Electricity Capacity (Amendment) Regulations 2021

Debate between Baroness Bowles of Berkhamsted and Baroness Finlay of Llandaff

Wednesday 21st July 2021 Grand Committee

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, this is a set of changes to the capacity market system following a consultation. As a serial responder to consultations—although not in fact to the one relating to this—I must say that I am surprised by how few responses some get. In this instance, there were 38, although some were from trade associations, so, collectively, it covers more than 38 entities. But it still seems a low number, although, if I remember correctly, there have been fewer on some other electricity generation SIs.

I do not expect that the Minister can easily do anything about that, and there are so many consultations that I can understand if there is consultation fatigue—I have suffered from that myself—but it worries me if responses are obtained only from directly interested parties, important though they are. They are public consultations and the clue is in that name. The consultation informing this instrument seems to have received only one potentially non-industry submission from an individual respondent. Yet, as the Minister has explained, the capacity market is an important part of maintaining a secure and reliable electricity system and even this instrument is not devoid of public interest, as against producer interest, points.

Our capacity auction system is neutral in that all types of generation are included and, as the Explanatory Memorandum says at paragraph 7.2, and as the Minister has alluded to, the purpose of the payments is to,

“incentivise the necessary investment to maintain and refurbish existing capacity,”

and in some instances to support new-build projects. However, there is also a secondary market in capacity agreements and this instrument now breaks the link between the continuing existence of the original capacity agreement owner and the ongoing validity of capacity agreements that they have sold on.

I have some reservations about that change in that it might have perverse incentives to encourage overbidding for the purpose of secondary trading. It could be counterproductive to encouraging investment and, more to the point, knowing where that investment is to be made, and makes trading for cash more likely, which is not really what it was all meant to be about. For example, what pressures might there be from shareholders for certificates to be sold rather than for investment to be made?

Therefore, I am not entirely convinced that the public interest, which is substantial in terms of security of supply, is served by this. I can see that there may be arguments on the other side about maintaining the capacity that has been auctioned, and I should be interested if the Minister elaborated on those more fully and on what other mechanisms compensate for the fact that what was originally a kind of safeguarding mechanism has been removed.

Not surprisingly, the consultation responses agreed with the proposition. However, as I have pointed out, given that all those responses, bar one, have been entirely from industry and therefore from those who would benefit by it, either by way of enhanced secondary-market value of an agreement or from ongoing value irrespective of the status of the original owner, that is hardly a response that can be said to have the public interest uppermost.

I turn now to the reductions in the length of capacity agreements when a provider has breached obligations. I have no objection to the basic fairness of allowing appeals. I cannot help wondering how that might interact with a potentially lively secondary market and keep up with the obligations that attach to the traded certificates. I would welcome more explanation as to how that works. For example, can the Minister assure me that purchasing an agreement and obligation on the secondary market does not give, of itself, an excuse for non-performance or leniency?

The third change relates to allowing the delivery body to take into account changes in non-material errors in pre-qualification applications during appeals. This seems to be eminently sensible and I wonder whether that is, or can be, part of a wider approach within BEIS to a whole range of matters where non-material points or presentation prevent access to grants and other assistance, in particular for smaller entities. I note the value of the change to smaller entities, as explained in the memorandum. I would welcome that becoming a more general approach in BEIS.

I am interested to hear what the Minister has to say about the issues that I have raised and especially whether the effects on the trading changes will be monitored for any detriment and whether that may have been necessitated because of Covid, rather than the previously-existing steady state?

[The Deputy Chairman of Committees (Baroness Finlay of Llandaff) (CB)]

I will now call the noble Lord, Lord Grantchester, and after that I will call the noble Lord, Lord Bradshaw, again. It would be helpful if he could remain muted until he is called after the noble Lord, Lord Grantchester.

United Kingdom Internal Market Bill

Debate between Baroness Bowles of Berkhamsted and Baroness Finlay of Llandaff

Consideration of Commons amendments
Monday 14th December 2020 Lords Chamber

[Baroness Finlay of Llandaff (CB) [V]]

My Lords, I shall speak to Motion G1 and move my Amendment 50E to Clause 50. At this stage I am minded to seek the opinion of the House, particularly because I wonder whether the House wants to have a conscience vote on some of these issues. I have found the Government’s response to our deliberations worrying. I remain concerned that the damage to the union that will come about as a result of their refusal to commit to a process of codesign of a future subsidy regime will come back to haunt us all.

We are of course a revising Chamber. We asked the Commons to think again, and after many hours of debate we gave clear messages through large majorities on key aspects of the Bill. We have seen some concessions and they were essential changes, but the huge problem of the current approach to the devolved Administrations remains unresolved. Given the Government’s current difficulties with the pandemic and unknowns over the end of the transition period, less than three weeks away, I fear that any stand-off with the devolved Administrations will compound and massively magnify them by fuelling the break-up of our union within only a few years. I say this because, as someone living in Wales and with family in Scotland, I see the Bill acting as a recruiting sergeant for separatist movements.

It is imperative to recognise the common frameworks, and we have signalled that clearly. As part of “taking back control”, the devolved institutions must have at least as much latitude—or call it “control”—as they felt they had within the EU to deal with the question of state aid. To establish durable intergovernmental working with the devolved Administrations, there must be clarity and certainty that the differing needs across the UK will be acknowledged and are seen as a joint responsibility that listens from the ground up and gives decision-making to the devolved Administrations.

As I understand it, neither Parliament nor the devolved Administrations had legislated on state aid in the past as these decisions were taken at EU level and regulations were directly applicable. Now that the EU mechanisms have been removed, it is still unclear where the decision-making now happens. State aid was not on the list of reserved powers and it has never been tested in the courts; indeed, such a test would do untold damage to relations between the constituent nations of the United Kingdom.

I hope I misheard the Minister, or that it was a slip of the tongue. If I heard him say “dissolved competence” instead of “devolved competence”, I am really worried.

My noble friends and I have listened to the objections that three years is too long to wait to put a framework in place, so we have reduced it to 18 months and I am currently minded to seek the opinion of the House on this. Eighteen months is scarcely longer than it would take the Government to consult on a framework and bring forward the legislation to enact it. This could be far speedier should the Government accept the offer from the Scottish and Welsh Governments to proceed rapidly on developing a clear process for them to be part of the codesign of state aid, establishing the consensus through a seat at the table from the outset of such deliberations.

Of course, I share the House’s clearly stated support, restated again today, for the common frameworks process. That is essential, and I do not wish to jeopardise that in any way, as we must move forward together. Yet I believe that the Government will try to say that state aid is already reserved—in fact, I believe that is what I have already heard—and that to include it in the common framework process might somehow jeopardise that position of constitutional principle.

I would be very happy to accept a clear assurance that the Government will make every effort to ensure that the consent of the devolved Governments to a subsidy regime will be secured and will make a statement to Parliament when introducing the necessary legislation if they should override that process. To summarise, I believe that this House will want to hear that the Government will seek to agree with the devolved Governments any new subsidy framework and will explain to Parliament whether they have succeeded or not and, if not, why not. I believe that that is the minimum we can expect. I beg to move.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I will speak to my Amendment 50F and Motion G2, which I may wish to move. I also support Amendment 50E and Motion G1. Amendment 50F looks to the stage at which there may be changes to state aid provisions, whether that be changes in definitions, remedies, or the scope of exemptions, or introducing conditions or time limits on approval. I agree with the Minister that at the moment they are gone, but might not alternatives be introduced, or some aspects reintroduced? I think that would also constitute a change.

The EU state aid provisions were indeed the subject of a statutory instrument recently, and they end at the end of the transition period. But, as the Minister has informed us previously, the UK will follow WTO rules and consult and report on whether any wider scope is to be introduced. If the outcome is a recommendation for going wider—some kind of policy change—it begs the question of how it will be introduced.

My proposal is not made instead of consultations and approvals with the devolved Administrations, which we support; it is in recognition that the full range of public authorities and businesses are affected wherever they may be. Therefore, the detail of how any post-consultation policy change is implemented is of significant interest.

The withdrawal Act was used to make the changes that happen at the end of the transition period. But it would seem inappropriate for that to be used for any new policy. A new policy other than moving to the WTO default should surely have the scrutiny of primary legislation.

I know the Minister may say that how policy is to be implemented can be a point in consultation, but my submission is more constitutional than convenience. Parliament should be able to scrutinise and amend, and to spot those weaknesses and problems that this House in particular has the experience to iron out, especially at the first time around of making independent, post-Brexit state aid rules.

Therefore, my Amendment 50F seeks to put on the face of the Bill that changes to the test for harmful subsidy remedies, the scope for exemptions or the conditions or time limits on approvals may not be done by regulation. I do not seek to prevent policy change being made by the Secretary of State; I am just saying that, at least first time around, it should be made by primary legislation. It may be that the Minister can put my mind at rest, and I await his response with interest.