March 2020 Regulatory Report

Generation

In Chancellor Rishi Sunak’s first Budget, the government announced that it will raise the Climate Change Levy (CCL) on gas in 2022-23 and 2023-24 (whilst freezing the rate on electricity) and will consult on the launch of a Green Gas Levy to support biomethane production. The Climate Change Agreement (CCA) scheme will be reopened and extended by two years. Additionally, Carbon Price Support is to be frozen for 2021-22. 

Delivery

Following the COVID-19 outbreak, Ofgem CEO Jonathan Brearley addressed the regulator’s approach to compliance as well as the progress of its wider programme amid the COVID-19 crisis. Brearley explained that, where companies can demonstrate that any compliance issues have resulted from prioritising the protection of customers and security of supply, Ofgem will take this into account in any decisions it takes. Brearley stated that Ofgem is aware that its regulatory processes place resource requirements on energy companies. As such, it intends to work with suppliers and other licensed parties to ensure that any burdens placed on them at this time do not compromise the protection of consumers and those who work in the industry. The regulator has also postponed RIIO-2 hearings.

Usage

BEIS announced new measures to protect prepayment meter (PPM) customers during the COVID-19 outbreak, PPM customers who may not be able to add credit can speak to their supplier about options to keep them supplied. This could include nominating a third party for credit top ups, having a discretionary fund added to their credit, or being sent a pre-loaded top up card so that their supply is not interrupted.

Also covered in this Regulatory Report: 

• Banks Renewables drops Judicial Review against CfD.
• BEIS Committee urges action one energy efficiency, CCS and EVs.
• National Grid publishes its Forward Work Plan.
• ENA outlines its aims to keep energy flowing.
• UK’s GHG emissions fell by 21% between 2007 and 2017.
• New carbon border tax could deliver economic growth.
   

Generation   

Budget 2020: electricity CCL freeze and Green Gas Levy 

Chancellor Rishi Sunak’s first Budget on 11 March included some significant announcements around carbon taxation, heat and transport. The government is raising the Climate Change Levy (CCL) on gas in 2022-23 and 2023-24 (whilst freezing the rate on electricity). Alongside this, the government will consult on introducing a Green Gas Levy to support biomethane production to increase the proportion of green gas on the grid. The Climate Change Agreement (CCA) scheme will be reopened and extended by two years. Additionally, Carbon Price Support is to be frozen for 2021-22.

The Budget confirmed £96mn for the final year of the Heat Networks Investment Project, which ends in March 2022. After this, the government will invest a further £270mn in a new Green Heat Networks Scheme. Also announced was the extension of the Domestic Renewable Heat Incentive (RHI) in Great Britain until 31 March 2022 and the launch of a new allocation of flexible tariff guarantees to the Non-Domestic RHI in Great Britain in March 2021. £500mn for electric vehicle (EV) rapid charging hubs was also announced. This will include a Rapid Charging Fund to help businesses with the cost of connecting fast charge points to the electricity grid. To target spending from this fund, the Office for Low Emission Vehicles will complete an EV charging infrastructure review. With one eye on the long-term future of incentives for zero emission vehicles the Budget confirmed £403mn for the Plug-in Car Grant, extending it to 2022-23 and provision of £129.5mn to extend the Plug-in Grants for vans, taxis and motorcycles. In addition, the Budget announced the exemption of zero emission cars from Vehicle Excise Duty (VED).

The government said it would be spending £800mn to establish two or more carbon capture and storage clusters (CCS), one by the mid-2020s, a second by 2030. The government will also support the construction of the UK’s first CCS power plant. Part of £900mn of funding will go towards ensuring UK businesses are “leading the way in high-potential technologies”, including commercialising nuclear fusion technology. The Budget document also revealed that the government will publish the National Infrastructure Strategy (NIS) “later in the spring”.
 

Renewables’ share of electricity generation hits 36.9% 

Published on 26 March, the statistics show an increase of 3.8 percentage points (pp) on renewables’ 33% share of electricity generation in 2018. BEIS attributed this to an increase in renewables generation from 110TWh to 119TWh compared to 2018. This was largely due to an increase in generation capacity. In 2019, record generation was seen for both onshore and offshore wind. 2019 also saw record generation from bioenergy at 36.6TWh, 5.2% greater than 34.8TWh generated in 2018. The technology represented 11.3% of renewable generation in 2019. 

In 2019 12.7TWh of electricity was generated from solar (3.9%), down from 12.9TWh in 2018, a fall of 1.4%. BEIS noted that offshore wind overtook onshore wind generation in Q319 and continued to have the greatest share in Q419. Both onshore and offshore wind each generated 9.9% of total electricity in 2019.As the end of 2019, the UK’s renewable electricity capacity totalled 47.4GW, an increase of 6.9% (3GW) on the installed capacity at the end of 2018. BEIS noted this was the smallest year on year capacity increase since 2010.

Onshore wind represented 29.9GW of all renewables capacity, with 14.2GW. Solar PV had a 28.7% share, offshore wind had 20.7% and bioenergy had 16.7%.

ES Catapult urges new nuclear and home retrofit wave 

Energy Systems (ES) Catapult published a new report on 10 March, Innovating to Net Zero, putting forward recommendations for the government, covering electricity, transport, buildings and industry. ES Catapult said a priority for electricity generation should be new nuclear, which would require support from the government, either by a Regulated Asset Base model to secure private investment or alternative models of risk allocation. ES Catapult also recommended increased R&D funding and deployment support for new and emerging technologies, such as floating offshore wind and small modular reactors (SMR). Other recommendations include stimulating efficient demand reduction and/or flexibility through energy efficiency measures; improved market price signals and strengthening network price controls to support decarbonisation.

For transport, ES Catapult advised for a phased approach to the ban on the sale of new diesel and petrol cars and vans, extending it to cover all internal combustion engine and hybrid vehicles. National and interoperable charging infrastructure should be deployed, including rapid chargepoints on trunk roads, with integration into local area energy and network investment planning processes. ES Catapult also stated that the government should fund a new wave of place-based building retrofit projects. ES Catapult said there should be a phasing in of new carbon performance rating requirements for all buildings. This could be implemented by replacing the existing EPC rating system with a new system of Carbon Performance Certification. For industry, the government should develop post-Brexit arrangements for emissions trading in the UK to ensure that incentives on industrial emitters are strengthened over time. 
 

Banks Renewables drops Judicial Review against CfD

The Banks Renewables Judicial Review against the Contracts for Difference (CfD) Allocation Round 3 (AR3), has been withdrawn BEIS said. A BEIS spokesperson said on Monday 16 March: “We are pleased this case has been withdrawn and we look forward to the fourth round opening next year.” The spokesperson also said: “The CfD scheme has secured clean energy for 12 million homes and is an essential part of our plans to eliminate the UK’s contribution to climate change by 2050.”

BEIS Committee urges action on energy efficiency, CCS and EVs 

In letters dated 17 March and published on 20 March, Chair of the BEIS Committee Rachel Reeves expressed concern about the government’s efforts to improve home energy efficiency, as well as the development of carbon capture and storage (CCS) infrastructure and the market for electric vehicles (EVs).

In a letter addressed to Energy and Clean Growth Minister Kwasi Kwarteng, Reeves expressed disappointment that the Conservative election manifesto pledges to introduce a new £3.8bn Social Housing Decarbonisation Fund and a £2.5bn Home Upgrade Grant in fuel poor homes were not included in the Budget. The ‘able to pay’ market was another area of concern, where Reeves stated that this is the market where the biggest carbon savings can be achieved. Reeves urged the government not to delay publishing the updated strategy to achieve statutory energy efficiency in fuel poor homes and for government to extend the Warm Home Discount. On the government’s planned Future Homes Standard, Reeves put a series of questions to the government, including whether the government would consider bringing forward the proposed start date of the Future Homes Standard. She requested a reply by 3 April.

In another letter, addressed to Parliamentary Under Secretary of State at BEIS, Nadhim Zahawi, Reeves expressed disappointment at the government’s ambition for CCS deployment and criticised the Budget’s short-term extension of the Plug-in Car Grant to 2022-23.

Delivery 

Ofgem promises pragmatism amid COVID-19 

Following the COVID-19 outbreak, Ofgem issued guidance, an official statement and advice for consumers. On 19 March, Ofgem CEO Jonathan Brearley addressed the regulator’s approach to compliance as well as the progress of its wider programme amid the COVID -19 crisis. Brearley noted that while people will be self-isolating, they may struggle to pay their bills. He explained that, where companies can demonstrate that any compliance issues have resulted from prioritising the protection of customers and security of supply, Ofgem will take this into account in any decisions made. Brearley stated that Ofgem is aware that its regulatory processes place resource requirements on energy companies. As such, it intends to work with suppliers and other licensed parties to ensure that any burdens placed on them at this time do not compromise the protection of consumers and those who work in the industry. 

On 24 March Ofgem stated that it was temporarily pausing the publication of new information on its website, with the exception of releases that are legally required. Ofgem has also issued guidance on the steps that suppliers should take. Suppliers should contact customers to establish if there are any people in the household who are vulnerable and whether the household is self-isolating. Where this is the case, only emergency metering work should proceed. The regulator confirmed that suppliers may make decisions to temporarily reduce their smart meter rollout activity, which should be kept under review. Energy companies are expected to keep Ofgem appraised of the challenges they face as they arise. 
 

National Grid publishes its Forward Work Plan

National Grid Electricity System Operator (ESO) published its Forward Work Plan 2020-21 on 30 March. The ESO put forth three roles: Control Centre Operations, market development and transactions, and system insight, planning and network development. Under Control Centre Operations, priorities include minimising balancing costs; improving forecasting accuracy and providing clarity of operational decision making. Under Market development and transactions, priorities include product roadmaps for Response and Reserve implementation, product roadmap for reactive implementation and improving the way the ESO facilitates code change. Under system insight, planning and network development, priorities include Progress Pathfinder projects; producing an Early Competition plan; and progressing the Loss of Mains Protection programme.

The benefits to consumers from these priorities identified by National Grid ESO include; lower bills, improved safety and reliability, reduced environmental damage and improved quality of service. Across the three roles, the ESO has set out 13 individual metrics and four performance indicators against which its performance can be measured.
 

ENA outlines its aims to keep energy flowing

The Energy Networks Association (ENA) outlined its approach to looking after customers and colleagues during the COVID-19 outbreak. Published on 25 March, the ENA will continue to prioritise maintenance work required to guarantee an ongoing safe and reliable energy supply and will focus on power cuts, gas leaks and urgent safety issues. The association confirmed that it will temporarily reduce the work required under its gas mains replacement programme whilst it also reviews new connection projects for both gas and electricity. For vulnerable customers and those deemed ‘at risk’, the ENA encouraged those to sign up for the Priority Services Register, which will deliver free additional services to customers if there is a power cut or issues to the gas supply.

Usage 

BEIS announces new measures to protect PPM customers

New measures are being introduced to protect prepayment meter (PPM) customers during the COVID-19 outbreak, BEIS announced on 19 March. PPM customers who may not be able to add credit can speak to their supplier about options to keep them supplied. This could include nominating a third party for credit top ups, having a discretionary fund added to their credit, or being sent a pre-loaded top up card so that their supply is not interrupted. BEIS said there was an industry agreement signed by all UK domestic suppliers and it will come into force immediately. Ofgem will continue to ensure suppliers meet their regulatory obligations.

BEIS highlighted the package of business support measures set out by Chancellor Rishi Sunak in the Budget, which includes £330bn for companies to access loans and help for small firms without insurance. In addition, a new temporary Coronavirus Business Interruption Loan Scheme is to be launched to support businesses access £1bn of additional bank lending. The Chancellor and Business Secretary, Alok Sharma also met on 18 March as part of a new Committee to address the economic and business issues presented by COVID-19, as well as the importance of keeping under review regulations. 

In the letter published on 25 March, Liberal Democrat MP Jamie Stone called for the Chancellor to provide a moratorium on VAT on energy bills during COVID-19. The letter was signed by over 30 MPs across parties including the Liberal Democrats, Labour, SNP, Alliance and DUP. On 29 March, Labour called for greater action on utility bills, benefit levels and rent relief.  

Octopus Energy’s blog post on 22 March has shown that up to 30% of households have changed consumption pattern in response to the self-isolation measures imposed by the government. The blog used anonymised smart meter usage data from 115,000 customers from the week prior to the blog’s publishing as well as the previous week. Among households with changed patterns, average electricity bills are rising between £1.34 and £2.85 per week and gas bills between £1.65 and £1.93 (assuming they pay the same level as the government price cap). Research from uSwitch on 24 March also found that UK households could be faced with paying an extra £52mn a week on energy bills (amounting to just under £200 a year per household or £16 per month). The Chancellor announced on 26 March that millions of self-employed individuals will receive £2,500 in direct cash grants through a new UK-wide scheme to provide support for up to three months. 

UK’s GHG emissions fell by 21% between 2007 and 2017

On 23 March, Defra released statistics associated with the UK’s carbon footprint for the period 1997 to 2017. After peaking at 977mn tonnes of carbon dioxide equivalent (CO2e) in 2007, the UK’s greenhouse gas (GHG) emissions fell by 21% from 2007 to 2017. Between the years 2016 and 2017 alone, the UK’s carbon footprint is estimated to have fallen by 3%. 

In 2017, carbon accounted for 79% of the total UK GHG emissions mix. Carbon accounted for 96% of emissions from households, 78% of GHG emissions derived from UK-produced goods and services and 72% of GHG emissions associated with imported goods and services. At a household level, the carbon footprint has remained broadly unchanged between 1997 and 2017.  Countering trends seen in both production-associated and household carbon emissions, emissions related to imports, also known as “embedded” emissions increased by 49% from 1997 to peak in 2007, with 2017 levels 20% lower than its peak. Embedded emissions from the EU decreased 16% from the peak of 88Mt CO2e in 2002 to 75Mt CO2e in 2017, remaining above the 1997 level of 69Mt. 

Government launches business support measures 

Businesses are now able to access government-backed loans to help them during the Covid-19 outbreak, the government announced on 23 March. 

More than £330bn of loans and guarantees will be made available for applications to two new schemes which launched on 23 March. For small and medium-sized businesses, the Coronavirus Business Interruption Loan Scheme will provide loans of up to £5mn, while the Bank of England’s Covid Corporate Financing Facility will be open for applications from larger firms to help raise working capital. A government campaign was also launched as part of the announcement, which aims to ensure businesses are aware of the support available and how to access it.

The Chancellor of the Exchequer, Rishi Sunak, said: “We are working round the clock to do whatever it takes to protect our people and businesses. That means that we are not only taking unprecedented action but doing so at unprecedented speed, because we know that businesses and their employees need help now.

New carbon border tax could deliver economic growth

A report by the Centre of Policy Studies (CPS) has proposed the launch of a new carbon border tax on carbon-intensive imports, such as steel, coal and electricity, which could be weighted according to an exporter’s own electricity generating mix. Providing “a level playing field,” the tax could also filter into limiting carbon offshoring; reduce carbon leakage and incentivise international suppliers to lower their carbon costs if supplying goods to the UK market. Furthermore, it would work to reduce carbon intensive imports, encourage the private sector to invest, generate significant new revenue streams for central government and “would not require any extra taxes for the UK or sector-specific subsidies”. 

Published on 13 March, The Great Carbon Swindle finds that Britain’s existing carbon tax solely covers carbon emissions from the electricity generating sector, which does not address the offshoring of emissions. At present, imports via interconnectors are also not subject to Britain’s Carbon Price Floor Tax or network transmission charges, which provides carbon-intensive electricity imports and overseas power plants a clear and unfair market advantage. The report notes that imports of carbon intensive electricity through interconnectors could be taxed based on the exporting states’ electricity generation mix and its respective carbon intensity, either on a real-time or overall basis.  

The report put forth several recommendations: to account of whether products have been produced using carbon intensive energy; for polluting imports and the offshoring of energy emissions to be tackled; and for a new carbon border tax to reduce global emissions and support domestic industries which have experienced carbon leakage. 

Global power carbon emissions down nearly 2% as coal declines 

On 9 March, climate think-tank EMBER published its 2020 Global Electricity Review. According to the report, coal burning declined globally in 2019 by ~259TWh. This led to global power-sector CO2 emissions falling by 2%. Whilst there was a structural shift towards wind and solar technologies in 2019, most of the key drivers of this decline were considered “one-off” factors. These include nuclear generation rising by the highest amount this century; an increasing proportion of wind and solar generation; and coal-to-gas switching. 

In 2019, coal generation fell by 24% in the EU. In the UK, coal generation halved, replaced by 65% gas generation and 35% wind/solar generation. Conversely in the EU, the transition “leap-frogged” to wind and solar as coal generation also halved, replaced entirely by wind and solar.