I thank all three noble Lords for their contributions.
Let me say at the start that CfDs are a key pillar of our energy security. They have been fantastically successful in what they have delivered in terms of our renewable energy mix, but they need to adapt to changing market conditions. We are determined to make offshore wind deployment an even greater success story and are willing to look at various innovative steps to help make that happen. These SIRs represent one of those innovative steps. We have developed them with industry input and believe that they will provide much-needed support to a sector that has faced a tough economic environment and many supply chain disruptions. This support should trigger significant investments in expanding the supply chain’s capacity and capability in many deprived coastal areas around the UK—the noble Lord, Lord Lennie, and I should declare an interest in this matter—and in new, cleaner manufacturing processes. I mean that in terms of the fact that we are from the north-east of England and not in terms of any financial interests, by the way.
These investments will help deliver our levelling-up agenda and positively impact the communities hosting large infrastructure projects by providing new, well-paid, high-tech manufacturing jobs, as well as maintaining many existing successful jobs. Already, new offshore wind manufacturers, both British and from overseas, are looking to relocate to the UK thanks to this package of supportive measures.
It is true, as I said at the start, that these measures will have an impact on consumer bills. We are talking to the Treasury to get the balance right between the cost to consumers and what we can achieve through targeted revenue support in order to get investments in the supply chain back on track. However, I emphasise once again that we are looking at a very small impact on bills—around £2 per year per consumer—in all the scenarios we are considering, for a time-limited period of only three years, and that the competitive auction process will ensure that consumers see the greatest return on their investment. We believe that this is a small price to pay for the benefits that SIRs could bring to UK communities and beyond, as I articulated earlier.
These measures will also put us on a more equal footing with our direct competitors in the US and the EU, who are also investing heavily in their offshore wind supply chains. Considering how much deployment and potential we have here in the UK, it is only right that we, too, try to attract and support as much of that supply chain as possible. It is key, though, and important to emphasise, that we need to provide this support in a targeted and proportional way.
As Members have already indicated, allocation round 6 of the CfD is now live. The budget for AR6 was announced as part of the Chancellor’s Spring Budget and, at more than £1 billion, is four times larger than the budget for the previous allocation round. Although this current round does not include SIRs, I wanted to flag that as it is none the less a crucial step in our renewable energy deployment plans and it demonstrates the Government’s commitment to ensuring that the UK remains one of the world leaders in
renewables. Of course, the Secretary of State will decide in due course whether to increase that budget later this year.
Let me deal with some of the points that were raised during the debate. The noble Baroness, Lady Bennett, asked how this SI fits with the social value provision in the Procurement Act and how CfD/SIRs impact on solar, hydrogen and other schemes. It is important to emphasise that the CfD is not a public procurement mechanism and therefore does not fall under the Procurement Act; it is a revenue support scheme, although many of the aims and mechanisms are of course similar. Solar, onshore wind and other technologies face different challenges to offshore wind; SIRs are therefore not appropriate interventions for them. For example, solar supply chains are currently massively dominated by China and the UK market alone will not help to shift that dominance, sadly.
The noble Earl, Lord Russell, asked how the value for money of SIRs will be assessed, what a sustainable means of production will look like and whether this policy is sufficient to meet future commitments. The budget, as I said, is still being negotiated with the Treasury. It is likely to be in the region of £150 million to £300 million; that will be determined shortly. The budget should be set out in June and value for money will be determined by a competitive allocation of that funding. I am happy to reassure the noble Earl that there will be a dispute resolution mechanism as part of the application process and that a sustainable means of production means either shorter supply chains made closer to the home in the UK, with a lower carbon footprint, or the use of firms signed up to the Science Based Targets initiative for the reduction of carbon emissions.
As to whether we are doing enough and what will happen afterwards, we will see in due course, but the global market for renewables has changed dramatically since Covid and the Russian invasion of Ukraine. CfD/SIRs is just one initiative we are using to address those new challenges. Of course, it complements the other initiatives that the Chancellor announced last year: the Green Industries Growth Accelerator, or GIGA, funding, which stands at over £1 billion and whose allocations will be announced shortly; and the Floating Offshore Wind Manufacturing Investment Scheme, or FLOWMIS, which is another policy that we are using to help support this industry. In answer to the question of whether this policy will be extended, it will depend on the market circumstances at the time, faced by whoever is in the Government at the time.
The noble Lord, Lord Lennie, asked when the SIR budget will be finalised and why we have limited the scheme to three allocation rounds. I think that I have just answered that question: it will be finalised in June. We will then take a view on how successful the current allocation round was and whether we will wish to extend it in future. If a developer is unsuccessful at the SIR auction, they would still be able to enter the main CfD auction as long as they have met the minimum standard of investment required in their supply chain.
Regarding the question posed by the noble Lord’s honourable friend in the other place, Alan Whitehead, the whole scheme is designed so that an SIR bid has
no impact on the main CfD bid. We are covering the costs of the extra expenditure in a cleaner supply chain, which will allow an applicant to go into the main CfD auction on a cost-neutral basis, needing neither to increase nor to decrease their CfD bids. As I said, this scheme has initially been limited to three rounds over three years so that we can then reassess the market conditions and take a view on how successful the initial intervention has been.
I thank the Committee for the support that was expressed. I hope I have dealt with all the questions that were asked. I commend these draft regulations to the Committee.