Draft Contracts for Difference (Miscellaneous Amendments) (No. 3) Regulations 2025
Debate between Kerry McCarthy and Nick Timothy(5 days, 17 hours ago)
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Nick Timothy (West Suffolk) (Con)
It is a pleasure to serve under your chairmanship this sweltering evening, Mr Swayne.
Nick Timothy
Sir Desmond—I apologise; I will announce my resignation later this evening.
I am pleased to respond to the draft regulations for the Opposition. Under this legislation, the Secretary of State for Energy Security and Net Zero will be given new powers to view anonymised CfD bids before setting the budget for the next auction of contracts, due to take place later this year. That means that he will know ahead of time exactly how much will be procured if he sets the budget at a certain level, and therefore what the strike price will be. That poses questions about exactly how much the next round of CfD contracts—AR7—will end up costing the taxpayer.
Already, the process has been delayed. The previous allocation round was a record-breaking £1.5 billion, after the Secretary of State turned on the money machine. Everyone in industry—and, I suspect, Ministers too—believes that AR7 will be even more expensive. Ministers have made clear their intention to extend the CfD contracts to 20 years in an attempt to get strike prices down. Whether they succeed or fail in that respect, let us be clear about what it all means in the end: more expensive bills for the public—the very opposite of what the party promised before the election.
I note that the Minister, in her opening speech, talked again about the volatility of gas prices and repeated the soundbite about the rollercoaster of gas prices. I would appreciate it if, in her response to me, she explained why the Labour party has taken credit in its campaign materials for the reduction in bills caused by the fall in wholesale gas prices, when policy costs have actually increased.
Why are Ministers having to pump so much more money into CfD contracts? It is because of the Government’s ideological rush to decarbonise the grid within five years. That requires a massive expansion in wind power over the next two auctions, and the result will be higher prices forced on to households and businesses. We know that not just from experience and an understanding of how renewable technologies work, but because it has come from the horse’s mouth, too. Behind closed doors, a senior RWE executive has admitted that there would be “spikes in prices” and predicted that the “consumer risks losing out”. In other words, bills are going up. It would be nice if we could have such honesty from the Government.
This is the reality of net zero. Last January, a combination of dark skies and low wind—what has now become known as Dunkelflaute—brought Britain to the brink of blackouts. That was avoided only thanks to our remaining gas fleets, which the Government say they want to run down. The Prime Minister has promised categorically that decarbonising the grid by 2030 will not cause any power shortages, blackouts or energy rationing, yet unreliable solar contributed to a lack of inertia in the Iberian grid that could have prevented their power outages. In Britain, customers have paid over half a billion pounds already this year for power generated by wind, with which the grid cannot cope.
The OBR says that the costs of all these subsidies, and the hidden costs of renewables, will rise by 60% over the course of this Parliament. Wind is more expensive and highly unreliable, but the Government want more of it, instead of more reliable energy sources, such as gas and nuclear. I hope the Minister can take this opportunity today to explain in clear terms what this legislation will mean for the future of our energy system. Can she provide a date for when the allocation round 7 administrative strike prices will be published? Can she confirm that the budget will be kept as low as possible to keep strike prices as low as possible?
How will Ministers ensure value for money when they are trying to procure record capacity? Can the Minister tell us now that strike prices for offshore wind will be lower than those in AR6, and can she confirm that strike prices will be lower than the price of gas-powered electricity last year? If she cannot answer those questions, how can she possibly say that this legislation will cut bills? The public deserve the truth about how the Government are using their money to chase the ideological and the unachievable. Pushing policy to run faster than technology will allow, which is exactly what this Government are doing, will only lead us further away from genuine energy abundance, and leave our country not only poorer but less secure.
Kerry McCarthy
We have nuclear production in this country—[Interruption.] We have nuclear power as part of the mix. Obviously, the investment we have just announced does not come into effect for a while, but we have that as part of the mix. We have said that there will be 95% clean power with gas as a back-up if needed. We are not putting all our eggs in one basket by any means whatsoever.
Nick Timothy
One of the questions I asked was, why, given that the Minister and other Ministers keep talking about the rollercoaster of volatile fossil fuel prices, when wholesale costs fell, causing the price cap to fall, did the Labour party put out posters saying, “£129 off your bills delivered by Labour”? Will the Minister confirm that that reduction reflects the reduction in wholesale prices and has nothing to do with what the Government have done with policy?
Kerry McCarthy
I am not aware of that announcement, not least because I am not the Energy Minister—he is in the Chamber, making a statement about the oil refinery. But we are doing all we can to bring down consumer bills, and I think we deserve some credit for our efforts.
To conclude, meeting the Government’s commitment to the clean energy superpower mission, including clean power by 2030, will require a rapid and sustained scale-up of low carbon electricity. That will entail working with the private sector to radically increase the deployment of low carbon electricity, while at the same time protecting consumers. The instrument under discussion—in the loosest possible sense of the word, given how the debate has ranged over a number of other topics—is a step forward in achieving those ambitions; it supports the delivery of a clean power system, which shields families from volatile gas prices.
By amending the contract budget publication process and allowing the Secretary of State access to anonymised bid information, we will ensure that the previous underspend risks seen for fixed-bottom offshore wind are minimised, and the Government having greater certainty of outcome in the auction to procure more fixed-bottom offshore wind will allow us to make an informed decision on balancing capacity with costs to consumers.
The UK is a world leader in offshore wind, with 15.9 GW generating electricity. We have the highest deployment in Europe and are second in the world only to China. This policy intervention is another strong signal of the Government’s commitment to scale up deployment of fixed-bottom offshore wind to the benefit of businesses, bill payers and local communities. The instrument will build on the success of the CFD scheme—I will be polite and not mention how AR5 went under the previous Government compared with AR6 under us—adapting it in line with market and technological developments, and contributing to the UK’s crucial net zero targets and 2030 clean power mission. I commend the draft regulations to the Committee.
Question put and agreed to.
Renewables Obligation Certificate Scheme
Debate between Kerry McCarthy and Nick Timothy(4 months ago)
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Kerry McCarthy
My hon. Friend makes a valid point. I wonder whether the Opposition spokesperson has spoken to businesses on this matter because, in all my conversations with businesses, both in opposition and now in government, it is clear that they want certainty. They need a stable investment environment if they are to make long-term decisions. They cannot invest in renewable energy, in industrial decarbonisation or in the economic growth this country needs without certainty. We know that one reason why we are in the economic situation we are is the lack of stability and the economic chaos at times under the previous Administration, particularly under the predecessor of my hon. Friend the Member for South West Norfolk. Therefore, certainty is what we need to have. Business is crying out for that.
In places such as Grimsby, it is particularly important to have a place-based solution to the current situation, showing what the energy transition would look like in such places. I urge the hon. Member for West Suffolk to take a bit of a tour, to talk to businesses and people who are trying to get much-needed investment into places such as Grimsby, and to see—I am not quite sure what his proposals are—what he can say to them on how to get long-term investment.
Nick Timothy
Of course we talk to business all the time. I talk to businesses in my constituency and we have been talking to businesses and organisations representing the more energy-intensive manufacturing businesses in this country. They are clear that energy costs have been too high, partly because of issues such as high carbon prices. They are very concerned about the prospect of the carbon price rising under this Government. The hon. Lady talked about global fossil fuel markets—I have heard the Energy Secretary say that a lot when he has referred to global gas markets. There is no single global gas market in the way he describes. Prices for fossil fuels are so much higher in Europe than America, which is much more dependent on fossil fuels than we are, because of policy choices. Therefore, can she guarantee that we will have a lower carbon price than the rest of Europe by the end of this Parliament?
Kerry McCarthy
I understand that the hon. Member asked the Secretary of State that question at the last DESNZ orals and I think he also raised it when we were opposite each other in a statutory instrument Committee. I refer him to the answers that were given then. I think we should get on—I am going to try to talk about the renewables obligation for a while and not be distracted.
The scheme played a fundamental role, as already noted, in getting the UK to where we are now on renewable energy generation. Combined, the UK-wide RO schemes support nearly 32% of the UK’s electricity supply, providing millions of UK households and businesses with a secure supply of clean energy. The scheme is now closed to new capacity, for reasons I will come on to.
Thetford power station, in the constituency of my hon. Friend the Member for South West Norfolk, has been accredited since the first day of the RO, back in April 2002, so it has so far received Government support for nearly 23 years. Over that time, it has generated more than 5.8 TWh of low-carbon baseload generation. That has been a valuable contribution to our transition to net zero. It has also increased our security of supply by generating home-grown energy. As he said, the station has provided 100 jobs in his constituency and co-benefits in handling poultry litter.
The station has another two years of support before its time under the RO ends, in March 2027. We are aware of the concerns about the future of the station once that support ends and my hon. Friend has done an excellent job in outlining those concerns today. My officials have repeatedly engaged both with the owners of the Thetford plant, Melton Renewable Energy, and with DEFRA officials to discuss those concerns.
To explain the overall context, as I have said, the RO has done sterling service in bringing forward the successful large-scale renewable energy sector that we see in the UK today. That has paved the way, as my hon. Friend the Member for Great Grimsby and Cleethorpes (Melanie Onn) said, for the cost reductions that we have seen over the last few years under the contracts for difference scheme, but its time has passed. The energy landscape has evolved since the scheme was launched in 2002 and it no longer provides the market incentives or the value for money that the transition to clean power requires.
The RO was designed to support renewable energy-generating stations during the early stages of development and generation, and to allow the recovery of high capital costs. For that reason, RO support is often significantly higher than that provided under successor policies such as contracts for difference. We must always bear in mind that consumers pay for the scheme through their electricity bills, and delivering value for money for them is essential. For that reason, we do not plan to extend RO support.
As I said, support under the RO for the early adopters, such as Thetford power station, lasts for 25 years. Stations accredited later in the RO’s life receive support for up to 20 years. All support will end in March 2027, when the last assets fall off the scheme and the RO finally closes, so Thetford—as I am very aware—has two years to run. The limits on the length of support were imposed to balance the need to provide investors with important long-term certainty—for 25 and then for 20 years—with the impact on consumers.
Although we do not consider extending the RO to be a viable option, I assure my hon. Friends that I understand their concerns. In some cases, generating stations may be able to continue generating electricity on merchant terms once their RO support ends, and continue until the end of their operational life. However, some generators have told us that their stations will not be economically viable without Government support.
We are conducting further analysis and assessment to better understand the issue, including the implications for consumer bills and the clean power mission. My officials are working with DEFRA to consider whether there is a case for intervention for biomass-fuelled stations, taking into account the electricity system and the supplementary environmental benefits that some stations provide. That work is in addition to the robust value for money assessments that we undertake to ensure any possible support is in the interests of bill payers.
I appreciate that Melton Renewable Energy and my hon. Friend the Member for South West Norfolk are looking for early answers, but I must stress that no decisions have yet been made and we are happy to continue the conversation with him.