Electricity Capacity (Amendment) (No. 2) Regulations 2015

Lord Grantchester Excerpts

Tuesday 24th November 2015 Grand Committee

[Baroness Byford (Con)]

I should like to make two observations. The Minister has said that the vast majority accept the proposals, so which respondents did not? I have no difficulty with the proposed change from five working days to 15, but there has been a suggestion in the public domain that electricity supplies could be fairly fragile in the coming months, particularly if we have very cold weather. How has that been built into the system? I am glad that feasibility studies were done and were accepted, but what is the comfortable margin of security of supply in the months ahead? Those are my questions: who did not support these proposals, and what do the Government consider a comfortable margin of security supply?

[Lord Grantchester (Lab)]

I thank the Minister for his introduction of the regulations. The amendment they contain is minor and uncontroversial, extending to carbon capture and storage the possibility that it could participate in the capacity market. The Government now seem to recognise the potential of CCS, as evidenced by the amendments recently agreed in the Energy Bill, now passed to the other place. They had previously not considered CCS as sufficiently relevant operationally to the capacity market, and this amendment allows that CCS projects which will in the first instance have received grant support or funding arrangements for early stage developments can now qualify for participation in the capacity markets. The essential feature is that this early stage support should not materially put the provider at an unfair advantage compared with others without that support. The greater matter is that any provider that can shift demand away from periods of greater stress without detriment should be encouraged.

I am content that this proposal was overwhelmingly supported by respondents to the consultation. Will the Minister clarify the Government’s intention a little further? While it is true that there is not as yet any deployed carbon capture and storage in this country, is it intended that CCS will eventually pre-qualify for capacity auctions in its operational phase?

It has been understood from the Government’s scoping document earlier this year that the operation of CCS plant operational support would take place through a form of modified contracts for difference rather than through capacity auctions. I would be grateful if the Minister could signal the Government’s intentions as early and comprehensively as he can to provide certainty about the direction of travel to developers. This amendment, and future intentions, could begin to allow the development of an industry that could be very valuable for the long-term use of fossil fuels. The noble Lord, Lord Teverson, has congratulated the Government on their plans to phase out coal generation, and we certainly support this direction of travel.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lords, Lord Teverson and Lord Grantchester, for their kind words regarding the speech given by my right honourable friend the Secretary of State, Amber Rudd, last week in relation to the withdrawal of coal-fired power stations, with the aim of doing that by 2025. It was most kind and gracious of them to say what they did.

I turn first to the questions raised by the noble Lord, Lord Teverson. Yes, we are looking at interconnectors, I think to Norway and Ireland, in addition to the existing interconnectors as part of the capacity issues that we are addressing, and we are looking at the possibility of them elsewhere, including Iceland. That is a large part of what we are doing.

The Statement on coal was of course subject to a consultation, as the noble Lord will know, which opens in spring next year, I think, subject again to ensuring that we have the necessary capacity in relation to gas-fired stations coming on stream. Still, a clear market signal was given in the speech. Demand reduction is a significant part of what we are doing, and of course there will be a demand response auction as well in the new year.

With regard to the system margin causing concern, there is a trigger for this. At the moment we are very confident of the 5.1% margin with regard to the announcement of the most recent one. To the noble Lord’s suggestion that a 20% margin is more than we need, I suppose the answer must be yes—that must follow. However, obviously one wants to stray on the side of safety so we are seeking to address this. Although the margin is comfortable, we have to look ahead. The next few years look comfortable but we need to bring on the new nuclear and look at other forms, such as small modular reactors and so on. That, too, is important.

I turn to the questions raised by my noble friend Lady Byford. First, on the consultation, I think I am right in saying—the team behind me will correct me if I am wrong—that out of the 22 responses, 21 were supportive.