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August 2019 Regulatory Report

By Market Insight Team | Posted October 16, 2019

Generation

The government is facing a legal challenge over the Contracts for Difference (CfD) scheme from Banks Renewables. On 15 August, the renewables arm of Banks Group confirmed that it had commenced judicial proceedings. The evidence session was held by the Commons BEIS Committee on the implications of the UK setting a net zero target for 2050.

The Commons Science and Technology Committee published its findings from its ‘Technologies for meeting the UK’s emissions reduction targets’ inquiry on 22 August and urged the government to implement a variety of policies to achieve net zero carbon emissions by 2050. 

Delivery

On 16 August, National Grid confirmed that it had submitted its initial report to Ofgem regarding the blackout which occurred the previous week. On 20 August Ofgem announced that it would be investigating all licensed parties involved: the licensed network companies, RWE Generation (Little Barford Power Station) and Orsted (Hornsea). The regulator’s investigation will focus on the ESO’s requirements to hold enough back-up power to cover blackouts and the circumstances leading the disconnection of customers and if these were the appropriate customers to disconnect. BEIS Secretary of State Andrea Leadsom confirmed plans to “commission the government’s Energy Emergencies Executive Committee (EEEC) to consider the incident” on 9 August. The EEEC met for the first time on 12 August and committed to provide an initial report within five weeks to Leadsom. It is to submit its final report by early November.

Usage

In a tweet on 9 August, Chancellor of the Exchequer Sajid Javid stated “to maximise our growth potential, I’ll set out our plan for a step-change in infrastructure investment through a new National Infrastructure Strategy this Autumn.” A day earlier, Chair of the National Infrastructure Commission (NIC) Sir John Armitt stressed the importance of future-proofing the UK’s infrastructure against the impacts of climate change, and referred to the NIC’s National Infrastructure Assessment, which sets out recommendations on transport, energy, recycling, water and flood management.

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Generation

Government faces legal challenge over CfD onshore wind

The government is facing a legal challenge over the Contracts for Difference (CfD) scheme from Banks Renewables. The renewables arm of Banks Group stated on 15 August stating that it had started judicial review proceedings over the government’s “present discrimination in favour of offshore wind at the expense of onshore wind and other renewable energy technologies.”

The company believes the exclusion of fully-consented onshore wind farms from the CfD process is against the public interest, prevents consumers from benefiting from the lower energy prices that would result from their inclusion and, from a legal perspective, does not comply with either EU or UK law. Onshore wind currently sits in Pot 1 (established technologies) and was not included in Allocation Rounds 2 and 3.

Managing Director at Banks Renewables Richard Dunkley said: “At a time when the government has said it wants to accelerate its decarbonisation objectives, it would seem illogical to most people that, for the last four years, it has itself significantly undermined the deployment of the lowest cost low carbon technology available – onshore wind.”

BEIS confirmed via email that the CfD is facing a legal challenge. A BEIS spokesperson said on 14 August: “We run the scheme lawfully and will be contesting this claim.” The statement added that National Grid had contacted qualifying applicants to inform them of this legal challenge and has extended the bidding window which will now close on 29 August.

MPs: 2050 net zero target undeliverable with current policies

The Commons Science and Technology Committee published its findings from its ‘Technologies for meeting the UK’s emissions reduction targets’ inquiry on 22 August and urged the government to implement a variety of policies to achieve net zero carbon emissions by 2050.

The report identified ten key areas in which government policy to support the implementation of low-carbon technology has been “delayed, cut back or undermined carbon reductions”. These include the ‘plug in grant’ for low emissions cars, the closure of the feed-in-tariff and the exclusion of onshore wind and large-scale solar power from the CfD financial support mechanism.

Additionally, the committee made a series of recommendations across different sectors to get the UK ready for net-zero by 2050. Household emissions were recognised as an essential area requiring action. Tackling household emissions must involve the decarbonisation of heating, for which the government must develop a clear strategy. Committee members said the government should further support the deployment of low-carbon heating technologies by setting out a clear roadmap by the time of the Spring Statement 2020.

The government needs to be more ambitious in improving housing energy efficiency. By the time of the Spring Statement 2020, the committee said, the government should consider adjusting Stamp Duty so that it varies according to the energy performance of the home as well as the price paid for it.

MPs called for strong policy support for onshore wind and large-scale solar. The government should conduct a review of the Smart Export Guarantee by the end of 2020 and should be prepared to introduce a minimum price floor if evidence of a lack of market competitivity emerges. Additionally, the committee urged support for nuclear to sustain current capacity levels, but not increase them.

Government urged to embrace onshore wind

On 14 August, over 150 MPs from various parties signed a letter to Prime Minister Boris Johnson urging the government to remove barriers to onshore wind in the UK through policy change.

A separate letter signed by a coalition of companies and organisations called for new Energy Minister, Kwasi Kwarteng, to support the development of the onshore wind sector to help achieve the net zero emissions target at the lowest cost.

Both letters highlighted that onshore wind is the cheapest source of energy in the UK and how the use of this renewable source is vital to meeting the government’s net zero target. The letters urge the government to update planning rules as well as call for onshore wind to lower power prices through the resumption of competitive electricity market auctions for low carbon energy for the cheapest technologies.

CCC backs proposal for UK-EU ETS link post-Brexit

The Committee on Climate Change (CCC) published a letter on 8 August from its Chairman Lord Deben to the government on the future of carbon pricing in the UK. 

Lord Deben’s letter was written in response to a request from the government on 2 May for the CCC to advise on the future of carbon pricing in the UK, and in particular on what will replace the EU Emissions Trading System (ETS) post-Brexit.

The letter described the next 12-18 months as a “crucial period for UK policy” in tackling climate change. Carbon pricing was “essential”, but the government should adopt a suite of policy instruments, rather than relying solely on it. Other areas of focus suggested included support for innovation and measures to tackle barriers to behavioural change.

The CCC agreed with the government’s preference for a linked UK-EU ETS mechanism after Brexit. Doing so would maintain the critical benefits of membership of the EU ETS, such as access to a broader market and addressing competitiveness issues within a level playing field across the bloc. If it became evident that a linked scheme would not be possible, the CCC would offer further recommendations.

Within a linked UK-EU ETS, the CCC recommended that the cap be set based on a cost-effective pathway to the UK’s net-zero target for 2050. The CCC is to provide a trajectory next year in its advice on the sixth carbon budget covering 2033-37. At present, the UK is decarbonising more rapidly than other EU countries in sectors covered by the EU ETS. It, therefore, urged that if this trend continues into the 2020s, a lower cap be introduced to reduce the scope other countries to buy excess UK permits, effectively limiting the impact of UK actions in tackling climate change.

Kwasi Kwarteng named as new Energy Minister

BEIS posted lists of responsibilities about positions in the department on 15 August. Kwasi Kwarteng was confirmed as Energy and Clean Growth Minister, with responsibilities for energy markets, carbon budgets, green finance energy efficiency and heat, low-carbon generation and energy security, among others.

Additionally, Lord Duncan of Springbank was appointed as Minister for Climate Change. His responsibilities include Lords lead on all BEIS issues, international climate change (including the International Climate Fund), climate science and innovation, clean heat, smart meters and smart systems. He tweeted on Thursday 15 August that there were “serious challenges ahead, not least delivering net zero carbon emissions by 2050”. Duncan also said he was looking forward to working with COP26 President Claire Perry to secure the conference for Glasgow.



Delivery

National Grid ESO submits initial report on 9 August blackout

Late on 16 August National Grid ESO confirmed that it had submitted its initial report to Ofgem on the blackout that occurred a week earlier. The document was described as “an interim technical report” and the ESO said that it expected the regulator to release it publicly. A further detailed technical report is due to the regulator on 6 September. On 20 August Ofgem responded by announcing that it would be investigating all licensed parties involved: the licensed network companies, RWE Generation (Little Barford Power Station) and Orsted (Hornsea). The regulator’s investigation will focus on the ESO’s requirements to hold enough back-up power to cover blackouts and the circumstances leading the disconnection of customers (and if these were the appropriate customers to disconnect).

BEIS Secretary of State Andrea Leadsom tweeted that she would “be commissioning the government’s Energy Emergencies Executive Committee (EEEC) to consider the incident” on 9 August. The EEEC met for the first time on 12 August and committed to provide an initial report within five weeks to Leadsom. It is to submit its final report by early November subject to a 12-week deadline. BEIS stated that the EEEC will “establish what happened to cause the outage and if correct procedures were followed. It will also consider whether improvements are needed to prevent future power cuts and better respond if they do occur, including minimising impacts on people and essential services.” EEEC’s investigation is in addition to those of Ofgem and the ESO.

Network companies to address net zero in RIIO-2 plans

An Ofgem letter was issued to network companies and system operators on 8 August, setting out additional guidance for RIIO-2 business plan submissions in light of legislation to introduce a target for new net zero greenhouse gas emissions by 2050.

Ofgem said that achieving net zero by 2050 requires a consideration of the plausible range of pathways. Such pathways could include complete electrification or a significant role for hydrogen networks and carbon capture. The regulator now expects network companies to propose and evidence how their business plans can adapt to support achieving the net zero target in line with a range of such pathways.

Ofgem also said that it was in the process of updating its guidance concerning the valuation of carbon emissions in a network context. It intends to work with network companies to produce a more sophisticated analysis more in line with the new carbon targets. In practical terms, this may involve companies identifying projects where investment decisions are sensitive to higher carbon values.

Distributed ReStart project is viable, says ESO

National Grid ESO published on 31 July Power Engineering and Trials (PET), a report on the viability of ESO’s project to achieve a safe and stable Black Start using only distributed energy resources (DER) such as wind, solar and battery storage. The report is the first deliverable from the project, outlining technical findings to date on the PET workstream of the project. PET will see the selection and analysis of case studies and progression through multiple stages of review to identify the technical requirements that should apply on an enduring basis.

The project will tackle these challenges in a three-year programme (Jan 2019–Mar 2022) that aims to develop and demonstrate new approaches, with initial implementations of Black Start service from DER from mid-2022 if deemed feasible and cost-effective.



Usage

Javid commits to infrastructure strategy as NIC highlights climate risks

In a tweet on 9 August, Chancellor of the Exchequer Sajid Javid stated “to maximise our growth potential as we leave the EU, I’ll set out our plan for a step-change in infrastructure investment through a new National Infrastructure Strategy this Autumn. We want every corner of our great nation to thrive.”

A day earlier Chair of the National Infrastructure Commission (NIC) Sir John Armitt had stressed the importance of future-proofing the UK’s infrastructure against the impacts of climate change. He referred to the NIC’s National Infrastructure Assessment, which sets out recommendations on transport, energy, recycling, water, flood management, and digital connectivity.

Armitt also called for an additional £43bn of funding, alongside further powers to be devolved to cities outside London to transform public transport, as well as a charging network to encourage drivers to switch from petrol and diesel vehicles. Additionally, he highlighted that the new Cabinet and their credibility on climate change “will soon be under the spotlight”.

Armitt continued: “In the autumn, we expect their response to our Assessment in the form of a National Infrastructure Strategy – another first for the country,” he added. “This will be a key test against which we will score Britain’s progress towards meeting the ninth Sustainable Development Goal […] Our report provides the blueprint. Now it needs ambition, leadership and action. It has to take a long-term perspective, looking beyond the immediate Spending Review period to 2050. It must include agreement to invest 1.2% of GDP a year in infrastructure – the upper limit of the agreed guideline set by the Treasury.”

Additionally, he said that the NIC is working on an in-depth study of the resilience of the UK’s infrastructure – including its ability to withstand natural hazards – and it will report on the findings next spring.

Think tank calls for stricter air pollution limits

Think tank Bright Blue has published its Emission Impossible? Air Pollution, National Governance and the Transport Sector report on 12 August, which gave recommendations for increasing national accountability on air pollution, as well as suggestions on how to reduce air pollution from transport. Leaving the EU is an opportunity for change, Bright Blue says.

To increase national accountability on air pollution, Bright Blue urges the government to adopt a World Health Organisation guideline limit. The UK currently adheres to an EU-derived limit. This should follow a feasibility study carried out by the Office for Environmental Protection (OEP) or a new Committee on Clean Air.

Bright Blue also recommends that the government provides the OEP or proposed Committee with the responsibility to recommend future legal limits for different air pollutants to Parliament after conducting appropriate feasibility studies. It noted that this would be similar to the role played by the Committee on Climate Change in advising on carbon budgets.

The report highlighted that it was forecast that EVs will only be 75% of new vehicle sales by 2040 based on current incentives – falling short of the government’s target of phasing out fossil fuel car purchases by 2040.

New research and seismic events put pressure on UK fracking

On 26 August a 2.9 magnitude seismic event was recorded at Cuadrilla's Lancashire site – the UK's only active shale gas site. It was the third event above 0.5 magnitude recorded in less than a week after work resumed on the project on 15 August. Cuadrilla had described early results from February tests as “very encouraging.”

The event – confirmed by the British Geological Survey – was higher than the 2.3 magnitude event in 2011 that led Cuadrilla to suspend operations at the site until October 2018. Since restarting at the end of last year, the project has been forced to temporarily cease operations on several occasions due nine seismic events breaching the UK's “traffic-light” monitoring system.

Cuadrilla, which has repeatedly called for the traffic-light system to be relaxed, issued a statement on the same day defending the company by stating that it was not operating at the site at the time of the event. It also said that “minor ground movements of this level are to be expected” and highlighted that the level recorded was “about a third of that permitted for construction projects.” The suspension came less than two weeks after the new government announced its current position on fracking.

Glasgow confirmed as host city in UK COP26 bid

On 9 July, the Cabinet Office announced Glasgow would be the host for next year’s Conference of the Parties (COP26) summit, should the UK’s bid be successful. The COP26 summit will look at the action taken since 2015 to keep climate change within manageable levels and look at future action that needs to be taken. The venue proposed is Glasgow’s Scottish Events Campus (SEC). The summit would host 30,000 delegates from around the world, including 200 world leaders. It is to take place over two weeks at the end of 2020 and the UK’s bid is in partnership with Italy. Prior to this, a series of ‘Four Nations’ UKCOP events will take place across the UK as a lead up to the Glasgow summit. 

Claire Perry, former Minister for Energy and Clean Growth and recently named the UK nominated President for COP 26 by the Prime Minister said: “As one of the UK’s most sustainable cities, with a record for hosting high-profile international events, Glasgow is the right choice to showcase the UK’s commitment to the environment.” 

Government updates guidance on the business capital allowance scheme

The government posted updated guidance on the ‘Enhanced Capital Allowance scheme for energy-saving technologies’ on 9 August. The scheme enables businesses that invest in energy-saving equipment to benefit from tax breaks.

The guidance was updated with information from the Budget 2018 Announcement relating to the Enhanced Capital Allowance scheme for the Energy Technology List (ETL). This list is a free-to-use list that provides organisations with the confidence that they are buying plant and machinery that demonstrates a high standard of energy efficiency. This is backed by regular, independent evaluations of the market across 16 separate technology categories, providing a benchmark for what currently represents top performance.

Companies that buy an ETL qualifying product are currently able to receive accelerated tax relief on the purchase of that equipment by claiming a 100% capital allowance in the year of purchase.

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