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January 2020 Regulatory report

By Market Insight Team | Posted February 13, 2020

Generation

Climate lawyers ClimateEarth announced on 30 January that it would be taking the government to the High Court over its approval of planning permission for Drax to build four new gas turbines at its Selby plant in North Yorkshire. Acting Liberal Democrat Leader and former DECC Secretary Sir Ed Davey commented during an Institute for Government event on 28 January for the government to establish a department for net zero, arguing that the climate messaging from BEIS is currently being lost. The event concerned whether the government should recreate the Department for Energy and Climate Change (DECC), which was replaced with BEIS in 2016.

Delivery

In a new report published on 30 January, the National Audit Office (NAO) concluded that electricity networks, under Ofgem’s regulation, have provided a good service, but the costs for consumers have been too high. The NAO examined how effectively regulator Ofgem has used price controls. The Energy Networks Association (ENA) launched a consultation on its 2020 Work Plan for the Open Networks Project on 21 January. Stakeholders are asked to provide any comments on the work plan set out in the Project Initiation document, which was published on the same day. On 24 January, Ofgem published the RIIO-2 challenge group’s final report on the price control business plans networks submitted to Ofgem in December.

Usage

Citizens Advice, in a new report published on 23 January, urged the government to include the public in the net zero process, otherwise it risks “fatally undermining” the 2050 target. The charity carried out a public survey on actions to help meet net zero. Ofgem issued a nine-point programme of actions on 3 February it will take over the next 18 months. It said these will ensure the energy networks are ready to deliver net zero, support government to tackle the difficult questions of how to decarbonise heat and transport and encourage innovation to provide new low carbon products and services for consumers.  

Also covered in this Regulatory Report:


Generation

Government taken to High Court over new gas plant

Climate lawyers ClientEarth announced on 30 January that it is taking the government to the High Court over its decision to approve planning permission for Drax to build four new gas turbines at its Selby plant in North Yorkshire. ClientEarth argues that Business Secretary Andrea Leadsom approved the 3.6GW plant despite the government’s own planning authority recommending the plans be rejected on climate grounds. The Planning Inspectorate recommended in July that the Business Secretary reject the application, because it would “undermine the government’s commitment, as set out in the Climate Change Act 2008, to cut greenhouse gas emissions”.

ClientEarth said, in Drax’s planning application, it claimed its proposal was warranted to replace its existing two coal-fired units ahead of the government’s proposed coal phase-out in 2025. ClientEarth said, the government’s latest forecasts estimate that the UK will need 6GW of new gas generation to 2035 and it has already approved 15GW worth of large-scale gas plants. The Business Secretary approved Drax’s application in October.

Drax published a statement responding to the ClientEarth announcement: “Drax’s ambition is to become carbon negative by 2030 using ground-breaking bioenergy with carbon capture and storage technology (BECCS) to remove millions of tonnes of CO2 from the atmosphere each year, making a significant contribution to the UK’s climate targets. Drax’s carbon negative ambition could be achieved with new, high efficiency gas power capacity as part of our portfolio of flexible generating assets.”

BEIS published this response on request: “Last year over half of our electricity came from low carbon sources and we recently announced that renewables will generate enough energy to power an additional 7 million homes as the price of offshore wind hit a record low.”


Davey: government should establish a net zero department

Acting Liberal Democrat Leader and former DECC Secretary Sir Ed Davey has urged the government to establish a department for net zero, arguing that the climate messaging from BEIS is currently being lost. He was speaking during an Institute for government event held on 28 January on whether the government should recreate the Department for Energy and Climate Change (DECC), which was replaced with BEIS in 2016. Senior Fellow at the Institute for Government Jill Rutter chaired the talk, asking: “Would recreating DECC be a key part of the government’s strategy to achieve net zero, or would it be a distraction?” Davey argued that a department for net zero would have more powers than DECC, which had little control over housing or transport emissions.

Davey described BEIS as a “a disaster for climate change”. He said that the advantages of DECC over BEIS were that, as Secretary of State, he had a seat at the Cabinet which was entirely dedicated to energy and climate change. Whereas, a Secretary of State for BEIS has a number of other issues to think about, including trade.

Rutter asked Policy and Regulation Director at EDF Energy Angela Hepworth if the industry welcomed the creation of BEIS. Hepworth said that DECC was a useful department to have at that time of the UK’s energy transition, arguing that it helped enable much of the progress made in decarbonising the power sector. Bringing together the energy and climate change agendas, she argued, was a great success.


Renewables generation falls 3.7% between autumn 2018 and 2019

New Department for Business, Energy and Industrial Strategy (BEIS) statistics show that renewables generation by Major Power Producers (MPPs) for the period September-November fell by 3.7%, compared with the same period in 2018, due to less favourable weather conditions.

Published on 30 January, the statistics showed that coal generation declined 63%, but gas rose by 8.5%. Gas provided 43.2% of electricity generation by MPPs, with renewables at 32.5%, nuclear at 21.2% and coal at 2.6%. Low carbon share of electricity generation by MPPs also increased by 0.3pp to 53.6%, whilst fossil fuel share of electricity generation stood at 46.0%.

Indigenous energy production rose by 1.4%, with rises in oil, gas, bioenergy and nuclear output but falls in output from coal, wind, solar and hydro.

For the period July-September, renewable electricity generation was 29TWh, representing 38.9% of total electricity generation. This was the highest share seen in the UK and – marginally - surpassed the share of generation from gas (38.8%) for the first time. The share of generation from fossil fuels decreased to a record low in Q319 at 40.% of generation.


T-3 CM provisionally clears at £6.44/kW per year

The T-3 Capacity Market (CM) auction – the scheme which ensures the security of energy supply in GB – provisionally cleared at £6.44/kW per year and procured 45,058.832MW of de-rated capacity. The T-3 is the auction which procures capacity for three years in advance.

Of the capacity awarded at the auction, just 319MW was new build generation.

Published on 31 January, the results are provisional, with the confirmed results being published on 12 February.


RenewableUK urges more support for renewables as installations drop

RenewableUK has called on the government to reverse barriers to onshore wind development and other renewables development as figures showed that new installations dropped in 2019.

The figures, published on 14 January, showed that, in 2019, 629MW was installed in the UK, compared with 2018’s 651MW. This followed the record high of 2,683MW installed in 2017, when 343 projects started generating.

The trade association said this boom was a result of developers acting to beat the main deadline to qualify for government support.

RenewableUK highlighted that only two onshore wind projects – three turbines totalling 1.9MW – received planning approval in England in 2019 and just one new project was submitted into the English planning system, with a capacity of 5MW. No projects were approved or submitted in Wales last year.

RenewableUK Head of Policy and Regulation Rebecca Williams said: “These figures highlight that the current approach is falling short on delivering renewable energy capacity at the level needed for net zero. This is a flashing red warning light on our net zero dashboard and we urgently need a new strategy from the government.”

She continued: “As Ministers get down to work at the start of a new decade, we need to see new policies which support the full range of clean power sources to transform our energy system.”


Delivery

NAO on networks: good service, but costs too high

The National Audit Office (NAO) has concluded that electricity networks, under Ofgem’s regulation, have provided a good service, but the costs for consumers have been too high. The NAO is a Parliamentary body which is responsible for auditing government departments.

In a report, published on 30 January, the NAO examined how effectively regulator Ofgem has used price controls. The NAO found that consumers in GB experience fewer power cuts than in most other EU countries and networks have met almost all their RIIO-1 price control targets. However, the NAO criticised RIIO-1 for resulting in too high a rate of return for network companies. Ofgem designed RIIO-1 so that returns depended on performance, with the expectation that networks would make real-terms returns of between roughly 2.5% and 10.5%. It was expected that only the best-performing companies would hit the upper end of that range. The latest available information shows that three of the nine network companies are forecasting returns of around 10% and the average forecast return is 9.2%. In comparison, Ofgem estimated that FTSE-listed companies on average provide returns of 5.25%-5.75%. Ofgem, when designing RIIO-1, estimated the level of risk for network companies’ shareholders as too high, the NAO found. As a result, it set the baseline rate of return too high. The NAO estimated that, if Ofgem had made better use of evidence, consumers could have paid £800mn less.


ENA launches consultation on 2020 Work Plan

The Energy Networks Association (ENA) launched a consultation on its 2020 Work Plan for the Open Networks Project on 21 January. Stakeholders are asked to provide any comments on the work plan set out in the Project Initiation document, which was published on the same day.

This outlines work areas that have been identified to date, including those highlighted by Ofgem and BEIS in their joint letter from July 2019 – the 2020 Work Plan was developed with these priorities and actions in mind.

The consultation closes on 17 March.


National Grid ESO leads the way on RIIO-2 plans

On 24 January Ofgem published the RIIO-2 challenge group’s final report on the price control business plans networks submitted to Ofgem in December. Ofgem set up the group to challenge each network company on how its spending plans take into account consumers’ needs and views. The report outlined that National Grid Electricity System Operator’s (ESO) plan was the only one to make a convincing case for how it supported net zero targets.

Another area of concern was proposals to improve efficiency, with values ranging from around 0.5% - 1% per year. The report said that none of the companies had been sufficiently ambitious, particularly given that efficiency improvements under RIIO-1 had been claimed to explain underspending. Another area of contention was that no company provided a satisfactory statement about the alignment of management remuneration arrangements and planned allowances. In addition to this, it argued that while network companies’ costs are £4bn more than the last price control, there is little justification for these. Ofgem will consult on Draft Determinations on the Business Plans in July before making Final Determinations in November 2020.


Usage

Citizens Advice: get public onboard or risk net zero target

Citizens Advice urged the government to include the public in the net zero process, otherwise it risks “fatally undermining” the 2050 target. The charity carried out a public survey on actions to help meet net zero as part of a new report, Zero sum, published on 23 January.

The survey, which asked 2,002 adults, found discrepancies between the action needed to achieve net zero by 2050 and the percentage of the public that were willing/able to help.

Of those surveyed, 82% support the 2050 net zero target, but lack confidence in the UK’s ability to make the required changes to home heating systems. Additionally, 38% of people think they will need to change the way they heat their home to meet net zero. The Committee on Climate Change has said that 90% of homes will need to install low carbon heating systems to meet net zero.

92% of people said they are willing to make their home more energy efficient, 76% are willing to switch to low carbon heating and 72% are willing to switch to an electric vehicle (EV). Of the people who said they were willing to make these changes, the majority said they would need advice or financial support – 66% for making their home more energy efficiency, 76% for making the switch to low carbon heating and 66% for switching to an EV. Additionally, 68% of people said they would find it fairly or very difficult to change their heating system to a low carbon option.

Time of use tariffs will be become increasingly common and everyone should have access to these if they want to. Households will also be more likely to have multiple contracts for their energy, such as different companies supplying a household’s electricity and another one paying it for exported electricity.


Ofgem presents action plans for decarbonisation

The regulator issued a nine-point programme of actions on 3 February it will take over the next 18 months. It said these will ensure the energy networks are ready to deliver net zero, support government to tackle the difficult questions of how to decarbonise heat and transport and encourage innovation to provide new low-carbon products and services for consumers.

The plan includes designing cost-effective networks for net zero, including developing the structure of innovation funding in the RIIO-2 price controls to be more focused on the strategic challenges the networks face, as well as preparing system operators for a net zero future.

Ofgem said it will make progress on low-carbon heat and will develop an electric vehicles regulatory strategy and identify and tackle regulatory barriers, removing obstacles to new business models, products and services. In setting out its plan, Ofgem said it recognises that there are trade-offs to overcome, such as fairly spreading the cost of a low-carbon energy system between today’s and tomorrow’s consumers.

David Smith, Chief Executive of Energy Networks Association, said: “Net zero and how to achieve it is one of the biggest challenges facing our communities today. Ofgem’s report recognises how far we have come and the role networks have played, but there’s even further to go. A whole systems approach, including the use of hydrogen and biogas, will require innovation, research, different regulatory models, working with new partners and the ability to continue to attract investment to secure a green future. We support Ofgem’s action plan and look forward to playing our role in achieving net zero.”


CCC highlights the role CCS can play in UK net zero target

The Committee on Climate Change (CCC) has highlighted the role carbon capture and storage (CCS) can play in reducing the UK’s emissions.

In a new report, Land use: Policies for a Net Zero UK, published on 23 January, the organisation said that during this decade, government policies should assist a transition towards increased use of biomass (including energy crops) as a fuel with CCS and away from use for heating buildings and for generating power without CCS. Additionally, the UK ETS should recognise and reward permanent removal of CO2, for example through combining carbon capture and storage with biomass combustion. As noted by the CCC, combustion processes that exclusively use biomass currently do not have to buy allowances from the EU Emissions Trading Scheme (ETS). This should continue to be the case in any UK scheme linked to the EU ETS or in a separate UK ETS.


EV Energy Taskforce publishes proposals

The Electric Vehicle (EV) Energy Taskforce launched its final report on 14 January, providing proposals to industry and government to support transport electrification. The report identified priorities including the urgency of developing standards and codes of practice to support interoperability and the sharing of data across the EV and energy sectors. The government-backed EV Energy Taskforce (EVET) was announced in September 2018, with the objective to “put the engagement of EV users at the heart of preparing the British electricity system, for the mass uptake of EVs ensuring that costs and emissions are as low as possible and opportunities for vehicles to provide grid services are capitalised upon for the benefit of the system, energy bill payers and EV owners”. In its formal report to government, the EVET provided 21 recommendations under this objective, under five themes:

  • Delivering consumer benefits through interoperability.
  • Rewarding consumers for charging smartly.
  • Utilising and protecting data for better consumer outcomes.
  • Winning consumers trust and confidence.
  • Developing and maintaining the charging infrastructure consumers need.

Climate Assembly UK meets for the first time

The 110 Climate Assembly Members met for the first time on 25 and 26 January, hearing speeches and presentations from expert speakers. The members then fed back a range of questions in Q&A sessions, including “What do you think should be the balance of business and government action on climate change?” and “How committed are other countries to net zero?” Committee on Climate Change Chief Executive Chris Stark was asked: “who gets to decide what is ‘fair’?”

He replied: “It is for governments to define what they regard as a fair outcome, and to stand and be elected on that basis but the most fascinating thing we’re doing here today is probing further than that… What you are doing today is establishing what you regard as a fair outcome here to meet that target, and that’s evidence that we don’t have at the moment, that each of these select committees in Parliament will use when they probe government about what the government is doing about meeting the target that it has set.”

Climate Assembly UK was commissioned by six parliamentary committees to give Parliament and government an understanding of the public’s views on how the UK should reach net zero emissions by 2050. The Assembly will publish the results in a report to Parliament in April 2020.

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