Yes, indeed. A number of plants are to close down over the next few years, and given how the energy market works, which I have described, one would expect the ability to obtain rents at the margins of the market to encourage the development of new plant. The statement made by the development of a capacity market auction is that that mechanism will not exist, so a permanent underwriting of new plant development needs to be auctioned to allow that to take place.
The strategic reserve option, which works quite well in a number of parts of the world, is that certain plant—perhaps mothballed plant—is taken out of the market and then placed back into it at times of stress on the market. As a result of that action, rents are reduced. Indeed, the fact that there is a strategic reserve that can be put back into the market at stressful points damps down the possibility of rents being obtained. That option comes at a much lower cost and
“should be relatively simple to set up and administer as it is a relatively small intervention in the market”—
not my words but those of the impact assessment. It
“could avoid gaming in the capacity market if there is a plentiful supply of mothballed plant”,
as indeed there is right now. Overall, it
“has the potential to be the smallest intervention in the market and accordingly has least overall policy design and implementation risk associated with it.”
The capacity market, on the other hand,
“has a higher overall level of design risk given the relative complexity of the model…a Capacity Market, if not well designed, could create opportunities for gaming the new capacity auctions; and…is the more costly mechanism to set up and run and it puts a greater administrative burden on businesses who will participate in the capacity market.”
Again, those are not my words but those of the departmental impact assessment of the choice between a strategic reserve and a capacity market.
Yet a capacity market was chosen to underpin the entire energy market reform and the Bill. I imagine—in fact, I am pretty certain—that that is what we will eventually go for. However, I modestly suggest that it
might be a good idea to put in the Bill the idea that if that does not work very well, as I also modestly suggest it probably will not, the Minister has the option of moving towards a strategic reserve arrangement. That would keep the costs down and damp down the gaming of the capacity market auctions that may well take place over the next few years. That would be helpful for our ability to run a coherent energy policy over the next few years, and I tabled my amendments in the spirit of that helpfulness and to ensure that, whichever way we decide to go, we do not shut the door on something that is cheap for consumers in the long term, better for the energy market overall, and will keep our energy supplies in good shape for the future.
6.30 pm