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June 2019 Regulatory Report

By Market Insight Team | Posted July 03, 2019

Generation

The House of Commons and House of Lords voted to approve the draft Climate Change Act 2008 (2050 Target Amendment) Order 2019, which amends the Climate Change Act 2008 to increase the minimum percentage by which the net UK carbon account for the year 2050 and must be lower than the 1990 baseline from 80% to 100%. The order came into force on 27 June.

The government published its response to the consultations addressing the policy proposals for its Smart Export Guarantee, which will be a market-based mechanism in which suppliers are free to set prices and have the flexibility to innovate to appeal to owners of small-scale generation.
 

Delivery

Ofgem Chair Martin Cave set out the three key objectives that the regulator will focus on in the 2020s during a speech, specifically enabling competition and innovation to drive down prices and see new products and services come to market; protecting consumers and ensuring fair treatment; and decarbonising at lowest cost to tackle climate change.

The Energy Networks Association published its flexibility services plan, which it said would help the UK to achieve net zero emissions by 2050.
 

Usage

BP published its 68th Statistical Review of World Energy, finding that global primary energy consumption increased by 2.9% in 2018, which is almost double the 10-year average of 1.5% per year. This, it said, resulted in an increase in carbon emissions that was the equivalent of the fastest growth in seven years.  

The government announced that nine companies have secured £26mn of funding, combined with backing from industry, that will enable them to progress with the development and rollout of carbon capture, utilisation and storage projects.

Also covered in this Regulatory Report:


 


Generation


UK 2050 net zero emissions target becomes law

The House of Commons and House of Lords have voted respectively to approve the draft Climate Change Act 2008 (2050 Target Amendment) Order 2019, following extensive debates in both Houses. The order came into force on 27 June.

The Commons debated the order on 24 June, following the government laying it before Parliament on 12 June, deciding to approve the order. Upon doing so, Prime Minister Theresa May said the legislation would mean that the UK was on track to become the first G7 country to legislate for net zero emissions. It will amend the Climate Change Act 2008 to increase the minimum percentage by which the net UK carbon account for the year 2050 must be lower than the 1990 baseline from 80% to 100%.

Interim Energy and Clean Growth Minister Chris Skidmore opened the debate for the government, citing the Intergovernmental Panel on Climate Change’s call to limit global warming to 1.5C as a reason behind the government’s decision to legislate for net zero by 2050.

Labour MP and Environmental Audit Committee Chair Mary Creagh asked the government minister whether the government, as the largest purchaser of goods and services in the country, would also be a net zero purchaser and provider of services. Skidmore said the Treasury will conduct a review over the summer of the impacts on business, society and across the public sector of the need to decarbonise swiftly and securely. He also confirmed that the Energy White Paper will be published in the summer.

Asked by Labour MP Dr David Drew if the government would consider bringing the net zero date forward ahead of 2050, Skidmore said that the CCC suggested that 2050 is the earliest possible date. However, he highlighted both Sweden and Manchester’s 2038 targets as examples of more ambitious targets. He continued: “what we are saying as a government is that all agencies across society will need to take action.”

Labour MP and BEIS Committee Chair Rachel Reeves said that the 2040 target of phasing out petrol and diesel car sales needed to be brought forward to 2032. Skidmore conceded that “other countries have moved faster than us […] but what is important is that we begin this discussion about how we can achieve that.”


Government confirms Smart Export Guarantee scheme

On 10 June the government published its response to consultations on policy proposals for the Smart Export Guarantee (SEG), and on proposed amended licence conditions. Energy and Clean Growth Minister Chris Skidmore also spoke about the launch of the SEG at a technology conference in London.

The SEG will be a market-based mechanism, and suppliers will be free to set prices, in line with government’s objective to move towards market pricing. Suppliers will have flexibility to innovate by tailoring tariffs to appeal to owners of various types of small-scale generation, as well as wider smart infrastructure such as electric vehicles and domestic-scale storage systems, for example. There will not be a specified minimum tariff rate, exported power must be metered, and must also be registered for settlement.

Skidmore said that he expected suppliers bidding competitively for electricity to give exporters “their best market price, while providing the local grid with more clean, green energy”.


Government confirms wind and solar will participate in capacity market

On 6 June BEIS confirmed that certain renewables technologies (wind and solar) not in receipt of any other subsidy, will be allowed to participate in the Capacity Market (CM).

This was following the outcome of the department’s earlier Capacity Market: Further Technical Amendments consultation, which covered proposals for replacing the postponed T-4 auction from January 2019 with a T-3 auction to run in early 2020 for 2022-23 delivery, allowing certain renewables technologies to participate in the CM, changing the de-rating factor methodology for interconnectors and making minor corrections and additions to the rules.

BEIS confirmed that it will proceed with legislative changes to replace the planned 2022-23 T-4 auction with a T-3 auction, allow certain renewable technologies to participate, remove the historical floor from the interconnector de-rating methodology and make minor corrections and additions to the rules to ensure they are clear and operate as intended. The proposal to allow the new technologies to participate in the CM was received favourably, although some respondents were concerned about the intermittent nature of the technologies. To this, BEIS said despite their intermittency, wind and solar make a “measurable contribution” to security of supply and this is already accounted for when procurement targets are set.

Changes to eligibility criteria for assets participating in the T-3 auction for delivery in 2022-23 were also announced: New build plants which prequalified for the postponed T-4 auction but have since fully commissioned will be classed as an existing CMU under the rules. Therefore, these assets will not be eligible for 15-year contracts in the T-3 auction and will only be able to participate for a one-year agreement as an existing CMU.


Commons votes for energy saving materials VAT increase

The Commons approved the draft Climate Change Act 2008 (2050 Target Amendment) Order 2019 (net zero by 2050) on 24 June, following a debate.

The draft order would amend the current 2050 greenhouse gas emissions reduction target from at least 80% to 100% and would constitute a legally binding commitment to end the UK’s contribution to climate change. Climate Change Act, Interim Minister for Energy and Clean Growth Chris Skidmore called on the UK to “make history again as the first major economy in the world to commit to ending our contribution to global warming.”

Areas such as Carbon Capture and Storage (CCS), decarbonising transport and the development of an electric vehicle infrastructure were also explored in order for the UK to meet the energy efficiency targets set out in the clean growth strategy. Wera Hobhouse MP added that the transition could place “an unfair burden” on those who can least afford increased energy costs; therefore “the transition to carbon zero provides an excellent opportunity to build a fairer society.”


Renewables’ share of electricity generation reaches 35.8% in Q119

BEIS published its latest Energy Trends and Energy Prices statistics on 27 June, revealing that renewables’ share of electricity generation increased to 35.8% in Q119, compared with 30.5% in Q118.

BEIS said this was mostly due to increased capacity and higher wind speeds in March 2019. Wind and solar combined accounted for a record high of 23.6 per cent of electricity generation in 2019 Q1. Coal accounted for a record low of 3.5%, while gas accounted for 41.9%. The statistics also revealed that coal accounted for a record low of 3.5% of electricity generated during Q119, while gas accounted for 41.9%.


Delivery


Cave sets out Ofgem objectives for next decade

Ofgem Chair Martin Cave set out three objectives that the regulator will focus on in to the 2020s during a speech on future energy regulation at a 13 June summit in Westminster. Cave said that the next decade will see the energy system undergo a fundamental transformation as decarbonisation, digitalisation and decentralisation occur across the system.

To meet these challenges, he said, the regulator will focus on three core objectives: enabling competition and innovation that drives prices down and leads to new products and services; protecting consumers, ensuring fair treatment and “stamping out sharp practice”; and decarbonising to fight climate change at the lowest cost to consumers. Addressing enabling competition, Cave said that the transformation of the energy system will “radically change business models” that will alter how people interact with energy providers. He added that regulator would look to remove barriers to new business models in the regulatory framework in order to encourage greater innovation; he also said that markets should look to combine supply and demand in new ways to enable “competitive pressure and differentiation across more of the energy value chain”.

On supporting decarbonisation, Case said that, traditionally, policy decisions in this area have been made by government, but that Ofgem will look to take “a more active role in building Great Britain’s low carbon energy system” by ensuring its decisions on network price controls and new retail arrangements support sustainable technologies, and administering “a large part” of current renewables and energy efficiency schemes.


ENA publishes future flexibility plans

The Energy Networks Association (ENA) published Our Six Steps for Delivering Flexibility Services on 20 June. The ENA said that the plan would help the UK achieve net zero by 2050. In the plan, the ENA explained that GB’s six Distribution Network Operators (DNOs), GTC (Independent DNO), Transmission Owners and National Grid ESO have agreed to the six principles of: championing a level playing field; ensuring visibility and accessibility; conducting procurement in an open and transparent manner; providing clarity on the dispatch of services; providing regular, consistent and transparent reporting; and working together towards whole energy system outcomes.

All steps will showcase how the ENA will procure and use flexibility services to maximise benefits to households, businesses and communities and act as the foundation for enabling, supporting and growing flexibility markets. The ENA said it will also help reduce the cost of traditional network reinforcement and support decarbonisation progress towards “net zero’ and ensure the creation of new revenue streams for all customers.


Ofgem acknowledges smart meter rollout issues

Ofgem published an open letter on the smart meter rollout on 19 June, in which the regulator recognised that industry is experiencing a range of technical constraints with the rollout but said that many of these would be resolved in the latter half of 2019.

The letter reiterated that, where a SMETS1 meter is installed after the SMETS1 end date, it will not count towards 2020 targets. Ofgem also said that it was clear that smart meters would need to be installed beyond 2020, noting that BEIS is considering the post-2020 policy and regulatory landscape for smart meters.


Usage


BP finds doubling in energy demand growth

BP’s 68th Statistical Review of World Energy was published 11 June, revealing that global primary energy consumption increased 2.9% in 2018, almost double the 10-year average of 1.5% per year.

According to the review, this occurred despite weaker GDP growth last year and an uptick in global energy prices. The top three contributors to the increase in energy demand were China, the US and India, who together accounted for more global re than two-thirds of the increase.

The higher energy consumption resulted in a 2% (0.6 gigatonnes) increase in carbon emissions in 2018, the fastest growth in seven years. BP attributed rising natural gas demand to more than 40% of the increase. One of the driving factors in this increase, it said, has been government policy in both China and India, which aims to reduce air pollution and improve air quality in cities by encouraging coal to gas switching.

BP found that the increasing demand for natural gas has been driven by growing global gas production, which was up 5% from 2017 – one of the biggest growth rates for more than 30 years. Natural gas’ share of total global electricity generation was unchanged year-on-year at 23%.

The overall growth in power generation last year was led by renewables, which was up 14.5% in 2018. China accounted for 45% of this growth, more than all countries in the Organization for Economic Cooperation and Development combined.

Renewables accounted for 9.3% of global electricity generation in 2018, while the wider definition of non-fossil fuels power generation accounted for 36% overall.

This share, like coal’s, is unchanged from levels 20 years ago, highlighting that “a shift towards greater electrification helps as a pathway to a lower carbon energy system only if it goes hand-in-hand with a decarbonisation of the power sector.”


Government awards £26mn to CCUS innovation

The government announced on 27 June that nine companies have secured £26mn of government funding as well as industry backing to advance the rollout of carbon capture, utilisation and storage (CCUS).

Presently, energy-intensive industries produce approximately 24% of global emissions. CCUS will work to capture carbon from power stations and carbon heavy industries, which can either be used for industrial purposes like manufacturing concrete or be stored underground, reducing pollution and helping to tackle climate change.

Tata Chemicals Europe’s plant in Winnington, Cheshire has received £4.2mn in funding to build a CCUS facility to capture 40,000 tonnes of carbon annually – the facility could be operational by 2021.

Eight more projects will be awarded between £170,000 and £7mn as part of two programmes – the £20mn Carbon Capture and Utilisation Demonstration programme (CCUD), which will encourage industrial sites to capture carbon dioxide of up to 70,000 tonnes per year, alongside the £24mn Call for CCUS Innovation programme, which funds projects which will reduce the cost or accelerate the roll out of CCUS in the UK and internationally.


OWIC launches £100mn offshore wind programme

On 24 June the Offshore Wind Industry Council (OWIC) announced the creation of a £100mn, 10-year programme to support the growth of up to 650 UK businesses to access the domestic offshore wind market and capitalise on global opportunities – these are expected to be worth £30bn per year by 2030.

The Offshore Wind Growth Partnership (OWGP) will see up to 30GW of offshore wind installed by 2030, generating a third of the UK’s electricity. It will also see UK content in its offshore wind farms increase from 48% to 60% by 2030. The OWGP will be delivered by the Offshore Renewable Energy Catapult and will include a range of services including helping UK companies in the UK offshore wind supply chain; enhancing the ability of UK companies to export products and services around the world and enabling companies from other sectors to enter the offshore wind supply chain.

On 25 June, RenewableUK revealed that the global market for offshore wind has grown by 16% in the last 12 months. It found that the portfolio of global offshore wind projects in operation, under construction or in development rose from just under 105GW to more than 121GW in the last year – the UK remains the largest single market, with projects totalling over 38.4GW.


BVRLA assesses zero emission vehicle and van progress

The British Vehicle Rental & Leasing Association (BVRLA)’s Road to Zero Report Card has assessed the government’s progress towards meeting its zero emission car and van targets.

Published on 18 June and produced by sustainability consultancy Ricardo, the report said that the government must “supercharge” its electric vehicle strategy if it is to stand any chance of meeting its new pledge to achieve net zero emissions by 2050.

It went on to outline areas where the government was failing, including that tax policy is unclear and is therefore disincentivising large fleet buyers from investing; that there are too many rapid charge point blackspots and the ability to roam between different charging networks continues to be a challenge; and that the government is failing to lead by example, with only 2% of its car fleet consisting of ultra-low emissions electric vehicles (ULEVs) – previously it had set a target for 25% of its fleet to consist of ULEVs by 2022.


Taskforce launched to help companies play a role in 2050 net zero target

Business in the Community (BITC), part of the Prince’s Responsible Business Network, has launched a Net Zero Carbon Taskforce to “inspire and mobilise businesses to reverse the impacts of climate crisis”.

In a 12 June announcement, BITC said that the new taskforce will ensure that companies can play a greater role in tackling climate change by identifying the simplest, most effective actions that they can take to help reduce the climate breakdown. Members of the taskforce include EDF, Aston Martin, Sky, the Environment Agency and BEIS, and its initial focus will be on the development of a “toolkit” for business action across value chains and creating a roadmap for businesses’ transition to net zero.

Gudrun Cartwright, Environment Director at BITC, said: “Achieving net zero carbon is a critical task if we are to avoid leaving a legacy of broken planetary life support systems […] business must be at the forefront of the transformation we need, bringing innovation and entrepreneurial flair to accelerate change”.

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