Contracts for Difference (Electricity Supplier Obligations) (Amendment) (Coronavirus) Regulations 2020 — House of Lords, 2020-07-02
Topic: Energy
Martin Callanan (Conservative, Centre-right): I thank noble Lords for their valuable contributions to this debate. As so often, they have strayed far and wide on the general subject of renewable energy and government support, as well as addressing the individual points made in this particular instrument. Nevertheless, in an effort to be as helpful to the House as possible, I will address most, if not all, of the points that noble Lords have raised Coronavirus is the biggest challenge that the UK has faced in decades. During this turbulent time, the Prime Minister has said that we will take every step that we can to ensure businesses are protected and the economy remains strong. The Government have introduced an exceptional package of financial support for households and businesses to help them through these difficult times. This includes £330 billion-worth of loans and guarantees, tax deferrals, and a package of temporary welfare measures worth over £6.5 billion, including increases to universal credit, working tax credits and local housing allowances It was therefore important that the Government took action when the LCCC advised BEIS that, as a result of measures introduced to reduce the spread of coronavirus, suppliers would face a significant unexpected increase in their obligations for the second quarter of 2020. By providing the loan to the LCCC to cover the majority of these unanticipated and exceptional additional costs, and by deferring repayments by 12 months, the Government are ensuring that the impact on suppliers is minimised. It also provides them with greater confidence in the additional costs that they will face in quarter 2 of 2021, enabling them to price future tariffs with minimal cost risk. In addition to protecting suppliers at this time, it is essential that we maintain investor and generator confidence in the CfD scheme by ensuring that payments can be made to renewable generators. This will allow us to continue to deliver on our commitment to provide clean, affordable electricity for consumers I can tell the noble Baroness, Lady Jones, that the UK is a world leader in clean growth, with more than £94 billion having been invested in clean energy in the UK since 2010. In the first quarter of this year, the renewables share of total electricity generation was 47%, the highest quarterly value on record and exceeding the share of generation from gas. I am sure that she, as a Green, will welcome these figures. The success of the CfD scheme will be pivotal as we emerge from Covid-19 into a phase of renewed green recovery and economic growth on the path to net zero In response to the noble Lord, Lord Oates, I can say that, so far, the CfD scheme has awarded contracts for 16 gigawatts of new renewable energy capacity, including 13 gigawatts from offshore wind. It is also driving down the costs of renewable technologies: for example, offshore wind clearing prices have reduced by 65% since the first CfD allocation round, with projects now being delivered for as little as £39.65 per megawatt-hour of electricity generated. The Government have committed to providing up to £557 million for additional CfDs, giving the industry the certainty that it needs to invest in bringing forward new projects. On 2 March this year, the Government announced their intention to allow pot 1 technologies, including onshore wind and solar, to compete in the next CfD allocation round of 2021. This could provide even more jobs in the solar and onshore wind industries, in addition to the 12,100 already supported, and power millions more homes with clean energy by the end of the decade I will move on to some of the specific points raised in the debate. The noble Baroness, Lady Bowles, asked whether Ofgem would take the increased obligation into account when settling the price cap in August. Ofgem has the powers, timing and information necessary to ensure that the impacts of the changes to the supplier obligation provided for in this SI can be reflected in the price cap. The noble Lords, Lord Grantchester and Lord Oates, and the noble Baronesses, Lady Bowles and Lady Jones, raised the impact on bills. The increase in suppliers’ obligations will be very small; we estimate that it will correspond to approximately 0.1% of a typical domestic annual bill. The precise amount will vary, depending on how much of the loan is used by the LCCC and on the evolution of bills over time The noble Baroness, Lady Jones, also renewed our long-standing debate about where we should fund the various schemes from: should it be from general taxation or from levies on bills? She knows my position on this, and I am sure we will continue to have that debate going forward The noble Baroness, Lady Bowles, and my noble friend Lord Naseby asked about the responses to the consultation. These have not been published, but the organisations that responded are listed in the Government’s response, and individual responses can be viewed on request. I can tell the House that the measures were broadly welcomed by both electricity suppliers and trade associations The noble Lords, Lord Foulkes, Lord German, Lord Kirkhope and Lord Grantchester, asked what similar exceptional circumstances would require these regulations to be used again. Obviously, by the very nature of exceptional circumstances, it is difficult for me to be precise—nobody could have predicted coronavirus —but this intervention can be used again in future if the effects of Covid-19 last longer than anticipated, or in the event of a similar national emergency, whatever that may be, and this will be decided by the Secretary of State on a case-by-case basis. I hesitate to say it, but perhaps it is a case of the noble Lords having to trust the Government on this one. But I can make the general point that we are committed to upholding the self-financing nature of levies in the energy system, and we will not intervene to alleviate normal fluctuations and variances in the LCCC’s forecasts My noble friend Lady McIntosh asked how the loan is being financed. It is being financed in a loan agreement between the LCCC and the Secretary of State, and it has been drawn in accordance with government accounting rules and is non-budget. However, as I said at the start, that is not actually the subject of this instrument The noble Lords, Lord Kirkhope and Lord Grantchester, asked whether we could be confident that it would be repaid in full by quarter 2 of 2021. We are confident that it will be repaid in full. If suppliers do not pay their obligations, the LCCC has enforcement powers to ensure that they pay. If suppliers go out of business and do not have the collateral available to pay the obligation, the LCCC can mutualise losses across remaining suppliers to repay the loan in full to my department I want to just correct slightly the figures quoted by the noble Lord, Lord Grantchester. I think we said that the shortfall in the LCCC was up to £121 million, but the loan provided by BEIS to alleviate that is up to £100 million; the LCCC will be financing the rest of the amount itself. My noble friend Lord Naseby asked me about Northern Ireland, which is not currently covered by the CfD scheme. That was the choice it made; it is open for Northern Ireland to join the scheme in future if it wishes The noble Lord, Lord German, talked about Ofgem’s targeted charging review. Network charging is for Ofgem itself to determine as an independent regulator The noble Baroness, Lady Sheehan, asked about the Committee on Climate Change report. We will formally respond to that later this year, but the PM has set up a Cabinet committee focusing on climate change My noble friend Lord Holmes talked about Hinkley Point C, which is totally unrelated to this debate. Nevertheless, we remain committed to Hinkley Point C as the first new nuclear power station in a generation. We believe that we negotiated a competitive deal which ensures that we will pay for any construction overruns until the station starts generating I am running quickly out of time. The noble Lord, Lord Oates, talked about the potential impact on consumers. We said that it would probably be 0.1%, but of course it will depend on aggregate demand The noble Lord, Lord Grantchester, talked about the size of the loan; I have dealt with that. I have also dealt with the issue about exceptional circumstances In conclusion, the technical amendments to the supplier obligation mechanism in this SI, combined with the provision by government of a one-off loan, are intended to ease the burden on licensed electricity suppliers at a time of great financial stress due to Covid-19. I commend these draft regulations to the House and apologise if I have not dealt with any individual questions from noble Lords.