Contracts for Difference (Sustainable Industry Rewards) Regulations 2024

Lord Lennie Excerpts

Monday 13th May 2024 Grand Committee

Finally, what is the earliest proposed date that the policy could be extended by new legislation, if that was a desired outcome for this Government or the next one? Will the need for new legislation be hampered by any lack of statutory review included in these regulations? For example, if there were a change of Government, would the fact that there is no statutory review impact on any incoming Government’s ability to bring forward new legislation? While I welcome this SI and its intentions, I am not certain that the powers that it delivers will alone be enough to deliver the desired policy outcomes that the Government seek to achieve.

[Lord Lennie (Lab)]

My Lords, before I begin my comments on sustainable industry rewards, I want to place on record my congratulations to Gateshead Football Club, which on Saturday beat Solihull Moors at Wembley, after extra time and penalties, in the FA Trophy. I am sure that the Minister would want to join me in sending congratulations to Rob Elliot and the whole of his team up on Tyneside, where we both live.

This instrument amends the current contracts for difference regulations and is specifically about providing extra funding in order to support supply chains in the offshore and floating offshore wind sectors. As things stand, contracts for difference focus only on the price of deployment, as the Minister said; developers are therefore incentivised to use the cheapest supply chain, which may not always be the cleanest. This instrument introduces SIRs—sustainable industry rewards—to try to rebalance the CfD scheme in addressing the supply chain challenges.

All offshore floating wind applicants for a CfD will have to obtain an SIR statement from the Secretary of State as a precondition of having an application considered. Once the SIR statement is obtained, applicants will get additional support through what the Minister called a “top-up” in the CfD for investing in the economic, social and environmental sustainability of their supply chains.

I turn to the two criteria that the Minister outlined: investment in shorter supply chains in the most disadvantaged places in the UK; and investment in more sustainable means of production, where manufacturers committed to a science-based targets initiative for the reduction of carbon emissions. The impact on consumers, as suggested by the Minister, will be small—approximately £2 per annum per bill—and the proposed time is limited to three years or three rounds of allocation.

Labour is very supportive of these changes, as I am sure the Minister is aware. We believe that they will make a material difference to the quality of the scheme supported by the Government and to the impact on the whole industry with regard to UK-sourced materials, the maintenance of jobs, the sustainability of the supply chain and end products. There are, however, a few questions that I would like to put to the Minister.

The Minister again suggested, as was suggested in the previous debate, that the budget will be up to £300 million. When will this be finalised? When will we know what the budget for the SIRs will be? Secondly, why is the scheme limited to just three rounds or three years? Would it not be a good idea to make it a permanent or indefinite scheme, with an option to consider axing it at the end of the three rounds, if appropriate, rather than requiring new legislation to come before the House for it to continue? Is it possible for a company to bid in the final round allocation for the CfD if it meets the eligibility criteria for an SIR but does not win funding because of the scheme’s budgetary restrictions? If the budget has been spent, what happens to that application?

Finally, I repeat Dr Alan Whitehead’s question in the other place when these regulations were discussed; I do not know whether he has had an answer yet but, if the Minister could provide an answer today, that would be good. Is it the case that the most disadvantaged in the allocation round may well be those who bid for an SIR but lost, and have then adjusted their bid accordingly? Could it be that the smartest strategy for companies is to try to lose an SIR while having indicated that, in principle, they can meet its terms? They can then bid more competitively than if they had an SIR in the first place. I look forward to the Minister’s response.