Contribution
My Lords, I shall speak to my Amendments 1, 5 and 6, and Amendment 3 in the name of the noble Baroness, Lady Bloomfield. I declare my interests as a chief engineer working for AtkinsRéalis and as co-chair of Legislators for Nuclear.
Turning first to Amendment 5, I listened carefully to what the Minister had to say at Second Reading on this matter and was pleased to hear some clarification on competitive allocation. Of course, to get the market moving, most contracts will initially be likely to be bilateral between the counterparty and the SAF provider, but the legislation must be future-proofed.
We had a lot of discussion in the other place and at Second Reading here on the effect on air fares of this legislation. The way to bring costs down and deliver value for money is, of course, through competition. In the longer term, we need a mechanism similar to offshore wind whereby a strike price and an auction are put in place. That would apply the right competitive pressure to the markets and put downward pressure on costs. All other similar government legislation—for example, the Energy Act 2023 for hydrogen carbon capture and storage, and the Energy Act 2004 for offshore wind—include such provisions, but the Bill does not. Clarity on how this competitive process will be set out is important, so I propose this amendment.
Amendment 5 is based upon Section 76 of the Energy Act 2023, but it has been tweaked so that, rather than spelling out all the things regulation might cover, I give the Secretary of State the power to make rules. This reduces the complexity of the other Acts by avoiding the need to table complex secondary legislation and instead covers this through a rule-making power. Through the framework, the amendment also allows the Secretary of State to make decisions on aspects such as the process of producing SAF, the outputs and, critically, the location of production, which feeds into some of the amendments in the next group.
Overall, Amendment 5 is an opportunity for the Government to clarify the overarching strategy of the Bill in moving from bilateral negotiation to competitive allocation by embedding competition within the Bill. This would clarify the Bill and ensure that the benefits of competition in lowering costs are taken forward.
Turning to Amendment 6, there is another opportunity here for the Government in aligning the Bill with the SAF mandate order. The strategic nature of power-to-liquid fuel, or third-generation SAF—eSAF—has been recognised by the Government. In the SAF mandate order, there is a table that specifies by calendar year the percentage of SAF that must be in power-to-liquid form.
It is crucial that the revenue certainty mechanism secures enough eSAF production capacity to meet the SAF mandate in the UK; otherwise, there is a real risk that the mandate will not be able to be met due to global scarcity. Analysis from the Transport & Environment NGO shows that the UK cannot rely on eSAF imports from the EU, for example, to meet the SAF mandate, as planned EU production capacity is just enough to meet EU regulations. That shows the importance of aligning the revenue certainty mechanism with the SAF mandate order.
In Amendment 6, I am proposing to take aviation fuel demand in the UK, which is around 10 million tonnes per year—that figure is at the lower end of aviation fuel demand over the past couple of decades and is taken from ONS data—and multiply that figure by the percentages in the SAF mandate order.
The amendment would help the Government to ensure that the revenue certainty mechanism and domestic SAF production delivers the quantities of power-to-liquid fuel that are required to meet the SAF mandate. Critically, it would ensure that we have join-up between these two parallel pieces of legislation and that the revenue certainty mechanism is joined up with the SAF mandate order.
I will also speak to Amendment 3 in the name of the noble Baroness, Lady Bloomfield. This amendment, which is very straightforward, proposes a modification to the SAF revenue certainty contract having a default length of 10 years in that it would extend it to 20 years. This is particularly of interest for nuclear-derived SAF. If a SAF offtake is to support the investment in a nuclear power station like an electricity offtake agreement does today, revenue certainty beyond 10 years is highly likely to be required. Ten years’ offtake of SAF is too short to be bankable and is likely to block a SAF developer from supporting investments in nuclear new-build projects, as they would need to do in order to comply with the SAF mandate. This amendment is to probe whether a change to the 10-year period is required for certain classes of projects or whether the option of longer-term contracts is open in the existing legislation. I beg to move.