Draft Electricity Capacity (Amendment) Regulations 2023

Graham Stuart Excerpts

Tuesday 18th July 2023 General Committees

[The Chair]

Members should feel free to remove their jackets as they wish.

[The Minister for Energy Security and Net Zero (Graham Stuart)]

I beg to move,

That the Committee has considered the draft Electricity Capacity (Amendment) Regulations 2023.

It is a great pleasure to serve under your chairmanship, Mr Robertson. The regulations were laid before the House on 12 June. The draft instrument seeks to make technical changes to the capacity market scheme, the Government’s main tool for ensuring security of supply in Great Britain.

As set out in the “Powering Up Britain” paper, which was announced in the House on 30 March, we have bold new commitments to super-charge clean energy and accelerate renewable deployment. In the shorter term, while the future geopolitical context is still uncertain, we recognise that the world is likely to face continued challenges this winter around security of supply, considering Russia’s illegal invasion of Ukraine.

What does the draft instrument do? To ensure that the capacity market continues to function effectively, we regularly make adjustments to the implementing legislation, based on our day-to-day experience of operating the scheme. In that context, the draft instrument makes changes to three electricity capacity regulations to deliver technical improvements that support the functioning of the capacity market.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Will the Minister give way?

[Graham Stuart]

I will make a little more progress first. The capacity market is now well established, with capacity auctions held every year since its inception in 2014. The draft instrument aims to reduce the administrative burden associated with the process, as we believe that it is more appropriate instead to notify the market when the intention is for an auction not to be held, rather than having to announce each year that it will be. The change will not impact the nature of participation in the scheme or announcements regarding the targets for the capacity auction. It simply seeks to change the way in which the announcement is made that confirms whether auctions will be held.

We have also been made aware that the existing transfer route that enables capacity agreements to be terminated in order to participate in the contracts for difference scheme cannot be used in practice, due to interactions between the definitions used in the regulations and the delivery timeframes. The draft instrument seeks to amend the definition of the contracts for difference transfer notice to enable the transfer route to be used. The draft instrument seeks to improve administrative arrangements by extending the timescales associated with the settlement body’s calculation of penalties and issuing of associated invoices for non-delivery.

[Alan Brown]

I thank the Minister for giving way. Paragraph 7.1 of the explanatory memorandum states that nuclear can form part of the capacity market. Will he explain how nuclear can bid in? We keep getting told that the great thing about nuclear is that it provides baseloads. How does that work in the capacity market auction?

[Graham Stuart]

As happy as I would be to engage in a wider discussion about nuclear this morning, I think it might be best if I wrote to the hon. Gentleman to set out those specific concerns.

Turning to the Government consultation, the changes in the draft instrument were consulted on at the start of the year and were broadly supported by respondents. We also consulted on a wider range of changes, including to the capacity market rules that set out the detailed provisions for the delivery of the scheme.

As was signalled in the Government response to the consultation, we intend to follow a two-phased approach to reforms to the capacity market. First, we will proceed with technical changes to strengthen the security of supply and ensure better value for money. In the second phase, we intend to undertake further analysis and development before taking a final decision on implementation.

The capacity market continues to support low-carbon technologies, with growing participation of demand-side response and storage technologies. In line with the broad support for greater alignment of the capacity market with net zero, the Government remain committed to introducing an emissions limit reduction for new build and refurbishing plants into the capacity market and exploring options to address barriers to low-carbon technologies to help drive the transition to a net zero power system by 2035, subject to security of supply. Further analysis is required to understand the impact that the proposals will have on energy security.

Through developments to the capacity market and the review of the electricity market arrangements programme, we are confident that the right market signals will be in place to ensure that we meet our 2035 decarbonisation target, subject to security of supply. As has been highlighted, we have also made a number of technical amendments to the capacity market rules, which were laid before the House on 12 July. Rule changes will be introduced to reduce administrative burdens for prospective capacity providers and clarify how auctions are operated for the benefit of participants.

In conclusion, the draft instrument introduces a number of technical provisions necessary to enable the continued efficient operation of the capacity market, so that it can continue to deliver on its objectives. I commend the regulations to the Committee.

--- Later in debate ---

[Graham Stuart]

I thank colleagues for their contributions. As has been said, these are technical and uncontroversial amendments. I will write to the hon. Member for Kilmarnock and Loudoun about his earlier questions. The capacity market is technology-neutral, and all capacity can bid to win agreements to make capacity available when needed. As I also set out, we are going through two phases of changes to improve the capacity market, exactly in line with what he described, in that we want to encourage demand-side response.

To go back to what the hon. Member for Bristol East said about funding, the point of the auction system is to get the capacity we need to be there when we need it, at the lowest possible cost. If we want to have back-up and we cannot guarantee when we will call on it, we need to use that kind of transparent system, which increasingly encourages—as we are seeking to do by changing the system—green and flexible technologies, rather than diesel generators and so on, at the lowest possible cost. That is the aim of the amendments we are making, and I am glad to see agreement across the Committee today.

Question put and agreed to.