Draft Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024

Sarah Jones Excerpts

Wednesday 16th October 2024 General Committees

[The Minister for Industry (Sarah Jones)]

I beg to move,

That the Committee has considered the draft Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024.

As always, Sir Edward, it is a pleasure to serve under your chairship. This statutory instrument, which was laid before the House in draft on 30 July 2024, forms an important part of the Government’s commitment to accelerate the deployment of carbon capture, usage and storage. CCUS is critical to deliver clean energy and accelerate our net zero journey. As the Government recently announced, CCUS is vital as we enter into a new era of clean energy investment and jobs. By boosting this tried-and-tested technology, the UK has the potential to become a global leader in CCUS, delivering good jobs and economic growth for decades to come.

A critical element of the CCUS mix is the successful deployment of power CCUS—gas-powered electricity generators fitted with carbon capture technology. [Interruption.] It is a bit more complicated than I just tried to indicate, but that is the gist. Power CCUS will complement the roll-out of renewable energy, providing the secure, flexible, non-weather-dependent, low-carbon electricity that is critical for a reliable energy system and for achieving our mission of clean power by 2030.

The Government are committed to incentivising the deployment of power CCUS, and this statutory instrument will enable future payments to power CCUS plants under a business model called the dispatchable power agreement. The DPA is the contract framework to support power CCUS. It has been designed especially to incentivise investment in and the deployment of power CCUS in the UK.

Dispatchable power agreements are a type of contract for difference. Like contracts for difference, they use the electricity supplier obligation to fund support payments. The levy is calculated and managed by the CfD counter-party—the Low Carbon Contracts Company—and collected from electricity suppliers such as Octopus or British Gas, which can pass the costs on to their customers if they choose to do so.

In addition to the existing renewable CfD contract design, the DPA business model will provide an alternative payment based on a power CCUS generator’s availability. This availability payment is based on a generator’s availability in respect of electricity generation and carbon capture, and associated carbon dioxide transport and storage network costs. Under the DPA terms, payments will reduce proportionately to reflect any reduction in a generator’s CO₂ capture availability—in other words, its capture rate—or generation.

A payment is made whether a generator dispatches power or not. This ensures that a CCUS power plant will run in response to market signals, ahead of unabated gas plants, but will not surpass cheaper renewables. This arrangement will strengthen our security of supply and ensure that a source of reliable low-carbon energy is available, but only when the wind does not blow and the sun does not shine.

This statutory instrument enables only certain types of payments under the renewable CfD and DPA contracts to be funded by the supplier levy. Any future support offer to a project will be subject to rigorous negotiations with partners. Any decisions to award support will be subject to value for money and subsidy control tests to ensure the best value for money for consumers.

The statutory instrument amends the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014. The changes will allow the payments made under the DPA to be funded by the supplier levy by changing how the supplier levy rate calculation works in the regulations.

First, regulation 4 relates to the way that an electricity supplier’s daily contributions paid to the CfD counter-party are calculated. The statutory instrument amends regulation 4 to change the definition of “generation payments” so that the supplier obligation can be charged for payments relating to the activities of a dispatchable power plant fitted with CCUS technology—I hope everyone is still with me.

The statutory instrument includes amendments to take into account the electricity generation capacity made available by a generating station on a given day; a generating station’s achieved carbon dioxide capture rate or capture capacity on a given day; the CO₂ transport and storage capital costs incurred from transporting such captured carbon dioxide; and, if required, the associated carbon dioxide transport and storage network shortfalls, proportionate to a DPA-supported generating station, that arose on that day.

Secondly, regulation 7 of the 2014 regulations sets out how the CfD counterparty estimates the quarterly obligation payment that electricity suppliers will be required to provide to the counterparty. The statutory instrument amends regulation 7 to ensure the consideration of matters related to a DPA-supported generating station, including the carbon dioxide transport and storage network capital costs and, if required, revenue shortfalls, and the amount of carbon captured.

Together, the changes allow a CfD counterparty to estimate and raise funds, and ultimately to pay a DPA-supported CCUS-enabled power plant. The existing payment calculation, based on the amount of electricity generated by renewable CfD-supported generating stations, is retained and unaffected.

In summary, the statutory instrument represents a positive step forward in the delivery of the Government’s ambitious CCUS programme and 2030 clean power mission. It will lay the regulatory groundwork to encourage the deployment of power CCUS and begin to unlock the great economic and jobs opportunities. I commend the draft regulations to the House.

--- Later in debate ---

[Sarah Jones]

I have a couple of points to make. The first carbon capture and storage commitment was made in 2009, I think, but cancelled in 2010. It was then set up again at some point in the mid-2010s and cancelled again. The shadow Minister referred to the explanatory notes; the key word there is “intention”. The intention was announced, but whether the actual funding behind it was available is a different point. That is where we disagree, so I say very strongly that the Secretary of State certainly did not mislead the House. I am glad to clear that up.

On track 2, we are working at pace to get things done. The costs of carbon capture are significant, as the shadow Minister knows, and we need to make sure that we spend money in exactly the right way and are as careful as we can be with what is public money. We are working with both projects—indeed, we are working on expansion in the existing track 1 allocations and on track 2—and trying to get to a point at which the cost of carbon capture comes down and we have a market that becomes self-sustaining over time. But that will take some time.

I thank the shadow Minister for his comments and hon. Friends and other Members for being here. The statutory instrument before us will incentivise the deployment of power CCUS and make a significant contribution to our CCUS programme and 2030 clean power mission. I commend the draft regulations to the Committee.

[The Chair]

Sorry, I should have asked the Liberal Democrat spokesperson whether she wished to contribute.