Draft Electricity Supplier Obligations (Green Excluded Electricity) (Amendment) Regulations 2023

Alan Whitehead Excerpts

Monday 27th February 2023 General Committees

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

This statutory instrument is, in principle, pretty straightforward. It removes something that, as the Minister said, was a consequence of state aid discussions, which took place when the CfD first became a major instrument of renewable development in the UK. It deals with the CfD that was in place in the UK, and a potential loophole in state aid regulations. Suppliers importing electricity from Europe should not have that supplier obligation applied to them and the electricity they are bringing in from European sources.

So far, so good. I agree that since we do not now have responsibilities as far as state aid is concerned, it is really no longer relevant to continue with an arrangement that was dependent on a state aid loophole. However, that has a consequence, which the Minister alluded to: pretty much all the energy that comes in from Europe has to come in through an interconnector. In the past, suppliers on this side of an interconnector, having contracted for something to come through that interconnector to the UK, had to produce evidence of the extent to which whatever came through the interconnector would otherwise have been eligible for a payment into the Low Carbon Contracts Company. There was a supplier obligation to pay out the generators, which were getting money from the low carbon contract in respect of the strike price that they had set up for the CfD. They had to provide evidence of the power coming in to claim that there was no money to pay, as it were, for that supply coming in.

Now the opposite is the case. It appears that suppliers will have to provide evidence of what is coming in, as a renewable source, via the interconnector from Europe, to ensure that they do pay. I presume that they will be paying into the Low Carbon Contracts Company in the same way as other people who are eligible in the UK, as far as CfDs are concerned.

My first question is this: why would any company that now has to do the reverse of what it did previously—produce evidence of a green import through an interconnector in order not to pay—willingly give evidence to pay? Would the company not simply say, “We don’t know where our power comes from. It comes through the interconnector, so it might be renewable or it might not”? If the company did have to pay, rather than being exempted, the likelihood of it ensuring that it did not put any evidence in that anything had come in from a renewable source would be quite high. Nothing in these regulations suggests that the Government would require that evidence to make people pay, and there is nothing about any penalties or enforcement against bodies that did not supply that information for the purposes of paying in future. Do the Government have any view on that development possibly taking place?

The second issue, as I am sure the Minister will be aware, is that we do not have an inversion in place as far as the relationship between CfD strike prices and reference prices is concerned. That means that, instead of the normal procedure as far as CfD holdings in this country are concerned, the supplier does not get a payment out of Government in respect of the strike price. As the reference price is consistently above the strike price, or it is at the moment, the supplier has to pay back into the Low Carbon Contracts Company. The company then has a reasonable obligation to pay that money back to suppliers.

Are suppliers newly obligated to pay money into the LCC for CfDs, which were previously exempted, but also to get money from the LCCC when the general strike price is inverted against the reference price? Is that an indication that those companies might have to report what they are bringing into the country, and register that renewables have come in and that, therefore, they might be eligible to get money back, as far as their contribution to CfDs are concerned? If the Minister can enlighten us on those two points, I would be grateful, but we have no intention of opposing the instrument.

--- Later in debate ---

[Andrew Bowie]

I thank hon. Members for their contributions. The hon. Member for Southampton, Test, made some good and sensible points on the SI and the policy. It is only right and proper that companies provide evidence that they are importing electricity. This SI was brought forward following extensive consultation with industry, and we expect companies to do the right thing. In terms of sustaining extra costs, those suppliers who have used the exemption will pay the scheme a cost in closer proportion to their market share. There are more suppliers who will benefit from this change than not. The change is considered to be very minor. The extra cost that the companies will pay will be minor, and we do not suspect that it will be in any way a disincentive for them to declare that they are importing energy.

I welcome the fact that the hon. Member for Kilmarnock and Loudoun put on record that he considers CfD to be a success. I agree: it certainly has been a success. Indeed, we have only to look at my constituency and the number of wind turbines springing up off the coast of Aberdeenshire. On grid connections and the cost for electricity generation in Scotland, he knows that there is a trade-off, and that consumers in Scotland pay less as a result of the higher charges being placed on electricity generation. That is not to say that there are not issues that need to be addressed. I agree that there are, and we should look at them. I hear loud and clear his comments on tidal stream energy. In fact, I have been to see the exciting developments in Orkney, and I look forward to doing more on this.

[Dr Whitehead]

Will the Minister give way?

[Andrew Bowie]

I will, given that we have taken up so little time so far.

[Dr Whitehead]

I am grateful to the Minister for giving way. He passed over my point about whether the suppliers will get a payout from the LCCC when the difference between the strike price and reference price is inverted from its normal position. If they will, how much will that come to?

[Andrew Bowie]

I am terribly sorry: I will have to write to the hon. Member on that point, but I will get an answer to him in the next couple of days, because it is important that it is answered.

I hope that I have given hon. Members the necessary assurances to approve the statutory instrument. As I said, the changes in these regulations will mean that a supplier in GB will pay a proportion of the CfD scheme cost that is closer to its market share; will remove the condition imposed on the British scheme by the European Commission; and will remove the incentive for GB suppliers to import EU-generated renewable electricity. They must be made now, ahead of the end of the scheme’s reporting period on 31 March, so that electricity suppliers and the scheme administrators can plan accordingly.

Question put and agreed to.