Oral Answers to Questions

Debate between Charles Hendry and Phillip Lee

Thursday 12th July 2012 Commons Chamber

[Dr Phillip Lee (Bracknell) (Con)]

3. What estimate he has made of likely capital costs for new electricity generating capacity under (a) contracts for difference and (b) a premium feed-in tariff.

[The Minister of State, Department of Energy and Climate Change (Charles Hendry)]

The impact assessment published alongside the electricity market reform White Paper provides details of the capital costs of different approaches. The analysis shows that the cost of capital is lower under the contract for difference than under the premium feed-in tariff. The same low-carbon generation mix would cost £2.5 billion less to build under our chosen approach.

[Dr Lee]

Although I recognise that the contracts for difference model is cheaper than a premium feed-in tariff, I am somewhat concerned about its complexity, and potential investors share that concern. Will the Department consider revisiting the model to simplify it?

[Charles Hendry]

I assure my hon. Friend that we are always looking for measures that will simplify the structures, although I would draw attention to comments from EDF, a key investor, which says:

“The Contracts for Difference…which sits at the centre of the Bill, will be key to delivering investment that represents value for money, and protects consumers. It is a simple, transparent and proven instrument.”