The Minister for Energy Security and Net Zero ()
I beg to move,
That the Committee has considered the draft Electricity Capacity
(Amendment) Regulations 2023.
It is a great pleasure to serve under your chairmanship, Mr
Robertson. The regulations were laid before the House on 12 June.
The draft instrument seeks to make technical changes to the
capacity market scheme, the Government’s main tool for ensuring
security of supply in Great Britain.
As set out in the “Powering Up Britain” paper, which was
announced in the House on 30 March, we have bold new commitments
to super-charge clean energy and accelerate renewable deployment.
In the shorter term, while the future geopolitical context is
still uncertain, we recognise that the world is likely to face
continued challenges this winter around security of supply,
considering Russia’s illegal invasion of Ukraine.
What does the draft instrument do? To ensure that the capacity
market continues to function effectively, we regularly make
adjustments to the implementing legislation, based on our
day-to-day experience of operating the scheme. In that context,
the draft instrument makes changes to three electricity capacity
regulations to deliver technical improvements that support the
functioning of the capacity market.
(Kilmarnock and Loudoun)
(SNP)
Will the Minister give way?
I will make a little more progress first. The capacity market is
now well established, with capacity auctions held every year
since its inception in 2014. The draft instrument aims to reduce
the administrative burden associated with the process, as we
believe that it is more appropriate instead to notify the market
when the intention is for an auction not to be held, rather than
having to announce each year that it will be. The change will not
impact the nature of participation in the scheme or announcements
regarding the targets for the capacity auction. It simply seeks
to change the way in which the announcement is made that confirms
whether auctions will be held.
We have also been made aware that the existing transfer route
that enables capacity agreements to be terminated in order to
participate in the contracts for difference scheme cannot be used
in practice, due to interactions between the definitions used in
the regulations and the delivery timeframes. The draft instrument
seeks to amend the definition of the contracts for difference
transfer notice to enable the transfer route to be used. The
draft instrument seeks to improve administrative arrangements by
extending the timescales associated with the settlement body’s
calculation of penalties and issuing of associated invoices for
non-delivery.
I thank the Minister for giving way. Paragraph 7.1 of the
explanatory memorandum states that nuclear can form part of the
capacity market. Will he explain how nuclear can bid in? We keep
getting told that the great thing about nuclear is that it
provides baseloads. How does that work in the capacity market
auction?
As happy as I would be to engage in a wider discussion about
nuclear this morning, I think it might be best if I wrote to the
hon. Gentleman to set out those specific concerns.
Turning to the Government consultation, the changes in the draft
instrument were consulted on at the start of the year and were
broadly supported by respondents. We also consulted on a wider
range of changes, including to the capacity market rules that set
out the detailed provisions for the delivery of the scheme.
As was signalled in the Government response to the consultation,
we intend to follow a two-phased approach to reforms to the
capacity market. First, we will proceed with technical changes to
strengthen the security of supply and ensure better value for
money. In the second phase, we intend to undertake further
analysis and development before taking a final decision on
implementation.
The capacity market continues to support low-carbon technologies,
with growing participation of demand-side response and storage
technologies. In line with the broad support for greater
alignment of the capacity market with net zero, the Government
remain committed to introducing an emissions limit reduction for
new build and refurbishing plants into the capacity market and
exploring options to address barriers to low-carbon technologies
to help drive the transition to a net zero power system by 2035,
subject to security of supply. Further analysis is required to
understand the impact that the proposals will have on energy
security.
Through developments to the capacity market and the review of the
electricity market arrangements programme, we are confident that
the right market signals will be in place to ensure that we meet
our 2035 decarbonisation target, subject to security of supply.
As has been highlighted, we have also made a number of technical
amendments to the capacity market rules, which were laid before
the House on 12 July. Rule changes will be introduced to reduce
administrative burdens for prospective capacity providers and
clarify how auctions are operated for the benefit of
participants.
In conclusion, the draft instrument introduces a number of
technical provisions necessary to enable the continued efficient
operation of the capacity market, so that it can continue to
deliver on its objectives. I commend the regulations to the
Committee.
9.30am
(Bristol East) (Lab)
It is a pleasure to see you in the Chair, Mr Robertson. I say at
the outset that we will not oppose the Government in bringing
forward the amendments, but I am going to speak for about half an
hour about why we will not—[Laughter.]No, I will not.
We accept that the changes should be made and they are of very
minor significance to the scheme overall. To recap, the capacity
market is currently the main system in place for securing a
stable and reliable electricity system. Generally, the system
works well in providing secure provision. It provides commitments
by generators to supply guaranteed power into the system,
allowing those balancing the system to know in advance what
capacity they can rely on for each period. A system of fines is
in place for generators that have committed themselves to supply
but then do not deliver when required.
It is worth noting that suppliers have to agree to deliver power
only if required. They still get paid for the capacity agreement
if they are not required to deliver power. I can see why that
might be the case—we do not want to disincentivise them—but there
is an element of free money in the system, and that needs
revisiting at some stage.
I will not repeat the Minister’s explanation of the three
amendments that are being introduced, other than to comment that
the second amendment, to regulation 34, simply gives effect to
something that was for practical purposes always the case, as the
low carbon contracts company was never in a position to know
whether the capacity market holding generator would be successful
in a CfD bid.
As I said, we do not have a problem with any of the amendments,
so we will not seek to divide the Committee.
9.32am
It is a pleasure to serve under your chairmanship, Mr Robertson.
I can say more if the Committee really wants, but I will raise
just a couple of things, and we will not oppose the draft
regulations.
On how the capacity market operates overall, I think we will get
to a place pretty soon where we do not rely on diesel generators,
for example. Demand-side response was mentioned and that is
certainly a way forward. We have to do more work on that.
I also bring to the Minister’s attention that I think we can get
to a place where it is much easier for projects to bid in for the
CfD auction and also to combine storage with renewable
generation, so the storage aspect can bid in to the capacity
market. It is about a way to drive that combined project status
and get away from fossil fuel. I ask the Minister to think about
that.
9.33am
I thank colleagues for their contributions. As has been said,
these are technical and uncontroversial amendments. I will write
to the hon. Member for Kilmarnock and Loudoun about his earlier
questions. The capacity market is technology-neutral, and all
capacity can bid to win agreements to make capacity available
when needed. As I also set out, we are going through two phases
of changes to improve the capacity market, exactly in line with
what he described, in that we want to encourage demand-side
response.
To go back to what the hon. Member for Bristol East said about
funding, the point of the auction system is to get the capacity
we need to be there when we need it, at the lowest possible cost.
If we want to have back-up and we cannot guarantee when we will
call on it, we need to use that kind of transparent system, which
increasingly encourages—as we are seeking to do by changing the
system—green and flexible technologies, rather than diesel
generators and so on, at the lowest possible cost. That is the
aim of the amendments we are making, and I am glad to see
agreement across the Committee today.
Question put and agreed to.
