Contracts for Difference (Miscellaneous Amendments) (No. 2) Regulations 2025
Debate between Lord Wilson of Sedgefield and Baroness Finn
Baroness Finn (Con)
My Lords, I am grateful to the Minister for setting out the provisions of the instrument for us, and to the noble Baroness, Lady Bennett, for bringing forward this amendment. I thank all noble Lords who have contributed to the debate. As the noble Lord, Lord Birt, said, we are a remarkably united House this evening.
At first glance, this statutory instrument appears to be a modest continuation of established policy, extending the contracts for difference schemes to support low-carbon electricity and to maintain energy security. However, the context in which this instrument is being brought forward raises several serious concerns that deserve the full attention of the House. The current contracts for difference in renewables obligation schemes for biomass are due to expire in 2027. This instrument effectively paves the way for a new subsidy agreement, likely to last until 2031.
The Drax Group in particular, although not explicitly mentioned by name, is expected to be the principal beneficiary. I hear what the Minister said about this being about the legislation and not about Drax, but this does seem a little disingenuous. As the noble Lord, Lord Kerr of Kinlochard, said, these regulations are really all about Drax. The fact that this is not disclosed in the legislation itself, nor even in the Explanatory Memorandum, is a point rightly criticised by the Secondary Legislation Scrutiny Committee.
When public money is involved on this scale and given to a corporate entity, transparency should not be optional. That omission is not merely a technical failing; it obstructs parliamentary scrutiny, undermines public confidence, and weakens accountability in a policy area already under significant environmental and fiscal scrutiny. We do not question the Government’s intent or commitment to safeguard energy supply, but we should be candid about the trade-offs. Biomass is not a low-cost nor a convincingly low-carbon option, and serious questions remain about its long-term sustainability and effectiveness, as well as its role in the energy mix.
A number of noble Lords spoke about the subsidies received by Drax, and my noble friend Lord Lilley laid out a compelling case. According to the think tank Ember, Drax received £869 million in subsidies for biomass in 2024 alone. The proposed strike price for biomass under the new contracts for difference is expected to exceed £160 per megawatt hour—more than twice the strike price for offshore wind in the most recent contracts for difference allocation round, which averaged £57 per megawatt hour.
These are not trivial differences. Ultimately, these subsidies are paid for by consumers through their energy bills. If affordability is a government priority then it is worrying that the numbers do not appear to have been considered more carefully.
The Government have stated that sustainability standards will increase, albeit only from 2027, and that Drax will undertake a full audit of its supply chains. Those intentions are welcome, but the delay is difficult to defend if, as the Government admit, the current sustainability criteria are already insufficient. Furthermore, Drax was criticised in the other place for alleged attempts to deliberately conceal, as a number of noble Lords have mentioned today, the unsustainable sources of its wood pellets, and has thus far not responded to calls to publish the 2022 KPMG report on where the wood has been coming from. I absolutely hear what the Minister said about these being internal documents but, given that Drax is in receipt of considerable amounts of public money, publishing the report would surely allay concerns, and it is disappointing that Drax has thus far failed to do so. As the noble Baroness, Lady Bennett, pointed out, the SLSC has called for the release of the report prior to the legislation passing.
The Government themselves have acknowledged that biomass is not a long-term solution, yet they now propose to extend generous subsidies through to 2031, well beyond the expiry of the current schemes. That contradiction prompts a broader question: what is the Government’s long-term energy strategy? Where is the sustained investment in cheaper, cleaner technologies such as offshore wind, solar, tidal and energy storage, all of which offer better returns for consumers and for the environment?
In the light of these issues, I would be grateful if the Minister clarified the following. Was a full cost-benefit analysis conducted ahead of these proposals and will it be published? Are further changes to biomass eligibility under contracts for difference under active consideration? Will the Government commit to greater transparency in future secondary legislation, particularly where identifiable corporate beneficiaries stand to gain? This is not about opposing low-carbon generation—far from it; we support it—but, when billions of pounds of public money is at stake, climate benefits are uncertain and the cost to consumers is high, we must demand full transparency and sound policy rationale. I very much look forward to the Minister’s response.
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
I thank the noble Baronesses, Lady Bennett and Lady Finn, and the noble Lords, Lord Kerr of Kinlochard, Lord Sikka, Lord Lilley and Lord Birt, and the noble Earl, Lord Russell, for their contributions, and I thank the Front-Benchers for their summing up.
We are where we are with this. We have to play with the cards we have, and we cannot restock the deck because we have been left with this. We do not believe that biomass is a long-term solution to the country’s energy problems, but we are faced with a dilemma at the moment regarding security of supply, whereby 5% of the energy we use is provided and produced by biomass. That is something we have to consider. We know it is not a long-term solution, so we need to look at other sources of energy to replace it. That is what the Government are actively doing—it is part of our net-zero ambitions to do that—but we need time to do it, and to fill the gap we need this statutory instrument in order to go forward and secure that.
This Government are steadfastly committed to maintaining our energy security and protecting bill-payers now and into the future. The instrument under discussion today will enable us to reduce risks to security of supply in the late 2020s and early 2030s by facilitating short-term support for biomass. If this is pushed to a vote, noble Lords will be voting against security of supply. Additionally, the regulations allow for the further strengthening of sustainability requirements, to reflect the latest evidence, during the delivery of any support.
I hope I can deal with all the questions raised, but if not, I am sure that we can write to Members. Why did we not mention Drax? Supposedly this is about Drax and nothing else, but in fact it is about any biomass facility that can help fill the gap, such as Lynemouth in Northumberland. Other, smaller producers of biomass around the country can also have access to this—I know there have been discussions with Lynemouth—so it is not just about Drax.
Why have the Government agreed a high strike price for this asset? The new arrangement halves the level of consumer subsidy compared to existing arrangements, equivalent to a saving of nearly £6 per household in annual bills. The agreement is for a substantially lower reduced load factor. We want seed to be used for 27% of the time as part of the baseload—