My Lords, today the Committee started with a discussion around transitional arrangements for renewables because of the grouping of the amendments, but the part of the Bill we are still debating includes reference to the contracts for difference and the detailed ways in which they will work. Clause 17 is interesting in that it gives the Secretary of State a power to set by order both a maximum amount of money that can be spent on contracts for difference and also, under subsection (4), a provision to include targets.
I have spoken both at Second Reading and in Committee about my concern that we are potentially entering into a great politicisation of energy policy with this Bill. We are, for good reason, proposing to move towards a much more administratively complex and centrally controlled system for allocating funds to low-carbon projects. There are reasons for that and we support the broad principle., However, the Government have been quite clear that this is a temporary transitional arrangement and supporting documents have referred to the fact that this will ultimately transition to a competitive system where, through technology and blind auctions, CFDs will be allocated in an administrative way with far less central control. Given that that is where we are trying to get to, I am concerned that we should not unnecessarily constrain this transitional period by a system of micromanagement which we are unlikely to get right.
The deletion of subsection (4) would remove the power to make targets for the means by which electricity is to be generated—that means the type of electricity generation—and remove the risk of the scale of generating capacity being unduly split up. The definition of “eligible generators” will be set by order. I think that 0that is correct. I do not see why you would want to have specific targets by scale.
Thirdly—and this is potentially the most worrying aspect—the Secretary of State may wish to make targets by geographical location. I am not saying that
this is what would happen, but it is obvious that that holds the potential for a huge degree of politicisation of energy. If a Government are strong or weak in a particular region and wish to direct generating capacity into that area, for whatever reason, this would enable that to happen. We do not want to go back to the bad old days, whereby, to win a seat, you might want to boost a few jobs and put a power station there. That seems to be retrogressive. You could also lose your seat by doing that, it is true to say. It works both ways. However, I should be interested to hear the rationale from the Minister as to why geographic targets would be necessary. I am also nervous about undue micromanagement in terms of targets, sub-targets and sub-targets of sub-targets. We have had some experience of that already, with both the RHI and the FIT schemes having very targeted small allocations of pots of money to be spent on different types and scales of technology. Everyone with whom I speak in the industry is heartily sick of that, partly because it is almost inevitable that those targets will be wrong. The market finds the solutions according to its internal logic, and it is very difficult for civil servants to guess at that.
I am very nervous about the sub-division of the levy control framework into small, tight pockets of money where, if it is anything like the RHI and the FIT schemes, digressions will be introduced. If a certain type or scale of technology delivers, those digressions will hit and the market can be pulled away quite rapidly. We are seeing that with the solar feed-in tariffs at the moment. There is a great fear that, if the mid-size solar projects took off, they would immediately hit a digression and the market would disappear. Therefore, there is a very good reason to be nervous about micromanagement in this context.
Nor do I think that this measure can work in practice. The levy control framework is a seemingly fixed amount of money, but the levels of spend that will come through the CFD is not fixed, so you cannot estimate how much money will go to different projects until you know the difference between the reference price and the strike price, and that will come only with time. I am nervous about the levy control framework anyway, but I am even more nervous of one that is divided and sub-divided down into ever smaller pockets, because that will create a great deal of uncertainty in the market and has the potential to disadvantage rather than reward winners. Let us be honest—we want the market to uncover the most successful projects—the ones with the best chance of delivery. If, every time a sector or sub-division shows that it is being successful, it has its funding taken away or cut, that is not really a way to build an industry. That is why we have tabled the amendment. I admit that it is a probing amendment but this is a serious issue in relation to how CFDs will operate. I look forward to hearing the Minister’s comments.