Electricity Capacity Mechanism (Amendment) Regulations 2024

Earl Russell Excerpts

Monday 20th January 2025 Grand Committee

[Lord Lilley (Con)]

My Lords, I want to use this as an opportunity simply to ask a question of the Minister. Why do we not take the advice of Professor Dieter Helm, in his review of energy policy, which was that instead of us providing the capacity mechanism centrally, we require anyone providing electricity into the system—wind generator, solar generator or whatever—from an intermittent source to provide firm power, in other words to pay for some capacity for the times when the wind is not blowing? If that were done, this whole arrangement would be unnecessary. We would have a much clearer idea of the total cost of intermittent energy if the supplier were also paying for some of the back-up capacity that is necessary to meet the occasions when intermittency prevents delivery of the power.

The only argument I have heard against this is that, if you do it wind farm by wind farm, the aggregate amount of capacity would be statistically greater than is necessary to meet the fact that some wind farms will be producing when others are not, but that surely can be overcome by saying that a certain statistical proportion of the necessary capacity should attach to any intermittent generator. Then we would have a more rational, more credible and more manageable system than the one that we have under these regulations.

[Earl Russell (LD)]

My Lords, this instrument revokes and alters several provisions of the assimilated EU regulations relating to the internal electricity capacity market. The draft regulations make changes necessary for the operation of the capacity market following our withdrawal from the European Union and they revoke the 10-year approval requirements. We do not oppose these changes—I just say that to start with.

Our electricity capacity market was introduced in 2014. The measure is designed to ensure that maximum output is always available and thus that we can maintain sufficient electricity capacity to meet future predicted demand, always ensuring the security of electricity supply. As we have heard, the capacity market covers generation, storage, consumer-led flexibility and interconnector capacity. It is about ensuring the security of this supply at all times. Auctions are held annually, one year and four years ahead of delivery, to ensure that we have supply when we need it and can meet future peak demand in a range of scenarios, based on advice from the capacity market delivery body, the National Energy System Operator.

The capacity market was originally approved when we were part of the EU and was made under the European Union’s state aid rules for a period of 10 years. Following our withdrawal, this requirement was brought in and enshrined in our domestic law as part of the assimilated electricity regulations. The capacity market will continue to be required to maintain the security of supply and investor confidence. This market will be of even greater importance as we seek to decarbonise our electricity generation by 2030 and, at the same time, see an ever-growing increase in electricity demand. The draft regulations revoke the requirement that

“Capacity mechanisms shall be temporary”

and

“shall be approved … for no longer than 10 years”,

and other references to such mechanisms being temporary. The draft instrument also revokes several provisions that require minor correction. As I said, we do not oppose the recommendations in the instrument, but I wanted briefly also to turn to some broader points.

As we seek to reach net-zero carbon generation by 2030 and beyond, the Government have a continued dependency on unabated gas and propose that carbon capture and storage should be used as a key part of our energy mix. Indeed, the clean power 2030 plan has around 35 gigawatts of unabated gas on standby for security of supply, and this requirement for gas capacity will remain throughout the early 2030s until more low-carbon dispatchable power comes on board to replace it. Although required, back-up reserve gas generation that is used intermittently and only when necessary is also very expensive, understandably. The Government have agreed to invest some £22 billion over the next 25 years in carbon capture technology to help make sure that we can have this unabated gas without adding to our greenhouse gas emissions.

The week before last there was a debate in the Chamber on the Science and Technology Committee’s report on long-term energy storage. We have also had a couple of Questions about the Russian shadow fleet and the attack on Baltic power cables. Of course, renewable energy is not always reliable, and everybody knows that it needs to be backed up by a wide variety of other sources to help ensure the security of supply. On that basis, can I ask the Minister about the Government’s proposed energy mix going forward to net zero and beyond? I am a little concerned that we continue to have this requirement: it is basically solar, wind and dispatchable gas backed by CCS and nuclear. Will the Minister say a word about how the Government will keep this mix under continuous review? I encourage them to invest in alternative renewable technologies, such as wave, tidal and geothermal, that are able to provide the dispatchable power that we need. What is the Government’s thinking on that?

We must also ensure that all the wind energy we generate is available and can be used. As I said, there is also a need to radically increase our medium and long-term energy storage, which is available to help us get through periods when other sources of renewable energy are not on tap. I hope that the reforms to the capacity market already announced will help make that happen. More must also be done to reduce demand; as the Government know, the best energy is the energy we never use.

Turning to this SI, I note that, as the Explanatory Memorandum says,

“there is a requirement to review the Electricity Capacity Regulations … at least every five years to determine whether they are meeting their objectives and remain fit for purpose”,

and I note that the Minister said the Government will continue to keep the controls in place. As we are going through such a rapid period of change, we welcome the fact that the Government have brought forward the plan to decarbonise our power generation by five years, but what consideration have they given to the need to review these mechanisms more than every five years? What might trigger that? What is the Government’s thinking on those matters?

[Lord Offord of Garvel (Con)]

My Lords, these regulations represent an essential step in ensuring the continued security of electricity supply in Great Britain. This SI builds on the work initiated by the previous Conservative Government, which reviewed electricity market arrangements in 2022. The task in hand is to amend the existing provisions of the Energy Act 2013 following the UK’s withdrawal from the European Union and align our national electricity market with the post-Brexit reality. These amendments are crucial to ensure that the capacity market can continue to operate effectively and flexibly in a changed regulatory environment.

As we transition towards a low-carbon energy future, securing a reliable electricity supply requires robust mechanisms that incentivise investment in reliable and flexible energy sources. The amendments introduced by these regulations are intended to bolster the capacity market’s role in supporting the security and reliability of electricity supply in a period of evolving energy needs and shifting market conditions.

These changes enable the UK to pursue an independent course, while ensuring that the capacity market continues to provide the stability and security our energy grid requires. By revoking outdated EU provisions, the UK can define its own market mechanisms that better reflect national priorities, including transition to a low-carbon energy future and enhancing energy resilience across Great Britain.