HANSARD
Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024
- Considered in Grand Committee
- 3:45 pm
- Moved by
- That the Grand Committee do consider the Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024.Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
- My Lords, these draft regulations were laid before the House on 30 July 2024. This instrument forms an important part of the Government’s commitment to accelerate the deployment of carbon capture, usage and storage—CCUS. We believe this to be critical to deliver clean energy and accelerate our net-zero journey. As the Government recently announced, CCUS is vital as we enter 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. Power CCUS will complement the rollout of renewable energy, providing secure, flexible, non-weather-dependent low-carbon electricity, critical for a reliable energy system and achieving our mission of clean power by 2030.The Government are committed to incentivising the deployment of power CCUS and this instrument will enable future payments to power CCUS plants under the business model known as the dispatchable power agreement. This agreement—the DPA—is the contractual framework to support power CCUS. It has been designed specifically to incentivise the investment and deployment of power CCUS in the UK. The DPA is a type of contract for difference and, like a contract for difference, uses the electricity supplier obligation to fund support payments. This levy is calculated and managed by the CfD counterparty—the Low Carbon Contracts Company—and collected from electricity suppliers, who are able to pass the costs on to their customers if they choose to do so.In addition to the existing renewable contract for difference 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 of electricity generation and carbon capture, and associated carbon dioxide transport and storage network costs. Under the DPA terms, payments will reduce proportionally to reflect any reduction in a generator’s capture rate or generation.The 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 security of supply, ensuring that a source of reliable low-carbon energy is available when the wind does not blow and the sun does not shine.Let me be clear: this proposed 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 negotiation with partners. Any decision to award support will be subject to value-for-money and subsidy control tests to ensure best value for money for consumers.
- My Lords, His Majesty’s Official Opposition welcome the Government’s Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024. These regulations will enable licensed electricity suppliers to make payments to natural gas power plants fitted with carbon capture, usage and storage—also known as CCUS—technology. In 2023, we introduced funding for CCUS with the plan to make up to £20 billion available to support the early development of CCUS, so we welcome this step as an essential part of reaching the net-zero target, and we are pleased to see that the current Government are continuing our work in this area.On these Benches, we both aspire to and understand the need to reach net zero, and there is indeed consensus from all on the 2050 target. The use of carbon capture technology will play an important role in achieving that goal, and this amendment introduces incentives for suppliers to produce low-carbon electricity—an objective with which we agree.However, we seek clarification from the Minister. When in government, we committed to deploying CCUS technology in four industrial clusters by 2030. Can he please inform the Committee as to whether his Government will also commit to working towards and reaching that same target?
- My Lords, I welcome the noble Earl’s welcome for the statutory instrument. He is right that a lot of the original work was undertaken by the previous Government. I think I said in my opening speech that most of the consultations took place under the auspices of the previous Government, so there is clearly consensus about the key role of CCUS.I had expected greater attendance and that we might have debated the principles of CCUS. For me, it is an essential part of the transition. We will need gas-powered electricity generators for years to come. They give the flexibility we need in relation to renewables and having nuclear as a baseload. If we can have it abated then that would clearly decarbonise our energy structure, but it can also play a key role in the industrial use of energy.On the noble Earl’s question, I say gently to him that, in a sense, the previous Government’s £20 billion seemed rather a theoretical figure. We have had to work hard with our colleagues across government to get to the almost £22 billion that we have announced. Clearly, that money is to be spent on building the foundations for the industry. Basically, the funding we have announced is being invested in our first projects. These include the underpinning CO2 transport and storage networks and three CO2 capture projects. Other projects will join later, but these are subject to agreement across government. Of course, the noble Earl will know that we will have the Budget and spending review decisions very shortly. I will have to wait till those decisions are made before I respond on where we will go next.I thank the noble Earl for his general support for this instrument. I believe we need as much political consensus as possible in relation to net zero, and the general support for CCUS is very welcome.
- Motion agreed.