Contracts for Difference (Allocation) (Excluded Sites) Amendment Regulations 2016 — House of Lords, 2016-11-22
Topic: Energy
Lucy Neville-Rolfe (Conservative, Centre-right): My Lords, the regulations amend a statutory instrument made under the Energy Act 2013. The instrument makes some straightforward amendments to the current regulations to strengthen the non-delivery disincentive mechanism. This mechanism is an important part of the CfD scheme. It encourages developers to stick to the delivery milestones in their contracts and sets a penalty for developers who apply for, and win, a CfD but then either fail to sign the contract or terminate it early. In the first CfD round, two small solar projects failed to sign their contracts. Both had bid at a price that was considered by the industry as not economically viable at the time. It is right that we tighten up the regulations to ensure that such speculative projects are not able to enter future rounds. Two others did not meet their milestone requirements in the view of the LCCC—the Low Carbon Contracts Company, not, of course, Leicestershire County Cricket Club Before I go into more detail about how the mechanism currently works and how we propose to change it, I will touch briefly on the latest developments around the CfD scheme. On 9 November we published further details on the second contracts for difference allocation round. This has put an end to the uncertainty that the industry was facing and is a key plank in our commitment to move to a low-carbon energy mix, help tackle climate change and meet our carbon budget requirements. In the announcement, we gave investors, developers and the supporting supply chain the certainty necessary to drive forward investment. Some £290 million of the annual support for new renewables projects has been allocated to the upcoming round The noble Lord, Lord Grantchester, will be pleased, in view of what he said in our previous debate, that we have also reaffirmed that £730 million per year will be available to support renewables through the CfD during this Parliament. In our announcement we also set out key parts of the allocation process, including strike prices and supply chain guidance. The supply chain guidance is an important part of the package. It is a compulsory requirement for projects of 300 megawatts and over, and means that projects must provide the Secretary of State with a "good degree of confidence" that the project will make a material contribution to the development of the supply chain. That is all part of the Government’s commitment to growing and strengthening the industrial base We have already seen a number of positive developments, particularly in the offshore wind industry, where investment is supporting long-term supply chain development, which is also of lasting value to the UK economy and helps to build a competitive supply chain that is ready to export. This has included investment in the ports of Great Yarmouth and Lowestoft to support Greater Gabbard and East Anglia ONE, as well as the development of the Siemens blade factory in Hull This draft instrument will help to strengthen the next CfD allocation round by making sure that developers who win a contract face an appropriate penalty if they do not deliver it. The non-delivery disincentive sets out a penalty for developers who apply for and win a CfD but then either fail to sign the contract, or terminate it early. This may prevent other potentially viable projects receiving a CfD and tie up budget that could otherwise have been used to deliver our objectives. It is right and proper that this behaviour should be discouraged and developers should pay a price. The non-delivery disincentive exclusion already prevents developers from applying to any subsequent round in respect of the same site for 13 months after a CfD is awarded. The intention is to prevent companies who fail to deliver on contracts from entering a future round with essentially the same project. This amendment will extend this exclusion to include the first of any rounds occurring in the following 11 months, so up to a maximum of 24 months. It allows us the flexibility to run rounds less frequently but maintain the same protection against developers gaming the system.