Generation

Chancellor Rishi Sunak delivered his summer statement in July. With a focus on economic recovery from COVID-19, he confirmed that the government would, from September, introduce vouchers worth up to £5,000 to be invested in energy efficiency measures in the home, as part of a £3bn energy efficiency investment.

The government will also legislate to remove electricity storage, except pumped hydro, from the Nationally Significant Infrastructure Projects regime in England and Wales.

Delivery

Ofgem issued the policy proposals arising from its Microbusiness Strategic Review for consultation, building on information collected from suppliers and look to address several key issues faced by microbusinesses in the retail energy market.

Ofgem published its draft determinations for the RIIO-2 price control period.

Ofgem also published its eighth annual report for the Non-Domestic Renewable Heat Incentive (RHI) scheme. At the end of the financial year, there were a total of 20,127 participants in the scheme and over 5.1GWth of installed capacity with heat pumps accounting for 65% of new applications.

Usage

The Committee on Climate Change (CCC) published the results of its Sixth Carbon Budget Call for Evidence, sharing stakeholder thoughts on policy actions and budget levels. It includes responses to the CCC’s question on whether the levels of the fourth and fifth carbon budgets need to be changed in light of the 2050 net zero target.

Citizens Advice published new research looking at how the energy sector is performing against customer expectations. Future Proof: Challenges and opportunities in providing great service in energy shows that many suppliers’ customer service performance has decreased since 2017, with some suppliers falling by more than one-star rating (out of five) between 2017 and the end of 2019.

Also covered in this Regulatory Report:

• BEIS publishes decisions on CCA scheme reform.
• Renewable electricity hit 37.1% of total UK generation in 2019.
• Renewables pipeline continues to grow during lockdown.
• MPs call for green hydrogen strategy and better building standards.
• Regen wants statutory duty for local authorities on net zero.
• Apple commits to carbon neutral supply chain by 2030.

Generation  

Chancellor announces £3bn energy efficiency package

Chancellor Rishi Sunak delivered his summer statement on 8 July. With a focus on economic recovery from COVID-19, he confirmed that the government would, from September, introduce vouchers worth up to £5,000 to be invested in energy efficiency measures in the home, as part of a £3bn energy efficiency investment.

Trailed before the speech in media reports the day before, the Green Homes Grant would provide at least £2 for every £1 homeowners and landlords spend to make their homes more energy efficient, up to £5,000 per household. The Treasury said £2bn will be provided to support homeowners and landlords in making their homes more energy-efficient in 2020-21.

For those on the lowest incomes, the scheme will fully fund energy efficiency measures of up to £10,000 per household. The Treasury said it could support over 100,000 green jobs and aims to upgrade over 600,000 homes across England.

In his statement to Parliament on the same day, the Chancellor said he is, on top of the £2bn, releasing £1bn of funding to improve the energy efficiency of public sector buildings, alongside a £50mn fund to pilot the approach to decarbonise social housing. He said the measures, in total, would save households up to £300 a year on their bills and cut carbon by more than half a megatonne per year.

BEIS to relax planning legislation for large-scale batteries

The government is to legislate to remove electricity storage, except pumped hydro, from the Nationally Significant Infrastructure Projects (NSIP) regime in England and Wales.

This move, it said in the 14 July press release, would make it easier to construct large batteries to store renewable energy. BEIS said in the ‘Proposals regarding the planning system for electricity storage’ consultation outcome that the 50MW NSIP threshold was distorting sizing and investment decisions for these types of projects. This included clustering just below the 50MW threshold, with no standalone facilities deploying above this. Some providers were choosing to develop multiple projects with 49.9MW batteries rather than one larger battery, to avoid the NSIP regime (see Figure 1)

BEIS said that the changes mean that the primary consenting route for electricity storage (except pumped hydro) in England will be under the Town and Country Planning Act 1990 (TCPA). Section 35 of the Planning Act 2008 will continue to apply in England, allowing the Business Secretary to direct projects into the NSIP regime, where he considers it appropriate. In Wales, planning decisions for electricity storage (except pumped hydro) of any size will generally be consented by the relevant Local Planning Authority under the TCPA regime, whereas currently this is only the case for electricity storage (except pumped hydro) below 350MW. BEIS said it will retain the 50MW NSIP threshold in the case of pumped hydro storage due to the larger planning impacts of this technology. Additionally, BEIS will ensure that the removal of electricity storage (except pumped hydro) from the NSIP regime in England and Wales applies to both the onshore and offshore regime (NSIP and Section 36 consent).

The Renewable Energy Association said this move means that permission to progress projects over 50MW, which previously took one to two years to process, will now be able to receive permission in eight to 16 weeks. An Energy UK spokesperson said it was “good to see the government recognising calls for action and acting to remove disproportionate planning barriers”.

BEIS publishes decisions on CCA scheme reform

The Department for Business, Energy and Industrial Strategy (BEIS) published the outcomes of the consultation on the Climate Change Agreements (CCA) scheme extension and reforms for any future scheme on 31 July. Target Periods 4 and 5 will run between 1 January 2019 to 31 December 2020 and 1 January 2021 to 31 December 2022, respectively.

The CCA is a scheme which allows businesses in high energy industries to receive a discount on the Climate Change Levy (CCL) that they pay. The CCL is a tax added to electricity, fuel and gas bills of companies in the industrial, commercial, agricultural or public service sector.

The UK government has decided the buy-out price will increase to £18/tCO2e for Target Period 5. Target Period 4 buy-out remains at £14/tCO2e. Certification Period (CP) 4 will run from 1 July 2019 to 30 June 2021, while CP5 will run from 1 July 2021 to 30 June 2023 and CP6 will run from 1 July 2023 to 30 March 2025. In addition to extending the deadline for new entrant applications to 30 November 2020, the government confirmed an extension of the deadline for sector associations to submit counter proposals for target setting to 30 October 2020.

Renewable electricity hit 37.1% of total UK generation in 2019

Renewables’ share of the UK’s total electricity generation reached a record 37.1% in 2019, up from 33.1% in 2018, according to BEIS’ Digest of UK Energy Statistics 2020. The rise in renewables generation was primarily driven by higher onshore and offshore wind generation, which both produced 32TWh in 2019.

Published on 30 July, the statistics show that despite reduced nuclear output, low carbon electricity’s share of generation increased from 52.6% to a record 54.4%, driven by the increase in renewables generation. Other key findings include that, as a result of lower gas and nuclear output, energy production in the UK was down 0.2% in 2019.

Labour Shadow Business Secretary Ed Miliband said: “The figures are moving in the right direction, but not yet at the pace befitting the scale of the climate crisis facing us all.”

The former Labour leader continued: “As COP26 hosts, the UK should be blazing the trail in the global fight against climate change with a Green New Deal. Yet we are falling behind our European neighbours, whose investment in a green recovery has dwarfed this government’s. With billions of taxpayer pounds being channelled by ministers into fossil fuels abroad and the UK still off track for meeting our targets, the Government’s actions are clearly still too piecemeal and inconsistent.”

Renewables pipeline continues to grow during lockdown

On 16 July, BEIS released a quarterly update of its Renewables Energy Planning Database (REPD), outlining the details of all known renewables energy projects in the UK. It shows that the current pipeline of renewable energy projects in the UK (those marked as having application submitted, awaiting construction or under construction) amounts to 47.2GW.

Of this pipeline, projects in four technology types account for a combined 85% of the total. Offshore wind projects accounted for 42% of the current pipeline, with 19.6GW of potential future capacity currently in the works. Projects classified as onshore wind accounted for the second largest portion of 23% of the total pipeline, while battery and solar PV made up 13% and 8% respectively.

22.9GW of potential future capacity marked as awaiting construction, whilst a further 16.1GW and 8.2GW of projects that have submitted their application or are under construction respectively.

Delivery

Ofgem seeks greater protection for microbusinesses

Ofgem issued the policy proposals arising from its Microbusiness Strategic Review for consultation on 29 July. These build on information collected from suppliers and look to address several key issues faced by microbusinesses in the retail energy market. Microbusinesses are non-domestic consumers who use no more than 100MWh of electricity p/a, and/or no more than 293MWh of gas p/a. According to government data, in 2019 there were over 5.6mn microbusinesses in the UK, accounting for 96% of all businesses.

The regulator’s evidence shows that some microbusinesses that do try to engage with the market can face barriers to accessing the best deals and there is evidence to suggest that the activities of a minority of brokers are causing particular harm in individual cases.

To address these issues, Ofgem is proposing several measures. One of these is a broker conduct principle. This would introduce a principles-based requirement for suppliers to ensure brokers they work with conduct themselves appropriately and in a way that treats customers fairly. The regulator also proposes introducing a requirement for suppliers to only work with brokers signed up to an alternative dispute resolution (ADR) scheme. This would allow microbusinesses to raise a complaint to the ADR provider if they cannot resolve a dispute with their broker directly.

Network companies criticise Ofgem over price control

Ofgem published its draft determinations for the RIIO-2 price control period. RIIO-2 is the upcoming price control period for gas and electricity network companies – this decides the size of the returns these companies are allowed to make.

Some network companies will be allowed much less base revenue than they asked for over the RIIO-2 price control period, according to the draft determinations Ofgem published on 9 July. Ofgem indicated that £25bn would be made available over the five-year period due to start from 1 April 2021, with the potential for £10bn more in additional net zero funding.

Ofgem’s proposals as they stand would lead to an expected £20 fall in network charges on bills per household a year at the start of RIIO-2. National Grid will receive £3.3bn in base revenue for its electricity transmission business (compared to a requested £7.1bn) and £1.56bn for gas transmission (having requested £2.75bn).

Highlights from Ofgem’s Non-Domestic RHI report

On 31 July, Ofgem published its eighth annual report for the Non-Domestic Renewable Heat Incentive (RHI) scheme. At the end of the financial year, there were a total of 20,127 participants in the scheme and over 5.1GWth of installed capacity with heat pumps accounting for 65% of new applications.

Additionally, the number of audit checks on installations fell from 697 (in 2018-19) to 556, with approximately £2.1mn of public funds protected or expected to be recovered. The report highlighted that the Non-Domestic RHI scheme will close to new applicants at the end of the 2020-21 financial year in March 2021.

Usage

CCC asked to revisit fourth and fifth carbon budget levels

The Committee on Climate Change (CCC) published the results of its Sixth Carbon Budget Call for Evidence, sharing stakeholder thoughts on policy actions and budget levels.

Published on 29 July, the report included responses to the CCC’s question on whether the levels of the fourth and fifth carbon budgets (covering the periods of 2023-27 and 2028-32 respectively) need to be changed, in light of the 2050 net zero target.

The majority of the 78 respondents felt that the fourth and fifth carbon budgets should be revisited, with the most common justifications for this view being: that the net zero target suggests a different decarbonisation pathway and therefore new budgets are needed; and that the most up to date climate science points to a need for early decarbonisation.

Some respondents provided ambiguous responses or felt that existing carbon budgets should only be changed if it is more cost-effective to do so than to maintain current budgets. This would require policies to support decarbonisation, particularly in industry, to be put in place by the government.

Citizens Advice: energy rated poorly on customer service

Citizens Advice published new research on 1 July looking at how the energy sector is performing against customer expectations. Future Proof: Challenges and opportunities in providing great service in energy shows that many suppliers’ customer service performance has decreased since 2017, with some suppliers falling by more than one-star rating (out of five) between 2017 and the end of 2019.

Citizens Advice identified key challenges for suppliers in terms of customer service. This includes overcoming poor reputation and perceived complexity – energy performs worse on reputation than any other essential services sector. Criticisms include price rises and pricing strategies that charge loyal customers significantly more; mis-selling - particularly in relation to face-to-face sales; and poor service by some new entrants and supplier failures.

Another challenge lies in improving consumer experience of complaints – consumers who have had a complaint tend to be much less satisfied than those who have not (a rating of 5.3/10 versus 7.3/10). Citizens Advice star rating has shown there has been a decline in average complaints handling performance since 2016. On the complaints handling process, Citizens Advice found that, too often, consumers must work hard to get their complaints resolved. Customers, they found, normally recontacted suppliers five times and dealt with three or more different people. 75% said they found it stressful.

Citizens Advice found that some suppliers are not offering a diverse array of communications channels. The survey found that customers like a variety of different channels – over 50% want to use web channels to manage accounts or choose new products and over 50% prefer to use telephone services when things go wrong. Another challenge is ensuring services work for people with different needs – disabled people are significantly more likely to want proactive support to save money, manage payments and know about support services.

Citizens Advice said that tackling the loyalty penalty represents another big opportunity, suggesting that the price cap may have helped suppliers’ images in this area.

MPs call for green hydrogen strategy and better building standards

The Net Zero All-Party Parliamentary Group (APPG) published a 10-point net zero action plan for the government. Published on 21 July, the plan covers overall government strategy, building energy efficiency, hydrogen policy and more.

On hydrogen, the APPG recommended the development of an “ambitious” green hydrogen strategy to “position the UK to capitalise on opportunities green hydrogen presents”. The ban on the sale of new internal combustion engine vehicles should be brought forward to 2032, from the government’s current target of 2035, it said. There should also be interim EV sales targets.

A cross departmental review of building standards should be carried out, MPs said. This would ensure regulation and enforcement serves as a “cohesive catalyst” towards achieving net zero, leveraging sectoral interdependencies, low carbon materials, circular economy thinking and emerging technologies.

Regen wants statutory duty for local authorities on net zero

Not-for-profit organisation Regen published a paper on Local leadership to transform our energy system on 30 July, outlining several recommendations for the government, including:

• The introduction of a new statutory duty for local authorities on net zero energy.
• The development of a national net zero carbon strategy and the establishment of a formal governance role for UK regions over the future of critical energy infrastructure.
• Raising the ambition of the Future Homes Standard to be net zero compliant and giving control of retrofit funding to local government.
• Guidance for local authorities on how to set up power purchase agreements.
• The introduction of shared network access for local project in the current Ofgem review of network charges.

Regen also said the government should focus economic recovery from the COVID-19 crisis on the energy transition. It also said the government should deliver a low carbon transport system in the context of COVID-19.

Apple commits to carbon neutral supply chain by 2030

Apple unveiled a 10-year climate roadmap on 21 July, outlining how it will become carbon neutral across its entire business, manufacturing supply chain and product life cycle by 2030.

The company is already carbon neutral for its global corporate operations and now plans to reduce emissions by 75% by 2030 while developing innovative carbon removal solutions for the remaining 25%.

Apple currently has commitments with over 70 suppliers to use 100% renewable energy for production, with new and completed plans taking its renewable capacity for corporate operations to over 1 GW. Over 80% of the renewable energy it sources are from “Apple-created projects”, with plans to launch a solar array in Scandinavia, and two new projects to provide energy to underserved communities in the Philippines and Thailand.

Tim Cook, Apple’s CEO, said: “Climate action can be the foundation for a new era of innovative potential, job creation, and durable economic growth. With our commitment to carbon neutrality, we hope to be a ripple in the pond that creates a much larger change.”