My Lords, in moving this amendment in my name and that of my noble friend Lord Jenkin of Roding, I will speak also to Amendment 62, which is in my name and that of the noble Baroness, Lady Liddell, and to Amendment 64, which is in my name and that of the noble Lords, Lord Jenkin of Roding and Lord Cameron, and the noble Baroness, Lady Liddell.
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We have already begun to discuss the issue of the independent generators, whose success is extremely important if we are to have a significant increase in the amount of new generation in renewables; perhaps 35% to 50% of what we need will have to come from independent generators. Therefore, a viable route to market for these generators, in what is not a particularly
satisfactory market, is important. The need to break into the current dependency of the independent generators on the big six is obviously important. That is why we had discussions both in the Commons and in Grand Committee on the need to find an appropriate solution. The Government tabled an amendment, which is now Clause 44, to enable the creation of what is referred to as an offtaker of last resort. Curiously, the words “offtaker of last resort” never appear anywhere in the legislation, which is a little confusing to say the least, but that is what we are talking about.
This is particularly important, but it is not totally clear what the effectiveness of the provisions put forward in Clause 44 will be, particularly in light of the wording of the letter that the noble Baroness, Lady Verma, wrote to the noble Baroness, Lady Worthington and copied to other noble Lords on 22 July, which was rather cautiously hedged as to how far there was a commitment. The reference was that there would be implementation only “if necessary”. The amendment, and the clause now before us, give only a power to the Minister, not a duty. One of the things that we need to do, and which these amendments attempt to do, is to ensure that it is clear that there will be a an offtaker of last resort.
I am aware that there will be a consultation in the first part of next year and that the Minister may therefore feel limited as to how far she can go in responding about the nature of such an offtaker of last resort. However, it is essential that before the Bill leaves this House we are clear that the consultation is not about whether or not there will be an offtaker of last resort but of how that offtaker of last resort will operate. That is perfectly legitimate. Unless it is clear that there is to be an offtaker of last resort, the independent generators will not have a bankable proposition that they can discuss with their financiers to get the necessary finance for the new projects that we all believe are so important. Therefore, I hope that we can have some assurance about that matter before we conclude our discussions in this House.
I have raised this matter in the past with the Minister and it is covered by Amendment 60: it is important that these arrangements should be operational in time for the allocation of the first contracts for difference in 2014 and operate for the duration of those contracts. Otherwise, the independent generators would find it difficult to get the financial resources to get bids in those allocations. It is therefore a reassurance to their investors that independent generators will be able, if necessary, to sell their electricity and cover their debt and equity from the outset of the new regime. Until the OLR is operational, the contracts for difference will not be of such value for the independent generators. It is therefore important that we have some assurance that the OLR arrangements as discussed in Clause 44 are clearly defined in time for the first allocation of contracts for difference.
There are two other matters, one of which has already been touched on. The one that has not is covered by Amendment 62 in my name and that of the noble Baroness, Lady Liddell: if you are going to have such an emergency system, it has to be something that can operate quickly, avoiding a long period of negotiation,
if you need to turn to it because there is a problem. There must be some assurance from the Government that they will be available quickly when they need to be. I hope for an assurance on that matter as well
The final point has already been discussed to some extent under the last group of amendments. It is the level of discount at which the offtaker of last resort would be able to provide his PPAs. The discount should be fixed at a viable level for the duration of the contract for difference. To make the arrangement bankable for investors and for the generators to negotiate with investors, there should be a fixed discount off the strike price or the market reference price, set at a point where independent generators can determine the impact on their cash flows and how much debt they are able to raise to fund a particular project.
As has been said before, to reassure investors in these essential projects of the independent generators, there is a need for a commitment from the Government to viable and workable solutions that meet the points that I have raised. That is essential if we are to step forward on the arrangements that we have discussed under contract for difference. I beg to move.