Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2022

Alan Whitehead Excerpts

Monday 23rd May 2022 General Committees

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

I cannot see a great deal that is terribly controversial in the draft regulations, so we will not seek to divide the Committee. Indeed, we substantially support the proposals. Clarifying the eligible generator regulations in terms of CCS systems of concern is an important change being made today in this SI. It is important because when we talk about CCS as a whole system, we tend to talk about the carbon being captured, transported and sequestered, and we always talk about that in terms of pipelines and how CCS is going to work.

Not only are we some way away from establishing decent pipelines for CCS transportation, but—particularly as far as energy-intensive industries are concerned—they are not necessarily going to where the pipelines might be. The question is how we transport the carbon to the places where the pipelines are, or we might want to barge entire shipments of CCS right around the country. Indeed, the Minister will know that the Acorn Project in Scotland is currently developing barge receipt facilities so that the CCS that is transported by barging methods can then be transferred to its place of sequestration efficiently.

The regulations are important. They clarify what is in and what is out of the process. I want to ask the Minister about processes that will inevitably come into view as far as the CCS process is concerned, but have other things added in front other than the CCS. I particularly refer to the so-called BECCS, the biomass energy with carbon capture and storage, which, again as the Minister will know, is recommended by the Committee on Climate Change. Also, the Government are keen on BECCS in the long term as it combines biomass power with a CCS capture arrangement, so that the whole arrangement is negative as far as energy is concerned.

Last year’s similarly named regulations, the Contracts for Difference (Miscellaneous Amendments) Regulations 2021, brought to an end the establishment of BECCS as a conversion arrangement from coal. They stated that biomass energy involving carbon capture and storage would be treated separately. The explanatory notes indicated that they would not be subject to today’s regulations because they were being treated separately, and they do not appear to have come into these regulations. We could, for example, have a conversion activity from a coal plant to biomass that included CCS in its arrangement from the start of the conversion process. Indeed, it is envisaged that conversion schemes can be included in the eligible generator regulations—that is, they are add-ons to existing activities, as opposed to schemes starting from new—which the Minister mentioned in his opening comments.

It is not clear whether a biomass scheme that had CCS from the start but was not a new scheme in its own right would be within or outside these regulations. I would be interested to find out whether the Minister has considered that knock-on from last year’s regulations. Could he clarify the situation? Are such schemes considered outside or within the eligible generators for the purposes of these particular regulations?

Has the Minister yet had any sight of the biomass strategy, which—it was claimed last year—would come out in 2022? It is now 2022, and it has not arisen. It may be that the solution is in that strategy paper. It would be interesting to hear whether the Minister could give us any clarification on that particular point, or whether he wishes to leave that to when the strategy—if and when it comes out—elucidates matters.

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[Lee Rowley]

I am grateful for the hon. Gentleman’s question. My understanding is that we are allowing BECCS to be eligible in general, but the specifics and the detail—recognising that there are two different elements of both generation and capture through the energy value chain and how they interact—will need to be dealt with on a case-by-case basis and looked at in the round when we launch a process to move on as part of this process of changing the statute book.

My hon. Friend the Member for Windsor asked about the reference price and the strike price. I do not think there is anything more apparent here than simply adding an additional layer of flexibility. We are not saying that we are definitely doing something else, or that we definitely want to move away from reference prices and strike prices; to the point raised by the hon. Member for Kilmarnock and Loudoun, this is just about ensuring that we do not have to come back again if we determine in the future that a different model is appropriate—one that does not mention reference prices and strike prices but potentially mentions some other element.

[Dr Whitehead]

I wonder how that ties in with what is in the carbon capture and storage business plan about the articulation of strike price and reference price-type arrangements in capex and opex as the system progresses. That suggests that the system is more of an RAB system than a CfD system. In the Minister’s mind, how do the two interact?

[Lee Rowley]

I am grateful for the hon. Gentleman’s question. The narrow assessment that we are doing today is to try to ensure that the statute book is as flexible as it can be in the event that alternative models emerge. The technicalities of those alternative models would need to be debated and discussed with experts. For the moment, we are trying to ensure that the legislative framework allows for that variation, should it be necessary. Whether it will ultimately be necessary is a broader question, which will be addressed in due course.

The hon. Member for Kilmarnock and Loudoun raised some important questions about timelines for power plants, the number of power plants and where they will be located. I am sure he expects me to say this, but I am not in a position to outline the precise process by which the system will be operationalised, I am not in a position to confirm whether it is one or n, and I am certainly not in a position to confirm where those locations—singular or plural—will be. This is about getting the legislative and statutory framework ready to be able to make those decisions, which will be made in due course through the appropriate processes.

I make a similar point about bespoke versus auction processes, and about some of the technical questions that the hon. Gentleman asked about comparisons between new and older. He also asked about the broad true cost of transportation, whether it is pipeline or non-pipeline. He makes an important point, and that will all need to be considered in the round when we come to operationalise the changes in due course.

I hope that I have addressed many of the key questions relating to the SI. There is obviously a broader debate about energy policy and some of its elements, but I hope that the Committee is minded to support these technical changes to the rules and regulations that govern these areas, so that we have the flexibility to ensure that we can develop this technology and operationalise it successfully. I commend the regulations to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Contracts for Difference (Miscellaneous Amendments) Regulations 2022.