Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2021

Anne-Marie Trevelyan Excerpts

Tuesday 22nd June 2021 General Committees

[The Chair]

I remind Members that in line with what we are doing in the main Chamber, we have narrowed the distance between Members in this Room to 1 metre. Please therefore sit in the spaces that have the rather nice blue tickets beside them.

[The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)]

I beg to move,

That the Committee has considered the draft Contracts for Difference (Miscellaneous Amendments) Regulations 2021.

The regulations were laid before the House on 12 May 2021.

The draft instrument makes a number of amendments to three separate contracts for difference regulations: the Contracts for Difference (Definition of Eligible Generator) Regulations; the Electricity Market Reform (General) Regulations and the Contracts for Difference (Allocation) Regulations. The amendments will help to support the ambition for the next contracts for difference auction, planned to open in December this year, and help to make progress towards the 2050 net zero target.

The amendments include adding and removing technologies from the list of technologies eligible to compete in a CfD round and measures aimed at strengthening the supply chain plan process and extending the delivery years that can be set for successful projects. They also include some small technical amendments to the non-delivery disincentive rules, capacity cap rules and technical changes to improve the operation and clarity of the allocation regulations.

We are proposing the legislative amendments following two public consultations, during which our proposals received broad support. The CfD scheme is designed to offer long-term price stabilisation to new low-carbon generators, allowing investment to come forward at a lower cost of capital, and therefore at a lower cost to consumers. The scheme has been successful in driving substantial development and deployment of renewables at scale in Great Britain, while rapidly reducing costs to electricity consumers.

The most recent allocation round in 2019 saw contracts awarded to 5.8 GW of new renewable energy projects, with the costs of offshore wind generation falling by around 30% from the previous allocation round in 2017. We are laying the amendments today to give certainty to businesses on what basis projects will be eligible to take part in the next CfD scheme in advance of the round opening in December.

CfD applicants with a capacity for 300 MW or more are currently required to present a supply chain statement to the Electricity Market Reform Delivery Body as part of their application. A statement is provided if a developer can demonstrate to the Secretary of State’s satisfaction that the project will make a material contribution to the development of relevant supply chains. The aim of the policy is to encourage the effective development of open and competitive supply chains and the promotion of innovation and skills in the low-carbon electricity generating sector.

The Government believe that the current policy approach needs to be strengthened to boost competitiveness and productivity in places that stand to benefit the most, harness innovation and invest in skills while driving progress towards the UK’s net zero target.

The regulations revise the criteria that the Secretary of State must consider when assessing an application for a supply chain statement. In addition, they create a new stage in the process, requiring a CfD generator to apply for a supply chain implementation statement in order to demonstrate the extent to which they have delivered on the commitments set out in their original supply chain statement. The regulations also set out the process for providing or refusing a supply chain implementation statement. That statement will enable a CfD generator to fulfil a condition of the CfD contract. Failure to fulfil that condition may lead to the termination of the contract. That new requirement will be inserted into all CfD contracts awarded from the fourth allocation round.

Biomass conversions have played a material role in helping to meet the UK’s 2020 renewables targets by replacing coal-fired power stations with renewable energy generation. However, as electricity generation has become less carbon intensive, we have reviewed the role of biomass conversions. The regulations remove biomass conversion projects from the list of technologies eligible to apply for a CfD in future allocation rounds.

The Government have confirmed a new ambition for 1 GW of the new 40 GW offshore wind target to come from floating offshore wind on account of widespread agreement that floating offshore wind will play an important role in helping the UK to meet its longer term decarbonisation targets. That technology is currently in an earlier phase of development making it more costly than offshore wind that is attached to the seabed. It is therefore appropriate for floating offshore wind projects to be recognised as a distinct technology within the CfD scheme, one subject to its own administrative maximum strike price. The regulations therefore establish floating offshore wind projects as a category of technology eligible to take part in the CfD scheme and to compete alongside other less established technologies. In doing so, that delivers on our manifesto commitments.

The UK’s new 2050 net zero emissions and carbon budget six targets, which we put into law yesterday, mean that we will continue to require substantial amounts of new, low-carbon power sources to be built before 2050. The changes in the regulations ensure that CfD allocation rounds can best support an increase in the pace of deployment of new renewable electricity generation needed to achieve our ambitions, while continuing to consider value for money for consumers. Subject to the will of Parliament, the arrangements will come into force on the day after the regulations are made.

I therefore commend the draft regulations to the Committee.

--- Later in debate ---

[Anne-Marie Trevelyan]

I thank the hon. Member for Southampton, Test for, as ever, his valuable contribution. If I may, I will answer some of his concerns.

On the question of the hard and soft boundaries, each rounds will have specific aims about the amount of new capacity to be supported, and will always look for the value for money balance. As we go through the next round, we will be able to assess the success of that approach.

On BECCS, I hope I can reassure the hon. Gentleman when I say that the biomass strategy will be published in 2022. It will consider how we move forward in terms of biomass with carbon capture and storage, because existing CfDs for the likes of Drax run out in 2027. We will then set out on the next phase.

The hon. Gentleman said that we have failed to provide a phasing framework for floating wind. The construction risks for floating wind are much lower because the constituent parts of the turbines and blades will all be joined in the port and not out at sea. At this stage, we are comfortable with that arrangement. At the moment, we are in the first stage of getting floating wind into action, and if the technology proves very successful, and we all hope that it will, but delivery develops not as we have predicted, we can always return to the House to make further amendments to regulations, as we are today. That is the beauty of wanting to keep CfDs up to date with the technological developments. I hope that reassures the hon. Gentleman.

We are trying to ensure that we build the capacity in renewable energies to help us to achieve net zero by 2050. No doubt more regulations will be introduced in due course to help us make sure that we can best support the increase in pace of renewable deployment, as well as always remembering that value for money for consumers is a critical part of delivery.

I hope that the proposed regulations give developers the certainty about who will be able to take part in the next CfD round in December, and I commend them to the Committee.

Question put and agreed to.