First Delegated Legislation Committee
Monday 6th July 2026
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18:00
18:00
18:00
Speaker 1
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Speaker 1
Thank you very much, Mr. Harris. It's a pleasure to serve under your chair this afternoon. And 26, which was laid before the House on the 14th of May 2026. This instrument seeks to make technical improvements and changes to the capacity market, which is the government's main tool for ensuring security of electricity supply in Great Britain. Before outlining the specific provisions in the instrument, if I just provide some brief context. The capacity market was introduced in 2014 and is designed to maintain the security of electricity supply by ensuring that sufficient capacity is available to meet future demand predictions through auctions, which are held annually one year and four years ahead of delivery.
The capacity needed to meet future peak demand under a range of scenarios is secured based on advice from the National energy system Operator. Nyiso. Participants secure agreements through these auctions requiring to make capacity available at times of system stress. It's a technology neutral scheme that pays providers for making capacity available when it is needed, covering generation, storage, consumer led flexibility and interconnection. Since its introduction, the capacity market has contributed to investment in around 20GW of new capacity needed to replace older and less efficient plants.
As we transition towards the Clean Power 2030 target to ensure the capacity market continues to function effectively. We regularly amend the implementing legislation based on what is required to best ensure continued security of supply. If I turn to the detail of this particular instrument, this amends 11 regulations and introduces one new regulation in the Electricity Capacity Regulations 2014 amends two regulations in the Electricity Capacity Supplier Payment Regulations 2014 and revokes one chapter of the electricity Capacity Number one regulations 2019. First, it will ensure that assets which are awarded a contract for difference following a direction from the Secretary of State, will be allowed to participate in the capacity market until the start of the assets CFD support.
This will better align the capacity market with the Clean Power Ambition and ensure a smooth transition for payments under the capacity market to a CFD. Second, the draft instrument will strengthen delivery assurance by increasing termination fees and credit cover to restore their value broadly in line with 2016 levels in real terms. Thirdly, it makes several amendments and a revocation to ensure the legislation delivers on the policy intent. It gives the Secretary of State and the powers to extend the pre-qualification deadline for the auction following a major IT outage.
It will align the capacity market timetable with the on going, market wide, half hourly settlement reforms, and it will remove obsolete provisions. Two public consultations were conducted in relation to these measures towards the end of 2020. Five respondents were broadly supportive of the measures included in the instrument that clarified regulations or enabled. Participants awarded a direct award CFD, to manage their transition of the capacity market. Responses to the delivery assurance reforms were more mixed, and having carefully considered those responses, the government has proceeded on the basis that these increases are necessary to align delivery incentives and strengthen delivery assurance.
The changes are proportionate, aligning fees with the real terms equivalent values in 2016, and will apply only to participants entering the scheme after the instrument comes into force. We've also made several technical amendments to the capacity market rules, which support the regulations and the capacity market. Amendment number two rules, which were laid before the House on 14th May. Alongside these regulations and the number four rules, which will be laid in due course, will come into force alongside this instrument. In conclusion, this instrument enables the continued efficient operation of the capacity market so that it can deliver on its objectives.
It will improve delivery assurance and ensure the legislation is as clear as possible for all participants, and I commend the regulations to the Committee.
The capacity needed to meet future peak demand under a range of scenarios is secured based on advice from the National energy system Operator. Nyiso. Participants secure agreements through these auctions requiring to make capacity available at times of system stress. It's a technology neutral scheme that pays providers for making capacity available when it is needed, covering generation, storage, consumer led flexibility and interconnection. Since its introduction, the capacity market has contributed to investment in around 20GW of new capacity needed to replace older and less efficient plants.
As we transition towards the Clean Power 2030 target to ensure the capacity market continues to function effectively. We regularly amend the implementing legislation based on what is required to best ensure continued security of supply. If I turn to the detail of this particular instrument, this amends 11 regulations and introduces one new regulation in the Electricity Capacity Regulations 2014 amends two regulations in the Electricity Capacity Supplier Payment Regulations 2014 and revokes one chapter of the electricity Capacity Number one regulations 2019. First, it will ensure that assets which are awarded a contract for difference following a direction from the Secretary of State, will be allowed to participate in the capacity market until the start of the assets CFD support.
This will better align the capacity market with the Clean Power Ambition and ensure a smooth transition for payments under the capacity market to a CFD. Second, the draft instrument will strengthen delivery assurance by increasing termination fees and credit cover to restore their value broadly in line with 2016 levels in real terms. Thirdly, it makes several amendments and a revocation to ensure the legislation delivers on the policy intent. It gives the Secretary of State and the powers to extend the pre-qualification deadline for the auction following a major IT outage.
It will align the capacity market timetable with the on going, market wide, half hourly settlement reforms, and it will remove obsolete provisions. Two public consultations were conducted in relation to these measures towards the end of 2020. Five respondents were broadly supportive of the measures included in the instrument that clarified regulations or enabled. Participants awarded a direct award CFD, to manage their transition of the capacity market. Responses to the delivery assurance reforms were more mixed, and having carefully considered those responses, the government has proceeded on the basis that these increases are necessary to align delivery incentives and strengthen delivery assurance.
The changes are proportionate, aligning fees with the real terms equivalent values in 2016, and will apply only to participants entering the scheme after the instrument comes into force. We've also made several technical amendments to the capacity market rules, which support the regulations and the capacity market. Amendment number two rules, which were laid before the House on 14th May. Alongside these regulations and the number four rules, which will be laid in due course, will come into force alongside this instrument. In conclusion, this instrument enables the continued efficient operation of the capacity market so that it can deliver on its objectives.
It will improve delivery assurance and ensure the legislation is as clear as possible for all participants, and I commend the regulations to the Committee.
18:04
18:04
Speaker 3
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Speaker 3
Thank you, Mrs. Harris. A pleasure to serve under your chairmanship. As ever and with your indulgence, may I first start by just welcoming my hon. Friend the new conservative member for Aberdeen South, in a series of firsts, as he finds his feet around the House of Commons. I'm sure this. His first delegated legislation committee will be the one that stands out the most in his. In his mind now, as the. As the minister laid out, this instrument seeks to make several technical amendments to the capacity market.
Perhaps this instrument is most notable for the absence of the proposed multiple price capacity market, which would have created a two tier system. The industry indeed warned would result in increased costs for consumers. I understand the government has said these changes would ensure the continuation of security of supply, whilst supporting the transition to a decarbonised energy system. Can the minister therefore explain why the results of the latest four year ahead capacity market auction only saw 40GW of generating capacity secured three gigawatts less than the year before.
Given this is less than both current peak demand of around 50GW and projected peak demand by 2030 of around 80GW. His Majesty's loyal opposition has warned countless times that forcing decarbonisation and electrification onto families and businesses at any cost would simply result in industries shutting down and livelihoods being lost. While the government has rejected these warnings in public, the results of this auction seem to suggest it has privately accepted industrial energy consumption will fall thanks to its policies. I have no doubt, no doubt at all, Mrs.
Harris, the Minister, will seek to reassure this committee that the government's mass rollout of renewable energy and associated infrastructure will make concerns about security of supply redundantly redundant. However, what this completely fails to address is the cold still winter nights, when electricity demand is at its highest and generation from wind and solar is effectively nothing. Precisely the scenario. The capacity market is supposed to address by securing firm power from conventional means, such as gas. Even assuming the government's highly optimistic predictions that the billions of pounds worth of additional generating capacity, battery storage systems and grid connections needed to support an entirely intermittent renewables based electricity grid are online by 2030, which currently seems very unlikely.
This would still not ensure the security of supply our electricity grid needs, as both the government and the National Energy System Operator have admitted, nearly all our currently installed generating capacity from gas will need to remain online in 2030 to be able to meet peak demand. And yet, by refusing to support private investment to build new gas power stations, placing more burdensome decarbonisation requirements on new and refurbished generators, and pushing gas to the sidelines of our electricity supply. While still expecting full capacity to remain available, the government is making continued operation for many gas power stations economically and technically unviable.
Let us be very clear, Mrs. Harris, what the government's energy policy means placing increasing strain on demand through legally binding electrification and decarbonisation requirements, reducing supply by failing to secure new firm power, gas from gas and the government, forcing families and businesses to ration electricity through consumer led flexibility. At the risk of facing blackouts. While the opposition does not intend to oppose the very technical amendments made by this instrument, it does believe it is well past time for the government to accept it cannot sustain our energy system on blind faith in renewables, and must instead fully support new generating capacity from gas and nuclear.
Perhaps this instrument is most notable for the absence of the proposed multiple price capacity market, which would have created a two tier system. The industry indeed warned would result in increased costs for consumers. I understand the government has said these changes would ensure the continuation of security of supply, whilst supporting the transition to a decarbonised energy system. Can the minister therefore explain why the results of the latest four year ahead capacity market auction only saw 40GW of generating capacity secured three gigawatts less than the year before.
Given this is less than both current peak demand of around 50GW and projected peak demand by 2030 of around 80GW. His Majesty's loyal opposition has warned countless times that forcing decarbonisation and electrification onto families and businesses at any cost would simply result in industries shutting down and livelihoods being lost. While the government has rejected these warnings in public, the results of this auction seem to suggest it has privately accepted industrial energy consumption will fall thanks to its policies. I have no doubt, no doubt at all, Mrs.
Harris, the Minister, will seek to reassure this committee that the government's mass rollout of renewable energy and associated infrastructure will make concerns about security of supply redundantly redundant. However, what this completely fails to address is the cold still winter nights, when electricity demand is at its highest and generation from wind and solar is effectively nothing. Precisely the scenario. The capacity market is supposed to address by securing firm power from conventional means, such as gas. Even assuming the government's highly optimistic predictions that the billions of pounds worth of additional generating capacity, battery storage systems and grid connections needed to support an entirely intermittent renewables based electricity grid are online by 2030, which currently seems very unlikely.
This would still not ensure the security of supply our electricity grid needs, as both the government and the National Energy System Operator have admitted, nearly all our currently installed generating capacity from gas will need to remain online in 2030 to be able to meet peak demand. And yet, by refusing to support private investment to build new gas power stations, placing more burdensome decarbonisation requirements on new and refurbished generators, and pushing gas to the sidelines of our electricity supply. While still expecting full capacity to remain available, the government is making continued operation for many gas power stations economically and technically unviable.
Let us be very clear, Mrs. Harris, what the government's energy policy means placing increasing strain on demand through legally binding electrification and decarbonisation requirements, reducing supply by failing to secure new firm power, gas from gas and the government, forcing families and businesses to ration electricity through consumer led flexibility. At the risk of facing blackouts. While the opposition does not intend to oppose the very technical amendments made by this instrument, it does believe it is well past time for the government to accept it cannot sustain our energy system on blind faith in renewables, and must instead fully support new generating capacity from gas and nuclear.
18:08
Speaker 1
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Speaker 1
Thank you very much. Well, let me I think for the third time, welcome the honourable member for Aberdeen South to this place. I think he was on a delegated legislation committee in his first week in this place, and I'm not sure his predecessor from the SNP was ever in a delegated legislation committee at all his years in this place. So he's already making progress on Stephen Flynn in that role. And I welcome him. Look, I welcome, first of all, the support for the capacity market was introduced by the previous government.
It has served the country well. It continues to play an important role to bring forward the investment needed in the security of supply that we need in the future. I think just on a couple of points, just to to to make clear the T4 auction, which is around delivery in 2029 and 2030, secured 40GW of capacity at £21 a kilowatt year, which is above the target capacity that we set out. There are a range of different scenarios which we work towards in terms of the future.
That's why we have the four year ahead and the one year ahead. As we get closer to that, we have much more accurate sense of what demand will be, and therefore we procure additional capacity in the one year ahead. But I would just sort of gently challenge a number of the points he makes. First of all, the reason we are moving towards a low carbon power system is because it is what gets us off the volatility of fossil fuels. Gas will play a strategic reserve role on the system.
As we set out in the Clean Power Action Plan, which sets out 95% of our generation from clean sources, the remainder coming from from gas and from others. But I'd also say there is new technology coming on at all times. This isn't just about gas or renewables. And so we just saw for the first time in 40 years, investment into long duration energy storage in this country. So I'm really world leading battery projects that will give us that additional capacity. And on consumer led flex.
This isn't about forcing consumers to do anything. It's about giving consumers the power to make choices that can bring down their bills if they use technology in different ways. And it also helps the system. Consumer led flex is a win for consumers and for the system and for the opposition to see it as some sort of enemy of the people, I think is a bizarre, even for their kind of race to the bottom on on future technology and the point about blackouts. It genuinely I have seen an increase in people in the honourable gentleman's party and in reform peddling nonsense about blackouts in this country.
They should be very careful about nonsense, scaremongering that is not based in fact whatsoever. The measures before us today are about improving the already strong capacity market so that it can continue to deliver our energy security now and into the future. It has done so with Britain as one of the most resilient energy systems in the world. It will continue to be so with a mix of technologies into the future. These measures help to do it and I commend them to the committee.
I.
It has served the country well. It continues to play an important role to bring forward the investment needed in the security of supply that we need in the future. I think just on a couple of points, just to to to make clear the T4 auction, which is around delivery in 2029 and 2030, secured 40GW of capacity at £21 a kilowatt year, which is above the target capacity that we set out. There are a range of different scenarios which we work towards in terms of the future.
That's why we have the four year ahead and the one year ahead. As we get closer to that, we have much more accurate sense of what demand will be, and therefore we procure additional capacity in the one year ahead. But I would just sort of gently challenge a number of the points he makes. First of all, the reason we are moving towards a low carbon power system is because it is what gets us off the volatility of fossil fuels. Gas will play a strategic reserve role on the system.
As we set out in the Clean Power Action Plan, which sets out 95% of our generation from clean sources, the remainder coming from from gas and from others. But I'd also say there is new technology coming on at all times. This isn't just about gas or renewables. And so we just saw for the first time in 40 years, investment into long duration energy storage in this country. So I'm really world leading battery projects that will give us that additional capacity. And on consumer led flex.
This isn't about forcing consumers to do anything. It's about giving consumers the power to make choices that can bring down their bills if they use technology in different ways. And it also helps the system. Consumer led flex is a win for consumers and for the system and for the opposition to see it as some sort of enemy of the people, I think is a bizarre, even for their kind of race to the bottom on on future technology and the point about blackouts. It genuinely I have seen an increase in people in the honourable gentleman's party and in reform peddling nonsense about blackouts in this country.
They should be very careful about nonsense, scaremongering that is not based in fact whatsoever. The measures before us today are about improving the already strong capacity market so that it can continue to deliver our energy security now and into the future. It has done so with Britain as one of the most resilient energy systems in the world. It will continue to be so with a mix of technologies into the future. These measures help to do it and I commend them to the committee.
I.
18:11