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July 2019 Regulatory Report

By Market Insight Team | Posted August 07, 2019

Generation

Representatives from the Department for Business, Energy and Industrial Strategy (BEIS), including then-Interim Energy and Clean Growth Minister Chris Skidmore, gave evidence to MPs during a session held on 16 July. The evidence session was held by the Commons BEIS Committee on the implications of the UK setting a net zero target for 2050.

BEIS released its Digest of UK Energy Statistics (DUKES) for 2019, showing a detailed analysis of production, transformation and consumption of energy in the UK in 2018.
 

Delivery

On 16 July, the government published a letter from BEIS and Ofgem sent to the Energy Networks Association (ENA), which set out the views of the government and the regulator on work undertaken to date on the Open Networks project.

In the next stage of the joint Ofgem-BEIS review on ensuring that the retail energy market is fit for the future, a consultation was issued on 22 July on current thinking and options for discussion.

A new BEIS-Ofgem consultation on Reforming the Energy Industry Codes, published on 22 July, proposes fundamental changes to energy code governance arrangements to facilitate strategic changes, unlock innovation and give more consumer benefits.
 

Usage

In its Reducing UK emissions – 2019 Progress Report to Parliament, the Committee on Climate Change (CCC) has criticised the government for a lack of action to reduce emissions, concluding that more is needed to meet the UK’s 2050 net zero target.

On 19 July, the West of England Combined Authority (WECA) became the fourth in the country to declare a climate emergency.

 

Also covered in this Regulatory Report:

 


Generation

Government defends net zero 2050 plans

Representatives from the Department for Business, Energy and Industrial Strategy (BEIS), including then-Interim Energy and Clean Growth Minister Chris Skidmore, gave evidence to MPs during a session held on 16 July. The evidence session was held by the Commons BEIS Committee on the implications of the UK setting a net zero target for 2050.

Skidmore defended the target after repeated questions including whether it represented a fair contribution from the UK to limiting global warming to 1.5°C and how likely the 2050 deadline was to be moved. Although UK emissions represent just a small fraction of the global total, he said the net zero target was intended to demonstrate leadership on the global stage.

He said the government, on the advice of the Committee on Climate Change (CCC), would set its targets within the given carbon budget envelope.

However, he also suggested a five-year review to allow for the target to be brought forward in the future. He said: “This could be used to move towards 2045 at a later stage if we felt that technologies had advanced and we had the ability to move further, faster.” When asked why the deadline would be reviewed every five years, Skidmore said that it would help measure relative progress in cutting carbon compared to other nations.

Skidmore was also asked what his department thought of the claim by then-Chancellor Philip Hammond that achieving net zero by 2050 would cost the UK £1trn. Skidmore replied that he could not confirm the figure and added that money towards the target should be considered an investment rather than a cost.

The government previously promised an Energy White Paper would come out this summer, which would set out its energy policy. Nothing has been released so far, so it is not clear how the government plans to achieve the target and who will bear the brunt of the cost.


Low carbon now generates more than 50% of UK electricity

BEIS released its Digest of UK Energy Statistics (DUKES) for 2019, showing a detailed analysis of production, transformation and consumption of energy in the UK in 2018.

Published on 25 July, it revealed that low carbon electricity’s share of generation rose from 50% to a record 52.6%, driven by an increase in renewables generation. Renewables accounted for 11% of total energy consumption in 2018, up from 9.9% the previous year, while electricity generated from renewable sources reached a record 33%. 

BEIS said this stemmed from a 10% increase in renewables capacity. Onshore and offshore wind generation increased by 5.2% and 28% respectively to new records, both boosted by higher capacities offsetting lower wind speeds. Solar generation rose by 12% and hydro generation dropped 7.0%. Coal-fired generation continued to fall, falling below 25% of its 2015 level. Gas fell from 40.4% cent in 2017 to a 39.5% share of generation. Nuclear energy’s share fell to 19.5% due to maintenance and outages.

Additionally, Drax released statistics showing that, at the end of June, carbon emissions from electricity generation in Britain fell to just 97g per kWh, breaking the previous record of 104g per kWh set in June 2018.


BEIS Committee puts pressure on Leadsom for White Paper

BEIS Committee Chair Rachel Reeves sent a letter on 26 July to new Business Secretary Andrea Leadsom, stating that she was looking forward to the publication of the Energy White Paper this summer. Reeves also pressed Leadsom to ask the Treasury to carry out a funding review of the benefits of net zero, as well as setting out the committee’s recommendations:

  • bring forward the ban on new petrol and diesel vehicles to 2032
  • aim to develop carbon capture, usage and storage projects in at least three clusters by 2025
  • designate upgrading the energy efficiency of all buildings across the UK as a national infrastructure priority, and
  • lift the ban on onshore wind from the Contracts for Difference scheme, as well as reviewing planning restrictions.


In addition, Reeves asked Leadsom about the proportion of UK emissions represented by international aviation and shipping and how much “headroom” had been allocated in the fourth and fifth carbon budgets to them.


BEIS sets out high-level RAB model for new nuclear

BEIS is seeking views on a Regulated Asset Base (RAB) model for new nuclear projects, with particular focus on construction cost risks, launching a consultation on 22 July.

RAB models are typically employed to fund monopoly infrastructure and operate via a regulator setting charges that users of the asset face based on allowed revenues. Costs are then recovered from consumers, in this instance through energy suppliers.

The government has concluded that the provision of regulated returns to investors could reduce the cost of raising private finance compared to other support models for new nuclear projects, and therefore reduce the cost to the consumer.

Should the RAB model be taken forward it would sit alongside the existing Contract for Difference model used for Hinkley Point C. The appropriateness of the support model would be made on a case-by-case basis.


Government launches a new £80mn electrification challenge

The government announced its £80mn ‘Industrial Strategy Challenge Fund: Driving the Electric Revolution Challenge’ on 25 July, covering seven different sectors.

The government said it will accelerate the UK’s ability to deliver the supply chains required to enable electrification in the automotive, aerospace, energy, industrial, marine, off highway and rail sectors and deliver the UK’s carbon reduction targets. Projects should address commercial opportunities in one or more of those sectors.

There is up to £19mn from the Industrial Strategy Challenge Fund to invest in projects that support the creation, development and scale-up of supply chains in power electronics, machines and drives.

Businesses of any size may apply for a share of this funding, where the competition has two strands: one for larger projects with total costs between £1mn-£3mn, and another for smaller projects with total costs between £250,000-£1mn.

The competition opened on Monday 29 July and the deadline for applications is 25 September.
 


Delivery

Energy networks urged to achieve flexible, smarter system

On 16 July, the government published a letter from BEIS and Ofgem sent to the Energy Networks Association (ENA), which set out the views of the government and the regulator on work undertaken to date on the Open Networks project.

The letter analysed the progress made so far by the ENA on its Open Networks project, which aims to deliver a smarter and more flexible energy system for the UK, allowing more energy users such as businesses to take part in flexibility schemes.

The government and the regulator said that they were “pleased” with the “proactive approach” taken by the Open Networks project to deliver its goals to date. This includes work done on the Future Worlds project. It was also noted that the Open Networks project had helped boost greater efforts across the sector to open network needs to competition and support network coordination.

However, it added that both the regulator and the government were “keen that progress continues and tangible changes are implemented” and expressed their belief that further efforts to make the necessary changes would be required to deliver what Often and BEIS view as an energy system fit for the future.


Ofgem and BEIS seek “flexible and responsive” retail markets

In the next stage of the joint Ofgem-BEIS review on ensuring that the retail energy market is fit for the future, a consultation was issued on 22 July on current thinking and options for discussion.

The consultation comes at the “mid-point” of the review, which was launched in November.

The organisations set out a vision for the retail market as one where “innovating brings choice to consumers, allowing them to take advantage of the increased flexibility and lower costs of a smart, low-carbon energy system.”

The review will target five key outcomes by addressing the challenges associated with them: a wide choice of energy services, consistent consumer protection, minimal market distortions, competitive prices for all, and ensuring that consumers in vulnerable situations receive the services they need.

Responses are requested by 16 September.


BEIS and Ofgem propose code governance overhaul

A new BEIS-Ofgem consultation on Reforming the Energy Industry Codes, published on 22 July, proposes fundamental changes to energy code governance arrangements to facilitate strategic changes, unlock innovation and give more consumer benefits.

BEIS and Ofgem have set out a number of desired outcomes to create a framework that not only facilitates this change but is forward-looking and flexible to change and makes it easier for market participants to identify and apply rules.

They are consulting as part of their review of codes and governance, launched in November 2018. BEIS and Ofgem have met with a broad range of stakeholders and have acknowledged the breadth of knowledge that exists in the sector and the importance of ensuring a robust governance framework for the next decade and beyond.

Responses are requested by 16 September.
 


Usage

CCC criticises lack of action to reduce emissions

In its Reducing UK emissions – 2019 Progress Report to Parliament, the Committee on Climate Change (CCC) has criticised the government for a lack of action to reduce emissions, concluding that more is needed to meet the UK’s 2050 net zero target.

Progress to reduce emissions, the CCC said, is “generally off-track” across most sectors, with only seven of the 24 indicators on track in 2018 and only two outside of the power and industry sectors on track. The sectors that the CCC assessed as being most behind are transport, buildings, agriculture and land use.

Reductions in carbon emissions of new vehicles, the CCC assessed, have fallen well short, resulting in transport becoming the highest emitting sector. In buildings, the rate of deployment of energy efficiency measures is currently less than 20% of the CCC’s indicators, which it blamed on policy changes in 2012.

The CCC praised the progress made in the power sector, which it concluded has been driven by strong policy. Progress to reduce emissions in industry was also praised, but the CCC remains unsure as to how much of this is because of government policy.

To meet the third and fourth carbon budgets and the net zero target by 2050, the CCC has recommended that net zero policy must be embedded across all levels and departments of government.

More specifically, the CCC has urged the 2040 deadline to phase-out petrol and diesel cars and vans to be brought forward to 2030. There needs to be a robust plan for decarbonising heat, recommending that large-scale trials begin for heat pumps and hydrogen.

Housing energy efficiency also needs action. The CCC said policies are not in place to deliver the government's ambitions to improve all homes to at least EPC band C, and building standards are not sufficiently enforced and will require strengthening. The CCC also found that regulations for the private rented sector prioritise costs for landlords over running costs for renters.


West of England declares climate emergency

On 19 July, the West of England Combined Authority (WECA) became the fourth in the country to declare a climate emergency.

The WECA Committee approved a £250,000 investment to develop pilot projects through the Energy Strategy and Climate Change Action Plan and a £1.1mn investment into projects to improve sustainable transportation in the region to help reduce carbon emissions. WECA has also launched schemes and invested in projects to support carbon reduction initiatives, including:

  • congestion and public transport improvements
  • a new £4.2mn West of England Low Carbon Challenge Fund to support micro, small and medium businesses to adopt energy efficiency measures, community energy schemes and home retrofit efficiency measures
  • the South West Energy Hub, and
  • investment into research and innovation in low-emission vehicles.

 

Government urged to address energy efficiency of housing

Think tank the Social Market Foundation (SMF) has recommended the government address the country’s often discussed, but rarely addressed, “housing crisis” in order for the UK to achieve carbon neutrality by 2050. This was part of a series of recommendations put forward on 26 July.

The SMF made three recommendations: quality over quantity of housing, address affordability, and avoid the trap of short-term policies.

Emeritus Professor of Housing Economics at LSE Christine Whitehead also warned that planning for sustainable communities and energy efficient homes should not be overlooked “just so a government can hit ambitious new build targets.”


New investment for the next generation of net zero transport

On 22 July, BEIS and UK Research and Innovation announced an £80mn investment in developing the next generation of electric cars and planes. The investment – through the Modern Industrial Strategy – will help the UK supply products both nationally and globally, and help cut carbon emissions from a range of industries including transport, energy, agriculture and construction.

BEIS said the development of these new technologies, known as Power Electronics, Electric Machines and Drives, will be led by a collaboration of over 130 organisations collectively offering up to £600bn in global reserves.

Four strands of investment will provide opportunities for new electric products, moving away from fossil fuels. These strands are: Fast Start Fill the Gaps/Proof of Concept Programmes, Industrialisation Centres, high efficiency, high volume supply chains and low volume, high value supply chains.


BEIS Committee: No 2050 net zero without energy efficiency

The BEIS Commons Select Committee made the claim that the UK “stands no chance” of hitting emissions reductions targets without the revival of “its failing energy efficiency policy” and mandating builders to “deliver the latest energy efficiency standards” in its report Energy Efficiency: Building towards Net Zero on 12 July.

The MPs decided to undertake their review to see how the Clean Growth Strategy’s new aspirations for energy efficiency were being “translated in to action.” Nearly two years after the Strategy’s October 2017 launch, they concluded that the government is “off track to meet its targets; major policy gaps still exist”.

Improving the energy efficiency of the national building stock should be designated as a national infrastructure priority, the MPs recommended. They also highlighted the lower level of per capita public funding of residential energy efficiency schemes in England.

The MPs recommended that the government consider retargeting the Winter Fuel Payment to “those most in need” with any savings being used to invest in energy efficiency programmes for fuel poor households.

On new builds, the MPs argued that majority of large housebuilders would only “raise the energy standards of their stock if forced to do so by regulation” and so recommended that the government legislates for the Future Homes Standard “as soon as possible”.

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