in an allocation round, a threshold of 300 MW of generating capacity must be exceeded and that application must have a supply chain plan attached to it. Supply chain plans are quite onerous in terms of the considerations that must be met, but given that almost all current offshore generation is above 300 MW, that criterion is regarded as a matter of course. The size of those offshore projects enables those plans to be developed and there is a well-established supply chain for North sea generation. That is not the case for floating wind generation, but somewhat perversely the Government have decided that the threshold for such generation’s supply chain plans should be nil. Any future floating wind project—the Minister is aware that virtually none are up and running in the UK, but there are an encouraging number in the pipeline, particularly in the Celtic sea—will be under 300 MW and will have to develop in difficult circumstances, but will be expected to provide a full supply chain proposal as though they were akin to a large offshore wind proposal in the North sea. Contrary to the view that that policy enables the Government to develop supply chains on the back of a floating wind installation, I suggest that the current thinking impedes that development. The onus is on the floating wind projects to get the supply chain plans in place, but right now the onus should be on the Government to get those supply chains up and running in the Celtic sea. I am sure that the Government will address that.

We need to be clear that floating wind generation still has a way to go to getting itself established in the line-up of offshore wind generation. The Government have great ambitions, as set out in the energy security paper, to expand the capacity of floating wind generation rapidly—an increase from 1 GW, as cited in the 10-point plan, to 5 GW by 2030. By the way, the Crown Estate only seems to have an ambition to establish the equivalent of 4 GW of floating wind allocated sites by 2030, so perhaps the Minister should have a word with the Crown Estate so that its ambitions are aligned with the Government’s.

Overall, the problem remains that the imposition of a supply chain plan for offshore floating wind based on zero capacity rather than 300 MW seems a little discriminatory against that generation in comparison with the requirements placed on standard offshore wind generation. The Minister said that of the 41 responses to the consultation, most were largely in favour of the proposal to include floating offshore wind projects that fall under the 300 MW in the supply chain process. I have spoken to representatives of the floating wind industry and they were not in favour of the proposals; perhaps others were in favour because they were not affected by it in any way. I suspect that is why only a minority of responses to the consultation said that the 300 MW threshold reduction to zero was not a good idea. I understand, however, that the Department for Business, Energy and Industrial Strategy has considered those comments and undertaken to propose

“a bespoke, lighter touch questionnaire for the relevant FOW projects”.

The key question is what that questionnaire will look like, and whether it will effectively give the floating wind developers a much better environment under which to bring their proposals forward to the allocation rounds. I would appreciate a response from the Minister about his intentions for that questionnaire, and whether he believes that it will largely overcome the problems that I have outlined regarding the apparent onus on floating wind generation to carry the supply chains on its back in contrast to the arrangements that attach for more established offshore generation.

I am sure that the Minister would not like to be party to holding back the development of offshore floating wind generation, because I think we both share a great enthusiasm for the strong role that it could play in our future renewable arrangements, particularly given how it could reach certain offshore assets that other wind generation would be unlikely to harvest. I am sure that he would agree that devices that would impede such development, or look like they might, are not to be welcomed. I will be interested to hear the Minister’s justification for removing the 300 MW threshold from offshore floating wind projects, and his comments about the bespoke lighter touch questionnaire, and how its findings might ameliorate the problem I have set out.

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[Greg Hands]

I thank the hon. Members for Southampton, Test and for Kilmarnock and Loudoun for their good, detailed questions and contributions.

I welcome the broad support of the hon. Member for Southampton, Test. It is worth noting that arrangements for one CfD application can be rolled over, but that does not obligate a supply chain plan to be unamended. Most would probably evolve their supply chain over the period, which is valid for nine months and not 12, to reflect the move to annual auctions. That will ensure that applicants reflect changes in their commercial arrangements, and seek to innovate year on year, and not simply roll over supply chain plans. Industry acknowledged that and were supportive of the Government’s proposals.

The hon. Gentleman asked why floating offshore wind generation has been brought into the supply chain process. I think that is incredibly important. It is a relatively nascent industry, and ensuring that there is a good supply chain right from the beginning, and doing what the Government can do to steer it in that direction, is really important. Contrary to the hon. Gentleman’s suggestion that perhaps we should adopt a laissez-faire approach, I think there is a good reason for Government to be there right at the beginning to make sure that there is a strong supply chain for the UK to cement its place as a world leader in floating offshore wind, as we have been a world leader in fixed-bottom offshore wind, with Europe’s largest installed capacity.

[Dr Whitehead]

For the sake of clarity, I certainly do not wish to propose a laissez-faire regime for floating offshore wind generation. I am not arguing that there should not be a good regime, but how that regime is brought in as that nascent industry develops. I certainly think it should be subject to either a reduced threshold or it should conform with the 300 MW. I would entirely support that, because supporting the supply chains as the industry develops is clearly a positive and good idea—as the hon. Member for Kilmarnock and Loudoun said.

[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.