I beg to move,
That the Committee has considered the draft Electricity Capacity Mechanism (Amendment) Regulations 2024.
Good morning and happy new year to all members of the Committee. It is a pleasure to serve under your chairmanship this morning, Mr Efford.
The instrument revokes and alters several provisions of the assimilated regulation 2019/943 of the European Parliament and of the European Council of 5 June 2019 on the internal market for electricity relating to the capacity market, which from now on I shall refer to as the assimilated electricity regulation. Before I outline the provisions of the draft regulations, I shall briefly give some context.
Great Britain’s capacity market was introduced in 2014. It is designed to ensure that sufficient electricity capacity is available to meet future predicted demand, to maintain security of electricity supply. It is our main tool for that purpose, providing all forms of existing and new-build capacity with the right incentives to be on the system when we need them. It covers generation, storage, consumer-led flexibility and interconnection capacity. Capacity markets auctions are held annually one year and four years ahead of delivery to ensure that we have supply when we need it and to meet future peak demand in a range of scenarios, based on advice from the capacity market delivery body, the National Energy System Operator.
Since its introduction, the capacity market has contributed to investment in just under 19 GW of new, flexible capacity needed to replace older, less efficient plant as we transition to the net zero economy. The capacity market was originally approved under European Union state aid rules for a period of 10 years. Following the UK’s withdrawal from the EU, a requirement in EU law for approval of up to 10 years was brought into our domestic law as part of the assimilated electricity regulation. To date, the capacity market has been successful in ensuring that Great Britain has adequate electricity capacity to meet demand, and it continues to be required to maintain security of supply and investor confidence. This will be increasingly important as further sectors of the economy are decarbonised through the transition to net zero, increasing demand for electricity.
The draft regulations revoke and alters certain provisions relating to capacity mechanisms in the assimilated electricity regulation, including article 21(8), which requires that
“Capacity mechanisms shall be temporary and shall be approved for no longer than 10 years”,
and other references to such mechanisms being temporary. The draft instrument also revokes several provisions that require minor correction following changes made for the UK’s withdrawal from the EU, or that impose requirements that are no longer considered to be necessary. We are making these changes now because of the ongoing need for the capacity market to ensure sufficient investment in reliable electricity capacity.
The domestic subsidy control regime was introduced after our withdrawal from the EU. It does not require subsidy schemes to be granted an approval or to be limited for a specified period. The approval requirement in the assimilated electricity regulation does not, therefore, reflect our post-EU exit arrangements. It is of course important to keep the capacity market under review, and there are several controls in domestic legislation, such as the Secretary of State’s discretion not to hold auctions, as well as a statutory requirement to review the capacity market every five years, which provides an opportunity to review the need for the scheme. They will all be retained in the domestic capacity market legislative framework.
The draft instrument revokes and alters certain provisions related to capacity mechanisms in the assimilated electricity regulation, including the requirement for an approval lasting no longer than 10 years and references to capacity mechanisms being temporary. The aim is to ensure that our domestic legislative arrangements reflect the continued operation of the capacity market, which is Great Britain’s main mechanism for ensuring security of electricity supply. I commend the draft regulations to the Committee.