Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025

Lord Kerr of Kinlochard Excerpts

Monday 23rd June 2025 Lords Chamber

This is an environmental disaster. It is a disaster for energy consumers and for the public purse. That is why I ask noble Lords to share their regrets about this statutory instrument. I beg to move.

[Lord Kerr of Kinlochard (CB)]

I am grateful to the noble Baroness for speaking in the way she did. I am a member of the Secondary Legislation Scrutiny Committee, which produced the report she referred to. I ought also to declare a former interest in that I was a director of a company that briefly, while I was a director, owned Lynemouth, a generator which could notionally benefit from this scheme. But, contrary to what the Minister said, these regulations are virtually all about Drax. As we said in our report,

“the main financial beneficiary of the proposed new arrangements would be … Drax … by far the largest biomass generator in the UK.”

I find these regulations remarkable in at least four ways. First, their presentation is remarkably shifty. The title, draft Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations, does not tip you off that what we are actually talking about here is massive subsidies for massive carbon dioxide emissions. We are talking about Drax. As the SLSC pointed out, it was also quite odd to produce an Explanatory Memorandum which never mentions the word “Drax”.

Secondly, the regulations are remarkable because the costs are remarkable. Drax has already enjoyed £6.5 billion of subsidy, and here we go with another £1.8 billion—over £1 million a day. The price of the electricity produced and sold, £113 per megawatt hour, is well above that paid for offshore wind farm electricity, also under similar contracts for difference. Thirdly, it is remarkable that the emissions are so high. As the noble Baroness, Lady Bennett, said, they are 18% higher than comparable coal-fired generator emissions. Drax will remain the UK generator producing the most carbon dioxide per unit of electricity produced.

Fourthly, it is remarkable that, whereas Drax used to be pushed as the site at some future date of a carbon sequestration and storage scheme, that has been dropped. That story does not exist any more. There is no CSS in these regulations. There is nothing about CSS, I assume, in the contracts with the company. The company has in fact paid off the staff who were working on CSS, so that story is dead.

Therefore, it is counterintuitive that Drax is still sailing under a green flag. It is a delight to hear a distinguished former leader of the Green Party denouncing that flag: it should not be on this pirate ship. Given the opportunity cost of the sequestration forgone in the forests of western Canada that are cut down, and the cash cost of processing that wood into pellets and shipping it across to the United Kingdom, the sustainability story about Drax was never particularly convincing. The Public Accounts Committee was quite right to say in its report of 25 April that:

“The current approach relies heavily on generators self–reporting the sustainability of the biomass they use and third–party certification schemes, giving a sense that generators are marking their own homework”.


It is more than a sense; they are marking their own homework. The report continues:

“Neither DESNZ nor Ofgem know whether the approach to assurance is effective in making sure biomass is from sustainable sources”.


They do not know.

Drax commissioned KPMG to write a report. The noble Baroness, Lady Bennett, referred to it, so I do not need to. The Minister says that it is not for the Government or Ofgem to pass it to us. The PAC said that it should be shown to Parliament—that it should be published. My committee, the SLSC, said that it should be published before this debate, which surely is right. The Minister’s argument is that it is not his to publish. He is the man who is awarding this enormous contract to the company—£1.8 billion. It is open to him to suggest to the company that it might assist the Government in deciding in favour of what the company wants, if the company were to do what Parliament has asked. However, that does not appear to have happened. We do not know what KPMG said because we are not allowed to see the report. That seems rather high-handed of the company and suggests that it may have something to hide.

There may be a case for Drax, which the Minister touched on when he talked about security of supply. He did not mention this, but that case could be dealing with the risk of a black start. Having these huge turbines turning up there could be convenient if you get a crisis and a black start. I could be persuaded that we need to keep this immensely expensive scheme going for security of supply, but it would have been more honest if the Government, in their Explanatory Memorandum for these regulations, had made that case, which they did not. Instead, we have their sustainability case—which does not fly, for the reasons given—to explain the astonishing cost of the scheme.

The selling of the scheme looked shifty; the refusal to produce the KPMG report on sustainability looks high-handed. The noble Baroness’s regret amendment was well justified and exactly right. Had she been in the mood to press for a vote, I would happily have voted for it.

--- Later in debate ---

[Lord Kerr of Kinlochard (CB)]

The alleged saving is compared with the current price, which is astonishingly high. It is a saving because the wholesale price of electricity all over is going down. The contracts for difference for wind power are now being set at a level about two-thirds of where they were a couple of years ago. This minor saving compared with the previous exorbitant level of subsidy should not be exaggerated.

[Lord Wilson of Sedgefield (Lab)]

I thank the noble Lord for that intervention. We were not trying to exaggerate anything. We are comparing that with the fact that, if we do not do this, we will end up with the price of gas at £170 million per year compared with some saving to households. We have to bear that in mind as well.

There was talk about the outcome of Ofgem’s investigation into Drax. The recent comprehensive Ofgem investigation into Drax compliance entered its report in August 2024. It found no evidence that Drax had incorrectly received subsidy payments, and no subsidies were issued for unsustainable biomass. However, Drax accepted the findings of the investigation and made a redress payment of £25 million. Ofgem’s investigation was very comprehensive and included a careful review of the KPMG report, as well as a wider review of more than 3,000 other documents. Both the Government and Ofgem are confident in this conclusion. Moreover, Ofgem has required Drax to undertake a full international audit of the profiling data from its supply chain. I hope that answers the concerns that noble Lords may have.

To address the other points on the Ember report on Drax being Britain’s largest CO₂ emitter in 2023—this also answers the question about trees, and not all trees take four decades to grow—the carbon in biomass is emitted as carbon dioxide from the chimney of the power plant when the biomass is burned. However, the carbon dioxide emissions from sustainable biomass are part of the biogenic carbon cycle. Unlike fossil carbon, which was turned into gas or coal millions of years ago, the carbon released was recently absorbed from the atmosphere and is reabsorbed continuously through regrowth.

Woody feedstocks for bioenergy are typically low-value forestry—sawmill residue from trees that would have been felled regardless for higher-value usage. Therefore, in contrast with fossil emissions, we can consider sustainable biomass systems to be carbon neutral at the stack when taking forest growth, harvest and product use into account.

What you also have to realise with this SI is that one of the parts of it is about sustainability. Part of the contract is that biomass comes from 100% renewable sources, not 70%, so that is a massive increase. We will appoint someone to examine and look into the sustainability of the whole process.

We can have criticisms, and I think we all agree that we do not see this as the long-term answer to the energy problems that we have, but it is fair to say that we have to be realistic. We cannot be ideological purists. We could have an energy gap of 5%, and biomass provides 5% of our energy needs. We should not be blind to that fact. We are making improvements. It is about the regulations and not just about Drax; Lynemouth is talking about taking part in this process as well. It does not matter about the size of the biomass facility; they can all be part of this.

I finish by saying that the draft regulations in front of the House today will enable the Government to continue to deliver security of supply at the lowest cost for consumers, while protecting and enhancing vital sustainability measures. I commend the draft regulations to the House.