Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations 2024

Considered in Grand Committee

15:45:00

Moved by

That the Grand Committee do consider the Environmental Permitting (Electricity Generating Stations) (Amendment) Regulations 2024.

My Lords, these regulations were laid in draft before the House on 30 October 2024. The Government believe that the answer to the challenges around energy security, affordability and sustainability point not in different directions but in the same direction: clean power. Investing in clean power at speed and scale can help tackle the climate crisis and create good jobs. We believe that it is the only route to protect bill payers and ensure energy security; this is why making Britain a clean energy superpower by 2030 is one of the five central missions of this Government. To deliver that mission, we will rely increasingly on a renewables-led system as the foundation for a decarbonised grid. We have set ambitious but deliverable targets to double onshore wind, treble solar and quadruple offshore wind by 2030. Although renewable energy is at the heart of our plan to deliver clean power, we also know that we must bring forward low-carbon generation sources, providing added security for when the sun does not shine and the wind does not blow. This includes flexible supply sources that can scale up or down instantaneously to meet peak demand. Some of this flexibility can be provided by short-duration technologies such as batteries, which can help balance the system within each day, but we know that we will also need long-duration technologies, which can run for extended periods of low renewable production. To meet this challenge, the Government are investing in low-carbon flexible technologies, such as carbon capture and storage at existing power stations, hydrogen and long-duration electricity storage. This flexibility is critical to maintaining a constant supply of electricity in the UK, keeping the lights on for millions of homes and businesses. However, as these new low-carbon technologies scale up, we will continue to need reliable mature technologies, including gas, to provide energy security. The National Energy System Operator’s report on delivering clean power by 2030 showed that maintaining gas capacity in the system is in line with the mission to deliver clean power. We have been clear from the outset that gas is expected to be used less in our future energy system, moving to an important strategic reserve role in order to ensure security of supply. Although gas will continue to play an important role in the system, it is only right that we should expect any new or substantially refurbished combustion plants to be built “net zero-ready”. This is why we are uplifting the existing regime and introducing the new decarbonisation readiness requirements. Before I turn to detail of the decarbonisation readiness requirements, let me first set out the current regime. Since 2009, all new-build combustion power plants in Great Britain sized over 300 megawatts have been subject to the carbon capture readiness requirements. These regulations require plant operators to demonstrate that it is technically and economically feasible to retrofit carbon capture and storage technology. Due to the threshold of 300 megawatts, the policy has seen limited application since 2009. The reality is that it has contributed to a costly market distortion by incentivising the building of smaller, less efficient plants and inadvertently creating an unacceptable loophole. This has resulted in a significant number of plants being built at 299 megawatts in order to avoid the carbon capture readiness requirements. The policy landscape has changed significantly since the carbon capture readiness requirements were introduced. Plant operators now have an alternative pathway to decarbonise, through hydrogen-fired generation, as well as the introduction of the UK’s legal obligation to meet carbon budgets and reach net zero by 2050. In March 2023, a final consultation on the decarbonisation readiness proposals was published alongside the publication of two technical studies for hydrogen and carbon capture and storage. The consultation received positive feedback from industry. Some 28 organisations and one individual responded—representing plant operators, original equipment manufacturers and trade associations—with broad support for the proposed changes and implementation of the decarbonisation readiness requirements. We published a response in mid-October, giving the go-ahead to proposals set out in the consultation. On the details of the regulations, this statutory instrument will amend the Environmental Permitting (England and Wales) Regulations 2016 by inserting new Schedule 25C. It will remove the minimum capacity threshold of 300 megawatts, which will remove any existing market distortion and support rapid decarbonisation by ensuring that nearly all new and substantially refurbishing combustion power plants must have a credible plan to decarbonise. The regulations will also move the requirements from the planning consent process, where they currently sit for carbon capture readiness, to environmental permitting. This will ensure that the responsibility for regulating the requirements falls to the Environment Agency rather than to local planning authorities and my own department. Unlike local planning authorities, the Environment Agency is already involved in the assessment of carbon capture readiness and has the technical expertise to assess the requirements. As I mentioned a moment ago, that will also include hydrogen readiness. The new requirements will now enable combustion plants to demonstrate decarbonisation readiness through conversion to hydrogen firing, as well as carbon capture. In doing so, the instrument introduces hydrogen conversion readiness and carbon capture readiness assessments, which are proportionate to the developing nature of hydrogen to power and carbon capture and storage. The requirements will also expand the generation technologies in scope of the requirements to include biomass, energy from waste and combined heat and power plants. This will ensure that a higher number of carbon-intensive plants are now captured. These updated requirements are intended to strike a balance. They ensure that new-build plants and the refurbishment of old sites are conducted ready to take full advantage of future decarbonisation opportunities, while acknowledging the emerging state of hydrogen and carbon capture technologies and their enabling infrastructure. We expect that the requirements will be strengthened over time as the generation technology improves and clarity on enabling infrastructure availability increases. To ensure that we regularly assess the impact of the policy and the case for strengthening the requirements, we have included a statutory requirement for the Government to carry out a review of the policy in periods not exceeding five years. In summary, these regulations will ensure that the gas capacity we need for security of supply is future-proofed and has a credible plan to transition to low-carbon operation. In doing so, it will help deliver our aim to become a clean energy superpower and deliver net zero by 2050. I beg to move.

When one is first appointed to Parliament, one worries about addressing a huge crowd of parliamentarians and being on the telly as well. I am not feeling too nervous today. I found the Minister’s explanation excellent; I did not understand it particularly from the legislation or the Explanatory Memorandum. I presume that the whole area around potential new gas, in particular combustion power stations, is about aiming for 95% decarbonisation by 2030 rather than 100%, which I understand in terms of pragmatism. On the areas that I do not really understand, the one that I had not really realised is the hydrogen aspect of these regulations. I find it difficult to understand how one would ever convert a gas power station to a hydrogen power station in a way that would make any economic sense whatever in terms of gas storage coming in and perhaps being used as part of the capacity mechanism. The hydrogen would have to be green hydrogen, which means that it is probably generated by electricity in the first place—so why would one de-convert it through various inefficiency mechanisms for it then to go through a degassed power station? That just does not seem logical to me. On that, the other risk seems to be that—I am not a technical expert on this, obviously—the conversion from a gas-fired power station to a hydrogen-fired power station is probably not that different, and therefore the cost of conversion, or of being hydrogen-ready, is not very great. Carbon capture and storage, however, is a major conversion and, presumably, it has to be near facilities that can store carbon: either a carbon pipeline, which we went through all the legislation for in the last Energy Act, or something on the coast, so it can go undersea. So I ask the Minister: is this effectively another loophole like the one that already exists, in that new combustion stations just say that they are hydrogen-ready? In terms of carbon capture and storage, does that very much restrict where they are? I have another concern, although I fully accept what the Government are trying to do here. The Minister mentioned energy from waste plants. We all know that, as part of their planning permission, the plants often have to be ready to have heat networks—but this hardly ever happens. Occasionally it does; there are examples of energy from waste being tapped into heat networks. I just feel that there is a risk that these things can be built in a certain way—I do not know how much they have to be ready or near a connection—but in reality they will never happen. Certainly, that tends to be the track record in this area. I will be interested to hear the Minister’s comments, but, generally, I welcome what the Government are trying to do.

My Lords, in speaking to these regulations, I will concentrate on a major area where I feel the Government must provide some clarity: regulatory burden. In doing so, I am of course mindful that it was the previous Government who introduced the initial consultation to expand and update carbon capture readiness requirements, now rebranded as decarbonisation readiness requirements. The immediate effect of these regulations will be felt across electricity generating stations in England, particularly those now required to meet the expanded decarbonisation readiness criteria. Operators will be required to submit a decarbonisation readiness report as part of their environmental permit applications, which must include technical details on the feasibility of carbon capture or hydrogen conversion during electricity generation. A significant provision in this statutory instrument is the removal of the 300 megawatt minimum capacity threshold, which currently dictates when carbon capture readiness requirements apply. In this amendment, the requirements will apply to both new and substantially refurbished combustion power plants, as well as voluntary applications for existing plants. Additionally, the SI introduces assessments for hydrogen conversion readiness and carbon capture, usage and storage. It is incumbent on the Government to outline comprehensively what specific support will be available to businesses as they are required to adjust to these new requirements. Can the Minister assure me that his officials in the department recognise that the onus must be on helping operators achieve compliance rather than face an undue burden? Will he outline whether exemptions have been considered—for example, for smaller or older power plants that may face specific challenges in meeting the requirements on day 1? There is a fine line to be walked between regulation and innovation, and, to use a familiar proverb, there is a real need here to make sure that we are not cutting off our nose to spite our face. This instrument hands the Environment Agency direct assessment powers over compliance. Again, can the Minister provide the necessary detail on the actions that the agency will take to facilitate a smooth transition before the implementation date of February 2026? Additionally, will there be any further consultations, or will any additional guidance be issued, before the regulations come into effect?

My Lords, I thank the noble Lords, Lord Offord and Lord Teverson, for their comments. I should say to the noble Lord, Lord Teverson, that I am grateful for his support and for noting the clarity with which we have presented the proposals. In terms of the popularity of debates on energy SIs, we have had more colleagues here in previous debates, but we are presently on a rota of two SIs every Monday, and at some point I hope we might come to a conclusion in relation to that.

16:00:00

The noble Lord, Lord Teverson, raised a number of challenges in relation to providing low-carbon technologies, particularly H2P—hydrogen to power. We think it could bring benefit to the power system as a critical low-carbon long-duration flexible technology that is capable of providing extended dispatchable power during periods of low renewable output. Internal and external analysis indicates that H2P can be run economically at low load factors. That will become more prevalent in a renewables-dominant power system.

On the issues raised by the noble Lord, Lord Offord, we have discussed the approach to regulation here. My understanding is that the Environment Agency will regulate the requirements in a proportional way that minimises the regulatory burden for small projects with the least environmental impact. Of course, there will be a small administrative cost to businesses. Our analysis suggests a total cost to business of £4.2 million per year across the economy. These costs derive from importing a cost associated with meeting the requirements. The noble Lord, Lord Offord, acknowledged that this work was undertaken by the previous Government. We have continued that work and adopted a consistent approach.

It is worth making the point that, of the four tests that will be required of a plant operator to demonstrate carbon capture readiness—a spatial test, a technology feasibility test, a CO₂ transport and storage test, and an economic feasibility test—two will be assessed by the Environment Agency. In the CO₂ transport and storage test, operators will be required to provide a storage feasibility certification, so that test will not be assessed. In the economic feasibility test, operators will be required to provide an economic feasibility certification—a statement that there are no barriers preventing the plant being commercially viable. That will not be assessed either.

We think that this approach, which takes some of the tests as being self-certified, represents a proportionate approach. The key components of the proposals we consulted on in March 2023 have all been retained. To come back to the noble Lord, Lord Teverson, we do not think we are building in another perverse incentive in relation to hydrogen, but we will keep that under close review.

Motion agreed.