Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2016

Barry Gardiner Excerpts

Tuesday 28th June 2016 General Committees

[Barry Gardiner (Brent North) (Lab)]

It is a pleasure to serve with you in the chair, Ms Dorries, albeit you are at a lower elevation than might have been supplied with a cushion. I would like to start by saying that I, too, am very sad that my hon. Friend the Member for Southampton, Test (Dr Whitehead) is not standing here to respond to the Minister. He has served this cause of energy in the UK very well as shadow Minister. I think we would all wish to pay tribute to him, with this being the first opportunity.

This is quite extraordinary. On the purpose of the instrument, we read in the explanatory memorandum that:

“These amendments will not change the way in which Contracts for Difference (CFDs) are allocated, but will make minor changes to the existing allocation methodology”.

I do not know how contracts for difference are allocated if they are not allocated by the existing methodology.

--- Later in debate ---

On resuming—

[Barry Gardiner]

If I may pick up where I left off, I was pointing out that the explanatory memorandum seems entirely contradictory:

“These amendments will not change the way in which Contracts for Difference (CFDs) are allocated, but will make minor changes to the existing allocation methodology”.

I do not know what

“the way in which CFDs are allocated”

means, unless it is the existing methodology. To say that it will do what it will not seems a contradiction rather than an explanation. I urge the Minister to make sure that the explanatory memorandum does what it says on the tin, namely explain rather than confuse.

The other confusing aspect is the impact assessment. The regulations are dated 2016 and they amend regulations made in 2014, yet the impact assessment for these regulations predates those made in 2014. Quite how this is supposed to be an impact assessment of what we are considering today, I do not know.

Ultimately, the Opposition will not seek a Division on these regulations, but certain points of housekeeping should be noted. Many aspects of the regulations that the Minister discussed simply tidy up existing problems. I ask her to clarify whether anyone, to date, has received double subsidy or been known to game the system. Those were the two reasons the Minister rightly gave for these regulations. I therefore think it is important to know whether there has been a problem and these regulations are being introduced to stop more horses bolting from the stable, or whether they are simply preventive, because officials have realised there is a potential issue here and we need to tighten up the regulations in that respect.

The aim here is to prevent applicants from taking a flyer on a possible capacity payment and, at the same time, putting in for a CfD and then discarding whichever one seems to be less promising later in the application process. The regulations have been amended to introduce the notion of determination or establishment. That is entirely understandable. If someone holds a capacity agreement on a plant, they cannot apply for a CfD as things stand. However, there may be marginal cases in the pre-qualification process. It would be helpful if the Minister confirmed that there will be two amber lights, so that if someone puts in for a CfD and for the capacity market, there is an amber light for both those applications, and that at the point at which pre-qualification is determined to allow them to bid in the capacity auction, their CfD application will be invalidated.

I would also like to ask the Minister why this seems not to be symmetrical. It seems as if applying for a CfD while a capacity agreement is being considered is not outlawed by the amendment in the same way. What happens if somebody has a CfD under consideration and then applies for a capacity payment? There is a question of symmetry. It is clear that the regulations will tighten up the process one way round, but it is not clear that they will do the same the other way round. Will the Minister clarify whether there is symmetry, and I have just missed it, or whether we need a further tightening exercise to achieve the objectives that she and I share?

The Minister’s introduction was welcome. She spoke of the need to reassure investors that the referendum has not changed the Government’s energy objectives. In effect, she said that nothing has changed. I trust she knows that Siemens has said within the past couple of hours—I am sure it has been in touch with the Department before putting this out publicly—that it is freezing its plans for the existing blueprint to export offshore wind turbine machinery from the Hull hub. That is now in the public domain, and it seems to go against the reassurances that the Minister gave in her introduction. Brexit has changed the way in which investors in the market look at the UK as a destination for energy investment. Although the Minister rightly tried to reassure investors that the Government want investment to continue, the fact is that investors take a very different view of this.