Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2021

Alan Whitehead Excerpts

Tuesday 22nd June 2021 General Committees

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

The business before us concerns a number of miscellaneous amendments—as set out in the title of the statutory instrument—relating to the operation of CfDs. I do not think that either the Minister or the Committee will benefit from a recitation of what CfDs are, how they work, their benefits and so on. Suffice it to say, the Opposition are very supportive of their continuation as a method of securing capacity, and giving certainty to developers that the projects they are embarking on will have a secure future. CfDs have proved a good way of developing offshore wind generation in particular in the past, and hopefully they will continue to do so.

The amendments represent a minor tinkering with the process to achieve, as stated in the SI, a “better outcome” of the CfD process as it matures. The miscellaneous amendments offer good and bad news—there are good amendments and bad ones. The Minister has offered a general overview of their purpose. They are quite detailed, and I do not think the Committee will want to go into all the detail of all the amendments, but I want to highlight two or three that may have some question marks attached to them, and one in particular which I just think is a mistake and needs some earnest thought from the Minister about how she wants to proceed with it.

My first question relates to the idea that floating wind will be in a separate pot for future CfDs negotiations. I think that is a thoroughly good idea, which will enhance its ability to come to market more effectively and speedily. The CfDs rounds coming up will have a new condition attached to them, namely “hard and soft boundaries”. Quite simply, that means that where a round has a capacity limit attached to it in general, it appears that the amendments will enable that boundary to be furred over slightly as applications come in. My understanding is that if an apparently worthy scheme comes in and is right on the margins of the suggested capacity limit in a particular round of CfD auctions, it may be possible to rub that application in rather than rub it out, provided that the general capacity boundary is adhered to. According to the mechanism set out in the SI, a round is declared to have soft or hard boundary, and therefore might allow for different treatment to be given to particular schemes. I do not particularly dissent from that way of doing things, but I think the Minister should look a little carefully at the possibility that a particular scheme on a particular occasion might get in to the round, whereas another scheme on another occasion might not get in because of the apparent relative hardness or softness of the boundary, and for which no criteria are given in the amendments. That could give rise to possible legal action by a project that has not got in when it could have got in on a more furry boundary. I might be a good idea if the Minister checked that that proposal is reasonably proof against that scenario. In a competitive auction, the ability to get inside the capacity arrangement could be quite important for a project’s future, and therefore there would be quite a lot riding on it. The operation of the round needs to be as watertight as possible.

The Opposition do not have any problem with the biomass conversion proposal, under which CfD inclusion is ended for biomass plants that are converted from existing coal-fired power stations. This country has examples that have been successfully carried out under previous CfD arrangements, one being Drax in the east midlands. Drax is an interesting example in as much as the statement in the explanatory notes relates to the idea that although the Government are, as it were, withdrawing favours from biomass conversion as it stands, they acknowledge that the role of biomass with carbon capture and storage is a high priority for the Committee on Climate Change and is considered by it and many others as a substantial contributor to future net negative emissions. Should bioenergy with carbon capture and storage proposals be made, the Government may want to review their decision on biomass conversions. It is not an academic issue precisely because not only has Drax involved itself in biomass conversion from an existing coal- powered plant, but it is implementing a CCS programme for the biomass conversion that has taken place. Circumstances could arise in which a developer came forward with a proposal for not only biomass conversion of an existing coal-fired power station but CCS attached to it. It would therefore fall into the BECCS area in terms of future biomass arrangements. It would well behove the Government to consider that possibility early rather than later, because that is likely to be quite a considerable portion of biomass activity in the future. It would be of concern were the Government not ready to support that in the best way possible.

The mistake, I think, is to deny floating wind the ability to phase its arrangements under a CfD in the same way as offshore wind does currently. I cannot see what advantage there is to the Department for Business, Energy and Industrial Strategy, or to anyone, of saying with specific reference to floating wind that no phasing will be allowed from applications for CfDs, whatever pot they happened to be in. The argument in the SI suggests that floating wind is a small scale operation and that the arrangements for its deployment can be successfully carried out on a one-phased basis. It is suggested that the problems of scale encountered by offshore wind—the time taken to erect large offshore wind platforms and so on—will not be replicated by onshore wind. However, the SI also makes it clear that the Government are prepared to look at the current arrangement again should the circumstances of offshore floating wind change—if it turns out that offshore wind is deploying at much wider scale than is currently the case. The problem is that it is inevitable that offshore floating wind will deploy at scale and simply looking at what has happened so far means looking at demonstration and proving models. It is right that those models should be created to establish the viability of offshore floating wind, but they bear no relation to what will happen in the commercial roll-out phase. As the Minister knows, in the Celtic sea and elsewhere, there are already proposals for much larger scale offshore floating wind installations than has previously been the case.

The 2019 Carbon Trust offshore floating wind joint industry project phase 2 summary report made the precise point about the necessity of scaleability for offshore floating wind and offered a clear indication that there were no perceived obstacles to the size of turbines being adapted from their present fixed arrangement to a floating one. There is nothing stopping developers from bringing forward offshore floating wind at scale, and indeed it is the declared intention of a number of them. The suggested course of action in the SI will actually impede the roll-out of offshore floating wind, which, as the Minister will be aware, is subject to a target in the 10-point plan. It does not seem a smart idea to impede the progress of something for which the Government have set a target in the first place.

The Minister said that there were two consultations on the proposed amendments, one in the spring and one in the autumn, and that the responses were broadly very supportive of the changes proposed. That is substantially true, but not entirely so. The overwhelming response to the consultation on the phasing arrangements for offshore floating wind was opposed to that plan, for precisely the reasons that I cited. That was acknowledged in the report on the consultation, but in response the Government said that despite that overwhelming opposition, they would go ahead with their arrangements any way. That does slightly worry me about the purpose of the consultation in the first place.

I think that the Minister is moving towards a mistake, and I hope that she would want to review the arrangement at an early stage to see whether she is completely satisfied that it is as robust as suggested by the SI. If she is not satisfied, I hope that she can undertake a reasonably smart about-turn, and I for one will laud that and not criticise it, because we all want to see offshore floating wind succeed and its operation to be undertaken efficiently and effectively as possible.

The Opposition will not oppose the SI, and I hope that my comments are regarded as friendly advice as to how we should proceed with it. I hope that the Minister will take my comments in the spirit in which they are intended, and go away and think about how we best move forward, in particular on offshore floating wind.