My Lords, I beg to move that the draft Contracts for Difference (Miscellaneous Amendments) Regulations 2021, which were laid before the House on 12 May this year, be approved.
This draft instrument makes a number of amendments to three separate contracts for difference regulations: the Contracts for Difference (Definition of Eligible Generator) Regulations, the Electricity Market Reform (General) Regulations and the Contracts for Difference (Allocation) Regulations. These amendments will help to support the ambition for the next contracts for difference auction, planned to open in December this year, and will make progress towards our 2050 net-zero target.
The amendments include adding and removing technologies from the list of technologies eligible to compete in a contracts for difference round, strengthening the supply chain plan process and extending the delivery years that can be set for successful projects. They also include some small technical amendments to the non-delivery disincentive rules and capacity cap rules, as well as technical changes to improve the operation and clarity of the allocation regulations. We are proposing these legislative amendments following two public consultations of 13 and nine weeks respectively, in 2020 and earlier this year, during which our proposals received broad support.
The CfD scheme is designed to offer long-term price stabilisation to new low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. The scheme typically sees support contracts awarded in a competitive auction process, which has been successful in driving substantial deployment of renewables at scale in Great Britain while rapidly reducing costs to electricity consumers.
The most recent allocation round in 2019 saw contracts awarded to 5.8 gigawatts of new renewable energy projects, with the costs of offshore wind falling by around 30% from the previous allocation round in 2017. This is the first time that renewables are expected to come online below predicted market prices—meaning, of course, a better deal for consumers. The next CfD auction, which is the fourth to date, is planned to open in December 2021. It will be available to both established technologies, such as solar PV and onshore wind, and less established technologies, such as floating offshore wind. Offshore wind will sit in its own newly created third pot.
In October 2020, the Prime Minister announced new plans to accelerate the UK’s progress towards net-zero emissions while making the UK a world leader in clean wind energy. This included the ambition to secure up to 12 gigawatts of renewable electricity capacity in this round, subject to the pipeline of projects expected to bid, which is double that secured in the last round held in 2019. We are laying these amendments today to give certainty to businesses about the basis on which projects will be eligible to take part in the next CfD scheme in advance of the round opening in December.
CfD applicants with a capacity of 300 megawatts or more are currently required to present a supply chain statement to the EMR Delivery Body as part of their application. A statement is provided if a developer can demonstrate to the Secretary of State’s satisfaction that the project will make a material contribution to the development of relevant supply chains. The aim of the policy is to encourage the effective development of open and competitive supply chains and the promotion of innovation and skills in the low-carbon electricity generating sector. The Government believe that the current policy approach needs to be strengthened to boost competitiveness and productivity in places that stand to benefit the most and to harness innovation and invest in skills while driving progress towards the UK’s 2050 net-zero target.
These regulations revise the criteria that the Secretary of State must consider when assessing an application for a supply chain statement. In addition, they create a new stage in the process, requiring a CfD generator to apply for a supply chain implementation statement to demonstrate the extent to which they have delivered on the commitments set out in their original supply chain statement, setting out the process for providing or refusing a supply chain implementation statement.
This supply chain implementation statement will enable an CfD generator to fulfil an operational condition precedent required under a CfD contract. The Low Carbon Contracts Company, as CfD counterparty, may terminate the CfD if this operational condition precedent is not fulfilled by the CfD long-stop date.
This requirement will be inserted into the CfD standard terms and conditions for new CfDs awarded from the fourth allocation round.
Biomass conversions have played a material role in helping to meet the UK’s 2020 renewables targets by replacing coal-fired power stations with renewable energy generation. However, as electricity generation has become less carbon intensive, we have reviewed the role of biomass conversions. These regulations remove biomass conversion projects from the list of technologies eligible to apply for a CfD in future allocation rounds.
Allocation rounds, and their associated budgets, can be made available only for projects commissioning in set periods, known as delivery years, which are set before each round opens. In order to run allocation rounds with delivery years after 31 March 2026 and to further provide necessary flexibility to support the level of ambition needed to meet the 2050 net-zero target, we are extending the CfD scheme delivery years until 31 March 2035.
The Government have confirmed a series of more ambitious targets for offshore wind, including a boost to the Government’s previous target to deliver up to 30 gigawatts of offshore wind to delivering 40 gigawatts by 2030, and a new ambition for 1 gigawatt of this 40 gigawatts target to come from floating offshore wind. This is due to widespread agreement that floating offshore wind will play an important role in helping the UK to meet its longer-term decarbonisation targets.
This technology is in an earlier phase of development, making it currently more costly than offshore wind that is attached to the seabed. It is therefore appropriate for floating offshore wind projects to be recognised as a distinct technology within the CfD scheme; one subject to its own administrative maximum strike price and eligible to take part in pot 2 auctions alongside other less-established technologies. These regulations therefore establish floating offshore wind projects as a category of technology eligible to take part in the CfD scheme and compete alongside other less-established technologies. In doing so, we deliver on one of our manifesto commitments.
The UK’s new 2050 net-zero emissions and carbon budget 6 targets mean that we will continue to require substantial amounts of new, low-carbon power sources to be built before 2050. These changes ensure that CfD allocation rounds can best support an increase in the pace of deployment of new renewable electricity generation needed to achieve our ambitions while continuing to consider value for money for consumers. Subject to the will of Parliament, these arrangements will come into force on the day after the regulations are made. I commend the regulations to the House.
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