Oral Answers to Questions

Debate between Michael Fallon and John Robertson

Thursday 10th April 2014 Commons Chamber

[John Robertson (Glasgow North West) (Lab)]

T7. The Secretary of State said earlier that investment in businesses would go ahead next year, but today we have heard about the closure of coal mines. Will the Minister explain why, according to figures from Bloomberg New Energy, investment in clean energy in the United Kingdom is due to hit a five-year low this year? What is happening to that investment?

[Michael Fallon]

There has been a wave of investment in energy, not least the commitment last week by Siemens to invest £300 million in two plants on the Humber that will create 1,000 new jobs. We have seen a series of projects come forward for assistance under our renewables regime, and we will be running a capacity market later this year to secure more energy investment in four years’ time.

Government Levies on Energy Bills

Debate between Michael Fallon and John Robertson

Monday 3rd March 2014 Commons Chamber

[The Minister of State, Department of Energy and Climate Change (Michael Fallon)]

We have had a good debate, and I thank the Energy and Climate Change Committee and the National Audit Office for their recent reports on the levy control framework. I have written today to the Chair of the Committee, my hon. Friend the Member for South Suffolk (Mr Yeo), in response to some of the specific questions raised in the Committee’s letter sent last Tuesday. I hope that all members of the Committee have received a copy of that response.

Before turning to some of the major questions raised about the estimates, not least by the hon. Member for Rutherglen and Hamilton West (Tom Greatrex), let me address some of the specific points made in the debate. My hon. Friend the Chair of the Committee asked about the levy control framework and whether the list of technologies was exhaustive. We have set out all the technologies that we consider should be supported at the moment up to 2018-19, although of course we cannot bind our successor—if there is one—and I do not rule out extending that support. He will see that we have put a support price for wave technology, tidal power and so on. He also asked for more details of the capacity mechanism. We are consulting on the exact operation of the capacity market and the auction, and he will receive more details about that shortly.

My hon. Friend asked about the position of carbon capture and storage in the levy control framework. The capital costs of carbon capture and storage—the £1 billion that the Government are committing to the two projects for which we have signed initial feed contracts—are not in the levy control framework because they are, of course, taxpayer funded. However, the operating costs will be covered through the framework. Finally, he asked me to speculate on the future movement of gas prices. There, I am afraid I cannot help him with any particular update or assumptions, and neither do I think that I would best respond to the debate by doing so.

The hon. Member for Glasgow North West (John Robertson) made important points about energy efficiency, and I do not think there is too much difference between the two sides of the House about the importance of those measures. He went on to attack the performance—indeed, the existence—of the big six. I did not hear him admit, however, that the big six were a creation of the previous Government, who seem to have started with 14 retail companies and ended up with the big six. He would have been on stronger ground if he had acknowledged the failure of the previous Government to do anything about increased concentration in the sector.

My hon. Friend the Member for Southport (John Pugh) made important points about the returns enjoyed by energy companies and the ECO, but his most important point was about the fuel poverty target and how, when we get the new target rolling, we should monitor it properly, account for its performance, and be sure to explain to those—including all the voluntary organisations that worked with us on the construction of a better focused target—how we are meeting it.

The hon. Member for Southampton, Test (Dr Whitehead) made a number of points about the estimates, which I will come to when I reply to the meat of the debate. He drew the House’s attention to the important inter-relationship between the carbon floor price and the levy control framework. He is right to remind us that any changes made to the carbon floor price will, of course, have implications for the levy control framework.

My hon. Friend the Member for Truro and Falmouth (Sarah Newton) referred to the strike prices for some of the newer technologies. I am glad that we were able to confirm those strike prices, which have been such a boost to renewable projects in her area. She went on to make some important points about our continuing work to improve the position of off-grid households. I certainly take her point that we perhaps ought to include some representation from Public Health England in our work. I will certainly reflect on that further, before I convene the next meeting of the ministerial round table in May.

The hon. Member for Angus (Mr Weir), in a lengthy speech, paid much attention to the extent of renewables support without confirming that more than a third of renewable support goes to Scotland, which has just 9% of the population. He would have been on stronger ground if he had referred to the extent of support that comes from outside Scotland; not just from England, but from taxpayers in Northern Ireland and in Wales, too. More than one third of all our support for renewables ends up in Scotland, which has just 9% of the population.

My hon. Friend the Member for Brigg and Goole (Andrew Percy) raised again the position of Eggborough. I do not think, because he champions the cause of Eggborough so well, that he fully appreciates that some 16 projects came forward under our intermediate regime. They all involve enormous taxpayer support, so it would not have been possible for taxpayers to support all 16 projects. We are taking nine projects forward on the basis—I have to correct him slightly—that all are ready to sign this month: all have finance in place this month. I am delighted to confirm that two are biomass conversions—Drax, right next door to him, and Lynemouth in Northumberland—so we are not neglecting the cause of biomass conversion. It is not right to say that a project not taken forward under the FID enabling process has, in the phrase I think was used the hon. Member for Rutherglen and Hamilton West, slipped off the list. We are not able to give taxpayer support to every single renewable project that came forward for the intermediate regime. Those not afforded under the regime will still, of course, have the option of applying under the existing renewables obligation or the forthcoming contract for difference.

The hon. Member for Nottingham South (Lilian Greenwood) raised one important point in particular on the Clifton scheme in her constituency, which, she suggested to the House—I have no reason to doubt her—is a victim of the changes taking place in the ECO arrangements. She alleged that she had not had a reply from the Secretary of State. If that is true, we will certainly investigate and make sure that that point is chased up. I will, of course, write to her on the particular issue facing her scheme in Clifton and see exactly what the situation is. It is not true to say, by the way, that all six of the big six cheered when the announcements were made on the extra two years for the ECO. Some of those who had already committed to the work were not at all pleased that their competitors were being given further time, but I will look into the specific points mentioned.

On the specifics of the debate, as the NAO has acknowledged, the levy control framework is a valuable tool in supporting control of the costs to consumers as we pursue our energy policy objectives. The framework helps to drive investment in our energy sector. It helps to create jobs and growth, and, of course, takes us to a leaner, more secure energy supply. However, I recognise that proper oversight of the framework is important. Those who pay the bills, our constituents, need to know that Parliament is looking out for their interests in scrutinising this expenditure.

Let us look first at why we need the levy control framework. We need to secure an energy future at a cost that we can afford, and that is a huge task. One fifth of our power stations will go off line in the next six or so years. By 2030, if nothing else changes, we shall be importing 70% of our gas. Eight of the nine existing nuclear stations are scheduled to have closed by the time Hinkley Point C opens. However, in the same framework, energy demand may have doubled by 2050. The generation mix will have to tip significantly towards low carbon if we are to meet our legally binding climate change targets.

We are working to reform our energy sector to unlock investment now, and to create a framework for the delivery of a secure energy future. Nearly £40 billion had already been invested in the electricity sector between the beginning of 2010 and the middle of last year. More than 16 GW of new capacity has been brought on to the system, including five new gas plants, and a sixth is under construction. Two huge offshore wind farms opened last year, and we are seeing a very healthy pipeline in key technologies, including four more large offshore wind projects which are under construction. We remain No.1 in the world for offshore wind, and it is the work of the Government and, indeed, the work of the House that has enabled that to happen.

The Energy Bill received Royal Assent last December. That significant milestone laid the groundwork for the delivery of electricity market reform and sent a strong message to investors and industry about the cross-party agreement on the fundamentals of energy policy and the framework that we are establishing. The levy control framework is a key part of that. It provides certainty for investors, helps to control the costs of energy, and helps to ensure that the Government are held to account.

Last Monday I co-chaired the Offshore Wind Industry Council, which consists of many chief executives from different companies that are investing in the United Kingdom. They told me that the stability provided by the levy control framework had been an important factor in their decision to continue to invest in the UK. That is one of the reasons why the figures from Bloomberg show that the average annual investment in renewables has more than doubled in the current Parliament, from £3 billion to nearly £7 billion.

The provision of low-cost, low-carbon energy, improved energy security and the tackling of fuel poverty are all outcomes that the levy control framework helps to deliver, but it is obviously important for the impact on bills to be scrutinised closely and carefully as we pursue those goals. My Department is acutely aware of the pressure that consumers are facing, which is why we took action to reduce bills by an average of £50. The Opposition have a different approach, and we may disagree on the merits of that approach, but I think that Members on both sides of the House can agree that the cost of energy matters deeply to our constituents. It is therefore important for us to have an informed debate about it.

Let me say something about the work that we are doing to increase transparency. In March last year my Department published the prices and bills report, which showed the impact that our policies have had on bills in a clear and transparent way. The annual energy statement sets out our priorities, and an assessment of our progress in meeting our ambitious targets. In addition, Ofgem reports regularly on the costs and impact of each of our existing schemes.

During this evening’s debate, we have heard much about the coverage of the levy control framework. I do not want the purpose of the framework to be misinterpreted. It is a formal part of the public expenditure control framework. We have controls for departmental expenditure and annual managed expenditure budgets, and we also need controls for levies. However, the public expenditure control framework does just that: it exists to control public expenditure. Policies such as the energy company obligation are regulations, not public expenditure, so not all policies are considered public expenditure. The ECO is regulatory in nature and so lies outside the existing departmental expenditure limits and annually managed expenditure budget frameworks, but the fact that some consumer-funded policies sit outside the levy control framework does not diminish the oversight they should, and do, receive. Parliament has debated and passed primary and secondary legislation for all our major policies. Impact assessments that support those debates set out the full economic rationale for the action we propose to take.

We also take steps to monitor the costs of these policies and put that information into the public domain. On the ECO, for example, we published an assessment of the costs of compliance. Our bills and prices report takes account of the costs and benefits of all significant consumer-funded policy, including transmission costs, the ECO and smart meters.

However, we are not able to include three of our levies—the renewables obligation, the feed-in tariffs and the warm home discount—in our annual accounts. To those who have asked why not, the answer is that the Comptroller and Auditor General rightly requires Departments to meet international financial reporting standards. For the renewables obligation, feed-in tariffs and the warm home discount, revenue does not flow through the Exchequer. Instead, industry collects the money directly from consumers and industry controls how those funds are used to meet the regulatory requirements. It follows therefore that the associated expenditure also cannot be included in my Department’s accounts and if it was, the head of the National Audit Office would be forced to quality it. The Government do not gain additional funds through these levies to spend at their discretion.

That is a fairly simplistic explanation of a technical accounting issue and I am sure hon. Members appreciate that the time available tonight does not permit me to go through the detail of international accountancy regulations.

I have asked my officials to work with Treasury officials and the NAO to try to overcome this issue to maintain a clear line of sight, but as the Chief Secretary to the Treasury set out in his letter to the Liaison Committee in November, we have not been able to find a way through this for the existing levy schemes. However, I can assure the House that revenue and expenditure for contracts for difference and for the capacity mechanism— a point raised earlier—will flow through public sector bodies, and they will therefore be included in my Department’s account and will form part of the estimate.

[John Robertson]

Does the Minister have any idea how much money we are talking about that is not being shown?

[Michael Fallon]

I think at this stage of the debate the hon. Gentleman will probably allow me to write to him about that as I do not have that figure at my fingertips. However, those are the three principal levies that are not included in the main estimates. As I have said, the revenue and expenditure for the CfDs and the capacity mechanism will be included in our account and will form part of the estimate.

So what we now need to do, working closely with Parliament, is find a satisfactory alternative for the existing schemes. The Committee’s report has provided a very useful contribution to this debate, and I am going to ask my officials to consider carefully the points that have been raised and I will also reflect the Committee’s points to the Chief Secretary to the Treasury when I next discuss this with him.

I also recognise the accountancy and constitutional challenges this issue presents. Notwithstanding these technical challenges, I would like to set out now my intentions for the future reporting of consumer-funded policies, which lie at the heart of the Select Committee’s concern. First, I can confirm that the Government will publish information on consumer-funded policies that covers actual expenditure and forecast expenditure, and that captures the progress we are making towards our policy ambitions. I agree that that information would benefit from a proportionate independent audit and from being formally presented to the House. It is my intention to publish this information annually. The Chief Secretary wrote to the Chairs of the relevant Committees on 5 November, suggesting that this information should be published no later than Ofgem’s report on the renewables obligation. That report is due in March next year, but we need to do better than that, which is why my officials will work with their counterparts in Her Majesty’s Treasury and the National Audit Office to bring that date forward.

I hope that has been helpful. As I have said, we have made some real progress in delivering the investment that this country needs in its new energy infrastructure. The levy control framework is an important part of that process, giving confidence and transparency to investors. But Parliament has an important role in scrutinising the Government of the day and their actions on behalf of our constituents, and I welcome that scrutiny. I hope that the improvements I have suggested to the House tonight will help Parliament in performing its role in doing exactly that.

Question deferred until tomorrow at Seven o’clock (Standing Order No. 54(4)).

Oral Answers to Questions

Debate between Michael Fallon and John Robertson

Thursday 16th January 2014 Commons Chamber

[Michael Fallon]

I am very happy to welcome the Plymouth city deal, particularly the importance of energy in it. As I have said, we have confirmed the strike prices for all types of renewable energy, including wave and tidal. I think that there are some exciting prospects for the industry in Cornwall.

[John Robertson (Glasgow North West) (Lab)]

13. What steps he is taking to increase levels of competition in the wholesale energy market.

Energy Intensive Industries

Debate between Michael Fallon and John Robertson

Wednesday 4th December 2013 Westminster Hall

[Michael Fallon]

I agree with that, and I will come on to climate change agreements later. The Government cannot control the volatility of global fossil fuel prices, but we can help industry to exploit energy efficiency potential, which will reduce the impact of rising prices. Some of our incentives are financial ones. The climate change levy is a tax on business energy use, and the EU emissions trading system is a cap-and-trade mechanism based on the emissions of energy intensive industries. The scheme is forecast to save the equivalent of 3,100 megatonnes of CO₂ by 2020. To complement the EU ETS, we have a domestic scheme, the carbon reduction commitment energy efficiency scheme, which targets large non-energy intensive organisations. That is predicted to save the equivalent of 4,800 gigawatt-hours per year, which is greater than the annual energy use of all households in Manchester.

In addition to those financial incentives, we are working to incentivise industry through several other mechanisms. Climate change agreements, which the hon. Member for Stoke-on-Trent North (Joan Walley) referred to, are aimed specifically at energy intensive industries. They provide a discount on the climate change levy of 90% for electricity and 65% for gas, in exchange for commitments to achieve energy efficiency. She is right to remind us that they are a good example of an area in which Government and industry can work together to agree achievable objectives. More than 50 energy intensive sectors have negotiated agreements under the latest phase of the scheme, which are expected to result in an 11% energy efficiency improvement across participating sectors by 2020. Looking ahead, we have recently consulted on the new energy savings opportunity scheme, which will help larger businesses to identify energy efficiency measures that will result in average bill savings of £50,000 to £60,000 per year. Subject to legislation, the first audits under the scheme will be undertaken by December 2015.

The second leg of our reforms is the recognition of the competitiveness problems faced by some industries as a result of their energy costs, which lies at the heart of today’s debate. Rising electricity prices are a real concern for many businesses, which see them as a barrier to growth. The commitments to tackling climate change that the House has voted through have contributed to increases in those bills. That is why we have set aside up to £400 million to offset some of the costs of energy and climate change policies for the most energy intensive industries.

As we move to a low-carbon economy, it is vital to ensure that the more energy intensive industries are not placed at a competitive disadvantage in Europe or across the world, and they are not forced to consider relocating to other countries. Not only would that have a negative impact on our economy, but it might result in our exporting emissions to countries that are not strongly committed to cutting carbon emissions. Many energy intensive businesses are located in areas that have been hit hard by the economic downturn, so we have to ensure that we give them the best support available.

I have spoken about the energy contingency scheme. We continue to engage closely with the Commission on the carbon floor price, to obtain the necessary state clearance. Both packages are aimed specifically at the electro-intensive industries. It is important to highlight—

[John Robertson (in the Chair)]

Order. We must move on to the next debate.

Energy Policy (Winter Preparations)

Debate between Michael Fallon and John Robertson

Wednesday 9th October 2013 Westminster Hall

[The Minister of State, Department for Business, Innovation and Skills (Michael Fallon)]

I must congratulate the hon. Member for Glasgow North West (John Robertson) on securing this important debate on energy policy and preparing for the winter.

We all recognise that we need to be reassured, and that we need our constituents to be reassured, as the chilly winter months approach. It is obviously difficult to predict what kind of winter this will be, but I assure the hon. Gentleman and others attending that the Government are confident in our energy capacity, that policies are in place to protect the most vulnerable and that we are promoting long-term energy-efficiency solutions for the winters to come. I think the hon. Gentleman said that prices had risen by £300 under this Government, but I remind him that they have risen more slowly in the first three years of this Government than they did in the last five years of the previous Labour Government.

Let me turn to the hon. Gentleman’s first point, on margin and capacity. He will have studied the assessments made by the National Grid and Ofgem. Those assessments say that the margin would tighten if nothing were done, but things are, of course, being done. Things are being done in the short term better to balance the system. Ofgem is consulting on a number of measures to ensure that there is better balance on the demand and the supply side. As the hon. Gentleman himself said, the Government plan to run the first capacity market—the reserve supply. We are ready to run the auction next year, so that supply can be available in 2018. He asked when further details of the capacity market would be made available; that will be in the next few weeks, before the legislation leaves the House of Lords.

On the outlook, the National Grid assessment is that the demand for energy this winter will be broadly similar to last year’s. We are not immune to the impacts of prolonged severe weather. A combination of a diverse range of import capacity and a mixture of storage types has performed well over the past few years, and we expect it to do so again this year. We expect electricity demand this winter to remain flat at current levels, and we have significant spare gas capacity, as the Holford and Aldbrough storage sites increase their delivery networks. Last winter, gas demand was around 290 million cubic metres a day. Our gas supply infrastructure can deliver more than twice that amount with high levels of secure flow from Norway and the continent.

[John Robertson]

It is good to hear what the Minister says, but the fact is that all we have heard of late is people saying that we will have black-outs. Are those companies playing politics because they do not like the Government’s policy? I agree with what the Minister has said, so why are we suddenly in black-out territory?

[Michael Fallon]

We are hearing about black-outs because of the totally irresponsible pledge of the Labour party to freeze prices artificially. The pledge, if it is credible, would have the immediate effect of discouraging precisely the investment in energy infrastructure that the hon. Gentleman and I want. That is why we read about black-outs, but it is a matter for his party to clarify. It needs to reassure us on how there could be a freeze without bringing to a halt the investment that there has been so far.

Energy Bill

Debate between Michael Fallon and John Robertson

Monday 3rd June 2013 Commons Chamber

[Michael Fallon]

The Bill is before the House today and tomorrow, and has some way to go before it completes its passage through Parliament. Let me assure the hon. Gentleman that he will have an indication of the draft strike prices before the Bill completes its passage. If he will allow me, I want to say more in a moment about how we can improve transparency.

Amendments 8 and 9, tabled by the right hon. Member for Don Valley (Caroline Flint) and the hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Liverpool, Wavertree (Luciana Berger), focus on the important issue of transparency of investment contracts. The Bill requires all investment contracts to be laid before Parliament alongside a statement of their importance to Government objectives. For Hinkley Point C, we have also committed to publishing summaries of reports from our external advisers. There is a difficult balance to be struck between publishing as much as possible about a contract, while also allowing some commercially sensitive information to be withheld from publication. It is crucial that developers provide the information we need to show that a contract represents value for money, but it would be inappropriate to publish information that damages a developer’s commercial interests.

This point is relevant to amendments 163, 165, 166, 171 and 172, which were tabled by my hon. Friend the Member for Daventry (Chris Heaton-Harris) and relate to information acquired or produced under the Bill. It would not be appropriate to release commercially confidential information provided under the provisions, but let me reassure the House and the hon. Member for Angus (Mr Weir) that we will publish details on the CFDs and capacity agreements signed each year through annual updates to the EMR delivery plan, and details of how much of the budget has been expended. Secondary legislation, such as that under the capacity market provisions, will set out details of the information flows, transparency and handling of sensitive information. That includes information acquired under clause 27. Ofgem will continue to publish information gathered from generators about the biomass they have used.

[John Robertson (Glasgow North West) (Lab)]

On the rules governing what is considered sensitive, who will set the criteria: the companies themselves or the Government?

--- Later in debate ---

[Michael Fallon]

I must make some progress, if the hon. Lady will forgive me.

The third improvement I am suggesting through amendment 52 is to place a duty on the Government to publish a report each year setting out how they have exercised their powers and carried out their functions under part 2 of the Bill. I hope that that provides particular comfort to my hon. Friend the Member for Daventry, who, through amendments 176 and 177, is looking to bring forward the five-year review in clause 50 and require speedy progress, but the review that he suggests would take more than one month, while enough time must elapse if we are to collect sufficient data to make an informed judgment. On his amendment 178, however, I can assure him that we will look closely at the impact on different consumers when carrying out the five-year review, as we already do with our impact assessments on electricity market reform. Finally, Government amendment 66, which follows a helpful suggestion in Committee—again from the hon. Member for Brent North—will bring the emissions performance standard within the scope of the review.

I turn now to the counterparty arrangements for CFDs and investment contracts. I have tabled several amendments on this topic—again, many of them responding to very reasonable points made in Committee. Amendments 53 to 55 and 74 to 76 set out the circumstances in which we might need more than one counterparty, while amendments 56 and 77 extend the notice period before a body can withdraw its consent to act as counterparty. Amendments 57, 62, 63, 78, 82 and 83 make minor changes to avoid any confusion over the use of the terms “obligations” and “liabilities”, while amendments 58, 65, 85 and 86 create a statutory guarantee that the counterparty will exercise its functions to ensure CFD and investment contract liabilities are met and place a duty on the Government to provide the powers to do this.

[John Robertson]

Will the Minister give way?

[Michael Fallon]

I will just finish this section.

Amendments 60, 64, 80 and 84 make it clear that supplier debts can be pursued through the courts and that payments to generators will be pro rata in the unlikely scenario that the counterparty does not have sufficient funds immediately available, while amendments 59 and 79 ensure that suppliers only face costs that are related to the regime, including operational costs of the counterparty. Amendments 61, 68 and 81 are minor corrections and clarifications to ensure that the settlement of payments can work effectively, and amendments 88, 89 and 90 introduce a duty to transfer investment contracts to the CFD counterparty, thus ensuring they transfer quickly once the CFD regime is in place next year—that reflects points made by the hon. Member for Southampton, Test (Dr Whitehead) in Committee—while amendments 73 and 87 are minor changes to align the drafting of schedule 2 with part 2.

I am sorry to have kept the hon. Member for Glasgow North West (John Robertson) waiting.

[John Robertson]

I thank the Minister for being generous in taking interventions.

Who will scrutinise the counterparties’ liabilities? We saw how everyone thought that the banks were safe and had plenty of money and that things were good, but it did not turn out that way, and even the Treasury’s own predictions over the last three years have not been met properly. What guarantee can the Minister give, therefore, that the counterparties will have sufficient finances to meet their liabilities?

[Michael Fallon]

I am happy to give the hon. Gentleman further written assurances on that. He might be on rather weak ground in discussing the regulatory framework put in place for the banks, given that we have had to take immediate and fairly radical steps to improve it, but if I can give him any further reassurances on his main point, I certainly will.

The third main issue covered by this group of amendments is the funding and governance of the capacity market. I shall deal with the remaining Government amendments and new clauses, which relate to that market and are, I hope, relatively uncontroversial, before coming to the more important amendments tabled by the hon. Member for Southampton, Test. New clauses 8 to 10 and amendments 105 to 107 will enable us to set out detail of the capacity market in a combination of two places: in regulations, changes to which would be made and overseen by the Secretary of State; and in rules, which once made by the Secretary of State could be overseen by Ofgem.

The intention is to give Ofgem the responsibility for consulting on and implementing future changes to those elements in capacity market rules, in line with evolutions in the existing market structure. These changes enable that. However, Ministers would retain accountability for key aspects of the scheme, such as capacity volumes and cost control. Amendments 101 to 104 make clear our intentions for the capacity market settlement body, which has overall responsibility for managing payment flows—in short, that capacity payments will have to flow through the settlement body; that it can discharge certain technical obligations and functions through an agent; and that it can recover costs only in connection with the obligations placed on it as the settlement body.

Amendments 45 to 50, tabled by the hon. Member for Southampton, Test, would allow a second, alternative capacity mechanism, known as a strategic reserve, to be included in the Bill. As I understand it, a strategic reserve would hold a small amount of capacity outside the market, to be deployed only in limited circumstances. The Government have always acknowledged the potential benefits of a reserve as a short-term measure. If it is necessary to respond to a short-term security of supply challenge, Ofgem already has powers it could use. For instance, it could strengthen the options that the national grid has, to ensure sufficient capacity is in place before the capacity market is implemented. However, I would suggest to the hon. Gentleman that a capacity market is a better medium-term solution to address the current investment challenge and ensure continued security of supply, for two reasons.

First, if used as a longer-term intervention, a strategic reserve could undermine the market signals for capacity providers by reducing revenue certainty. That is because of the uncertainty about when the reserve might be deployed and the negative impact on the revenue of other capacity providers. There is a danger that investors may decide that future Governments will be tempted to use the reserve too frequently—a reasonable concern in a world of rising prices—which would increase the risk of not getting a sufficient return on their investment. The resultant increase in financing costs would flow through to the consumer, with the long-term risk that less capacity is built and the Government are forced to create a larger and larger reserve, at which point the competitive market disappears. By contrast, a capacity market is open to all providers of reliable capacity, with the only exceptions intended to be plant receiving support under CFDs. This provides the right, market-based signals for both existing and new capacity. Secondly, offering both capacity mechanisms in the Bill—the capacity market and the strategic reserve—would create regulatory uncertainty about the Government’s preferred approach and, again, act as a disincentive to investment.

Let me turn, fourthly, to nuclear power. The Government have made it clear that nuclear generation has an important part to play in decarbonising electricity generation. It is a source of reliable generation capacity and it is a vital part of our energy mix. CFDs are intended to provide support to all forms of low carbon generation; hence I could not support amendment 23, as it would exclude nuclear generation. I also have concerns about amendment 24, which seeks to limit the amount paid under a CFD to nuclear generation to no more than what can be paid to renewables generation. It would not make sense artificially to link the amount of support for one technology with support for another. Support should be set based on robust evidence and advice that demonstrates, for instance, that the level of support makes a project economically viable—and thus will attract investment—and that it delivers our policy objectives while minimising costs for consumers. More widely, renewables support rates will vary over time, as has happened with the renewables obligation, and a mechanism to link support levels in this way, as proposed in amendment 24, could be cumbersome and could restrict our discretion to set support levels that might otherwise provide value for money.