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November 2019 Regulatory Report

By Market Insight Team | Posted December 09, 2019

Generation

On 24 November, the Conservative Party published its General Election 2019 manifesto, which put forth significant investment pledges. The party will work with the market to create 2mn new jobs in clean growth and invest £1bn to develop a fast-charging network. It will also pledge £800mn to build a carbon capture storage cluster by the mid-2020s, £500mn to support energy-intensive industries to transition to low-carbon techniques and will support gas for hydrogen and nuclear energy. Labour published its General Election 2019 manifesto on 21 November, promising significant investment in renewables and climate policies. The party is promising the UK to be on track for a net zero carbon energy system within the 2030s – and will go faster if “credible pathways can be found.”

Delivery

Ofgem released its decision on the Targeted Charging Review on 21 November. Under the reforms, residual charges will be levied entirely on demand, with domestic customers across GB receiving the same fixed charge for the transmission residual, and a fixed charge for the distribution residual charge, which will vary between each of the 14 distribution areas. The Energy Networks Association issued its General Election 2019 manifesto, setting out energy network companies’ priorities. A report by the Renewable Energy Association reveals that regulatory uncertainty, lack of visibility on returns and technical challenges are hindering investment in flexibility services.

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The UN published the 10th edition of its Environment Programme Emissions Gap Report, concluding that greenhouse gas emissions have risen at a rate of 1.5% per year over the last decade. BEIS’s latest Public Attitudes Tracker, Wave 31, has found that support for renewable energy has increased slightly from 82% in June 2019 to 84% in September 2019. Support has fluctuated between 74% and 85% since the question was first asked in March 2012.

 

Also covered in this Regulatory Report:

 


Generation

 

Conservative manifesto

On 24 November, the Conservative Party published its General Election 2019 manifesto, which put forth significant investment pledges.

Over the next decade, the Conservatives will look to reduce business rates, increase the Employment Allowance for small businesses and create a new National Skills Fund. The party will work with the market to create 2mn new jobs in clean growth and invest £1bn to develop a fast-charging network to ensure everyone is within 30 miles of a rapid electric vehicle (EV) charging station. The party will also pledge £800mn to build a carbon capture storage (CCS) cluster by the mid-2020s, £500mn to support energy-intensive industries to transition to low-carbon techniques and will support gas for hydrogen and nuclear energy.

After a Brexit deal has been reached, the party will look towards the “great challenges of the future such as clean energy and advanced energy storage.” The Conservatives will set strict new laws on air quality and will consult on the earliest date by which the sale of new conventional petrol and diesel cars can be phased out. The Conservatives will also uphold its pledge to deliver 40GW of offshore wind capacity by 2030 and uphold its moratorium on fracking until a time that scientific evidence shows categorically that it can be done safely.

Commenting on the Conservative Party’s Manifesto, RenewableUK’s Director of Strategic Communications Luke Clark said: “It’s great to see the Conservatives reinforcing their commitment to net zero emissions by increasing our offshore wind target to 40GW by 2030 and pledging support for innovative floating offshore wind projects […] increasing our ambition will help to create tens of thousands of new jobs, especially in coastal communities, and attract billions in investment in much-needed clean energy infrastructure.”


Labour manifesto

Labour published its General Election 2019 manifesto on 21 November, promising significant investment in renewables and climate policies. The party is promising the UK to be on track for a net zero carbon energy system within the 2030s – and will go faster if “credible pathways can be found.”

The party aims to deliver nearly 90% of electricity and 50% of heat from renewable and low carbon sources by 2030. This will be achieved through 7,000 new offshore wind turbines; 2,000 new onshore wind turbines; enough solar panels to cover 22,000 football pitches and new nuclear power needed for energy security.

Labour would also upgrade almost all of the UK’s 27mn homes to the highest energy-efficiency standards, reduce the average household energy bill by £417 per household per year by 2030 and launch a zero carbon homes standard for all new homes.  The party would also nationalise GB’s energy network companies, where a new UK National Energy Agency will own and maintain the national grid infrastructure and oversee the delivery of our decarbonisation targets. 14 new Regional Energy Agencies will replace the existing district network operators and hold statutory responsibility for decarbonising electricity and heat and reducing fuel poverty.

The supply arms of the Big Six energy companies will be brought into public ownership where they will continue to supply households with energy.


Capacity market prequalification registers published

On 22 November, National Grid ESO published the prequalification registers for the upcoming T-3, T-1 and T-4 Capacity Market auctions. The auctions are scheduled to start on 30 January, 6 February and 5 March 2020. The T-3 auction for delivery in 2022-23 saw 60.7GW of de-rated capacity prequalify or conditionally prequalify. De-rated capacity from prequalified Existing Generating CMUs and Existing Interconnector CMUs totals 47.3GW. Included within this capacity is 4.6GW of coal and 21.8GW of CCGT.

The T-3 auction marks the first opportunity for new renewable (wind and solar) projects to participate in the Capacity Market. 11 onshore wind projects and one solar PV project prequalified or conditionally prequalified for the auction with a total nameplate capacity of 546.9MW. Once de-rated these projects represent 42.5MW of new build capacity. 2.1GW of DSR capacity prequalified for the auction, split between 256MW of proven DSR and 1.8GW of unproven DSR. 4.0GW of new build capacity is connected to the transmission system with a further 2.6GW connected to the distribution system. 4.7GW of de-rated capacity prequalified for the T-1 auction (delivery year 2020-21), against a target of 300MW.

The T-4 auction (delivery year 2023-24) saw 63.9GW of de-rated capacity prequalify. Prequalified de-rated capacity from existing generation including interconnectors is 45.0GW, with a 1.5GW surplus between the target and existing capacity. 11.9GW of new build capacity has prequalified for the auction, including 6.9GW of CCGT, 2.3GW of gas reciprocating engines and 2.0GW of OCGT. A further 1.8GW of capacity comes from refurbishing CCGT. 8.7GW of new build capacity is connected to the transmission system, with the remaining 3.2GW connected to the distribution network. 704.2MW of nameplate capacity has prequalified from onshore wind (654.2MW) and solar PV (50MW). Once de-rated this equates to 50.2MW of capacity – onshore wind (48.6MW) and solar PV (1.6MW).  2.2GW of DSR capacity prequalified, split between 256MW of proven DSR and 2.0GW of unproven DSR.


Liberal democrat manifesto

On 20 November, the Liberal Democrats promised to legislate for a 2045 net zero target in their 2019 General Election manifesto. The party will aim to achieve at least 80% renewable electricity by 2030 by removing “restrictions” on wind and solar and building more interconnectors. The party would support innovation in tidal and wave power, energy storage, demand response, smart grids and hydrogen. On heat decarbonisation, the party would adopt a Zero Carbon Heat Strategy, including reforming the Renewable Heat Incentive.


SNP and Green manifesto

The Green Party published its manifesto for the 2019 General Election on 19 November, promising a Green New Deal and support for renewable generation. The party would pave the way for wind to provide around 70% of the UK’s electricity by 2030 and enable the planning system to support more renewables. Long-term, the party would deploy demand-side management and improve the efficiency of the electricity grid, doubling its capacity. A carbon tax would also be applied on all fossil fuel imports and domestic extraction, alongside a tax on imported energy.

Additionally, the SNP launched its General Election 2019 manifesto on 27 November, promising net zero by 2045, a push for carbon capture use and storage (CCUS) technology and a green transition fund. The SNP would demand that the UK government allows onshore wind and solar power to bid in the Contracts for Difference (CfD) auctions and ensure that the CfD supports less mature technologies such as floating offshore wind and tidal stream generation. The party would also press the UK government to accelerate the deployment of CCUS facilities.


 


Delivery


TCR reforms

Ofgem released its decision on the Targeted Charging Review (TCR) on 21 November. Under the reforms, residual charges will be levied entirely on demand, with domestic customers across GB receiving the same fixed charge for the transmission residual, and a fixed charge for the distribution residual charge, which will vary between each of the 14 distribution areas.

Non-domestic customers will see banded transmission and distribution residual charges, based on agreed capacity bandings for larger customers and net consumption for smaller customers. Balancing Services Use of System (BSUoS) charges will be based on gross demand at the Grid Supply Point from 2021, effectively removing the BSUoS embedded benefit for <100MW distributed generators but stopping short of introducing a BSUoS charge for embedded generators.

Ofgem will also set the Transmission Generation Residual to zero. Reforms to transmission charges will be introduced in 2021, with changes to distribution charges to be implemented in 2022. Ofgem said its analysis indicates the reforms will bring savings to consumers of between £3.8bn and £5.3bn in the period to 2040, with system benefits of between £0.8n and £2.9bn. It was also announced that a second Balancing Services Charges Taskforce would be launched.


ENA manifesto

Published on 19 November, the Energy Networks Association (ENA) issued its General Election 2019 manifesto, setting out energy network companies’ priorities. The manifesto put forward three aims for the next government: scale-up innovation, “harness the power of private investment”; a fair transition for all and for communities to be at the frontline of delivering net zero.

The ENA said the 2020 Heat Roadmap must embrace short-term solutions. More must be invested in innovation trials for technologies such as heat pumps, hydrogen and hybrid heating systems. The ENA said that to ensure more green energy, new forms of flexibility and the shift to distribution system operators must all be supported. In the long term, the government must launch a sector-wide digitalisation strategy to “boost the country’s capabilities as an emerging digital powerhouse in energy.” The ENA is also urging policy mechanisms to enable private investors to help deliver a rollout of energy efficiency upgrades.


GB lags in facilitating system flexibility

A report by the Renewable Energy Association (REA) reveals that regulatory uncertainty, lack of visibility on returns and technical challenges are hindering investment in flexibility services. Published on 13 November, The Energy Transitions Readiness Index, issued by the Association for Renewable Energy and Clean Technology, assessed nine countries’ electricity flexibility market readiness: Denmark, Finland, France, GB, Germany, Ireland, Netherlands, Norway and Sweden.

The assessment ranked Great Britain eighth out of the nine northern European countries, scoring poorly on areas such as a clear regulatory and market framework. The assessment noted that the Netherlands, Germany, Finland, Sweden, Norway and Denmark all have a strong socio-political commitment to the energy transition. The Nordic markets also have advanced flexibility trading arrangements. On the other hand, Ireland is hampered by a small energy system and limited interconnection, whilst France houses a lack of transparency in the provision of some flexibility services. Nonetheless, all countries house relatively weak strategies for developing electric vehicle infrastructure and markets with vehicle-to-grid flexibility services.



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GHG emissions have risen 1.5% per year since 2009

The UN published the 10th edition of its Environment Programme Emissions Gap Report, concluding that greenhouse gas (GHG) emissions have risen at a rate of 1.5% per year over the last decade. In the report, issued on 26 November, the UN described the findings as “bleak,” saying that countries have collectively failed to stop the growth in global GHG emissions. Total GHG emissions, including from land-use change, reached a record high of 55.3 GtCO2e in 2018. Carbon emissions from fossil fuel-derived energy use grew 2% in 2018, reaching a record 37.5 GtCO2 per year.

G20 members account for 78% of global GHG emissions. Collectively they are on track to meet their limited 2020 Cancun Pledges, but seven countries are currently not on track to meet the 2030 Nationally Determined Contributions (NDC) commitments. In 2030, the UN says, annual emissions need to be 15 GtCO2e lower than current NDCs imply for the 2C goal, and 32 GtO2e lower for the 1.5C goal. Ambitions must increase three-fold to achieve well below the 2C goal and more than five-fold to achieve the 1.5C goal.

The report stresses the importance of looking at emissions per capita, as well as total emissions when considering the impact that different countries have. The report lists recommendations for the EU:

  • Adopt an EU regulation to refrain from investment in fossil-fuel infrastructure, including new natural gas pipelines.
  • Define a clear endpoint for the EU emissions trading system (ETS) in the form of a cap that must lead to zero emissions. Also, reform the EU ETS to more effectively reduce emissions in industrial applications
  • Adjust the framework and policies to enable 100% carbon-free electricity supply by between 2040 and 2050.
  • Step up efforts to phase out coal-fired plants.
  • Ban the sale of internal combustion engine cars and buses in the coming decades.
  • Accelerate renovation for retrofits of existing buildings.

 

Public support for renewables reaches 84%

Published on 7 November, BEIS’s latest Public Attitudes Tracker, Wave 31, has found that support for renewable energy has increased slightly from 82% in June 2019 to 84% in September 2019. Support has fluctuated between 74% and 85% since the question was first asked in March 2012. However, opposition to renewable energy reached a low of 2% in September 2019.

Wave 31 revealed that most of the public have continued to support each of the renewable energy sources included in the tracker: solar (85%); onshore wind (78%); offshore wind (81%); wave and tidal (80%); and biomass (70%), which has now reached its highest point since the tracker began.

In September 2019 awareness of fracking remained stable at 78%, while the proportion of people opposed to fracking reached a high of 44%. Support for fracking also reached a low of 11%. The proportion surveyed that neither support nor oppose fracking fell from 47% in June 2019 to 43% in September 2019, with the most common reasons for opposing fracking was the loss and destruction of natural environment (57%), followed by the risk of earthquakes (48%).


Carbon Brief: Global electricity production from coal is set to fall by 3% in 2019

Analysis by Carbon Brief has revealed that global electricity production from coal is on track to fall by around 3% in 2019, the largest drop on record.

Published on 25 November, this would amount to a reduction of around 300TWh, more than the combined total output from coal in Germany, Spain and the UK last year. The EU has experienced a 19% year-on-year decline in coal-fired power generation in the first half of 2019. This is set to rise further to 23% in the second half of the year due to the impact of new wind and solar.

The coal-gas switch as the carbon price in the EU Emissions Trading System rose above €20 per tonne of emissions and gas prices fell has impacted figures, pushing gas generation to become cheaper than coal.


The UK must “even the playing field” to accelerate EV uptake

A report by the Environmental Defense Fund Europe and Frontier Economics has called on the future government to bridge the affordability gap between electric vehicles (EVs) and fossil-fuel vehicles.

Published on 11 November, Electrifying the UK: Ensuring the transportation revolution benefits everyone finds that while existing market conditions remain in favour of internal combustion engine (ICE) vehicles, the second-hand market for EVs is also underdeveloped. For EVs to gain traction, the report has called for new policies to “even the playing field” to tackle the disparity in current financing options. Additionally, uncertainty in the market is potentially resulting in lower adoption rates.

To illustrate potential savings, the report models two scenarios. The first finds that half of new vehicle purchases in every income group are EVs, granting total annual cost savings of £354mn per annum for the bottom 60% households. The scenario also finds that £307mn would be saved on fuel savings based on average per-mile costs of ICE and EVs, with £47mn per annum on non-fuel savings. 52% of new sales are also EVs in this scenario, meeting current government targets.

The second scenario assumes that sales will continue to occur in affluent groups, but sales of EVs will go up across all income levels. Up to £261mn will be provided in total annual cost savings for the bottom 60% of households; delivering £227mn per year in fuel savings and £35mn per year in non-fuel savings. The average cost savings could also reach £252 per household each year.

To ensure Britain can meet its 2030 target to phase out ICE vehicles, the report puts forth several steps for government: to adapt existing successful policies; strengthen programmes to lower the upfront cost of EVs; provide financing options on par with ICE vehicles to build a second-hand market; continue to run plug-in grants and home charge schemes and encourage purchases of clean vehicles. Additionally, to end the sales of new petrol and diesel vehicles by 2030 and introduce a zero emissions vehicle mandate on auto manufacturers


FMB calls for licensing scheme to deliver green construction

In response to the SNP manifesto, the Federation of Master Builders (FMB) declared on 27 November that a mandatory licensing scheme for UK construction companies is necessary to raise standards and encourage green construction projects.

Whilst the SNP’s initial pledge to encourage investment in green construction and decrease VAT on energy efficiency improvements are positive steps, the FMB argues that a licensing scheme is needed to ensure construction projects are completed to a high standard which reduces waste and carbon emissions.

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