Report (2nd Day)

Part of Energy Bill [HL] – in the House of Lords at 6:59 pm on 21st October 2015.

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Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth The Parliamentary Under-Secretary of State for Energy and Climate Change, Lord in Waiting (HM Household) (Whip), The Parliamentary Under-Secretary of State for Wales 6:59 pm, 21st October 2015

My Lords, I thank all noble Lords who have participated in the debate on Amendment 78V and the noble Baroness, Lady Worthington, for introducing it. We missed each other late last night to discuss this amendment, but I am grateful that she rang before breakfast this morning so that we could discuss it then. That is how seriously we both take our jobs. Again, I am grateful to the noble Baroness because otherwise it would have taken us on the blind side that the amendment was coming up today. I am also grateful to the noble Baroness for what she has said in relation to this issue and for confirming that she will not push it to a vote. The comments made by the noble Lord, Lord Teverson, are right, but as framed there would be difficulties with the amendment anyway.

Perhaps I may say something about the purpose of the capacity market for the benefit of the House and then say something about the particular issue that has been raised. The purpose of the capacity market is to ensure security of electricity supply by providing all forms of capacity with the right incentives to be on the system and to deliver energy when it is needed. The first capacity market auction was successfully concluded in December 2014, contracting 49.3 gigawatts of capacity at a clearing price of £19.40 per kilowatt—and with that I have addressed the particular and very valid point raised by the right reverend Prelate. The outcome was great news for consumers, as fierce competition between participants drives down costs. The results will ensure that enough of our existing capacity will remain open at the end of the decade, as well as unlocking new investment.

I accept that there is an issue about emissions. Other government policies that were referred to by the noble Baroness, Lady Worthington, including the emissions performance standard and the carbon price floor, limit potential emissions from thermal plant for larger producers in keeping with our aims of decarbonising the power sector. For example, the emissions performance standard for larger generators limits carbon emissions to around half of that produced by unabated coal. The carbon price floor obviously provides an incentive for investment in low-carbon electricity generation. I accept that, as things stand, small generators are not covered by that. The department is aware of the issue, but we believe that the EPS represents the best way of looking at the smallest generators, perhaps within the review cycle for the EPS rather than in the context of the capacity market alone because that clearly seeks to ensure that the capacity we need is delivered. I am happy to discuss this further outside the Chamber. It is worth recognising that, at least at present, most of the small generators in the capacity market run for only a limited number of hours per year, but I appreciate that there is no guarantee on that. However, I recognise that this is an issue.

I turn now to what might have been the point that, given his background, the noble Lord, Lord Teverson, was referring to. There is not a state aid issue here. The capacity market state aid clearance is based on the current design of the mechanism, including the concept of technology neutrality, so accepting the amendment in its present form would have required state aid renotification, which as we know typically takes nine months or longer. That would have introduced uncertainty into the market and would have caused problems. But I am happy to continue a discussion on how to tackle what is a very real issue, and I thank the noble Baroness for her comments.