My Lords, Amendment 55AB is also in the names of my noble friend Lord Jenkin, who unfortunately is unable to be with us today, the noble Baroness, Lady Liddell of Coatdyke, and the noble Lord, Lord Cameron of Dillington. The amendment, which is fortunately grouped with the very interesting amendments that the Government have tabled on the same subject, tries to guarantee the independent renewable energy generators who have a vital role to play in ensuring that we have secure, affordable and sustainable energy in the United Kingdom.
The independent generators feel—they certainly did before the Government tabled their amendments last week—that the Energy Bill puts at risk their ability to raise the funds necessary to invest in vital infrastructure because it does not provide a clear route to market for them once they have carried out that investment. They feel that the Bill effectively entrenches independent generators’ dependency on the big six through their power to provide long-term power purchase agreements. They therefore feel, and have felt for some time, that the lack of effective competition for those long-term power purchase agreements means that the terms available to the independent generators make their position unviable and make it that much more difficult for them to raise the funds necessary to carry out the investment that we all believe is important.
This is a problem, in their view—I realise that others may have a different analysis—of a structural market failure that will not be solved by Ofgem’s liquidity reforms. Nor will the move to a new structure of CFDs provide to a market source the sort of competition that would enable them to obtain PPAs. This problem of market access by the independent generators was, I understand, first raised by them with the department two years ago when it was first announced that the renewables obligation was to be withdrawn and replaced by the generation support mechanism that we have been discussing this week.
The failure to tackle the problem earlier reflects to some extent—I do not want to be unkind; I understand the difficulties that the department has had in trying to model these problems—inadequacies in the assumptions that were made about how the market would operate in this situation. There was an assumption that it would operate rather more effectively and that, therefore, there was no need to guarantee a route to market for the independent generators.
Of course, those of us who have had a chance to study the Baringa report on which the Government’s amendments for a backstop PPA proposal are to some extent based, was received by the department in its final form less than 10 days ago. Therefore, one understands why there is still a great deal more work to be done before final decisions can be made as to the way in which a backstop could be set up. On the other hand, the independent generators feel that there is an urgent need for the Energy Bill to be amended in such a way that it includes a solution which incorporates plurality in the market for PPAs from the beginning. It will not be possible for them to make applications for CFDs without having some assurance that they will be able to market what they produce on that basis.
As was discussed in Committee in the other place, many in the industry prefer the solution of a green power auction market to solve the problem. The Government have claimed that this would be a more expensive way to achieve the objective. There is, of course, a dispute about that. The independent generators would argue that they could achieve a £2 billion saving for consumers by removing a middleman charge that the current market generates. I am not sure about that but one of the problems that I have, and why this amendment has been tabled in the way that it has, is the complexity of developing the backstop PPA. The
more I read the Baringa report, the more difficult I feel this is going to be. That complexity is such that I believe it is important that there should be a backstop in the form of a green power auction market if it is not possible to implement the backstop PPA. That is why this amendment has been put down in the way that it has. If the backstop PPA is not viably implemented and in place when the first CFDs are in operation, the independent generators will be under a clear disadvantage compared with the big six and the foreign state-backed utilities, contrary to what the Minister in the other place pledged in Committee, and UK energy security will be at risk.
According to what we have read in the department’s helpful briefings, the regulations will not necessarily be laid until next year. What we need to hear from the Minister today is an assurance about when they will be implemented so that the independent generators can be sure that they will be available at the appropriate time. With the detail of the backstop proposals still to be finalised, it seems to us necessary that the Bill also empowers the Government to implement as a backstop to the backstop the GPAM, which is the only clearly worked-out solution, and one which could operate, even though I realise it has some disadvantages.
I have a further amendment in this group, which is the traditional amendment with which, I am afraid, I have teased the Committee in the past—that is, the power to make regulations by the affirmative procedure rather than the negative procedure. I am sure that the Delegated Powers and Regulatory Reform Committee would have recommended that provision if it had had a chance to consider these amendments. I beg to move.