Considered in Grand Committee
Moved by
That the Grand Committee do consider the Contracts for Difference (Definition of Eligible Generator) (Amendment) Regulations 2026.
My Lords, these regulations were laid before the House on 14 May 2026. This instrument seeks to make changes to the eligibility criteria for the contracts for difference scheme, which is the Government’s main tool for incentivising low-carbon capacity in the electricity system.
Investing in the future of nuclear energy generation in the UK is central to the Government’s mission of making Britain a clean energy superpower, delivering a secure supply of low-carbon energy. By producing baseload power in the UK, nuclear energy can work alongside renewable power sources, supporting price stability for consumers and minimising reliance on fossil fuels. It also reduces reliance on imports from international actors, which is crucial during geopolitical volatility; that has been underlined further following Russia’s invasion of Ukraine and the war in Iran, which has, I hope, ended.
However, over the next decade, the UK’s existing operational nuclear fleet—including four advanced gas-cooled reactors and Sizewell B, the UK’s only pressurised water reactor—is set to begin decommissioning. This equates to around 15% of the current electricity supply on the grid being lost by 2035.
While the Government are continuing to deliver our broader nuclear programme through Sizewell C and the Rolls-Royce small modular reactor programme, we should also ensure that there are appropriate mechanisms to support continued nuclear generation at existing stations where such financial incentivisation is needed and offers value for money. Without support, the operators of nuclear power plants may decide not to undertake the investment needed to extend their operational lifetimes.
Before I turn to the provisions in greater detail, I shall first outline some of the background of the contract for difference scheme. The contract for difference scheme is His Majesty’s Government’s main mechanism for supporting low-carbon electricity generation in Great Britain. Under a CfD, the generator receives a fixed price for electricity over the contract term. The generator sells the electricity it produces on the wholesale market and receives difference payments from the Low Carbon Contracts Company when the wholesale price is below the strike price. If wholesale prices exceed the strike price, the generator must make difference payments to the LCCC. Where the LCCC makes difference payments to the generator, they are funded by a statutory levy on all licensed electricity suppliers, so they are passed on to households and businesses through their electricity bills. The CfD funding mechanism is fundamental to achieving the government’s goal of a fully decarbonised power supply, while achieving value for money for electricity customers. It protects consumers when electricity prices are high and provides income stabilisation for generators across the term of the contract. For example, if Hinkley Point C had been online during the energy crisis in 2022-23, consumers would have saved around £5 billion.
I now turn to the details of this instrument. This draft instrument makes changes to the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 to give the Government the option to utilise the CfD funding mechanism to support the continuation of electricity generation at existing nuclear power stations. Nuclear energy is already eligible for support through CfDs for new build capacity, with a CfD already having been utilised to support the construction of Hinkley Point C. However, nuclear power stations intending to undergo refurbishment to extend their lifetimes are currently ineligible. Expanding eligibility criteria in this way will ensure that existing nuclear capacity can continue to generate low-carbon electricity during extended operating lifetimes through support under a CfD, where it is considered safe and economical to do so.
The Government’s assessment is that nuclear lifetime extensions can deliver value for money for consumers, with modelling showing that they can reduce overall electricity system costs compared to other low-carbon pathways to net zero. The instrument does not award support, nor does it guarantee a CfD for any specific project. Instead, its purpose is to enable the Government to consider CfD support for nuclear lifetime extension projects.
This draft instrument expands the contracts for difference eligibility criteria so that existing nuclear plants can be eligible for support for lifetime extensions. This reform will be critical if we are to achieve net zero by 2050. This amendment will support security of supply by providing access to financial support if required to support continued electricity generation at existing nuclear infrastructure. This means that low-carbon baseload electricity can be maintained on the grid without the higher costs and longer lead times associated with new build capacity. I beg to move.
My Lords, I thank the Minister for introducing this instrument. On the face of it, it is a modest instrument. It alters just 12 words in the 2014 regulations to allow contracts for difference to support the continued operation of existing nuclear power stations. However, those 12 words carry some significant implications. They open the door to long-term revenue support for extending the life of existing nuclear plants, potentially committing consumers to costs over many years. I recognise that the Government have the legal authority to make that change, and that these are enabling powers rather than a mandatory instrument. I also recognise that any contracts would remain subject to value for money assessments, safety requirements and subsidy control.
None the less, both the process and the substance of these measures warrant a couple of questions, and I apologise, because I will be taking slightly longer than I normally would. I begin with the process. I ask the Minister why this is being done here through a statutory instrument and not, say, through the energy independence Bill or another piece of primary legislation. This is a meaningful shift in the type of subsidy being offered, and primary legislation might have offered a greater opportunity to scrutinise it.
I am slightly surprised that the Secondary Legislation Scrutiny Committee did not include a paragraph on this instrument, as it enables decisions which potentially have long-term consequences for consumer bills, the impact of which the Government themselves describe as uncertain. One element of that uncertainty is that the new CfDs have not been calculated. Turning to the substance, we on these Benches recognise that nuclear power has a role within a balanced and low-carbon energy mix. We do not oppose in principle extending the life of existing stations where they are safe, reliable and represent genuine value for money, but support must be conditional and it must be justified. The context is important. Nuclear, as the Minister has said, provides around 14% to 15% of the UK’s electricity, down from 25% in the late 1990s. We also recognise that, without intervention, existing fleet capacity is expected to retire by the 2030s, with Sizewell B following shortly thereafter. That will be a substantial reduction in firm low-carbon capacity before new nuclear projects fully come online. There is a real, legitimate concern, and we welcome the fact that the Government are looking at this.
However, firm low-carbon capacity can be delivered by other options, as the Minister obviously knows. There are alternatives, and the costs of those alternatives are changing all the time; in many cases, they are coming down. When the Government speak of the “need” within this measure, we need to be careful, because that need for firm capacity is not quite the same as the need to extend these nuclear power plants; there could be other options and there are different cost calculations.
I have five questions for the Minister—I apologise for that. First, the Government are, essentially, enabling non-competitive, bilaterally negotiated contracts for difference. Normally, CfDs are competitive auction processes, and that competitive nature drives down the costs for consumers. My fundamental point is that I cannot find many precedents for this form of non-competitive CfD. I have found one or two for dispatchable power agreements for CCUS projects. How does the department intend to ensure that the strike prices agreed in these circumstances represent fair value? Will the department be using benchmarks or shadow pricing to make sure that it is actually getting the best prices possible? Effectively, you are negotiating against a monopoly provider in this case.
Secondly, the Government’s own analysis considered less interventionist alternatives, including reliance on wholesale market revenues, capacity market payments and private power purchase agreements, but the Minister fundamentally ruled those out as insufficient. In ruling out those other measures, are we effectively saying that the only way to extend the life of these nuclear power plants is through a form of subsidies, and that subsidy is through CfDs? My point is, if that is the position, does it need to be stated a little more clearly?
Thirdly, the energy system is evolving rapidly. Costs, particularly for storage, have fallen significantly and may—probably will—continue to do so, benchmarked against the costs of updating old nuclear power plants. What confidence do the Government have that the contracts agreed here in the near term will represent good value for money over the longer term, as these prices and policies continue to shift? Is that uncertainty being adequately calculated within these arrangements?
Fourthly, I turn briefly to the impact on household bills. At the moment that is uncertain as this is an enabling power and the CfDs have not been negotiated. The Explanatory Memorandum states clearly that the cost of these decisions will fall disproportionately on lower-income and vulnerable households. Obviously, that needs to be balanced against the need for firm power within the system. Can the Minister confirm that everything possible will be done to shield vulnerable households from possible electricity price increases as a result of this instrument?
Fifthly, there is a proposed five-year review. We welcome the fact that a review is included in this measure, but it feels very limited in its practice and scope. Although the a five-year review is there, between now and when it kicks in the Government could have agreed 20-year CfDs contracts for extending the lifetime of all the nuclear power plants and future Governments would then be tied to those 20-year contracts. They would be public law contracts, so future Governments would be unable to escape from them. While we recognise that the review is there, I can see no way in this instrument that Parliament has any confidence or any way to review or monitor what is being agreed before commercial contracts are signed. That is a worry for me.
I recognise that we need to upskill and to provide work for our nuclear workforce; that is important not just for this but for SMRs and other programmes. However, there is a danger that this could be a distraction and that working on this could be a drain on our nuclear workforce when it is needed to work on SMRs and other projects. Is there concern that this could impact those further developments or do the Government see this as a strength, in that there will more work and we are training up people for projects that will come online?
Those are my concerns about this instrument. We are not against updating these old plants, but we think that this is an unusual form of CfD. We want to make sure that they represent value for money and that there is some oversight of that process before contracts are agreed. I apologise for speaking slightly longer than intended.
My Lords, it is a pleasure to follow the noble Earl, Lord Russell, on this occasion because he made some powerful points. Of the five key points I intended to make, he has alluded to four of them, so they are worth focusing on briefly prior to the Minister’s response.
The subject of this SI is, in its own right, fairly limited, but it has an impact on a much wider debate on CfDs. My view is that this will need to be revisited at some length in the energy Bill that will come before the House, probably at the end of this year or the beginning next year because there are some critical issues that we will need to consider, many of which the noble Earl raised.
I think that the specific nature of this SI will garner support from all sides of the Committee. It is vital that we continue to support firm power generation from nuclear. It is the view on this side of the Committee that firm power is critical and nuclear will provide an important part of that firm power balance, as will gas. We need to offset the intermittency and grid instability caused by our increasing reliance on renewables, and nuclear will play a significant contribution in that context.
More broadly, the Government must support new, competitively priced nuclear power, which they intend to do, to expand capacity further by implementing the recommendations of the Nuclear Regulatory Review 2025 in full and easing environmental regulations that are slowing down new nuclear projects, a subject to which we will definitely return to when it comes to the energy Bill.
As the Minister stated in his opening remarks, the instrument amends the CfD legislative framework to enable—and it is an enabling measure—a CfD to be offered to an existing nuclear generating station to support the continuation of generation. Prior to the instrument, existing nuclear generation stations were eligible for CfD support only where they were intending to increase the capacity of the station by 5 megawatts or more. Given that the amendment purely affects eligibility and does not—as I understand, from the Minister’s opening remarks—mandate the awarding of a CfD, but allows existing nuclear generators to be considered, I hope that the following comments, which reinforce those made by the noble Earl, Lord Russell, will be taken into consideration.
First, some critics are concerned the measure will subsidise unnecessary refurbishments. There is a concern that operators have historically funded life extension activity without government intervention. Guaranteeing these revenues could divert limited budget resources away from new-build renewables and low-carbon technologies. The certainty that the measure provides could have a direct impact on a number of projects on new-build renewables and low-carbon technologies, which would otherwise be deemed by the marketplaces as willing to be supported, that would find no place in the energy balance.
Secondly, there is administrative complexity and instability, which is a criticism that, as I read over the weekend, is quite widely felt. The constant tweaking of core energy definitions and budget structures adds complex layers to the CfD framework. This can deter long-term private investment by indicating policy instability. The concept of security and predictability of the policy framework will be something we need to revisit when it comes to the energy Bill.
I summarise the third point, which the noble Earl, Lord Russell, raised, as follows: value for money and billpayer burdens. Critics have warned that extending long-term contracts to existing generators without competitive allocation may lock consumers into high strike prices, indicating long-term energy bills to subsidise older facilities. We need to be concerned about that because, ultimately, that is the cost of energy to the consumers. I would be grateful if the Minister could respond to that point.
On the other issues that I was going to raise, the noble Earl, Lord Russell, put them very eloquently. There are wider concerns, which critics of the measure have raised, principally in the context of the CfD framework, rather than the specific nature of the SI. I hope the Minister will accept that when we come to the energy Bill, we will want to concentrate on that framework and, if necessary, revisit some of the implications made in the SI, since this is right at the heart of the Government’s energy policy. We need to make sure that we get it right and do our best to support any government changes that achieve a better outcome for the energy market and ultimately, and most importantly, for the energy consumers.
With those comments in mind, the SI has our support because it purely affects eligibility. It does not mandate the awarding of a CfD but allows nuclear generators to be considered within the framework. We will be looking at the framework in detail when we come to the Bill, which no doubt will be with us within six months or so.
My Lords, I thank noble Lords for their comments and questions. It has been useful to hear what they have to say, and I am pleased that all sides agree with what we intend to do with this SI.
Two things come to mind: the first is that this is just an enabling power—it does not mean that it is going to happen—and the second is about value for money. If we do this, will it be value for money for the taxpayer and the consumer? These factors have to be considered. This enables us to look at this, if we intend to do it sometime in the future.
The noble Lord, Lord Moynihan, asked whether this would take money away from renewables. Firm low-carbon power is vital as part of reaching our net-zero goals. Nuclear is therefore compatible with a system dominated by renewables and complements it—it is not either/or but both.
Turning to consumers, this is obviously close to everybody’s heart, because we are all consumers. We have to pay credence to those people on lower incomes. I want to re-emphasise that, as I said my opening speech, if we had this in place and if, for example, Hinkley Point C had been online during the energy crisis in 2022-23, consumers would have saved around £5 billion.
The reason why this is in an SI and not primary legislation is that it expands the existing powers that CfDs already have available for nuclear new builds, and the Secretary of State has statutory powers to make regulations about who is an eligible generator under the Energy Act 2013.
Why are we not doing bespoke CfDs? I think it is fair to say that the Government have done bespoke CfDs for Hinkley Point C. This is an enabling power, and the revoiced value-for-money issues will be taken into consideration. They will be based on extensive due diligence of project costs—I emphasise the value-for-money part of this—including benchmarking against other comparable assets. The Government place large importance on bringing down costs for households—it is imperative. Lifetime extensions of existing nuclear power are more cost effective than alternative capacity—having to build a new station. If you can extend the life of one that is already there, then you will obviously bring down prices.
This is an enabling SI. We will look very closely at value for money. We think that this is covering all bases for our energy supply going forward.
I welcome the Minister’s comments. There is just one thing that I would like to raise: the need for a bit of parliamentary oversight before the CfDs are signed. Can the Minister go away and think about whether there is some process through which Parliament could be informed? That would be a welcome guardrail that would give a bit of certainty around the enabling powers that the Government are seeking in this SI.
I will certainly take that into consideration, but I think the powers are already there. The Secretary of State has powers for this. Obviously, when the energy Bill comes forward in a few months’ time, I think it will be debated then as well—thoroughly. I commend the instrument to the Committee.
Motion agreed.