Electricity Supplier Payments (Amendment) Regulations 2021

Lord Grantchester Excerpts

Tuesday 23rd February 2021 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for his explanation of the regulations before the House tonight. They are essentially non-controversial, and on this side of the House, we do not take issue with them. The contracts for difference regime has been moderately successful in bringing forward renewable energy developments at least cost to the consumer and in reforming the previous energy market. As the Minister explained, the CfD counterparty is the responsible body managing it. It collects levies from energy suppliers for its budgetary costs. The capacity market has a similar body, the settlement body, that collects levies to pay generators the agreed capacity market payment systems’ costs. Both bodies work together, and the two are connected, as in both cases capacity market interventions are dependent on overall anticipated energy demand levels.

In preparing for this instrument, I note that I am the only person still in post after the passing of the initial Energy Act 2013 and subsequent instruments on supplier payments, the last one being in March 2018. The energy market has changed substantially over that period, yet the CfD regime has provided long-term price stability for low-carbon generators and has incentivised investments to come forward at generally the least cost to consumers. The lights have been able to stay on and switched throughout that period. I congratulate the Government on that.

In 2018, we agreed with the Government that the best stability, certainty and consistency to suppliers’ levies would be maintained by setting budgets three years ahead. While appreciating the present circumstances of the pandemic, the recent fall in energy demand and the extension of the CfD and capacity market to greater development from more energy sources and generators, the amendment today in favour of a one-year costs regime is understandable—albeit that the situation will be constantly monitored. Can the Minister commit that a return to three-yearly terms will be restored as soon as possible? That would be important to hear. The noble Lord, Lord Bourne, a previous Energy Minister, posed several further questions around a return to three-yearly budgets.

Back in 2018, the first three-yearly term was set up after the workings of the regime settled down into familiar regularity from the start of the initial regime under the Energy Act. It is interesting to reflect that the same concerns expressed then are being repeated today and it would be interesting to hear the Minister’s interpretations on the outcome of the experiences against the expectations at that time. In 2018, the main concerns were operational costs and how the levy rate was increasing to cover them, given that they all pass through to consumers.

At that time, there was enormous cost inflation—some 700%—to cover the following three years from 2018 until this statutory instrument. Can the Minister give the outline of how costs indeed rose over that period now that, once again, over a potential one-year period, a further 18% cost rise is envisaged? How have the relative costs of operations between the various cost factors changed over this time? The number of participants from inception to 2018 increased from 46 to 447. What is the number of participants now and how is it expected to increase, given a further large increase in offshore wind deployment as well as the opening of the CfD regime to onshore wind?

Operational costs should have reduced as a percentage of the whole scheme to 0.6% in 2020, against the expected forecast in the fall of gross energy demand of some 2%. Can the Minister update the House on the actual figures on how the outcome of a further 18% increase in operational costs and levies is being transferred through? That seems to be a huge rise. At this precarious time for the economy, the rise will be reflected in increased energy bills, albeit that the Explanatory Memorandum forecasts that this will translate only to a 40p per annum increase on the average household bill.

The considerations of the Minister’s department over the longer period, beyond the pandemic experiences, have been expressed throughout this debate. It would be useful to understand some of those considerations from him. The noble Baroness, Lady McIntosh, as well as the noble Lord, Lord Oates, raised the point that the review of the Energy Act is now long overdue.

With the increased pressure to decarbonise the economy faster in the much-awaited green recovery expected soon, and with the extension to further technologies, policy changes and investment still required, does the Minister expect these sorts of increases in levies to continue, or will his department begin thinking of alternative ways to fund CfD levies into the future? It is important to keep paying attention to the requirement that development must be at the least cost to the consumer. It is fundamental to hear from the Minister and his department further long-term investment cost schedules now that the energy White Paper has been published.