April 2020 Regulatory Report

Generation

The Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation on new proposals for the future of low carbon heat, with plans to introduce replacements for the Renewable Heat Incentive (RHI). Launched on 28 April, the consultation seeks views on proposals for a Green Gas Support Scheme and Clean Heat Grant.

Energy and Clean Growth Minister Kwasi Kwarteng has said that, despite the impact of COVID-19, “the Energy White Paper is still very much a priority for BEIS, as the first major statement in energy on how we plan to deliver the energy component of our net zero commitment”.

Delivery

National Grid Electricity System Operator (ESO) published its Summer Outlook 2020, stating that it is confident that there will be sufficient supply available to meet electricity demands for the coming summer and that it has experience of managing the system during periods of low demand. 

Ofgem issued an update on its website on 16 April, setting out details of the re-planning of its priorities and workload over the coming months considering the impacts of COVID-19. The regulator said it is prioritising its work in response to the crisis, working closely with the government, the energy industry, consumer organisations and other stakeholders. 

National Grid ESO published its 2019 Power Responsive Annual Report on 14 April, setting out its findings on demand-side flexibility (DSF) in 2019.

Usage

BEIS launched a consultation on 16 April on proposals to extend the Climate Change Agreement (CCA) scheme by two years. It is also seeking views on potential reforms were there to be a future CCA scheme. 

On 1 April, UK Energy Research Centre (UKERC) published analysis comparing the week beginning 23 March 2020 and a comparable week in April 2019 (in terms of daily average temperatures and at a similar point in the year), finding there has been around a 13% fall in total weekly electricity consumption due to the COVID-19 lockdown.

Also covered in this Regulatory Report: 

• BEIS issues loan to cover Contracts for Difference shortfall
• Q120 sees 3.1% growth in renewables pipeline
• Over 50% of UK generation from low carbon sources for third successive year
• New record for longest period of coal-free electricity generation in GB
• 2019 sees global renewable capacity growing 176GW
• UK GHG emissions fell 9.5mn tonnes between 2017 and 2018

Generation   

Government sets out proposals for low carbon heat support

The Department for Business, Energy and Industrial Strategy (BEIS) launched a consultation on new proposals for the future of low carbon heat, with plans to introduce replacements for the Renewable Heat Incentive (RHI). Launched on 28 April, the consultation seeks views on proposals for a Green Gas Support Scheme and Clean Heat Grant.

BEIS proposed launching the Green Gas Support Scheme in autumn 2021. It said that the injection of biomethane into the gas grid would accelerate the decarbonisation of gas supplies by increasing the proportion of green gas on the grid. It expects the Green Gas Support Scheme to contribute 9.7MtCO2e of carbon savings over Carbon Budgets 4 and 5 and 21.6MtCO2e of carbon savings over its lifetime. Announced in the Spring Budget, but not covered in this consultation, the support scheme will be funded by a Green Gas Levy, which the Treasury has confirmed will be placed on gas suppliers.

The scheme is planned to run from 2021-22 until 2025-26. It would provide support for biomethane produced from anaerobic digestion, but views are also sought on what mechanisms might be appropriate for longer-term support and the potential for including other sources of green gas such as hydrogen blending. It is proposed that the scheme would offer support through a tariff-based mechanism, with a volume-based tiering structure to reflect the cost of producing biomethane at different scales.

The other main proposal put forward in the consultation was a Clean Heat Grant, intended to provide targeted support for the installation of air source heat pumps, ground source heat pumps, and water source heat pumps following the closure of the RHI. BEIS also intends to support biomass within the Clean Heat Grant, subject to criteria to ensure that biomass is only installed for hard-to-treat properties that would not be suitable for a heat pump. The Clean Heat Grant, which will be available for domestic and non-domestic properties, is expected to begin in April 2022, with Treasury funding committed for two years to March 2024. Total spend will not exceed £100mn.

Energy White Paper “still very much a priority” for BEIS

Energy and Clean Growth Minister Kwasi Kwarteng has said that, despite the impact of COVID-19, “the Energy White Paper is still very much a priority for the Department for Business, Energy and Industrial Strategy (BEIS), as the first major statement in energy on how we plan to deliver the energy component of our net zero commitment”.

He was writing in a letter, published on 16 April, to then-BEIS Committee Chair Rachel Reeves in response to her questions about the government’s progress on carbon capture, usage and storage (CCUS). Kwarteng continued: “We remain committed to publishing the Energy White Paper and will provide an update on this in due course.”

Kwarteng also said the government is currently assessing the BEIS Committee’s recommendations on delivery in the 2020s and the overall targets for CCUS by 2030 and 2035 in the context of the wider climate change initiatives such as the Energy White Paper. He said: “We will provide further announcements throughout the year, where we intend to set out our way forward on CCUS out to 2030 and beyond.”

The minister also said that the government plans to respond in spring to the consultation on how it can bring CCUS projects to market in the years ahead, keeping in mind the impacts of COVID-19 on the process. 

BEIS issues loan to cover Contracts for Difference shortfall 

On 24 April BEIS announced it would be issuing a one-off loan for the Low Carbon Contracts Company (LCCC) (the body which administers the Contracts for Difference (CfD) low carbon support scheme) to enable it cover the shortfall in supplier payments.
The Interim Levy Rate (ILR) – the charge which is billed to suppliers to recover CfD costs – for the quarter was set by LCCC at £7.469/MWh. This was published on 17 December 2019 and as such was based on a normal view of electricity demand. COVID-19 has led to a significant drop in demand levels.

The LCCC also collected a Total Reserve Amount (TRA) of £78.3mn from suppliers in advance of the quarter. The TRA is collected by the LCCC to cover any shortfalls in the event that the ILR does not recover sufficient monies from suppliers to cover the costs of the CfD schemes in any given quarter.

Following discussions between LCCC and BEIS about how to mitigate the impact of this shortfall in the short term an alternative solution to raising the Q2 ILR has been proposed. As such, BEIS has agreed to provide a one-off interest free loan to LCCC to cover any shortfall in order to make payments to CfD generators, up to an undisclosed designated amount. This agreement, being used instead of adjusting the ILR, is intended to ease the financial impact on suppliers during challenging market conditions.

Q120 sees 3.1% growth in renewables pipeline

On 15 April, BEIS released the latest update to the Renewable Energy Planning Database (REPD), providing an overview of current and planned renewable energy projects across Great Britain and Northern Ireland. 

At present, operational capacity of renewable energy projects lies at 41.3GW, according to the March iteration of the database. This represents a 0.3% growth in operational sites since the December 2019 update. Key technology types driving this increase are energy from waste (EfW) incineration, rising by 31MW; storage assets, increasing by 14MW; and onshore wind, rising 69MW. Overall, of the 124MW increase in projects classified as operational, 69MW is in Scotland with muted growth in England and Wales of 12MW and 21MW, respectively. 

In terms of capacity, wind technologies continue to dominate the relative proportion of operational renewables sites. Onshore and offshore wind both account for just over half of operational renewables sites in the UK, at 8.5GW and 13.3GW, respectively. Solar technologies account for 8.5GW, with storage assets providing 3.8GW of capacity, incineration technologies accounting for 2.1GW and digestion and hydro/marine technologies below 1GW each.”

Over 50% of UK generation from low carbon sources for third successive year

BEIS statistics showed that in 2019, for the third successive year, more than half of all generation came from low carbon sources (comprised of renewables and nuclear), up to a record 54.2%. Published on 30 April, the statistics also showed that 36.9% of UK generation came from renewable sources in 2019, up from 33.0% in 2018. BEIS said this was driven by high generation from wind, solar and bioenergy sources and is largely attributable to growing renewable capacity. 

Total electricity generated in 2019 was 323.7TWh, a decrease of 2.8% compared to 2018 (332.9TWh). This reflects decreasing demand for electricity, linked to increasing efficiency. Consumption of electricity in 2019 totalled 294TWh, down 1.8% compared to 2018.

Delivery 

Summer Outlook: ESO predicts low demand COVID-19

National Grid Electricity System Operator (ESO) published its Summer Outlook 2020, stating that it is confident that there will be sufficient supply available to meet electricity demands for the coming summer and that it has experience of managing the system during periods of low demand. Published on 16 April, the report said the ESO is actively developing strategies to manage a wider range of scenarios for this summer than it has previously considered, due to the COVID-19 outbreak, to ensure it has the necessary tools and services for all such scenarios. All scenarios show a reduction that will take demand down to between 96% and 80% of usual daytime levels, depending on impact levels.

In response to lower demand, National Grid ESO will have to take more actions to manage the system. Managing reactive power, voltage levels, low transmission demand and high volumes of low inertia generation “will continue to be challenging”. The ESO will be carrying out planning activities to ensure it can operate the system at even lower summer minimum demand levels.

Regulator sets out priorities in light of COVID-19

Ofgem issued an update on its website on 16 April, setting out details of the re-planning of its priorities and workload over the coming months considering the impacts of COVID-19. The regulator said it is prioritising its work in response to the crisis, working closely with the government, the energy industry, consumer organisations and other stakeholders. It said that its main focus is to protect customers – especially those that are vulnerable – as well as maintaining Britain’s supply of electricity and gas.

Ofgem set out that it will deliver statutory obligations and progress time-critical work, while being mindful of the ability of stakeholders to engage. This includes work on retail price protection, the operation of the wholesale markets, administration of environmental and social programmes, compliance activity and engagement with code governance. It said that the statutory consultation for the Supplier Licensing Review will be delayed until at least May and only held once stakeholders have the capacity to participate. Ofgem is engaging with industry on how to ensure the ongoing Targeted Charging Review process minimises the burden on stakeholders over the next three months,  while also considering the Network Access and Forward-Looking Charges Significant Code Review.

National Grid ESO: change causing uncertainty for DSF

National Grid ESO published its 2019 Power Responsive Annual Report on 14 April, setting out its findings on demand-side flexibility (DSF) in 2019. The ESO presented three headline findings: change continues to cause uncertainty; markets continue to deliver opportunities for DSF providers and; mixed success for DSF in the Capacity Market (CM). The main reasons for the uncertainty National Grid ESO referred to are policy and regulatory developments, which include:

• The Clean Energy for all Europeans Package came into force in July 2019 with many of its provisions applying from 1 January 2020. 
• The Targeted Charging Review decision announced by Ofgem in November 2019. 
• ESO market developments. In order to meet growing renewable generation, the ESO is reforming existing reserve and response markets and exploring wider opportunities to manage new challenges such as voltage, inertia and constraint management. The ESO said that, while it is clear about its intent, this still causes uncertainty for providers and their business models.

Usage 

BEIS consulting on extending CCA by two years

BEIS launched a consultation on 16 April on proposals to extend the Climate Change Agreement (CCA) scheme by two years. It is also seeking views on potential reforms were there to be a future CCA scheme. The CCA scheme is a voluntary scheme that encourages industrial sectors with energy-intensive processes to invest in energy efficiency measures in return for a reduction in rates of the Climate Change Levy (CCL).

BEIS released the evaluation findings on the Second Climate Change Agreements Scheme on 16 April. It revealed that the scheme has been popular with industry, with between 80-100% of businesses participating in most eligible sectors. This covers an estimated 114TWh of energy use in 2018 (compared to 264TWh for all industry).

BEIS is proposing to extend the scheme through a new Target Period (Target Period 5), from 1 January 2021 to 31 December 2022. The scheme currently has four, two-year target periods, with Target Period 4 set to end on 31 December 2020. BEIS is extending certification for reduced rates of the CCL for participants meeting obligations under the scheme, which will begin on 1 July 2023 and end on 31 March 2025. BEIS is also proposing to re-open the scheme, allowing eligible facilities not currently participating to apply to join. But the issuing of new agreements and certification to claim CCL discount will only be possible after sector targets and agreements have been finalised. The deadline for new entrants to make applications is 20 September.

BEIS said it is keen to explore how any longer-term CCA scheme might fit within the wider policy landscape and contribute to net zero targets. It cites that industry will play a “crucial role” in meeting these targets. Should BEIS design a longer-term scheme, it would also consider more significant reforms.

COVID-19 lockdown sees electricity demand fall

On 1 April, UK Energy Research Centre (UKERC) published analysis comparing the week beginning 23 March 2020 and a comparable week in April 2019 (in terms of daily average temperatures and at a similar point in the year), finding there has been around a 13% fall in total weekly electricity consumption due to the COVID-19 lockdown. Following the announcement of the UK’s lockdown on 23 March there was a marked change in demand between the Monday (23 March) and Tuesday (24 March) as new restrictions were introduced, according to UKERC. The analysis found the increase in domestic demand as a result of the lockdown has been outweighed by the decrease in commercial and industrial demand, shown in demand decreases during the week when commercial and industrial demand is typically elevated.

UKERC said weekday morning demand patterns are now closer to what is expected on a typical weekend day, with Saturday mornings now following a pattern similar to what is usually seen on a Sunday, lacking the normal morning peak.

Data from ElectraLink, published on 17 April, has shown a continued decline in both industrial and commercial (I&C) demand as a result of the lockdown measures implemented in the UK – indicating that demand has dropped by almost a quarter since announced on 23 March. The data has shown that demand in the first full week of lockdown (commencing 30 March) was just over 680GWh (23%) lower than in the equivalent week in 2019 – this is enough energy to power 170,000 households for a year. This week also saw the single largest daily reduction in energy consumption on 2 April – 125GWh lower than the previous day.

New record for longest period of coal-free electricity generation in GB

National Grid Electricity System Operator (ESO) announced that GB has broken its record for the longest period of coal-free electricity generation in the country. The previous record of 18 days, six hours and 10 minutes – set in June last year – was broken at 6.10am 28 April, marking over 438 hours and 10 minutes since the last coal generator came off the system at midnight on Thursday 9 April.

The ESO said that weather “continues to play the central role in determining the mix of electricity, but reduced levels of electricity demand play a role too”. Additionally, lockdown measures in place since late March have seen a significant reduction in demand across the country, with an increase in domestic consumption being outweighed by reduced industrial demand. The change in demand, along with frequent sunny and windy spells across the country, are all contributing factors to the latest records, the ESO found.
Fintan Slye, Director of ESO, said: “2020 is shaping up to be a record-breaking year for Great Britain’s electricity system, and I’ve little doubt we’ll see more exciting developments as the growth and performance of renewables continues to transform our grid at an astonishing rate.”

Additionally, the Solar Trade Association (STA) reported that the peak generation record for solar was broken on 20 April. Around 12:30 on 20 April, a peak of 9.68GW was recorded by Sheffield Solar live PV generation tracker, surpassing the previous record of 9.55GW set on 13 May 2019. At the time of the peak, solar was meeting almost 30% of UK electricity demand.

In response, Renewable Energy Association Chief Executive Dr Nina Skorupska said: “In a time when positive news is few and far between, it is reassuring to see renewables continue to signal towards a brighter and more hopeful future. Less than two weeks after breaking the record for power generation in Q1, renewables have once again raised the bar with solar power reaching an impressive 9.68GW peak this week.”

2019 sees global renewable capacity growing 176GW

The International Renewable Energy Agency (IRENA) published its Renewable Capacity Statistics 2020 on 31 March, presenting capacity statistics for renewable power generation over the period 2010-2019.

At the end of 2019, global renewable generation capacity totalled 2.537TW, of which 176GW was added in 2019 alone. This equates to an increase of 7.4%. Of the global total, hydropower made up the largest share with a total capacity of 1.19TW, followed by wind and solar energy accounting for 623GW and 586GW respectively. Additionally, the renewable share of total generation capacity rose from 33.3% in 2018 to 34.7% in 2019.

In 2019, the fastest growing regions for renewable capacity were Oceania and the Middle East. Here capacity grew by 18.4% and 12.6% respectively. Asia accounted for 54% of all new capacity, increasing by 95.5GW. Capacity in Europe rose by 35GW (+6.6%) and North American capacity went up by 22GW (+6.0%). When compared to 2018, capacity growth was lower in Asia and Africa, but higher in Europe and North America.

UK GHG emissions fell 9.5mn tonnes between 2017 and 2018

BEIS published the Annual statement of emissions for 2018 on 22 April, showing that the UK’s greenhouse gas (GHG) emissions fell 9.5mn tonnes between 2017 and 2018. This is the eleventh Annual Statement of Emissions required under section 16 of the Climate Change Act 2008. It confirms emissions for 2018 – the first year of the third carbon budget