My Lords, I shall speak also to the other government amendments in this group. These changes provide important clarifications to the implementation of contracts for difference and in addition respond to a number of recommendations made by the Delegated Powers and Regulatory Reform Committee, for which the Government are very grateful. This group also contains a number of minor but essential and consequential amendments.
Amendments 16 and 38 on contracts for difference give the Secretary of State the power to issue and revise standard terms for contracts for difference, subject to consultation and under an explicit duty to consider the matters listed in Clause 5(2), and to publish those standard terms. Amendments 17 and 19 enable provision to be made for how the system operator will notify the CFD counterparty that an eligible generator has been allocated a CFD and, in turn, how the CFD counterparty is to offer a contract to an eligible generator.
Amendment 18 provides for the Secretary of State to set out how the system operator will run the allocation process, in particular through an allocation framework, which will cover such areas as: the process to be used, such as the competitive process in the event of a constraint; the timing of allocation rounds; and any targets, such as minima and maxima, which the system operator will need to consider. The Government are seeking to include this sort of provision in an allocation framework, as opposed to in a statutory instrument, because these are issues that might need to change at short notice in order to manage costs and to ensure value for money along with the smooth functioning of the allocation process. However, it is important to note that the allocation framework will not be free-standing. Provision for an allocation framework will need to be set out through regulations, which will be subject to the affirmative procedure.
Amendment 20 gives the CFD counterparty the power to agree minor and necessary modifications to the standard terms, prior to contract signature. This ensures that the CFD regime is open to the widest possible range of eligible generators, while maintaining a level playing field. Amendments 13, 14 and 15 are
consequential amendments, recognising that Clause 10 now refers only to contracts for difference that result from bespoke negotiations with the Secretary of State. This is because powers for contracts for difference that result from allocation by the system operator now have their own clause.
Amendment 21 enables provision to be made in regulations to enable calculations or determinations required by the regulations. Such calculations or determinations are to be made by specified persons—for example, the CFD counterparty. Amendments 6, 10, 26 to 37 and 39 are all consequential to the principal amendments that I have set out.
Amendments 8, 56 and 44 move most secondary legislation relating to contracts for difference, investment contracts and the capacity market to the affirmative resolution procedure, increasing parliamentary oversight in accordance with the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendment 56 also goes beyond the committee’s recommendations by making all secondary legislation in Parts 1 and 3 of Schedule 2 subject to the affirmative procedure. This ensures that the provisions in Schedule 2 are consistent with the equivalent provisions in Chapter 2 on contracts for difference.
Amendment 40 also responds to the committee’s recommendations by preventing the authority—Ofgem—from conferring additional functions on itself when exercising the powers under Clause 28(3) to make capacity market rules, except with the consent of the Secretary of State. However, since tabling this amendment, the DPRRC has provided a further report and makes a recommendation in relation to this, which I will be considering carefully ahead of Third Reading.
Amendments 9, 45 and 57 make explicit provision that regulations made under contracts for difference, the capacity market and investment contract powers will not be treated as hybrid. I have tabled these amendments because the secondary legislation implementing EMR may specify determinations made by Elexon for the purposes of settlement of payments under these powers. As such, the regulations may potentially be considered hybrid and subject to investigation by the Hybrid Instruments Committee. The Government do not think that this is necessary or appropriate, as the existing duty to consult before making regulations will ensure that Elexon’s private interests are fully considered. My department is already working closely with Elexon, which has also confirmed that it has no objections to these amendments. To avoid the risk of delay to the programme and the investment that it will bring forward, I have tabled these amendments to make it clear that no hybridity will arise.
Amendments 11, 12 and 58 are minor drafting amendments with no impact on the substantial legal effect. They have been tabled in order to avoid any perception that we are giving the counterparty new powers to recover moneys owed to it. Amendment 46 is another minor change to make it clear that the duty to consult before making capacity market rules can be satisfied by consultation undertaken before Royal Assent. This aligns Clause 35 with other provisions of the Bill, such as Clause 18(2) and Clause 34(3).
Finally, Amendments 52 to 55 are minor and technical drafting amendments to clarify that an investment contract will continue to be an investment contract even where a party ceases to be an “electricity generator”, and that the definition of an “investment contract” is satisfied if at least one generator is under an obligation to make payments under the contract. I hope that noble Lords find that a helpful explanation of the government amendments and I beg to move.