Electricity Capacity (Amendment) Regulations 2023

Lord Naseby Excerpts

Wednesday 5th July 2023 Grand Committee

In conclusion, this draft instrument introduces a number of technical provisions which are necessary to enable the continued efficient operation of the capacity market, so that it can continue to deliver on its objectives. I commend these regulations to the Committee.

[Lord Naseby (Con)]

My Lords, I will concentrate on the Explanatory Memorandum in relation to the capacity market. As I understand it, last winter something did not go quite right in the sense that, at a certain point we had to use coal, which had not been planned for. Perhaps the Minister will correct me if it had been planned for, but my understanding is that it was not planned for. As we look at the coming winter, we have just experienced one of the hottest Junes ever and it is not inconceivable that we could have the coldest winter ever. As I understand it, there is definitely no coal available for this coming winter. Is that right? If the coal is not there, where is the extra capacity to come from?

I also notice that, for some reason, His Majesty’s Government have postponed bringing on small-scale nuclear. A number of us have kept a close watch on Rolls-Royce in particular, which I understand has been ready to get moving on small-scale nuclear, which would be part of a capacity situation. I am deeply concerned—and I am looking for a confident answer from my noble friend—that if we hit a really cold winter this year, we have the capacity for something to come on stream. There would be nothing worse for the United Kingdom as a whole if we found that we needed black- outs and fuel cuts.

[Baroness Walmsley (LD)]

My Lords, I inform the Committee that I have a close family member who works for Ofgem. He is responsible for energy security and has been making plans for next winter, but I have not discussed this SI with him.

The capacity market, brought in by a Liberal Democrat Secretary of State, has been a great success. This statutory instrument aims to continue that success by improving the processes and reducing the administrative burden. We are all in favour of that, especially the flexibility that makes it easier to transfer from capacity market schemes to contracts for difference, where appropriate. However, I have a few questions for the Minister about the scheme in general.

First, how well are the Government succeeding in minimising the use of fossil fuels in the capacity market? What percentage is expected to be clean energy, and within what timescale? I was glad to hear the Minister say in his introduction that there will be an emissions limit on those applying.

Secondly, what is the Government’s aim for enabling demand reduction, and what percentage of bids do they want to see for the demand-side reductions? This is just as important as generation if we are to decarbonise and reduce the potentially enormous grid capacity increase needed to reach net zero. How many of the successful companies in offshore wind round 4 auctions have reached financial close for their projects—that is, they have agreed their financing requirements to deliver the scheme with financial institutions? As I understand it, only one successful bidder has yet managed to reach financial close on their project, so the whole programme of offshore wind coming on stream is coming to a halt.

Moray West offshore wind farm, owned by Ocean Winds and minority shareholder Ignitis Group, has secured £2 billion of non-recourse project finance. Initially, bids were famously low, but with inflation now across the supply chain, perhaps the numbers do not add up for most of the schemes. How are the Government going to solve this? Given the financial situation, can the Minister say whether it is still wise to have most capacity market schemes for only 12-month projects?

I look forward to the Minister’s reply—particularly to the questions about coal.