Draft Contracts for Difference (Miscellaneous Amendments) Regulations 2022

Debate between Lee Rowley and Alan Brown

Monday 23rd May 2022 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Lee Rowley)]

I beg to move,

That the Committee has considered the draft Contracts for Difference (Miscellaneous Amendments) Regulations 2022.

I am grateful for the opportunity to contribute today. In the sixth carbon budget, the Climate Change Committee emphasised the crucial role that carbon capture and storage will play in reducing emissions from industrial processes, combustion, electricity generation and hydrogen production. The energy White Paper 2020 set out the Government’s view on how to achieve a low-cost, low-carbon electricity system. Although we cannot predict exactly what the generating mix will look like in 2035, we have made a commitment to decarbonise the UK’s electricity system by then, subject to security of supply, and we are confident that renewables will play a key role. However, in order to decarbonise while maintaining security of supply and ensuring that costs are kept low, we will need to balance renewable variability against continuing demand. To do that, we will need system flexibility, energy storage and non-weather-dependent, low-carbon power generation.

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

On the Minister’s comment about being unable to predict the energy generation mix in 2035, can he at least predict what the mix will look like in 2030? Clearly, the Government have set their own targets—for example, on what offshore wind will look like in 2030. We have a so-called energy security strategy, which I would have thought is key to the Government being able to predict what the mix will look like and then plan accordingly to facilitate that.

[Lee Rowley]

I am grateful for the hon. Gentleman’s intervention. The point of what I am trying to articulate is that this is a journey that will potentially vary over the course of a number of months and years. We will not know whether it is 1%, 5% or 10%, but the journey of the overall mix is towards a renewable and clean energy future, and we are absolutely committed to getting there. We consider that thermal power with carbon capture and storage is one technology that will provide this at scale and help in the journey that the hon. Gentleman outlines.

In the subsequent net zero strategy, the Government committed to use consumer subsidies to support the construction of at least one power CCS plant, which is to be operational by the mid-2020s. In the round, these strategies illustrate the critical importance of carbon capture and storage technologies, and we have developed specific business models to bring forward carbon capture, utilisation and storage projects. Existing schemes are not considered fit for purpose, because such projects require specific support, given the need for co-ordination across the sector, with supporting infrastructure yet to be built. To enable this, we have developed the dispatchable power agreement. This is a carbon capture storage subsidy for gas-fired projects connected to a full carbon capture and storage system, and it is intended to provide low-carbon, flexible power generation.

The dispatchable power agreement contract is a bespoke contract based on the standard terms of the contracts for difference used previously in allocation rounds, but with specific amendments to ensure suitability for power carbon capture and storage. The dispatchable power agreement will be a key tool used to ensure low-carbon electricity generation by bringing forward investment in power carbon capture storage plants, and to incentivise such facilities to operate in a manner that benefits the UK energy market. The DPA incentivises investment in order to bring forward projects that are ready to build low-carbon generation capacity. The availability payment incentivises power CCUS projects to maintain a high level of capture rate throughout the life of a contract. It is commonly referred to in the business model and is intended to implement our commitment.

The draft regulations were laid before the House on 31 March 2022. The amendments in the instrument laid before the House today are therefore needed to ensure that existing regulations under the Energy Act 2013 can be used to award DPAs. Those regulations are used to award contracts for difference currently: the proposed amendments are not intended to impact the standard CFDs for the current allocation round or future allocation processes of the standard contract for difference.

This statutory instrument introduces three changes to the existing regulations: the Contracts For Difference (Allocation) Regulations 2014—the allocation regulations —and the Contracts for Difference (Definition of Eligible Generator) Regulations 2014—the eligible generator regulations. The statutory instrument amends the eligible generator regulations specifically with regard to the definition of an eligible generator. Currently, new-build generating stations connected to a complete carbon capture storage system are eligible generators. The change we propose allows a retrofitted carbon capture storage project to constitute an eligible generator. It does that by widening the criteria for carrying out a generating activity to include altering an existing generating station into a generating station connected to a carbon capture storage system. By making that change, retrofitted power carbon capture storage plants can be eligible for the dispatchable power agreements.

The statutory instrument also amends the allocation regulations. Currently, the allocation regulations include a specific reference to the contracts granted pursuant to section 10 of the Energy Act 2013. The regulations refer to such contracts and the language suggests that they will include a strike price and a reference price within their payment mechanism. The amendment retains the reference to a strike price and a reference price, but also amends the language to state that such prices may be included, although an alternative payment mechanism that does not use those terms could be used in future. That ensures that contracts that do not specify a strike price and a reference price can be contemplated. It means that there will not be a requirement for those specific terms to be used in dispatchable power agreements, which will allow for the alternative mechanisms that I have suggested.

Finally, the statutory instrument amends the eligible generator regulations. Currently, an eligible generator is defined as connected to a complete CCS system, and a complete CCS system is defined as a system of plant and facilities for capturing some or all the carbon dioxide, or any substance consisting primarily of carbon dioxide, produced by or in connection with the generation of electricity by a generating station, and transporting the carbon dioxide or the substance captured and disposing of it by way of permanent storage. The proposed amendment was to add the words into limb (b) after transporting—

“including by way of non-pipeline transport methods”—

to make it clear that transport can contemplate alternative transport methods. The existing language does not necessarily limit the potential methods by which transport can be done, but it makes it unambiguous that this definition is not intended to be limited to pipeline methods. That is consistent with the consultation respondent who noted that it would be helpful that transport could be carried out by way of non-pipeline methods.

The proposed amendments in this statutory instrument are intended to facilitate non-pipeline transport generally. The proposed changes to the eligible generator regulations aim to be neutral regarding what those possible configurations could be.

To confirm that this statutory instrument is the most appropriate way to approach this area, in accordance with the Energy Act 2013, a consultation was carried out last year between July and September, and a response was given two months ago on gov.uk. We received 16 responses to the consultation; some directly involved in power CCS, some trade associations, some non-governmental organisations and other interested parties. The responses were largely positive and in favour of the proposed changes. Respondents requested some clarification, which have been provided in the official published Government response.

[Alan Brown]

Will the Minister explain why no impact assessment was done for the draft regulations? We are talking about consumer subsidies, so we should have an impact assessment of what it could mean for people’s energy bills.

[Lee Rowley]

I will be happy to answer the important point the hon. Gentleman raises when I conclude, along with any other comments made.

Let me conclude in order to give Members the opportunity to comment. The draft regulations facilitate the Government’s CCUS programme generally, but the decision to award support is separate. Decisions about the specific support that will come through those remain subject to the outcome of a separate process and value for money and affordability considerations. The measures introduced by the SI are aligned with the Government’s carbon budget and net zero targets, as they help to enable power carbon capture and storage projects. I commend the draft regulations to the Committee.

--- Later in debate ---

[Lee Rowley]

I thank everyone for their contributions. I welcome the welcome: as a Committee, I think we are broadly in assent with the substantive points in the regulations. Alongside that, there were a substantial number of questions, some about the specifics of the statutory instrument, which I shall address as best as I can, and some about energy policy more broadly.

While I accept hon. Members’ challenge to contextualise what we are talking about today, I hope that they will forgive me if I do not seek to delay the Committee too long by debating aspects of broader energy policy, such as the validity and value of nuclear, the potential alternative approaches with hydro, grid upgrades and the like, simply because they are broader than this relatively narrow SI and there are opportunities elsewhere in this place to debate them.

I completely understand and acknowledge the points made by the hon. Member for Kilmarnock and Loudoun, but “dribs and drabs” is perhaps a little unfair. We are trying, in a careful, cautious and incremental way, to address the specific issues that we need to address to ensure that our statute book works for some of the changes that we are making, with a very ambitious and broad-based approach to transforming and decarbonising the energy system over the long term.

The hon. Gentleman asked about the impact assessment. There is no requirement at this stage to undertake an impact assessment, although he can see from the process that we have undertaken, particularly around the consultation, that a significant amount of work was done to understand people’s views. When we have changed the law and we are seeking to put things through the process we are changing today, appropriate consideration can be given to various mechanisms. We have been clear that there will be changes, and I referred to some of them in my opening speech.

The hon. Member for Southampton, Test asked a number of detailed questions about biomass. My understanding is that BECCS could be eligible, provided that it is connected to the complete CCS systems that I talked about in my opening speech and that are mentioned in the broader contextual documentation that is available. However, on the broader questions about biomass, I again defer to the strategy, which will be published in due course.

[Alan Brown]

Paragraph 7.13 of the explanatory memorandum states clearly:

“It is not directly linked to the actual amount of electricity it produces but rewards the plant for being available when needed and capturing the level of CO₂ as required.”

That is still talking about dispatchable energy, whereas biomass would be a constant output. I do not see how that would allow BECCS to be included in the scheme, so I am looking for further clarity.

[Lee Rowley]

I am grateful for the hon. Gentleman’s question. My understanding is that we are allowing BECCS to be eligible in general, but the specifics and the detail—recognising that there are two different elements of both generation and capture through the energy value chain and how they interact—will need to be dealt with on a case-by-case basis and looked at in the round when we launch a process to move on as part of this process of changing the statute book.

My hon. Friend the Member for Windsor asked about the reference price and the strike price. I do not think there is anything more apparent here than simply adding an additional layer of flexibility. We are not saying that we are definitely doing something else, or that we definitely want to move away from reference prices and strike prices; to the point raised by the hon. Member for Kilmarnock and Loudoun, this is just about ensuring that we do not have to come back again if we determine in the future that a different model is appropriate—one that does not mention reference prices and strike prices but potentially mentions some other element.

Oil and Gas Producers: Windfall Tax

Debate between Lee Rowley and Alan Brown

Tuesday 1st February 2022 Commons Chamber

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Lee Rowley)]

Thank you, Madam Deputy Speaker, for giving me the opportunity to open yet another Opposition day debate on behalf of the Government.

Another chunk of time has rightly been set aside for Her Majesty’s Opposition to explain their mature approach to politics—their open and transparent methods for taking difficult decisions or balancing nuanced trade-offs—and to articulate their thought-through programme for government if, heaven forbid, they ever win an election. At least, that is what I assumed these Opposition day debates would be like, as a new Minister. Now, on my fourth in relatively quick succession, I realise that that is not the purpose of such debates at all. How foolish of me to assume such laudable ideas when, instead, we are presented with further half-baked, sensationalist ideas solely for the headlines. We can do better than this.

None the less, let me try again to make sense—[Interruption.] If Opposition Members would give me a moment, I will try to make sense of the motion for which they are about to argue. The motion splices together two very important matters, the cost of living and business taxation, in a proposition whose coherence is inversely proportional to its attempt to grab the headlines. As this is a motion of two halves awkwardly coupled together for effect by the Opposition Front Bench, I will take each half in turn.

First, on the cost of living and in the spirit of being constructive, I will try to find areas where we can agree. There is no doubt that this is a difficult time, with rising energy prices, growing demand, stretched supply chains and the most unique set of economic and political circumstances in a century. Latent demand has been held back across the world by health factors, with countries competing among themselves to serve people, businesses and society.

I acknowledge the concern of industry, businesses and consumers. The right hon. Member for Doncaster North (Edward Miliband) may be wrong on many things, but he is right that this is a challenging time. I make it clear that the Government are committed to working with industry, businesses and consumers, both now and over the long term. We know some things are challenging at the moment, and we will continue our extensive engagement with them, not least the large energy users, businesses, consumer groups and energy retailers, to consider what action may be necessary.

[Alan Brown]

The right hon. Member for Doncaster North (Edward Miliband) pointed out that Ofgem will be setting the cap in just a few days’ time, so there is no point in this endless consultation looking ahead. What will the Treasury do in the here and now to mitigate the energy cap rise?

[Lee Rowley]

I will come to that in a moment, just as I will come to the sedentary exhortations from the right hon. Member for Islington South and Finsbury (Emily Thornberry).

Energy-intensive Industries

Debate between Lee Rowley and Alan Brown

Wednesday 24th November 2021 Westminster Hall

[Lee Rowley]

I am grateful for the hon. Gentleman’s intervention. He anticipates some of my speech. To pick that up now, there is an incredible amount of work going on across the four nations of the United Kingdom. I am looking forward to coming to Northern Ireland as soon as I am able. We are currently trying to organise a visit, and I am keen to talk to him further about the example that he highlights.

[Alan Brown]

The Minister mentioned the chemical industry. Does he understand that INEOS at Grangemouth is part of the Scottish carbon capture cluster, and at the moment INEOS is one of the biggest emitters of carbon dioxide in Scotland? The Scottish CCS would obviously alleviate that problem. Will the Minister look into that, promote the Scottish carbon capture cluster and take it away from being reserved, as it is classed at the moment?

[Lee Rowley]

I am grateful for the hon. Gentleman’s intervention. I do acknowledge the challenge of the Grangemouth plant and the excellent work that goes on there. I have spoken to INEOS on several occasions since taking up my post. He and his colleagues have contributed to the carbon capture and storage debate actively and noisily over the past few weeks. He knows that an initial two sites have been announced and the intention is to have four by 2030. The Minister of State, Department for Business, Energy and Industrial Strategy, my right hon. Friend the Member for Chelsea and Fulham (Greg Hands) has articulated that we want to continue to work with the Scottish cluster to see what is possible there.

I want to touch on a number of points that individual Members made. My hon. Friend the Member for Stoke-on-Trent South rightly highlighted—along with many Members—the challenge of energy prices. We acknowledge and accept there are challenges with energy prices. My hon. Friend the Member for Scunthorpe highlighted price spikes noted in just the past few days. From conversations I have had, this debate and wider discussion within industry, we know that there are challenges. I thank colleagues, unions, industries and trade bodies for articulating that in recent months.

There is significant price volatility, which it is important to acknowledge. Prices have spiked and started to float down over recent weeks. I hope all Members would accept that in the past two years alone we have had very low prices and very high prices. We are at a particular place in the market at the moment.