Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025

I would like to outline the Government’s carefully considered position on large-scale biomass generation, which provides around 5% of the UK’s annual electricity generation. Current support for these generators, under CfDs and the renewables obligation, ends in 2027. I assure the House that the Government maintain an unwavering commitment to our energy security, and we will do everything we can to secure a reliable energy system, for now and the future, even if it means making hard decisions.

My department considered a range of factors before deciding whether to provide further support for these generators. First, we took analysis from the National Energy System Operator and have concluded that without further support for large-scale biomass the country could face security of supply risks between 2027 and 2031. Relying on alternative options to come online in this timeframe, such as building new gas plants, would carry significant risks.

Secondly, we undertook comprehensive analysis of the costs of biomass against alternatives. Our central projections indicate that, on the right terms and if playing a much more limited role than today, biomass generation can be the lowest-cost option for bill payers during this period.

Lastly, we will introduce strengthened sustainability requirements from the outset of any new agreement. Importantly, this SI will also allow the sustainability measures to be enhanced throughout the duration of the contract, in line with the latest scientific evidence or global best practice. These factors represent a substantial shift from past arrangements on sustainability and value for money.

We have also listened to stakeholders and recognise the strength of concerns about the use of unabated biomass. It is not a long-term solution. When such decisions arise in future, the Government will not be left in similar circumstances. Therefore, we will undertake the essential work on strong and credible low-carbon alternatives to ensure that we have proper options in four years’ time.

I acknowledge that the amendment to the Motion tabled by the noble Baroness, Lady Bennett, focuses on concerns about Drax. Earlier this year, the Government confirmed that we had agreed heads of terms for a new CfD with Drax. This instrument would enable that CfD, should a final decision be taken to provide it, but it will equally enable similar agreements with any other biomass generators. It does not guarantee that a CfD will be offered to, or agreed with, any biomass generator, nor specify the contract terms, including time limits, for any individual company. These draft regulations are about ensuring we have the option available to respond to security-of-supply needs and deliver low-carbon electricity to the grid at the lowest cost to the consumer.

Let me be clear that the proposed agreement with Drax would limit generation to times when the system and in turn consumers most require it. When renewable power is abundant, Drax will not generate and consumers will benefit from cheaper wind and solar energy instead. This means that Drax will be supported to operate less than half as often as it currently does. As a result, the deal would halve the amount paid in subsidies compared with existing arrangements—equivalent to a saving of nearly £6 per household in annual bills. When compared with the alternative of procuring gas in the capacity market, it will save consumers £170 million in subsidies each year.

The agreement also introduces tough new measures on sustainability, and we will appoint an independent adviser to support the development of policy and practice in biomass sustainability and to ensure that these keep pace with the emerging science and international landscape. However, this debate is about the legislation and not about Drax.

I thank the Secondary Legislation Scrutiny Committee for its report on this instrument. As I mentioned, this instrument is not specific to Drax; instead, it will enable support to be provided to Drax, or to any other biomass generators, should a decision be taken to provide it. As I have already noted, if the Government decide to provide support to Drax, that will offer substantially better value for money for consumers.

On the Select Committee’s comments on sustainability, I can clarify that the KPMG reports are internal fact-finding documents commissioned by Drax on existing sustainability requirements. The reports do not belong to the Government or to Ofgem; they belong to Drax. It is for Drax to decide whether to release them. Furthermore, the Department for Energy Security and Net Zero is considering the report of the House of Commons Public Accounts Committee on biomass, including its recommendations on Drax’s sustainability assurances. Work is under way to strengthen the monitoring, reporting and verification arrangements, and the department issued a full response to the Public Accounts Committee report on 16 June.

In summary, these draft regulations represent an important step in ensuring our energy security and protecting bill payers now and into the future. They make the necessary amendments to enable support to be provided to biomass generators when existing schemes end in 2027. This will enable us to maintain the UK’s security of supply, deliver value for money for consumers and enhance sustainability requirements. I beg to move that these regulations be supported by noble Lords.

Amendment to the Motion