Contracts for Difference (Definition of Eligible Generator) (Amendment) Regulations 2026

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Contracts for Difference (Definition of Eligible Generator) (Amendment) Regulations 2026.

My Lords, these regulations were laid before the House on 14 May 2026. This instrument seeks to make changes to the eligibility criteria for the contracts for difference scheme, which is the Government’s main tool for incentivising low-carbon capacity in the electricity system.

Investing in the future of nuclear energy generation in the UK is central to the Government’s mission of making Britain a clean energy superpower, delivering a secure supply of low-carbon energy. By producing baseload power in the UK, nuclear energy can work alongside renewable power sources, supporting price stability for consumers and minimising reliance on fossil fuels. It also reduces reliance on imports from international actors, which is crucial during geopolitical volatility; that has been underlined further following Russia’s invasion of Ukraine and the war in Iran, which has, I hope, ended.

However, over the next decade, the UK’s existing operational nuclear fleet—including four advanced gas-cooled reactors and Sizewell B, the UK’s only pressurised water reactor—is set to begin decommissioning. This equates to around 15% of the current electricity supply on the grid being lost by 2035.

While the Government are continuing to deliver our broader nuclear programme through Sizewell C and the Rolls-Royce small modular reactor programme, we should also ensure that there are appropriate mechanisms to support continued nuclear generation at existing stations where such financial incentivisation is needed and offers value for money. Without support, the operators of nuclear power plants may decide not to undertake the investment needed to extend their operational lifetimes.

Before I turn to the provisions in greater detail, I shall first outline some of the background of the contract for difference scheme. The contract for difference scheme is His Majesty’s Government’s main mechanism for supporting low-carbon electricity generation in Great Britain. Under a CfD, the generator receives a fixed price for electricity over the contract term. The generator sells the electricity it produces on the wholesale market and receives difference payments from the Low Carbon Contracts Company when the wholesale price is below the strike price. If wholesale prices exceed the strike price, the generator must make difference payments to the LCCC. Where the LCCC makes difference payments to the generator, they are funded by a statutory levy on all licensed electricity suppliers, so they are passed on to households and businesses through their electricity bills. The CfD funding mechanism is fundamental to achieving the government’s goal of a fully decarbonised power supply, while achieving value for money for electricity customers. It protects consumers when electricity prices are high and provides income stabilisation for generators across the term of the contract. For example, if Hinkley Point C had been online during the energy crisis in 2022-23, consumers would have saved around £5 billion.

Before I turn to the provisions in greater detail, I shall first outline some of the background of the contract for difference scheme. The contract for difference scheme is His Majesty’s Government’s main mechanism for supporting low-carbon electricity generation in Great Britain. Under a CfD, the generator receives a fixed price for electricity over the contract term. The generator sells the electricity it produces on the wholesale market and receives difference payments from the Low Carbon Contracts Company when the wholesale price is below the strike price. If wholesale prices exceed the strike price, the generator must make difference payments to the LCCC. Where the LCCC makes difference payments to the generator, they are funded by a statutory levy on all licensed electricity suppliers, so they are passed on to households and businesses through their electricity bills. The CfD funding mechanism is fundamental to achieving the government’s goal of a fully decarbonised power supply, while achieving value for money for electricity customers. It protects consumers when electricity prices are high and provides income stabilisation for generators across the term of the contract. For example, if Hinkley Point C had been online during the energy crisis in 2022-23, consumers would have saved around £5 billion.

I now turn to the details of this instrument. This draft instrument makes changes to the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 to give the Government the option to utilise the CfD funding mechanism to support the continuation of electricity generation at existing nuclear power stations. Nuclear energy is already eligible for support through CfDs for new build capacity, with a CfD already having been utilised to support the construction of Hinkley Point C. However, nuclear power stations intending to undergo refurbishment to extend their lifetimes are currently ineligible. Expanding eligibility criteria in this way will ensure that existing nuclear capacity can continue to generate low-carbon electricity during extended operating lifetimes through support under a CfD, where it is considered safe and economical to do so.

The Government’s assessment is that nuclear lifetime extensions can deliver value for money for consumers, with modelling showing that they can reduce overall electricity system costs compared to other low-carbon pathways to net zero. The instrument does not award support, nor does it guarantee a CfD for any specific project. Instead, its purpose is to enable the Government to consider CfD support for nuclear lifetime extension projects.

This draft instrument expands the contracts for difference eligibility criteria so that existing nuclear plants can be eligible for support for lifetime extensions. This reform will be critical if we are to achieve net zero by 2050. This amendment will support security of supply by providing access to financial support if required to support continued electricity generation at existing nuclear infrastructure. This means that low-carbon baseload electricity can be maintained on the grid without the higher costs and longer lead times associated with new build capacity. I beg to move.

My Lords, I thank the Minister for introducing this instrument. On the face of it, it is a modest instrument. It alters just 12 words in the 2014 regulations to allow contracts for difference to support the continued operation of existing nuclear power stations. However, those 12 words carry some significant implications. They open the door to long-term revenue support for extending the life of existing nuclear plants, potentially committing consumers to costs over many years. I recognise that the Government have the legal authority to make that change, and that these are enabling powers rather than a mandatory instrument. I also recognise that any contracts would remain subject to value for money assessments, safety requirements and subsidy control.

None the less, both the process and the substance of these measures warrant a couple of questions, and I apologise, because I will be taking slightly longer than I normally would. I begin with the process. I ask the Minister why this is being done here through a statutory instrument and not, say, through the energy independence Bill or another piece of primary legislation. This is a meaningful shift in the type of subsidy being offered, and primary legislation might have offered a greater opportunity to scrutinise it.

I am slightly surprised that the Secondary Legislation Scrutiny Committee did not include a paragraph on this instrument, as it enables decisions which potentially have long-term consequences for consumer bills, the impact of which the Government themselves describe as uncertain. One element of that uncertainty is that the new CfDs have not been calculated. Turning to the substance, we on these Benches recognise that nuclear power has a role within a balanced and low-carbon energy mix. We do not oppose in principle extending the life of existing stations where they are safe, reliable and represent genuine value for money, but support must be conditional and it must be justified. The context is important. Nuclear, as the Minister has said, provides around 14% to 15% of the UK’s electricity, down from 25% in the late 1990s. We also recognise that, without intervention, existing fleet capacity is expected to retire by the 2030s, with Sizewell B following shortly thereafter. That will be a substantial reduction in firm low-carbon capacity before new nuclear projects fully come online. There is a real, legitimate concern, and we welcome the fact that the Government are looking at this.

As the Minister stated in his opening remarks, the instrument amends the CfD legislative framework to enable—and it is an enabling measure—a CfD to be offered to an existing nuclear generating station to support the continuation of generation. Prior to the instrument, existing nuclear generation stations were eligible for CfD support only where they were intending to increase the capacity of the station by 5 megawatts or more. Given that the amendment purely affects eligibility and does not—as I understand, from the Minister’s opening remarks—mandate the awarding of a CfD, but allows existing nuclear generators to be considered, I hope that the following comments, which reinforce those made by the noble Earl, Lord Russell, will be taken into consideration.

My Lords, it is a pleasure to follow the noble Earl, Lord Russell, on this occasion because he made some powerful points. Of the five key points I intended to make, he has alluded to four of them, so they are worth focusing on briefly prior to the Minister’s response.

The subject of this SI is, in its own right, fairly limited, but it has an impact on a much wider debate on CfDs. My view is that this will need to be revisited at some length in the energy Bill that will come before the House, probably at the end of this year or the beginning next year because there are some critical issues that we will need to consider, many of which the noble Earl raised.

I think that the specific nature of this SI will garner support from all sides of the Committee. It is vital that we continue to support firm power generation from nuclear. It is the view on this side of the Committee that firm power is critical and nuclear will provide an important part of that firm power balance, as will gas. We need to offset the intermittency and grid instability caused by our increasing reliance on renewables, and nuclear will play a significant contribution in that context.

More broadly, the Government must support new, competitively priced nuclear power, which they intend to do, to expand capacity further by implementing the recommendations of the Nuclear Regulatory Review 2025 in full and easing environmental regulations that are slowing down new nuclear projects, a subject to which we will definitely return to when it comes to the energy Bill.

As the Minister stated in his opening remarks, the instrument amends the CfD legislative framework to enable—and it is an enabling measure—a CfD to be offered to an existing nuclear generating station to support the continuation of generation. Prior to the instrument, existing nuclear generation stations were eligible for CfD support only where they were intending to increase the capacity of the station by 5 megawatts or more. Given that the amendment purely affects eligibility and does not—as I understand, from the Minister’s opening remarks—mandate the awarding of a CfD, but allows existing nuclear generators to be considered, I hope that the following comments, which reinforce those made by the noble Earl, Lord Russell, will be taken into consideration.

First, some critics are concerned the measure will subsidise unnecessary refurbishments. There is a concern that operators have historically funded life extension activity without government intervention. Guaranteeing these revenues could divert limited budget resources away from new-build renewables and low-carbon technologies. The certainty that the measure provides could have a direct impact on a number of projects on new-build renewables and low-carbon technologies, which would otherwise be deemed by the marketplaces as willing to be supported, that would find no place in the energy balance.

Secondly, there is administrative complexity and instability, which is a criticism that, as I read over the weekend, is quite widely felt. The constant tweaking of core energy definitions and budget structures adds complex layers to the CfD framework. This can deter long-term private investment by indicating policy instability. The concept of security and predictability of the policy framework will be something we need to revisit when it comes to the energy Bill.