My Lords, I also thank the Minister for his introduction to the regulations before your Lordships’ House. I agree with him that they are by and large technical in nature. I second the remark by my noble friend on the Liberal Democrat Front Bench that we miss Lord Jenkin for all the understanding he brought to the House on these quite technical matters.
We are in favour of the amendment regulations tonight because they introduce refinements, clarifications and new wording to manage the system around the operation of the capacity market. From my reading of the Explanatory Memorandum, which is excellent— I thank the Minister’s department for its clarity—I commend the Minister and his team for introducing these regulations to correct the imperfections in the original instrument, which could have led to double payments and loopholes that could have been exploited to the detriment of the consumer. However, that is not to say that there is universal approval for the capacity market. There is a debate to be had regarding whether it has achieved its objectives and whether it is good value for money. While strictly speaking the capacity market is not the subject of the regulations, I nevertheless have one or two questions to put to the Minister on how it is operating.
I liken the capacity market to a quasi-insurance policy. I agree that the lights going out would be a catastrophic event with severe consequences for the Minister, his Government and the nation. The capacity market is designed to ensure that this will never happen. This winter, 2017-18, is the start of the first delivery year and the date from which payments will start, even though there have been five capacity market auctions to date. The contracts for these auctions are for either one year or four years. What is the grossed-up value of these contracts, which I understand is somewhere near the total cost of the capacity market for availability of energy sources until 2021, excepting that there are also the one-year contracts to be awarded for the next three years? Is it useful to consider this figure in assessing the value-for-money aspects of the policy against achieving its objectives? The Minister in the other place suggested that the increase in customer bills amounted to £2 per customer per year. My question to the Minister is to understand the grossed-up figure that has been paid to generators and, from that, the size of the bill to the public.
The answer to the question regarding the success of this quasi-insurance is mixed. First, there will be no blackouts—I am sure that the Minister will be able to sleep well at night—but perhaps he could give some assurances regarding the “black start” that would be needed to re-energise the network following any blackout.
Secondly, has the certainty of return from the capacity market brought forward investments, especially in new gas build? Here, the policy does not seem entirely to be working. Do the plans to which the Minister drew attention in his opening remarks finally translate into certainty of new build being on the horizon?
Thirdly, is the cost to the consumer worth while, and has it been effective? I think that I can reply on the Minister’s behalf and say that to a certain extent it has already brought benefits in that the spikes in cost in marginal supplies to the grid have been reduced. Volatility has been lessened, which has already reduced net costs through bills to the consumer. Nevertheless, how likely would blackouts have been without the existence of the capacity market? That is the ultimate insurance question.
Lastly, has the capacity market brought flexibility and a diverse mix of energy sources to security of supply? On the demand-side response, the auctions are only for one-year contracts, which could hardly be described as bringing certainty. Can the Minister confirm whether there are plans to bring forward four-year auctions for DSR? Have the Government considered bringing forward the statutory review date of this policy from being four years into its operation? There could be other points along the way that are sooner than that at which some of these questions could bring forward further amendments.