June 2020 Regulatory Report
Applicants to the Non-domestic Renewable Heat Incentive Scheme (RHI) before 29 June will be given a 14-month extension to complete their low-carbon heat generators. Under the original deadline, non-domestic projects had until January 2021 to ensure their generators were operational, so they were eligible for the second allocation of tariff guarantees. Following a response to the RHI consultation, this cut-off date has been moved to March 2022.
BEIS announced the extension of the December 2020 All Reasonable Steps smart meter rollout deadline by six months to 30 June 2021 and published its decision on the four-year framework.
Ofgem published its statutory consultation on the final phases of its Supplier Licensing Review on 25 June.
Ofgem set out how it expects suppliers, network companies and the Electricity System Operator to meet their obligations in transitioning to a new phase in responding to COVID-19. It issued three further letters on its expectations for these groups, which took effect from 1 July.
Ofgem also issued a statutory consultation on 29 June on its final proposals to improve outcomes for those affected by self-disconnection and self-rationing.
The Committee on Climate Change called for large-scale building retrofits, heating decarbonisation and electricity network strengthening in its Reducing UK emissions: 2020 Progress Report to Parliament, published on 25 June.
The Committee on Fuel Poverty made a series of recommendations in its Annual Report 2020, published on 29 June, regarding the upgrading of household energy efficiency targets, the Warm Home Discount (WHD) scheme and the Winter Fuel Payment budget. It also believes the government’s priorities should be to assist fuel poor and low-income families to manage the immediate impact of COVID-19 crisis.
Also covered in this Regulatory Report:
• Government announces £80mn for emissions reduction funds
• Renewables share of electricity generation hit 47% in Q120
• NIA: nuclear could provide 40% of UK electricity by 2050
• 79% say government should pursue green recovery
• REA puts forward recommendations for green economic recovery
• BP presents global energy trends prior to COVID-19 crisis
Government announces extension to RHI support schemes
Announced on 30 June, applicants to the Non-domestic Renewable Heat Incentive Scheme (RHI) before 29 June will be given a 14-month extension to complete their low-carbon heat generators.
The RHI offers businesses who generate large-scale heat from renewable sources a set tariff over 20 years. Under the original deadline, non-domestic projects had until January 2021 to ensure their generators were operational, so they were eligible for the second allocation of tariff guarantees. Following a response to the RHI consultation, this cut-off date has been moved to March 2022.
The decision was made to provide projects with “vital breathing space” amongst the disruption caused by the COVID-19 outbreak. The government has also announced a third allocation round will be open in July for new applicants, which is intended to mobilise additional investment into the sector.
The domestic RHI scheme has also been extended by 12 months and will remain open until 31 March 2022. The government has found that the extension will facilitate the conversion of 18,000 households onto low-carbon heating, resulting in a reduction of 1.2mn tonnes of CO2 from polluting the atmosphere over the lifetime of these smaller-scale projects.
Energy Minister Kwasi Kwarteng said: “It is right that we offer certainty and breathing space to companies embracing renewable heat technology across the country. Renewable heat will play a key role in the UK’s economic recovery as we redouble efforts to tackle carbon emissions. With government support, these vital projects are on course to stop 108 million tonnes of CO2 from polluting the atmosphere, while also helping to create new green collar jobs.”
BEIS extends smart meter rollout obligation by six months
BEIS announced the extension of the December 2020 All Reasonable Steps (ARS) smart meter rollout deadline by six months to 30 June 2021 and published its decision on the four-year framework. The deadline referred to the obligation on suppliers to take all reasonable steps to offer smart meters for their customers.
In the 18 June announcement BEIS said the delay is to account for the extraordinary circumstances presented by COVID-19, providing regulatory flexibility for suppliers and supply chains to get back on track with rollouts.
Under the new plans, the concept of the ARS Specified Date will be introduced, replacing the current date of 31 December 2020 as set out in the supply licences. The ARS Specified Date would initially be set as 30 June 2021, although the licence allows for the date to be moved via a Secretary of State direction, without the need to amend the licence.
Alongside the decision on extending rollout obligations beyond 2020, BEIS issued a consultation on changes to the framework for Smart Energy GB. Its objectives will be amended, placing a stronger focus on overcoming barriers to acceptance and engaging vulnerable and harder to reach customers. The Smart Energy GB board will be reduced from 14 to 11, with a restructuring to ensure an appropriate balance between representing the interests of energy suppliers and consumer representatives. Two new advisory groups with domestic and microbusiness focuses will also be set up to inform the maintenance of the Performance Management Framework.
Under the plans the supplier funding threshold will be reduced from 250,000 customer accounts to 150,000, in line with the thresholds for the Energy Company Obligation and Warm Home Discount.
Government announces £80mn for emissions reduction funds
The government has announced £80mn in funding towards reducing carbon emissions from industry and homes. In the 29 June announcement, the government said funds announced include:
- £30mn towards the first phase of the Industrial Energy Transformation Fund (IETF), which supports energy intensive manufacturers, like car factories and steel plants, to cut their carbon footprint. BEIS published guidance for the first phase of the IETF.
- £25mn for heat networks, which reduce carbon and cut heating bills for customers, including one in Gateshead, which will harness geothermal water sitting in disused mines to heat 1,250 homes. With thousands of redundant mine shafts criss-crossing the country, experts say that if the mine shaft technology proves successful and economically viable, it could be scaled up to power around 6 million homes around Britain.
- £24mn for projects to help develop energy efficient homes by installing green tech and insulation in houses. This includes: £7.7mnn to install green technology and insulation in over 300 council houses, to bring down the cost of retrofitting homes – with pilot projects in Cornwall, Nottingham, and Sutton; £14.6mn to pilot the roll-out of innovative heat pumps to 750 homes in the South East of Scotland, the South East of England and Newcastle; and £1.8mn to support the development of innovative green home finance products by lenders.
Renewables share of electricity generation hit 47% in Q120
BEIS statistics have shown that renewables generation was 30% higher in Q120 than it was in Q119. Published on 25 June, the statistics show that this was an increase of 9.4TWh, which BEIS said was a record year on year increase.
As a result, renewables’ share of electricity generation increased to 47.0%, up by 11.1 percentage points on the share in Q119, reflecting increased capacity and high load factors for wind technologies. Wind generation increased significantly for both offshore (53%) and onshore (29%) to 13.2 TWh and 12.8 TWh hours respectively.
New offshore wind capacity included the completion of the Beatrice expansion, Hornsea One becoming operational in stages and the first stage of East Anglia One coming online. These three schemes are all supported by Contracts for Difference low carbon support scheme.
NIA: nuclear could provide 40% of UK electricity by 2050
The Nuclear Industry Association (NIA) has called for nuclear to provide 40% of the UK’s electricity by 2050, in a new report published on 24 June.
In the report, Forty by ’50: The Nuclear Roadmap, the NIA said an ambitious programme could provide up to 40% of clean power by 2050 and drive deeper decarbonisation through the creation of hydrogen and other clean fuels, along with district heating. Nuclear currently contributes 40% of GB’s annual clean electricity, but demand is expected to quadruple from the replacement of fossil fuels and a boom in the electric vehicles and heating sectors.
Chief Executive of the NIA, Tom Greatrex said: “We’re confident the price of nuclear power will fall from the £92.50/MWh for the first plant, closer to £60/MWh for the next wave of power stations reducing to around £40/MWh for further reactors.”
Final supplier monitoring requirements published
On 25 June Ofgem published its statutory consultation on the final phases of its Supplier Licensing Review (SLR). This follows the introduction of market entry requirements in July last year. Its latest proposals detail incoming rules for continuous monitoring of suppliers and arrangements for managing market exits. The SLR sees Ofgem working to ensure suppliers are run sustainably and with good customer service.
Ofgem is set to introduce a Financial Responsibility Principle to require all suppliers to take action to minimise costs that could be mutualised in the event of their failure. In referencing the current industry response to COVID-19 financial impacts, Ofgem states that the principle will apply to cost deferral schemes and associated repayments. The principle will allow Ofgem to intervene to address unsustainable behaviour, pricing practices or business models.
New supplier checkpoints determined by customer numbers and financial and compliance indicators will also be introduced. Milestone assessment requests for information will be issued when a supplier meets 50,000 and 200,000 domestic customer accounts for each fuel. Following its receipt of the RFI, Ofgem will then decide whether to conduct a milestone assessment. Ofgem said that it may restrict suppliers taking on new customers if it thinks they are not ready for growth or able to meet their regulatory obligations. Other milestone thresholds previously proposed included 250,000 customers and at a point to be determined between 500,000 and 800,000 customers.
Ofgem dials back COVID-19 regulatory flexibility
Ofgem has set out how it expects suppliers, network companies and the Electricity System Operator (ESO) to meet their obligations in transitioning to a new phase in responding to COVID-19. Ofgem confirmed on 16 June that industry should return to providing the usual level of customer service to all consumers.
Following its April letters on introducing regulatory flexibility amid COVID-19, Ofgem has issued three further letters on its expectations for suppliers, network companies, and the ESO which took effect from 1 July.
In its update Ofgem said that suppliers need to continue to uphold the voluntary agreement with BEIS and provide support to affected customers. Suppliers are also expected to consider how their approach to debt management should evolve going forward as they continue to deal with customers financially impacted by the COVID-19 crisis.
Suppliers to be required to identify PPM self-disconnection
On 29 June, Ofgem issued a statutory consultation on its final proposals to improve outcomes for those affected by self-disconnection and self-rationing. The proposals, which are the manifestation of one of Ofgem’s key priorities in its Consumer Vulnerability Strategy, remain fairly similar to those outlined in the policy consultation, with the majority of updates being minor changes to licence condition drafting.
The greatest change from the initial proposals is the regulator’s decision to remove the requirement for suppliers to identify prepayment meter (PPM) customers who are self-rationing.
CCC criticises policy deficit and calls for action
The Committee on Climate Change (CCC) has called for large-scale building retrofits, heating decarbonisation and electricity network strengthening in its Reducing UK emissions: 2020 Progress Report to Parliament.
Published on 25 June, the report criticises the lack of progress made in 2019 and sets out elements which the CCC said must be in place ahead of COP26. The CCC said that the fundamental requirements to achieve net zero are largely unchanged by the COVID-19 crisis.
The report called for the Buildings and Heat Strategy, due later this year, “to take low carbon heating from a niche market in the UK” to the dominant form of new heating installation by the early-2030s.
The report recommended strengthening policy to reduce transport emissions, including bringing forward the ban on the sale of internal combustion engine vehicles to 2032. To incentivise electric vehicle uptake, the government should use purchase subsidies, preferential company car tax, no fuel duty and lower vehicle excise duty.
The report called for the expansion of supplies of low carbon power to be accompanied by steps in the Energy White Paper to encourage a resilient and flexible energy system adding the Contracts for Difference scheme should have annual auctions.
The CCC said net zero should be core government policy, adding that, increasingly, all policy and infrastructure decisions will need to be checked against their consistency with the net zero target and the need to adapt to the impacts of climate change.
CFP calls for WHD to provide bill discounts to fuel poor.
The Committee on Fuel Poverty (CFP) made a series of recommendations in its Annual Report 2020, published on 29 June, regarding the upgrading of household energy efficiency targets, the Warm Home Discount (WHD) scheme and the Winter Fuel Payment budget.
In the short term, the CFP believes the government’s priorities should be to assist fuel poor and low-income families to manage the immediate impact of the COVID-19 crisis and upgrade as many of the remaining fuel poor Bands F and Band G homes as is reasonably practicable. In the medium term, the aim should be to deliver the 2025 Band D milestone and make faster progress towards the 2030 Band C target. In the longer term, the aim should be to accelerate progress towards the 2030 Band C milestone.
The CFP urges the government to amend the Warm Home Discount (WHD) scheme to be more focused on providing automatic energy bill discounts to fuel poor households. It also believes the programme should be extended from 2022 to 2025.
The Winter Fuel Payment budget should be refocused to help those most in need to pay their energy bills and use the balance of funds (approximately £0.8bn per year) to upgrade the energy efficiency levels of fuel poor homes.
The CFP recommends the government announce funds in the Comprehensive Spending Review or earlier for the £2.5bn Home Upgrade Grant (HUG). Implementing the HUG would also assist existing energy efficiency businesses to create jobs and enable them to scale up quickly and start to rebalance regional economies.
79% say government should pursue green recovery
The Climate Assembly – a citizens assembly focused on the issue of climate change – has found that 79% of its 108 participants agreed that steps taken by the government to help the economy recover should be designed to help achieve net zero. 9% strongly disagreed or disagreed and 12% were unsure. The findings were published in a new report on 23 June.
93% of assembly members ‘strongly agreed’ or ‘agreed’ that: “As lockdown eases, government, employers and/or others should take steps to encourage lifestyles to change to be more compatible with reaching net zero.”
In response to the findings, the six Select Committees involved in the Climate Assembly wrote to the Prime Minister on 23 June, urging the government to pursue a green recovery.
REA puts forward recommendations for green economic recovery
The Renewable Energy Association (REA) published several recommendations on 2 July in its Green Recovery Report that it says would promote economic recovery and support the achievement of the net zero target.
The report recommends bringing forward new renewable power generation capacity and energy storage projects to enable the shift to net zero. An extra 15-20GW of renewable power could be built with £2bn funding. Investment in battery manufacturing capacity in the UK in line with the Faraday Institution’s recommendations would enable electric vehicle (EV) production and energy storage to smooth the energy transition.
An immediate cash injection could be put into the Non-Domestic Renewable Heat Incentive (RHI), which could be extended for 12 months. Funding could be provided to ensure the third allocation round of RHI Tariff Guarantees provides adequate support for biomethane plant development and other eligible technologies, with flexible timelines for commissioning plants.
Regarding transport, the REA recommends accelerating the deployment of public and private EV infrastructure through regulatory support and funding to ensure continued investor confidence. It wants to maintain existing low carbon vehicle incentives and clarify future tax and regulatory questions to provide certainty to consumers and industry.
BP presents global energy trends prior to COVID-19 crisis
On 17 June, BP published its Statistical Review of World Energy 2020, which presents global energy data for 2019. The report showed that growth in primary energy consumption slowed to 1.3% in 2019, whilst carbon emissions from energy use grew by 0.5%.
The slowdown in growth of primary energy consumption was largely due to small economic expansions in countries that are typically large consumers of energy (US, Russia and India). These countries combined accounted for over 27% of total global energy consumption in 2019 but recorded a 0.3% drop in energy demand from the previous year.
Energy consumption from renewable generation sources saw its largest yearly increase of 12.2%. Power from renewable sources also saw a 40% growth, whilst accounting for 10.4% of the global generation mix (surpassing nuclear for the first time).
Global consumption of coal fell by 0.6% to mark its fourth decline in the past six years despite notable increases in Asia, highlighting the rise in coal-to-gas switching seen in all regions around the world.