Ian Liddell-Grainger
Main Page: Ian Liddell-Grainger (Conservative - Bridgwater and West Somerset)
Mr Davey
I am grateful to my hon. Friend for pointing out that we are consulting on electricity demand reduction. I am passionately keen to see that taken forward, but I do not want to prejudge the outcome of the consultation. There are a number of ways of taking forward that policy measure. It might require amendments to the Bill and if so, we have time to introduce them, but there might be other ways to make progress on that policy objective.
Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con)
Will the Secretary of State give way?
Mr Davey
No, I am going to make some progress, I am afraid.
Some have argued that CFDs are somehow complex, but I disagree. Generators will receive the market price for their electricity plus a top-up to an agreed level known as the strike price. When the market price is above the strike price, the generator will pay back the difference, ensuring value for money and greater price stability for consumers.
CFDs are also a major improvement on the current system of renewable obligation certificates, because they keep the cost of energy to the consumer lower. During the scrutiny of the draft Energy Bill, one issue dominated the debate about CFDs, and the Energy and Climate Change Committee spent some time considering it. It was, in essence, the payment system and how generators would get their money in a CFD. The Select Committee recommended that the Government change the draft Bill in that respect and appoint a single counterparty to these contracts for difference so it was easier for investors to know who would pay them. We have accepted that proposal. There will now be a new Government company that will sign and manage the contracts over their lifetime and collect money from suppliers to meet the payments due to generators.
Electricity market reform will stimulate investment in new low-carbon energy, but low-carbon energy sources have different generating features from fossil fuels, so our market reforms must take account of them. For example, wind and solar are intermittent, and may need either storage technologies and/or back-up generation. Both nuclear and renewables tend to have low margin running costs and are likely to mean that fossil fuel power stations run at lower load capacities than in the past. If we do not consider the implications of such things, there might in the future be a danger of insufficient investment in the flexible generating capacity needed at certain times, especially at the peak, for example on less windy days.
Moreover, given that new nuclear reactors will take some time to come online, and that new renewables may not fill the energy gap created by the closure of old coal and nuclear quickly enough in the next few years, there is the challenge of ensuring energy security over the next decade or more. Alongside CFDs we will introduce a capacity market to ensure that sufficient reliable generating capacity is available to meet electricity demand as it increases over the next decade. The capacity market will provide an up-front payment for capacity, reducing the risk of investing in flexible generation. The capacity market will provide an insurance policy against the possibility of future black-outs—for example, during periods of low wind and high demand.
Mr Liddell-Grainger
I want to take the Secretary of State back to the rates retention scheme and community benefit, which both this Government and the previous Government have talked about. The scheme is not in the Bill, but can he confirm that it will help local investment and local communities, and that above all it will ease the pain of very large infrastructure projects for local communities?
Mr Davey
My hon. Friend has campaigned on the issue and he initiated a recent Adjournment debate on it. Whether it is new nuclear, onshore wind or other energy infrastructure, we need to consider how local communities can benefit, and we will do that. I give him that assurance again today.