PARLIAMENTARY DEBATE
Draft Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024 - 16 October 2024 (Commons/General Committees)

I beg to move,

That the Committee has considered the draft Contracts for Difference (Electricity Supplier Obligations) (Amendment) Regulations 2024.

As always, Sir Edward, it is a pleasure to serve under your chairship. This statutory instrument, which was laid before the House in draft on 30 July 2024, forms an important part of the Government’s commitment to accelerate the deployment of carbon capture, usage and storage. CCUS is critical to deliver clean energy and accelerate our net zero journey. As the Government recently announced, CCUS is vital as we enter into 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. [Interruption.] It is a bit more complicated than I just tried to indicate, but that is the gist. Power CCUS will complement the roll-out of renewable energy, providing the secure, flexible, non-weather-dependent, low-carbon electricity that is critical for a reliable energy system and for achieving our mission of clean power by 2030.

The Government are committed to incentivising the deployment of power CCUS, and this statutory instrument will enable future payments to power CCUS plants under a business model called the dispatchable power agreement. The DPA is the contract framework to support power CCUS. It has been designed especially to incentivise investment in and the deployment of power CCUS in the UK.

Dispatchable power agreements are a type of contract for difference. Like contracts for difference, they use the electricity supplier obligation to fund support payments. The levy is calculated and managed by the CfD counter-party—the Low Carbon Contracts Company—and collected from electricity suppliers such as Octopus or British Gas, which can pass the costs on to their customers if they choose to do so.

In addition to the existing renewable CfD 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 in respect of electricity generation and carbon capture, and associated carbon dioxide transport and storage network costs. Under the DPA terms, payments will reduce proportionately to reflect any reduction in a generator’s CO₂ capture availability—in other words, its capture rate—or generation.

A 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 our security of supply and ensure that a source of reliable low-carbon energy is available, but only when the wind does not blow and the sun does not shine.

This statutory 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 negotiations with partners. Any decisions to award support will be subject to value for money and subsidy control tests to ensure the best value for money for consumers.

The statutory instrument amends the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014. The changes will allow the payments made under the DPA to be funded by the supplier levy by changing how the supplier levy rate calculation works in the regulations.

First, regulation 4 relates to the way that an electricity supplier’s daily contributions paid to the CfD counter-party are calculated. The statutory instrument amends regulation 4 to change the definition of “generation payments” so that the supplier obligation can be charged for payments relating to the activities of a dispatchable power plant fitted with CCUS technology—I hope everyone is still with me.

The statutory instrument includes amendments to take into account the electricity generation capacity made available by a generating station on a given day; a generating station’s achieved carbon dioxide capture rate or capture capacity on a given day; the CO₂ transport and storage capital costs incurred from transporting such captured carbon dioxide; and, if required, the associated carbon dioxide transport and storage network shortfalls, proportionate to a DPA-supported generating station, that arose on that day.

Secondly, regulation 7 of the 2014 regulations sets out how the CfD counterparty estimates the quarterly obligation payment that electricity suppliers will be required to provide to the counterparty. The statutory instrument amends regulation 7 to ensure the consideration of matters related to a DPA-supported generating station, including the carbon dioxide transport and storage network capital costs and, if required, revenue shortfalls, and the amount of carbon captured.

Together, the changes allow a CfD counterparty to estimate and raise funds, and ultimately to pay a DPA-supported CCUS-enabled power plant. The existing payment calculation, based on the amount of electricity generated by renewable CfD-supported generating stations, is retained and unaffected.

In summary, the statutory instrument represents a positive step forward in the delivery of the Government’s ambitious CCUS programme and 2030 clean power mission. It will lay the regulatory groundwork to encourage the deployment of power CCUS and begin to unlock the great economic and jobs opportunities. I commend the draft regulations to the House.

You will be delighted, Sir Edward, to hear that I do not intend to keep the Committee for long. [Hon. Members: “Hear, hear!”] I am going to be popular.

I thank the Minister for her introduction of the regulations; this is quite a technical issue and she did well in introducing it. I am delighted, because on both occasions when we have got together in Committee it has been terrific, from our point of view, to see that the new Government are carrying on the hard work done by the previous Government and, indeed, endorsing all our good policies.

CCUS is an exciting technology, and it was the announcement in last year’s Budget by the former Chancellor, my right hon. Friend the Member for Godalming and Ash (Jeremy Hunt), on the delivery of £20 billion of investment that led us here. It is worth mentioning that that is reinforced in paragraph 5.4 of the explanatory memorandum, which says that

“the HMT Budget 2023 confirmed government’s intention to make up to £20 billion available to support the early deployment of CCUS”.

When he gave the recent statement on CCUS, the Secretary of State said that that money had not been allocated; it would be helpful if the Minister could confirm the Government’s position. All the evidence seems to suggest that it was allocated, so the Secretary of State may have misled the House when he said it had not been.

Much work has gone into getting everything moving forward and making CCUS a reality. I thank officials for the huge amount of work they have done to get these technical regulations over the line. As the new Government are agreeing to continue to support CCUS, we hope that means we will hear more about the track 2 clusters, Acorn and Viking, which were due to make progress over the summer. Again, we asked in the exchanges on the recent statement for a progress report on track 2 clusters; it would be helpful if we could have one.

I will leave it at that, Sir Edward. The Opposition are happy to support the policies that we introduced, and we are delighted that the new Government are so enthusiastic to do likewise.

I have a couple of points to make. The first carbon capture and storage commitment was made in 2009, I think, but cancelled in 2010. It was then set up again at some point in the mid-2010s and cancelled again. The shadow Minister referred to the explanatory notes; the key word there is “intention”. The intention was announced, but whether the actual funding behind it was available is a different point. That is where we disagree, so I say very strongly that the Secretary of State certainly did not mislead the House. I am glad to clear that up.

On track 2, we are working at pace to get things done. The costs of carbon capture are significant, as the shadow Minister knows, and we need to make sure that we spend money in exactly the right way and are as careful as we can be with what is public money. We are working with both projects—indeed, we are working on expansion in the existing track 1 allocations and on track 2—and trying to get to a point at which the cost of carbon capture comes down and we have a market that becomes self-sustaining over time. But that will take some time.

I thank the shadow Minister for his comments and hon. Friends and other Members for being here. The statutory instrument before us will incentivise the deployment of power CCUS and make a significant contribution to our CCUS programme and 2030 clean power mission. I commend the draft regulations to the Committee.