Electricity Supplier Payments (Amendment) Regulations 2021 — House of Lords, 2021-02-23
Topic: Energy
Martin Callanan (Conservative, Centre-right): My Lords, this statutory instrument amends regulations concerning the levies that fund the operational costs budgets for the Low Carbon Contracts Company and the Electricity Settlements Company. LCCC administers the contracts for difference scheme on behalf of the Government, and ESC administers the capacity market scheme. Those schemes are designed to incentivise the significant investment required in our electricity infrastructure, keep costs affordable for consumers and help to meet our net-zero target, while keeping our energy supply secure Contracts for difference, or CfDs, provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. The capacity market ensures security of electricity supply by providing to all forms of capacity the right incentives to be on the system and to deliver capacity when needed by increasing generation or by turning down their electricity demand in return for guaranteed payments. In both schemes, participants bid for support via a competitive auction, which ensures that costs to consumers are minimised The next CfD auction—the fourth to date—planned to open in late 2021, will be available to both established technologies, such as solar PV and onshore wind, as well as less-established technologies, such as floating offshore wind. As the Prime Minister announced in October, we seek to secure up to 12 gigawatts of renewable electricity capacity in this round—double what was secured in the last round in 2019. It will thus allow a broad range of renewable technologies to come forward, while delivering the best possible deal for bill payers The capacity market is tried and tested, and is the most cost-effective way of ensuring that we have the electricity capacity we need now and in the future. It facilitates investment in existing capacity to remain in the market and drives innovation in financing new capacity to be built. The capacity auctions held to date have secured the capacity we need to meet the forecast peak demand out to 2023-24. The next auctions, scheduled for March 2021, will secure most of the capacity we need out to 2024-25 LCCC and ESC play a critical role in delivering the CfD and capacity market schemes. LCCC enters into and manages CfDs with low-carbon generators, collecting the supplier obligation levy from electricity suppliers, which it uses to make payments to generators under the CfD. ESC is responsible for all financial transactions relating to the capacity market, including collecting the supplier charge from electricity suppliers, which it uses to make capacity payments to capacity providers, but also managing supplier credit cover and capacity providers’ auction credit cover. This statutory instrument sets a revised operational cost levy for the LCCC and a revised settlement costs levy for the ESC, which the companies collect from suppliers to fund their day-to-day operations in administering the CfD and capacity market schemes It is important that LCCC and ESC are sufficiently funded to perform their roles effectively, given their critical role in administering these schemes. However, the Government are clear that both companies must deliver value for money and, with that in mind, we have closely scrutinised their operational costs budgets to ensure that they reflect the operational requirements and objectives for the companies. Savings have been identified in a number of areas. For example, £184,000 has been saved by reducing the number of desks that LCCC will have at its new office, reflecting changing work patterns LCCC and ESC are themselves very mindful of the need to deliver value for money, as their guiding principle is to maintain investor confidence in the CfD and capacity market schemes while minimising costs to consumers. They have taken a number of actions to date to reduce costs, such as bringing expertise in-house rather than relying on more expensive outside consultants. Because of actions such as those, CfD operational costs are falling both per contract and by overall generation capacity, despite the growing size of the CfD portfolio. It is a similar narrative for ESC. The company currently manages 54.4 gigawatts of capacity agreements with 513 capacity providers under the capacity market. This is expected to increase to 55.16 gigawatts of capacity and 546 capacity providers in 2021-22. Despite this increase, operational costs are expected to be marginally lower in 2021-22 compared to 2020-21 The operational costs budgets for both companies were subject to consultation, which gave stakeholders the opportunity to scrutinise and test the key assumptions in the budgets and, importantly, to ensure that they represent value for money. Subsequently, the budgets remain unchanged save for one amendment, which I will briefly summarise. The consultation was published before the outcome of the 2020 spending review was known. The review announced a pause in public sector pay rises for the majority of the workforce. Taking into account this outcome of the review and the wider economic landscape, LCCC’s remuneration committee decided to agree a pay pause for its staff for 2021-22. Consequently, an allowance contained within LCCC’s operational costs budget for pay rises that was included in the consultation has now been removed In conclusion, taking into account the removal of that allowance, the proposed operational costs budget for LCCC in 2021-22 is £20.736 million and £7.472 million for ESC. The amendments revise the levies currently in place to enable the companies to collect enough revenue to fund these budgets. Any levy collected that is not spent will be returned to suppliers at the end of the financial year in accordance with the regulations. Subject to the will of Parliament, the settlement cost levy for ESC is due to come into force on the day after the day on which these regulations are made and the operational costs levy for LCCC by 1 April 2021. Finally, I assure noble Lords that the Government will continue to evaluate and monitor the costs of both companies, ensuring that costs to consumers are appropriately minimised. I therefore commend these draft regulations to the House.