Contracts for Difference (Miscellaneous Amendments) (No. 3) Regulations 2025

Debate between Lord Wilson of Sedgefield and Earl of Effingham

Monday 14th July 2025 Grand Committee

[The Earl of Effingham (Con)]

My Lords, I thank the Minister for setting out the purpose of this instrument. These regulations make what may be described as technical adjustments to the CfD regime. However, in practice, they signal significant changes to the principles that underpin the scheme’s operation: transparency, predictability and fairness. The CfD mechanism has been a cornerstone of our low-carbon transition, driving record levels of renewable deployment, while securing value for consumers. That credibility depends on its rules being clear, impartial and competitively neutral.

This instrument makes three changes that in His Majesty’s loyal Opposition’s view merit particular scrutiny. First, as highlighted by my noble friend Lord Frost, it allows the Secretary of State to view anonymised bid data before finalising the budget for an allocation round. This breaks the long-standing principle that all participants bid on a level playing field based on pre-published terms. Ministerial discretion inserted into the process after seeing how the market has responded risks undermining confidence in the integrity of the auction.

Secondly, as also flagged by my noble friend Lord Frost, by delaying the publication of the final budget until after that review, the Government will have the ability to shape outcomes post hoc. However well-intentioned, that is potentially a slippery slope. It introduces uncertainty, opens the doors to perceived political interference and may ultimately deter long-term investors who value predictable rules-based frameworks.

Thirdly, the decision to reclassify the costs of the sustainable industry reward so that they are now recovered through Ofgem’s price cap means that these costs will be passed directly on to consumers. At a time when the cost of living is rising and households are under pressure, the perception is that a stealth measure introduced without full parliamentary scrutiny or a fully transparent impact assessment should not be made. What safeguards will be put in place to ensure that this new discretion over budgets does not distort the process or erode trust among participants? Has the department undertaken any modelling of how these changes might affect bidding behaviour, strike prices or project delivery timelines? What assurances can be given to consumers that the inclusion of new costs in the price cap calculation will not place additional upward pressure on their energy bills?

In conclusion, although these changes may be framed as flexible and technical, they represent a shift in the balance of power from an impartial auction model to one in which Ministers can influence the outcome after bids have been seen. That raises fundamental questions about fairness, efficiency and consumer protection. We urge the Minister to explain why such discretion is necessary and how its use will be accountable to Parliament.

[Lord Wilson of Sedgefield (Lab)]

My Lords, I thank noble Lords again for a good debate, with some incisive observations made by noble Lords opposite. This Government are steadfastly committed to deploying renewables in order to achieve our ambition for clean power by 2030 and to protect bill payers both now and in future. The instrument under discussion today will enable us to adapt CfDs so that they can support the delivery of our ambition for clean power by 2030 at the lowest cost to consumers.

Having said that, let me respond to the questions posed by the noble Lord, Lord Frost. In an unstable world, the only ways both to guarantee our energy security and to protect bill payers permanently are to keep energy bills down for good and to speed up the transition away from fossil fuels towards home-grown, clean energy. During periods when wholesale electricity prices are higher than the fixed CfD strike price awarded, generators pay the difference back into the scheme, which can help reduce energy bills. This happened when wholesale electricity prices spiked during the energy bill crisis of 2022-23; over that winter, CfD payments reduced the amount needed to fund government energy support schemes by around £18 for a typical household. The budget underspend that has been referred to is a result of the allocation—