March 2021

Generation

The government will be pushing ahead with a new levy on gas use called the Green Gas Levy. Launching this autumn.

The Public Accounts Committee said in a new report that the government has “no plan” for how to achieve net zero.

Delivery

Thee Competition and Markets Authority announced that it had granted permission for nine network companies to appeal Ofgem’s RIIO-2 price control determinations.

National Grid announced it would be acquiring the Western Power Distribution network, as well as selling a majority stake in its UK Gas Transmission business.

National Grid Electricity System Operator highlighted role of digitalisation and data availability in a new report.

Usage

The phase out date for the sale of new petrol and diesel cars and vans is to be brought forward to 2030.

The Confederation of British Industry (CBI) released a new report, setting out a series of recommendations for how the Treasury could ‘green’ the tax system and benefit businesses.

Also covered in this Regulatory Report: 

• Renewables provided nearly 43% of the UK’s electricity generation in 2020
• Planning permission given for 49.9MW EDF solar farm
• Opposition parties set out ideas for net zero
• Views sought on non-domestic minimum energy efficiency standards 
• Research finds public values individual choice in net zero transition
• Government provides £30mn for batteries and hydrogen vehicles 

Generation

Government confirms intention to launch new levy on gas

The government confirmed in a consultation response on 17 March that it will be pushing ahead with a new levy on gas use called the Green Gas Levy (GGL). The GGL will pay for the Green Gas Support Scheme (GGSS), which is a scheme aimed at the deployment of new anaerobic digestion biomethane plants through a 15-year tariff to increase the proportion of green gas in the gas grid. Both the GGL and GGSS are being launched in autumn this year.

The GGL is being launched with a per meter point design that would see levy costs distributed among gas suppliers according to the number of gas meters that they supply. The government intends to transition to a volumetric levy design (based on the amount of gas used) as soon as possible, subject to feasibility issues being overcome. The main factor behind the initial flat levy design, which the government says is simpler to implement, is to ensure the GGL is in place for the start of the GGSS.

The GGL will apply to “designated fossil fuel suppliers” of gas. Gas suppliers who can prove that they provide 95% to 100% green gas for the entirety of a levy scheme year will be excluded from paying the levy for that year. The original government proposal was to only exempt suppliers of 100% green gas, but it decided that a threshold of 95% rather than 100% reduces the risk of 100% green gas suppliers being inadvertently charged. 

Government has “no plan” for how to achieve net zero

In a new report, the House of Commons Public Accounts Committee (PAC) said the government has “no plan” for how to achieve net zero, two years following the passing of the 2050 target. PAC urged the government to publish its plans and targets for all sectors and make clear to the public how government actions are consistent with the trajectory to net zero.

In the report, published on 5 March, PAC said the Treasury has not worked out how it will ensure net zero is given adequate weight in the assessment of government policies and projects. It also said there has been no coordinated government messaging around the changes that will need to take place to ensure successful public engagement in the transition to net zero by 2050. To counteract this, PAC advises the government to develop a public engagement strategy that sets out how communications will be coordinated within the next 12 months. 

Additionally, PAC stressed that local authorities will also play a key role in the net zero transition, yet 96% of local authorities have reported that funding is a barrier to tackling climate change, with 93% stating that existing legislation or regulations remain barriers of progress, alongside a lack of workforce capacity or skills.

Following the release of the report, PAC also held an evidence session on environmental tax measures on 8 March, where it was discussed how the government would achieve its environmental goals through taxation. Beth Russell, Director General, Tax and Welfare, Treasury, explained that as part of the Net Zero Review, the Treasury was looking at the role that carbon pricing could play as well as the role of “particular sectors” and said that this would be detailed in the report. Treasury Permanent Secretary Tom Scholar said that the Net Zero Review would “give an analytical framework within which to think about the costs” of transition. He added that the interim report had outlined that “the cost of the transition” would depend “to a large degree on policy choices”.   

Renewables provided nearly 43% of the UK’s electricity generation in 2020

New statistics published by the government on 25 March showed that 2020 was the first year ever when renewable electricity generation outperformed fossil fuels, at 42.9% and 38.5% respectively. Wind, both on and offshore, provided more than half of the UK’s renewable power in 2020, generating 24.2% of the UK’s electricity generation. RenewableUK’s Deputy Chief Executive Melanie Onn said: “[The] record-breaking figures, set despite the pandemic, show that renewables are keeping this country reliably powered up during the most challenging period any of us have faced for many decades.”

Last year also saw the UK’s carbon emissions fall an estimated 10.7% in 2020 from 2019, to 326.1Mt, and total greenhouse gas emissions by 8.9% to 414.1mn tonnes carbon dioxide equivalent (MtCO2e). This, the government said, is a direct result of the COVID-19 lockdown.

This large fall in 2020 is primarily due to the large reduction in the use of road transport and the reduction in business activity. Carbon emissions from transport also fell 19.6% in 2020, accounting for over half of the overall fall from 2019, and in the business sector they fell by 8.7%. At the same time, carbon emissions from the residential sector increased by 1.8% as more people stayed at home, but this was not enough to offset the decrease from business. 

Planning permission given for 49.9MW EDF solar farm

Planning consent was granted for EDF Renewables’ Sutton Bridge solar farm in Lincolnshire on 11 March by South Holland District Council. EDF Renewables said the 49.9MW solar farm will be capable of generating enough electricity to power 16,100 households annually, saving around 21,000 tonnes of carbon emissions annually. It will be the first large-scale solar project developed by EDF Renewables in the UK.

Further expansion of the site to incorporate battery storage and the potential for future electric vehicle charging possibilities is being explored at the site. 

EDF Renewables Head of Solar, Ben Fawcett said: “We are very pleased to receive planning consent for this project which we believe is a great site for solar as it is suitably sunny and has a nearby grid connection. Through additional planting, including native species hedgerows we will encourage biodiversity as well as reduce any visual impact of the development.”

Opposition parties set out ideas for net zero

Shadow Business Secretary Ed Miliband gave a speech on 25 March, in which he talked about Labour policy ideas on investment in the UK automotive sector. He called on the government to kick start the development of three additional gigafactories during this Parliament by investing £1.5bn – more than triple the £400mn currently available. Miliband criticised the government’s 10 Point Plan, saying it pledges “a tiny fraction” of the funding other countries have committed to. He called on the government to generally increase the funding for net zero.

At the Liberal Democrat Spring Conference on 21 March, Leader of the Liberal Democrats, Ed Davey outlined the party’s vision for Britain's future. Davey criticised the Conservatives’ decision to remove policies he said had been established by the Liberal Democrats, such as the Zero Carbon Homes Law to the Green Investment Bank, which has since been privatised, and called for a greater focus on offshore wind. 

Delivery

CMA grants permission for RIIO-2 appeals

On 1 April, the Competition and Markets Authority (CMA) announced that it had granted permission for nine network companies to appeal Ofgem’s RIIO-2 price control determinations.

Permission is subject to the joining of certain common grounds of appeal across those who have appealed, and the appeals from National Grid Electricity Transmission and National Grid Gas will be joined.

All of GB’s electricity and gas transmission and gas distribution network companies appealed the RIIO-2 price controls, the CMA announced on 5 March.

RIIO-2 is the next price control period for energy networks, covering April 2021 to March 2026. Ofgem published its final determinations of RIIO-2, setting out the returns that network companies can make during the period.

At the time of its final determinations, Ofgem said: “Customers will also see a £2.3bn saving over the course of RIIO-2, equivalent to an average bill reduction of about £10 before inflation.”

The deadline for applications for permission to intervene in the CMA decision and for Ofgem’s reply is 23 April, while the deadline for the CMA’s determination is 30 September. 

National Grid to acquire WPD and sell majority stake in gas

National Grid announced on 18 March it would be acquiring the Western Power Distribution (WPD) network, as well as selling a majority stake in its UK Gas Transmission business.

National Grid has agreed a transaction with PPL Corporation to acquire WPD for an equity value of £7.8bn. This agreement would also see National Grid selling its Rhode Island business to PPL for an equity value of $3.8bn (£2.7bn). 

The acquisition is expected to be completed within the next four months. National Grid called WPD “a leading distribution network operator” and praised its low cost and local delivery strength, as well as its customer focus and strong operational performance.

On the sale of UK Gas Transmission, the timeline would see the process for sale in Q3 2021 and an expectation that completion will take c.12 months. National Grid said both these moves would increase its focus on electricity.

National Grid ESO highlights role of data and digitalisation

National Grid Electricity System Operator (ESO) published its latest Bridging the Gap to Net Zero on 3 March. National Grid ESO balances and operates the electricity transmission system and is legally separate from National Grid, which owns the transmission system.

The report’s key message is that increased data availability and digitalisation of systems are “fundamental” to enable markets and technology to manage peaks and troughs on the network. The peaks are maximum requirement for dispatchable power, maximum flow on the network and maximum requirement for dispatchable demand. The troughs are minimum supply of renewable electricity, minimum flow on the network and no interconnector supply available.

Usage

Phase out date for new ICE cars and vans now 2030

The Department for Transport published the outcome of its consultation on ending the sale of new petrol, diesel and hybrid cars and vans by 2030 on 10 March. 

Reflecting on the views submitted, the government will take this approach:

• Step one – the phase out date for the sale of new petrol and diesel cars and vans to be brought forward to 2030.
• Step two – all new cars and vans must also be fully zero emission at the tailpipe from 2035.

Three broad, competing positions emerged from those who responded to the consultation. The first was that 2040 is the fastest that the zero emissions transition can be achieved and that there are several barriers to bringing the date forward. The second position was supportive of bringing the phase out date forward to 2035. The third was that 2035 is not sufficiently ambitious and will not go far enough in reducing carbon emissions, meaning a date earlier than 2035 is required.

The government said it will publish a delivery plan later this year setting out the main milestones towards the phase out dates and committed spending and regulatory measures. It will report progress against the plan on an annual basis and conduct a review of progress towards the phase out dates by 2025.

CBI sets out how government can “green” the UK tax system 

The Confederation of British Industry (CBI) released a new report on 11 March, setting out a series of recommendations for how the Treasury could ‘green’ the tax system and benefit businesses.

The report identifies some “net zero quick wins” to be taken in the short term, covering areas such as electric vehicles (EV), buildings and industrial emissions.

To accelerate EV uptake, the CBI is calling for long-term certainty on company car tax (BiK) rates for zero emission vehicles. The CBI says it is “disappointing” to see that the 0% BiK rate was not extended in Budget 2021. To lengthen the application of the 1% BiK rate for zero emission vehicles, the CBI says, could increase car fleets’ changes as businesses gradually recover from COVID-19 and begin to make investment decisions again.

The CBI talked about how VAT could be used to incentivise EV uptake:

• Bringing the public charging VAT rates down to 5% to match domestic charging would support those without access to domestic charging.
• Reduce the VAT rate applicable to the sale of zero emission vehicles. There currently is no difference between buying an electric, hybrid or traditional fuel car when it comes to VAT. 
• Review the VAT rate on Personal Contract Hire for zero emission vehicles.
• Allow VAT recovery on company cars that are battery EVs where they are in private use.

To support more energy efficiency, low carbon heat and use of renewables in buildings, the CBI says business rates should be reformed. The “high burden of business rates (a tax rate of close to 50%)” often means that the costs associated with improving the property outweigh the benefits and can make the investment “commercially unviable”. 

Views sought on non-domestic minimum energy efficiency standards

The government announced on 17 March it is seeking views on its proposed framework for improving the implementation and enforcement of the EPC B target by 2030 for privately rented non-domestic buildings. The Energy White Paper confirmed that the future trajectory for the non-domestic minimum energy efficiency standards (MEES) will be Energy Performance Certificate (EPC) B by 2030.

The government published a consultation in 2019 on how best to improve the energy performance of these buildings through tighter minimum energy standards. It found there was significant support for the EPC B option and is now consulting on the framework to implement this and improve the compliance and enforcement process. The framework trajectory proposed would:

• Phase in the requirement with an interim milestone of EPC C in 2027 to ensure early action is taken by the market.
• Introduce a compliance window approach designed to simplify compliance and enforcement.
• Move away from enforcement at the point of let and introducing a temporary 6-month exemption to address the challenges of compliance for shell and core premises.

The consultation closes on 9 June.

Research finds public values individual choice in net zero transition

The government published the findings of research it had commissioned into the general public’s understanding of the net zero transition. Published on 15 March, Net zero public dialogue brought together 93 members of the public from across the UK to participate in online workshops.

The study found there is limited (accurate) understanding of the concept of net zero, or the behaviours (including technology adoption and demand reduction) that may be required to achieve it. Two areas split opinion between participants:

• Car ownership. Depending on personal circumstances, including location and the perceived sufficiency and desirability of both current and expected future alternative options, travelling by car could be seen as a necessity by participants. Those in the youngest and oldest groups, and those living in urban areas were much more likely to be supportive of reducing the use of cars in favour of public transport or active travel. With improvements in performance and affordability, electric vehicles were an acceptable alternative to petrol/diesel vehicles, though there was scepticism whether the necessary infrastructure will be in place.
• Freedom of choice over diet, including the consumption of meat. Participants who ate meat and dairy enjoyed them, also considering them part of a healthy diet and often disliked alternatives. 

Government provides £30mn for batteries and hydrogen vehicles

Research into battery technology, the electric vehicle (EV) supply chain and hydrogen vehicles is to be backed by over £30mn of government funding, Minister for Investment Gerry Grimstone announced on 30 March. More than 20 studies will receive a share of £9.4mn, including proposals to build a plant in Cornwall that will extract lithium for use in EV batteries, a plant to build specialised magnets for EV motors in Cheshire and lightweight hydrogen storage for cars and vans in Loughborough. The Faraday Institution is also committing £22.6mn to continue its work to further improve the safety, reliability and sustainability of batteries.