Electricity

Alan Whitehead Excerpts

Monday 15th June 2020 Commons Chamber

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

I concur with the Minister that today is not the time to have a major debate about a number of wider issues relating to energy, although there are lots of issues which we could debate. Among others, there is the whole question of whether the capacity market itself is fit for purpose in our present energy arrangements. I do not intend to raise that issue today, but I hope there will be other occasions on which it can be raised and discussed.

I look forward to the emergence of the White Paper, which the Minister mentioned. We are now almost on the first birthday of the imminent emergence of the White Paper, so it would be helpful if he could indicate when the White Paper actually will emerge and, when it does, whether it will be fully formed or more of a greenish White Paper than a whitish White Paper. I am sure that he will be able to elucidate this afternoon exactly what form it will take and when it will arrive, which I trust is very shortly.

This statutory instrument does two things in particular. First, it introduces a number of changes to the capacity market, following the annulment and eventual reinstatement of the UK capacity market’s state aid approval by the EU Court and the European Commission. Secondly, it introduces a number of measures relating to performance requirements, the Secretary of State’s discretion, and how reconsideration and review of decisions take place in respect of the effect of the coronavirus pandemic on construction, finances and network connections.

The Opposition regard the measures in the second part of the SI as sensible and proportionate to the particular problems we have at the moment. It is right that, where capacity market contractors have problems with construction deadlines or financing arrangements, there should be the leeway and discretion set out in the SI to help them through the difficulties that exist at the moment.

However, I have one small question about that part of the SI. The Minister mentioned that there will be leeway and discretion on deadlines—for example, in terms of assurances of performance in the run-up to the capacity market operation. I note that arrangements for assurances of performance or termination of contracts for non-performance have expanded from six months to 12 months. That provides—particularly where a capacity market contractee has contracted in the T-1 market—for the possibility of ending the contract because of non-performance right up to the point at which that performance is expected to take place. Does the Minister have any concerns about that potential timescale? If not, why not? If he does have concerns, could any other formulation that protects the arrangements in the way I have described be used to get around that problem? I would be grateful for his views on that.

There are some more serious issues with the other part of the SI, which makes changes to the capacity market rules. As the Minister has informed us, those changes arise as a result of the coming back to life of the capacity market, as it were, after its annulment following the judgment in the EU courts that the capacity market may not have been compliant with state aid rules, because the Commission had not sufficiently considered those state aid considerations when it first looked at the UK’s capacity market application before the market itself had come into being. The Commission produced a report and an agreement after that judgment and after the market had been annulled, which put the capacity market back into being, but on the basis of a number of undertakings that the UK Government had provided. One can reasonably infer that some of those undertakings were part of the reason why the Commission said that the capacity market could continue and that its construction was indeed not in contravention of state aid rules.

The UK suggested six measures for the capacity market, and they were appended to the Commission decision on 24 October 2019. In the explanatory notes to this statutory instrument, the Government refer to those amendments to the capacity market. They are amendments to demand-side response and to permission for access to the market for holders of store contracts and various other things, none of which are terribly controversial or indeed produce deleterious outcomes to the capacity market. Therefore, on balance I welcome them, particularly those on demand-side response, although I would say—this may be a redundant reflection—that if two of the changes to demand-side response had come into the capacity market earlier we might not have had the challenge to the EU courts in the first place. The challenge was based largely on demand-side response, and therefore the whole question of annulment would not have arisen. [Interruption.] The Minister says “Who knows?”, and we should perhaps not dwell on this for too long, other than to be slightly sorry that that is the case.

The explanatory notes state that this instrument implements the majority of the commitments recorded in the state aid decision, but it is quite a generous reading of what those commitments are and what this instrument does. Can the Secretary of State set out for us what commitments given at the time of that judgment are not included in the measures today, and if and when he intends to implement them in legislative changes to the capacity markets subsequent to this instrument? If he is not intending to do that or to implement those other things that have not been listed for implementation in today’s SI, why not?

I can help point the Minister to the nub of this question by reminding him of two of the commitments, the first of which is about including foreign capacity in pre-qualification to the capacity market. That is not the same as increasing the amount of interconnection coming through the system; it is about pre-qualifying generators that are not in the UK for bidding into the capacity market for capacity through the interconnectors, but not related to the actual size of the interconnection that goes into the UK itself. The second involves introducing a generation emissions ceiling on capacity both by kilowatt hour of electricity and by the average per year for installed kilowatt hours for contracting. I know the Minister has consulted on that particular change, but it does not appear before us today. I wonder why that is and whether the Minister intends to put forward separate legislation to bring that and other matters that are in those commitments concerning capacity markets on to the statute book, or whether the Minister intends to simply not carry out the commitments that were made at the time of the judgment.

If the Minister was able to enlighten me about those particular questions, then I am sure we would find it possible not to divide the House today on this statutory instrument, but rest ourselves content with the present state of the debate; that those questions had been answered and that the portal to the wider debate could then move forward from a successful statutory instrument today.