Earl Russell (LD)

My Lords, I thank the Minister for introducing this instrument. On the face of it, it is a modest instrument. It alters just 12 words in the 2014 regulations to allow contracts for difference to support the continued operation of existing nuclear power stations. However, those 12 words carry some significant implications. They open the door to long-term revenue support for extending the life of existing nuclear plants, potentially committing consumers to costs over many years. I recognise that the Government have the legal authority to make that change, and that these are enabling powers rather than a mandatory instrument. I also recognise that any contracts would remain subject to value for money assessments, safety requirements and subsidy control. None the less, both the process and the substance of these measures warrant a couple of questions, and I apologise, because I will be taking slightly longer than I normally would. I begin with the process. I ask the Minister why this is being done here through a statutory instrument and not, say, through the energy independence Bill or another piece of primary legislation. This is a meaningful shift in the type of subsidy being offered, and primary legislation might have offered a greater opportunity to scrutinise it. I am slightly surprised that the Secondary Legislation Scrutiny Committee did not include a paragraph on this instrument, as it enables decisions which potentially have long-term consequences for consumer bills, the impact of which the Government themselves describe as uncertain. One element of that uncertainty is that the new CfDs have not been calculated. Turning to the substance, we on these Benches recognise that nuclear power has a role within a balanced and low-carbon energy mix. We do not oppose in principle extending the life of existing stations where they are safe, reliable and represent genuine value for money, but support must be conditional and it must be justified. The context is important. Nuclear, as the Minister has said, provides around 14% to 15% of the UK’s electricity, down from 25% in the late 1990s. We also recognise that, without intervention, existing fleet capacity is expected to retire by the 2030s, with Sizewell B following shortly thereafter. That will be a substantial reduction in firm low-carbon capacity before new nuclear projects fully come online. There is a real, legitimate concern, and we welcome the fact that the Government are looking at this. However, firm low-carbon capacity can be delivered by other options, as the Minister obviously knows. There are alternatives, and the costs of those alternatives are changing all the time; in many cases, they are coming down. When the Government speak of the “need” within this measure, we need to be careful, because that need for firm capacity is not quite the same as the need to extend these nuclear power plants; there could be other options and there are different cost calculations. I have five questions for the Minister—I apologise for that. First, the Government are, essentially, enabling non-competitive, bilaterally negotiated contracts for difference. Normally, CfDs are competitive auction processes, and that competitive nature drives down the costs for consumers. My fundamental point is that I cannot find many precedents for this form of non-competitive CfD. I have found one or two for dispatchable power agreements for CCUS projects. How does the department intend to ensure that the strike prices agreed in these circumstances represent fair value? Will the department be using benchmarks or shadow pricing to make sure that it is actually getting the best prices possible? Effectively, you are negotiating against a monopoly provider in this case. Secondly, the Government’s own analysis considered less interventionist alternatives, including reliance on wholesale market revenues, capacity market payments and private power purchase agreements, but the Minister fundamentally ruled those out as insufficient. In ruling out those other measures, are we effectively saying that the only way to extend the life of these nuclear power plants is through a form of subsidies, and that subsidy is through CfDs? My point is, if that is the position, does it need to be stated a little more clearly? Thirdly, the energy system is evolving rapidly. Costs, particularly for storage, have fallen significantly and may—probably will—continue to do so, benchmarked against the costs of updating old nuclear power plants. What confidence do the Government have that the contracts agreed here in the near term will represent good value for money over the longer term, as these prices and policies continue to shift? Is that uncertainty being adequately calculated within these arrangements? Fourthly, I turn briefly to the impact on household bills. At the moment that is uncertain as this is an enabling power and the CfDs have not been negotiated. The Explanatory Memorandum states clearly that the cost of these decisions will fall disproportionately on lower-income and vulnerable households. Obviously, that needs to be balanced against the need for firm power within the system. Can the Minister confirm that everything possible will be done to shield vulnerable households from possible electricity price increases as a result of this instrument? Fifthly, there is a proposed five-year review. We welcome the fact that a review is included in this measure, but it feels very limited in its practice and scope. Although the a five-year review is there, between now and when it kicks in the Government could have agreed 20-year CfDs contracts for extending the lifetime of all the nuclear power plants and future Governments would then be tied to those 20-year contracts. They would be public law contracts, so future Governments would be unable to escape from them. While we recognise that the review is there, I can see no way in this instrument that Parliament has any confidence or any way to review or monitor what is being agreed before commercial contracts are signed. That is a worry for me. I recognise that we need to upskill and to provide work for our nuclear workforce; that is important not just for this but for SMRs and other programmes. However, there is a danger that this could be a distraction and that working on this could be a drain on our nuclear workforce when it is needed to work on SMRs and other projects. Is there concern that this could impact those further developments or do the Government see this as a strength, in that there will more work and we are training up people for projects that will come online? Those are my concerns about this instrument. We are not against updating these old plants, but we think that this is an unusual form of CfD. We want to make sure that they represent value for money and that there is some oversight of that process before contracts are agreed. I apologise for speaking slightly longer than intended.