May 2020 Regulatory Report

Generation
BEIS announced a series of changes to the Capacity Market (CM) scheme (which guarantees GB’s security of supply) in consultation responses on 20 May, including allowing demand-side response (DSR) to apply to prequalify to bid for all the agreement lengths available in the Capacity Market (CM) (up to fifteen years) if they can demonstrate they meet the relevant CAPEX thresholds.
BEIS also launched a consultation on a proposal to defer to Q121 part of the increase in electricity suppliers' obligations for Q220 for the Contracts for Difference (CfD) low carbon support scheme. 

Delivery
SSE Generation raised a Connection and Use of System Code (CUSC) proposal to delay charging of £500mn of balancing services use of system (BSUoS) charges from 2019-20 to 2020-21 in response to the significant increases in those costs due to the COVID-19 crisis.
Ofgem approved an urgent Grid Code modification on 7 May that clarifies that the system operator can require distribution network operators to disconnect embedded generation in an emergency. Four UNC modifications were raised on 21 April following industry consideration of the problems lockdown was causing.
 

Usage
The Committee on Climate Change (CCC) wrote to the Prime Minister and First Ministers in Scotland, Wales and Northern Ireland, putting forward recommended actions to help the UK recover from the COVID-19 crisis. The International Energy Agency (IEA) claimed that global energy spending has dropped to historical lows because of the COVID-19 crisis. The IEA published its World Energy Investment 2020 report on 27 May, claiming that global investment is now expected to plummet by 20%, or almost $400bn compared to last year. Energy revenues going to governments and industry are set to fall by well over $1trn and power sector spending is on course to decrease by 10% in 2020.

Also covered in this Regulatory Report: 
•    Energy UK highlights importance of clean energy in economic recovery
•    Electricity generation total hit lows in 2019
•    Business Secretary grants development consent for Cleve Hill solar farm
•    COP26 confirmed for 1-12 November 2021
•    Citizens Advice highlights “financial cliff edge” for households
•    Government urged to invest in green transport
 
 

Generation   

DSR able to compete for all agreement lengths in CM
BEIS announced a series of changes to the Capacity Market (CM) scheme (which guarantees GB’s security of supply) in consultation responses on 20 May, including allowing demand-side response (DSR) to apply to prequalify to bid for all the agreement lengths available in the Capacity Market (CM) (up to fifteen years) if they can demonstrate they meet the relevant CAPEX thresholds.

In its response to the feedback received on the ‘Capacity Market: proposals for future improvements’ consultation, the government said, while it accepts that the majority of DSR projects may not incur high CAPEX, the participation of DSR in the CM auctions is increasing. It continued: “It cannot be excluded that, in the future, some DSR providers may incur CAPEX at levels corresponding to the thresholds. Therefore, to ensure that, in the future, DSR capacity meeting these thresholds will not be prevented from accessing multi-year agreements, we are committed to allowing eligible DSR to access multi-year agreement lengths.”

The consultation was run to seek views on proposals to implement five of the six commitments referenced in the European Commission’s (EC) 2019 State aid approval.

Additionally, BEIS said it will reduce the Minimum Capacity Threshold from 2MW to 1MW and enable Secondary Trading of Capacity Obligations under the Minimum Capacity Threshold if an entire Capacity Obligation is being traded. For a partial trade of a Capacity Obligation, the Minimum Capacity Threshold will still apply. 

Alongside this response, BEIS also responded to the ‘Capacity Market: proposal to relax the rules temporarily in response to COVID-19’ consultation. It announced for the current 2019-20 Delivery Year only, any Capacity Payments that have been suspended as a result of a Capacity Market Unit (CMU) failing to comply with its satisfactory performance requirements can be paid if and when the CMU meets its requirements. 

BEIS opens consultation on CfD payment deferral
BEIS launched a consultation on a proposal to defer to Q121 part of the increase in electricity suppliers' obligations for Q220 for the Contracts for Difference (CfD) low carbon support scheme. 

Launched on 12 May, the consultation is a follow up to the decision BEIS took on 24 April to provide a one-off loan to Low Carbon Contracts Company (LCCC) so that it can continue to pay generators without needing to increase the Interim Levy Rate at short notice. This was in response to the low demand during the COVID-19 lockdown.

This new consultation seeks views on reducing suppliers’ obligations for CfD payments this quarter, increasing suppliers’ obligations in Q121 and utilising the loan provided to LCCC. BEIS considers that giving suppliers this period of notice will substantially limit the negative short-term impact on supply businesses.

Specifically, BEIS is proposing that the level of each supplier’s obligation relating to the quarter should be reduced in proportion to its market share (of eligible demand) over the quarter. For example, if a supplier’s unadjusted obligation for CfD payments for Q220 is £1,000 and it had a 10% share of eligible demand over that quarter, and the government loan amounted to £500, the supplier would see its obligation reduced by £50 (10% of £500) to £950. BEIS said this approach can be implemented using existing functionality in the LCCC’s settlement system.

Energy UK highlights importance of clean energy in economic recovery
Trade association Energy UK published a paper entitled Powering the Nation: How Clean Energy Can Support the Economic Recovery on 19 May, urging the government to harness clean energy to stimulate economic recovery following the COVID-19 crisis. The paper highlights the contribution of the sector, which supports one in 46 jobs across the UK, and sees investment of over £13bn per annum in the economy.

Sam Hollister, Energy UK’s Director of Economic and Corporate Services, said: “There is an overwhelming imperative for basing our recovery from this pandemic around the net zero target, decarbonising our economy and creating a cleaner, resilient and more sustainable future out of the shock of this enforced interruption to our daily lives.” He continued: “The energy sector will be central to powering that recovery so we will be working over the coming months to bring forward ways that support the economic recovery through clean energy.”

Electricity generation total hit lows in 2019
BEIS published its latest data on electricity generation, supply, consumption and fuel use for generation in 2019 on 30 April. Total electricity generated in 2019 was 323.7TWh, a decrease of 2.8% compared to 2018. Q419 also saw the lowest value for any previous Q4.

2019 saw reduced levels of generation from major power producers. Coal generation decreased significantly last year, and fossil fuel generation fell to 43.4% of the overall energy mix.

Reduced generation was offset by increased generation from auto generators and imports (net imports increased by 11% compared to 2018). The Nemo Link between the UK and Belgium began operation in January 2019 registered net imports of 5TWh in the year.

Over a third (36.9%) of UK generation was sourced from renewables, up from 33% in 2018. 54.2% of all generation came from low carbon sources (including nuclear). This was despite a fall in generation from nuclear plants due to prolonged outages throughout the year.

The overall fall in demand in 2019 is partly explained by an increase in energy efficiency. Comparatively low I&C consumption was also influenced by warmer temperatures in Q119. This also led to an 8% reduction in domestic consumption in the first quarter.

Business Secretary grants development consent for Cleve Hill solar farm
Business Secretary Alok Sharma has granted development consent for the Cleve Hill solar farm, BEIS announced on 28 May. The development is located on land approximately 2km northeast of Faversham and 5km west of Whitstable on the North Kent Coast. 

In the letter published on the National Infrastructure Planning website, Head of Energy Infrastructure Planning Gareth Leigh said: “Given the national need for renewable energy infrastructure and the substantial weight the Secretary of State attaches to the contribution of this development to meeting that need the Secretary of State does not believe that this is outweighed by the Development’s potential adverse impacts, as mitigated by the proposed terms of the Order.”

Cleve Hill Solar Park Ltd released a statement on the same day saying: “We are proud to lead the way to deliver the UK’s largest solar park. Cleve Hill Solar Park offers a real solution to our urgent climate needs and showcases the potential for the UK to lead the green recovery. This is a project that will generate up to 350MW of clean renewable electricity to power over 91,000 homes, reduce the UK’s dependence on fossil fuels and lower CO2 emissions by 68,000 tonnes a year.”

Delivery 

BSUoS deferral sought; storage exemption approved
SSE Generation has raised a Connection and Use of System Code (CUSC) proposal to delay charging of £500mn of balancing services use of system (BSUoS) charges from 2019-20 to 2020-21 in response to the significant increases in those costs due to the COVID-19 crisis.

In CMP345 Defer the Additional COVID-19 BSUoS Costs, raised on 19 May, the proposer said that National Grid Electricity System Operator’s (ESO’s) most recently issued forecast of BSUoS on 15 May showed that the unit costs over the period to the end of August 2020 are expected to grow substantially. The modification would defer the charging of what the proposer estimates to be £427mn of additional new service costs from May to August plus £73mn in respect of the impacts of demand suppression on system management costs to 2021-22.

Ofgem approved urgency for CMP345 on 22 May. Following development by a workgroup and consultation, the proposal is planned to be submitted to the regulator for determination on 15 June, with a decision on 22 June. Implementation would be the day following.

On 14 May Ofgem approved a CUSC modification, CMP281, that will enable Central Volume Allocation and Supplier Volume Allocation registered storage facilities to be exempt from paying BSUoS charges on their electricity imports from 1 April 2021. It also approved CMP319 on 21 May to implement the supporting definitions.

Embedded generation disconnection decision clarified
Ofgem approved an urgent Grid Code modification on 7 May that clarifies that the system operator can require distribution network operators to disconnect embedded generation in an emergency.

GC0143 Last Resort Disconnection of Embedded Generation was raised by National Grid Electricity System Operator (ESO) on 30 April with a recommendation that it should proceed under an urgent timetable, which was subsequently approved by Ofgem. The system operator was concerned about a risk of disruption to security of supply during the unprecedented low demand periods caused by the COVID-19 pandemic.

The modification would cease to have effect in October 2020 if it has not been further amended by then. The ESO has committed to progressing a more enduring solution.

Urgent COVID-19 reforms pushed through gas industry
Four UNC modifications were raised on 21 April following industry consideration of the problems lockdown was causing.

These are UNC721 Shipper Submitted AQ Corrections During COVID-19, UNC722 Allow Users to Submit Estimated Meter Reading During COVID-19, UNC723 Use of Isolation Flag to Identify Sites with Abnormal Load Reduction During COVID-19 Period, and UNC724 Amendment to Ratchet Charges During COVID-19 Period.

These modifications were sent to consultation on 22 April and considered by the UNC Panel on 30 April, which recommended that they all be approved for immediate implementation. Ofgem approved UNC722, UNC723 and UNC724 on 11 May, but is taking more time to consider UNC721 due to a number of concerns that had been raised regarding that modification, including post-implementation monitoring and how Annual Quantities will return to normal after lockdown ends.

Usage 

CCC urges climate investments to drive post-COVID growth
The Committee on Climate Change (CCC) has written to the Prime Minister and First Ministers in Scotland, Wales and Northern Ireland, putting forward recommended actions to help the UK recover from the COVID-19 crisis.

Published on 6 May, they include:

Use climate investments to support economic recovery and jobs. The CCC has previously identified a detailed set of investments, many of which are labour-intensive, spread across the UK and ready to roll out as part of a targeted and timely stimulus package.

Housing retrofits and building new homes that are fit for the future – the CCC said new homes must be low carbon, energy and water efficient and climate resilient. Deep retrofits to improve carbon and water efficiency and protect against overheating can be provided on a targeted basis, for example for the fuel poor or across social housing. As the UK emerges from the crisis, supply chains “must be developed” to extend the provision of whole-house retrofits including the roll-out of heat pumps and other low carbon heating in all homes.

Strengthening energy system networks – electricity networks must be significantly strengthened across the UK to accommodate electrification of heat and transport, the CCC said. There is also an “urgent need for measures to provide for more orderly and cooperative onshoring of offshore wind energy”. New hydrogen and CCS infrastructure will need to support the next phase of the net zero transition. The costs of these will be borne at some point as part of the net zero transition and can be recovered through modest increases in customer bills.

COVID-19 causing largest drop in global energy investment
The International Energy Agency (IEA) has claimed that global energy spending has dropped to historical lows because of the COVID-19 crisis. The IEA published its World Energy Investment 2020 report on 27 May, claiming that global investment is now expected to plummet by 20%, or almost $400bn compared to last year. Energy revenues going to governments and industry are set to fall by well over $1trn and power sector spending is on course to decrease by 10% in 2020. 
A combination of falling demand, lower prices and a rise in cases of non-payment of bills means that energy revenues going to governments and industry are set to fall by well over $1trn in 2020, according to the report. Oil accounts for most of this decline as, IEA said for the first time, global consumer spending on oil is set to fall below the amount spent on electricity. Global investment in oil and gas is expected to fall by almost one-third in 2020. 

Power sector spending is on course to decrease by 10% in 2020. IEA said renewables investment has been more resilient during the crisis than fossil fuels, but spending on rooftop solar installations by households and businesses has been strongly affected and final investment decisions in Q120 for new utility-scale wind and solar projects fell back to the levels of three years ago. The overall share of global energy spending that goes to clean energy technologies – including renewables, efficiency, nuclear and carbon capture, utilisation and storage – will increase towards 40% in 2020, but “only because fossil fuels are taking such a heavy hit”.

IEA said investment in energy efficiency and end-use applications is set to fall by an estimated 10-15% as vehicle sales and construction activity weaken and spending on more efficient appliances and equipment is dialled back.

COP26 confirmed for 1-12 November 2021
The UN, with the UK and its Italian partners, agreed on 28 May new dates for the COP26 UN climate conference, which will now take place between 1 and 12 November 2021 in Glasgow. 
COP26 President and Business Secretary Alok Sharma said: “While we rightly focus on fighting the immediate crisis of the Coronavirus, we must not lose sight of the huge challenges of climate change. With the new dates for COP26 now agreed we are working with our international partners on an ambitious roadmap for global climate action between now and November 2021. The steps we take to rebuild our economies will have a profound impact on our societies’ future sustainability, resilience and wellbeing and COP26 can be a moment where the world unites behind a clean resilient recovery.”
 

Citizens Advice highlights “financial cliff edge” for households
Citizens published new research on the impact of COVID-19 on household debt on 1 May, highlighting the “cliff edge” facing many vulnerable customers.

Citizens Advice began by highlighting the sharp rise in people behind on their household bills. Between 2016 and 2018, 1% of households said they were in arrears on a household bill. Due to the COVID-19 crisis, 12% of people say they are behind on their rent, a household bill, or a credit payment, according to a survey carried out by Opinium between 2-7 April on behalf of Citizens Advice. That is equivalent to more than 6mn people behind on paying essential household bills as a result of COVID-19. A further 13% expect to fall behind on a bill.

Citizens Advice found that the most common bills people are falling behind on or expect to fall behind on are council tax, gas or electricity and water bills. The equivalent of 6.9mn people indicated that they are behind or expect to be behind on their gas or electricity bills.

The survey found that the short-term protections are working for most people, highlighting the “rapid action” that the government, regulators and firms have taken.

Citizens Advice drew attention to the “financial cliff edge” that is facing many people once the protections (bill pauses or reductions, debt extensions etc.) come to an end. Citizens Advice said there are two main limits to protections already in place. First, there is a lack of medium- term protection from enforcement of debts built up due to coronavirus which means when temporary protections from enforcement come to an end large numbers of people will be at risk of eviction, enforcement, or disconnection. In the longer term, many sectors lack a framework for helping people out of debt in a sustainable way.

Government urged to invest in green transport
Green Alliance Policy Advisor Joanna Furtado, in her essay in BrightBlue’s collection, Delivering net zero: Building Britain’s resilient recovery, published in May, recommended that part of the recovery should be focused on the UK’s auto industry – the government should enable a retooling towards electric vehicles. Furtado suggested there should be a gradually rising zero emissions vehicle sales quota on manufacturers: 15% by 2022, 45% by 2025, 85% by 2030.

Think tank the Social Market Foundation, in its 10 May policy paper SMF said that a major area for labour-intensive action as part of its Universal Job Guarantee proposal would be the installation of EV charge points.

Think thank the Institute for Public Policy Research recommended in its policy paper to incentivise uptake of EVs through financial incentives and fast-charging infrastructure and improve bike lanes to encourage wider uptake of e-bikes.