Contribution
My Lords, before I turn to the SI, I will respond to a couple of the points the noble Lord, Lord Frost, has made. We shared a Select Committee, so I absolutely respect the noble Lord’s right to say what he wants to say. The noble Lord argued for the need to include all costs, but part of the calculations of using or continuing to use fossil fuels is that we do not continue to account for all the consequences of burning fossil fuels. The OBR has just this week said that that far outweighs any cost that we might spend on renewable energy. Prices are going down: solar and wind are the cheapest forms of energy, and they provide constant energy security. The noble Lord knows that gas sets the market price 96% of the time.
On the regulations, we broadly welcome this plan to bolster our nation’s energy security and accelerate the transition to clean power. We commend the Government on their intention further to update and reinforce the contracts for difference process that has been the backbone of our nation’s renewable energy transition. These draft Contracts for Difference (Miscellaneous Amendments) (No. 3) Regulations 2025 represent an important update intend to fine-tune the CfD process to bring about a more efficient use of budgets, improve the bid management process and consider extra support for the UK industry.
We particularly welcome the continued focus on boosting our domestic industry through the clean industry bonus, CIB, referred to in these regulations as the “sustainable industry reward”. The first round of the CIB was a success, more than doubling its budget from £200 million to £544 million and leveraging up to £9 billion of investment in UK supply chains.
I agree with the Government: this is an unprecedented amount earmarked for UK factories and ports, particularly in our country’s poorest areas, fostering jobs and growth through the supply chains. We also support the intention for these costs to be accurately included in the Ofgem price cap, as these regulations ensure, which aids future transparency and fair accounting.
The regulations make three main changes. First, they amend the contract budget notice publication process for price and pot notices and the final contract budget notice signing within the allocation framework. Secondly, they amend the information that the Secretary of State has access to. The Secretary of State now gains access to anonymised strike price bids at any time, supported by an estimated budget to improve budget management and help prevent underspend. Finally, they include clean industry bonus payments in the Low Carbon Contracts Company’s calculations.
We generally welcome the spirit behind these notifications. I have some questions for the Minister. The first seeks to ensure that we get value for money and consumer costs. The changes will allow the budgets to be set at a price that balances value for the consumer with the development ambitions. However, given the significant investment involved—allocation round six was a record-breaking £1.5 billion for 127 projects generating 7.2 gigawatts, and AR7 is due to be even larger—how will Ministers ensure that the new-found flexibility generally translates into lower strike prices for offshore wind and ultimately lower costs for consumers? How can we be certain that value for money is not sacrificed in the rush to pursue record capacity?
Turning to competitive tensions and the risk of bid inflation, while the Government intend to review anonymised bid information and maintain anonymity, there is a risk that bidders might aim to obscure true costs and competitive tensions could be perceived as lacking, potentially leading to higher clearing prices, especially if there is a perception of an unlimited budget for AR7. Will the Government clarify what controls there are on the powers to mitigate any possible negative impacts from these changes?
Finally, turning to monitoring, evaluation and swift course correction, the Explanatory Memorandum details plans and processes for evaluations, robust monitoring and a post-implementation review five years after these changes take place. Five years is a long time in a rapidly evolving marketplace. I ask the Minister for reassurance about the specifics on the key performance indicators that will be rigorously tracked to assess the effectiveness of these legislative changes after each allocation round. How will any insights from each round and their implications lead to changes in processes before the next round?
We need to be careful that we do not get any market distortions from these regulations. I do not think that will be the case, but there is a need within the evaluation process to check that that is not happening.
We support the ambition to make Britain a clean energy superpower. This will help bring down bills, provide energy security, green jobs and growth and help get us off the rollercoaster of dependence on international gas markets. The Government need to bring forward proposals to lower energy bills, although that sits outside this SI. I simply seek reassurance on the points I have raised with the Minister.