My Lords, I am extremely grateful to the noble Lord, Lord Jenkin of Roding, for tabling his amendment. We discussed the capacity mechanism in the previous session, when our focus was on the interplay between existing generation, more supply coming on and the demand side of the capacity mechanism. This amendment gets to the heart of how the capacity mechanism is proposed to work. One of my major concerns about the Bill relates to this mechanism because it is quite a dramatic intervention into the market, yet we still have very little in the way of detail as to how it is proposed to operate. I urge the Minister to give us some reassurances that we will see the draft statutory instruments pertaining to this part of the Bill as early as possible. It is one of the most unworked-through parts of the Bill and it is only when the SIs are drafted that we will be able to answer some of these important questions raised by the noble Lord, Lord Jenkin of Roding. Can we therefore have some reassurances about the timetable for publishing the draft SIs for this part of the Bill?
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I have some sympathy with those who ask why we are in the process of introducing two capacity mechanisms, because that is what is happening. We have the temporary transition arrangements being consulted on by National Grid, as outlined by the noble Lord, and we have the more permanent capacity mechanism that we are discussing today. As the noble Lord, Lord Jenkin, mentioned, it has become an idée fixe that the mechanism cannot operate any sooner than 2018-19. Can I ask
why that is? Is it because the institutional framework cannot be set up in time or are there other barriers? Can the Minister explain why 2018-19 seems to be the year? I suspect that one of the factors might be that there is a desire somehow to give time for new CCGT to be built. If that is the case, I do not think that that argument really stands up to much scrutiny given that there does not appear to be a great appetite for the building of new CCGT in that timeframe. It is more likely that, if gas comes back into the money, the mothballed plant will come back. As has been alluded to, there is a substantial amount of mothballed gas now on the system. The reason for that is that those plants are losing money. Once you add to the cost of gas the carbon-floor-price effect, those plants operate at a loss. We may even see—in fact, it is predicted—more mothballing between now and the end of the decade. While it might be nice to think that the mechanism in the Bill is going to bring forward a huge swathe of investment in CCGT, it is highly unlikely unless it clears the hurdle of bringing back the mothballed plant.
There is a question about whether the timing of the auctions and the receipt of payments can be designed in such a way as to implement the demand-side response and the demand-side reduction first. We have previously talked about the need for early signals for that demand side. If we have a very short-term capacity restraint, the quickest and perhaps most logical place to start would be to try to reduce the peak and move the demand, so that we are not facing stress on the system at those peak periods.
I shall speak later to another amendment on this topic, so I will keep my comments on this one brief because the case for it has been eloquently made. I am not sure that we need the capacity mechanism to start as early as 2014 or 2015, with payments straightaway, but what I am sure of is that this is a very important part of the Bill, and sadly there are still many questions about how it will operate. I reiterate the strong desire on this side of the Committee to see those draft SIs as soon as possible.