Draft Electricity Capacity (Amendment) Regulations 2017

Oliver Heald Excerpts

Thursday 19th October 2017 General Committees

[Richard Harrington]

I could not possibly comment, but we are all Yorkshiremen, including you, Mr Davies—not that that would affect your chairing of the Committee.

From memory, the actual cost of the capacity for our constituents is about £2 a year on their bill. I am not making light of it, but for what we get from it as a country and for what suppliers get for their customers, I think it is good value for money. There have been power cuts in other countries—even in quite developed places such as California and Australia—where they did not have such a sophisticated system, so there is a risk. When I said it was for hon. Members on both sides to ensure capacity, I did not mean just members of this Committee; the whole of Parliament in 2013 realised that this was a good thing to do.

I will go into more detail, and if the hon. Gentleman then feels that I have not answered his questions I will be able to do so—it will be nearer lunch time, and he may feel that I have covered most of it.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Does the Minister agree that it is one of the Government’s duties to ensure security for citizens? Energy security is a vital part of that, and if it costs £2, it is probably £2 well spent.

[Richard Harrington]

I agree, as I think most other people would, because generally the system works. To use the layman’s language I always use—being a Yorkshireman, I try to simplify things in a way so that I understand them; I cannot claim to have the technical expertise of the shadow Minister on this—the regulations propose a tweaking of something that works, rather than radical and complete change. I will make some progress, and if hon. Members would like to ask questions or intervene, they should obviously do so, subject to your largesse, Mr Davies.

The five changes in the draft instrument are essentially technical. They will improve fairness, ensure the competitiveness of auctions and provide important clarifications to scheme operations. The Department held a fairly lengthy public consultation on the changes and the majority of respondents agreed with them—more than 75%. I agree that it is important that people know how much the market costs, but if we did not have a capacity market and every individual had the choice of paying £2 or x pounds to make sure they do not have blackout periods, I am sure that most people would probably pay it anyway. It is not like that, but thinking about it in terms of what it means to customers and our constituents is right, as the hon. Member for Huddersfield mentioned. All the technical stuff we are here to discuss does not matter if in the end it boils down to continuity of supply at that price. He was absolutely right to mention that, as was my right hon. and learned Friend the Member for North East Hertfordshire.

We have the capacity market to ensure—as is the Government’s job—that we always have sufficient electricity capacity in Britain for the winter periods and for periods of exceptional demand. We need to give generators the confidence that they will receive the revenues they need to maintain, upgrade and refurbish their existing plants, and to finance and build new plants to come on stream as and when existing assets retire. They have to think ahead, and knowing that they are going to get these funds is part of their planning.

The capacity market also ensures that those who are able to shift demand for electricity away from periods of greater scarcity, without detriment to themselves and the wider economy, are incentivised to do so. It does so by offering capacity providers who are successful in these competitive auctions—there are two types; some bid for one year ahead and some for four years ahead—a steady, predictable revenue stream on which they can base their future investments. In return for those capacity payments, providers must meet their obligations to deliver electricity at times of system stress, or not deliver it if it is not needed, or face penalties.