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November 2020

By Market Insight Team | Posted December 05, 2020

Generation

BEIS published a 10-point plan for a “green industrial revolution” on 18 November, outlining the approach the government will take to accelerate its push for a net zero economy by 2050.
The Treasury has issued its Spending Review 2020 alongside its National Infrastructure Strategy on 25 November. The National Infrastructure Strategy sets out the government’s long-term infrastructure ambitions, announcing multi-year funding commitments.

 

Delivery

Ofgem published its decision on 26 November to modify the electricity and gas supply licences to reflect changes to ongoing requirements and exit arrangements for suppliers under the Supplier Licensing Review.
National Grid Gas Transmission (NGGT) hosted a webinar on 10 November setting out its intention to update transmission service Revenue Recovery Charges due to an under recovery of revenue. 

At the Access and Forward Looking Charges Significant Code Review (FLC SCR) challenge and delivery group on 9 November, Ofgem gave an update on the progress of the SCR. It outlined that the planned policy consultation on minded-to proposals has been delayed until next year, and consequently this will result in a delay to the final decision.

 

Usage

BEIS released the September Wave of its Public Attitudes Tracker on 12 November, which reveals that eight in 10 people (82%) were very concerned (38%) or fairly concerned (44%) about climate change, a slight increase from March 2020 (78%).
Energy UK Chief Executive Emma Pinchbeck told MPs during a 25 November session that heat pumps should be utilised to decarbonise homes because they are one of the few technologies ready to roll out and there is only 30 years to make the transition.

Also covered in this Regulatory Report: 

 


Generation

 

Government outlines 10-point plan to achieve net zero

BEIS published a 10-point plan for a “green industrial revolution” on 18 November, outlining the approach the government will take to accelerate its push for a net zero economy by 2050.

Boris Johnson reiterated the 40GW by 2030 offshore wind target, stating in the 10-point plan that that this will include 1GW of floating offshore wind. It is also an aim for the government to develop 5GW of low carbon hydrogen production capacity by 2030. The government is pursuing large-scale new nuclear projects, “subject to value-for-money” announcing up to £385mn in an Advanced Nuclear Fund to enable investment of up to £215mn into small modular reactors.

The Prime Minister announced plans to end the sale of new petrol and diesel cars and vans in 2030, earlier than the previous target of 2040. All vehicles being required to have a significant zero emissions capability (e.g. plug-in and full hybrids) from 2030 and be 100% zero emissions from 2035. The government will commit up to £1bn to support the electrification of UK vehicles and £1.3bn to accelerate the roll out of charging infrastructure.

On heat, the government will implement the Future Home Standard in the “shortest possible timeline” and aim for 600,000 heat pump installations per year by 2028.

The government will establish carbon capture, utilisation and storage in two industrial clusters by the mid-2020s. The aim is to have four of these sites by 2030, capturing up to 10mn tonnes of CO2 per year.

The government will launch a £1bn Net Zero Innovation Portfolio, which will focus on the priority areas that correspond with the 10-point plan.

 

National Infrastructure Strategy adds detail to commitments

The Treasury has issued its Spending Review 2020 alongside its National Infrastructure Strategy (NIS) on 25 November. Both flesh out the commitments made in the 10-point plan and in the National Infrastructure Strategy, sets out the government’s long-term infrastructure ambitions.

The National Infrastructure Strategy confirms the government’s adoption of many recommendations from the National Infrastructure Commission (NIC). This includes a new infrastructure bank, which will mobilise tens of billions of pounds of private investment. Other commitments beyond the 10-point plan are:

  • The adoption of the NIC’s recommendation that the next auction round for Contracts for Difference (CfD) in 2021 to include onshore wind and solar PV.
  • Revising the long-term role and organisational structure for the Electricity System Operator.
  • Two-year CfD auctions and a call for evidence on the evolution of the CfD regime.
  • Alongside considering the Regulated Asset Base model, the government will continue to consider the potential role of government finance during construction, provided there is clear value for money for consumers and taxpayers.


The government is also setting out new priorities for the National Infrastructure Commission, including commissioning a new study on greenhouse gas removal technologies, and preparing to appoint additional Commissioners.

 

Offshore wind to have own pot in next CfD allocation round

Offshore wind will have its own separate pot in Allocation Round Four (AR4) of the Contracts for Difference (CfD), BEIS announced in the outcome to the consultation on proposed amendments to the scheme, published on 24 November. 

BEIS is of the opinion that a third pot just for offshore wind will allow more appropriate parameters (e.g. monetary budget, capacity cap, delivery years) to be set for each of the pots to reflect project characteristics and reduce the risk of higher strike prices and hence consumer costs. BEIS concludes that a technology-neutral approach, without separate pots, would create the risk of only the lowest-cost technologies being successful, which could have the long-term effect of technologies which have significant potential for cost reduction and decarbonisation being unsuccessful. For many of the same reasons, BEIS does not support putting offshore wind in pot 1, with established technologies. 

Additionally, floating offshore wind will be put in pot 2 to compete against other less established technologies. Coal-to-biomass conversion projects will be excluded from future CfD allocation rounds.

The pot structure for AR4 will be as follows:

  • Pot 1 (established technologies): Onshore wind (>5MW), Solar Photovoltaic (PV) (>5MW), Energy from Waste with CHP, Hydro (>5MW and <50MW), Landfill Gas and Sewage Gas.
  • Pot 2 (less established technologies): ACT, AD (>5MW), dedicated biomass with CHP, floating offshore wind, geothermal, remote island wind (>5MW), tidal stream, wave.
  • Pot 3 (offshore wind): offshore wind.

 

Low carbon share of major power producer electricity down 

New BEIS statistics have shown that the low carbon share of electricity generation by major power producers was down 2.7 percentage points to 51.8%, whilst fossil fuel share of electricity generation stood at 47.7%, for the period July to September.
Published on 26 November, the statistics showed gas providing 46.7% of electricity generation by major power producers, with renewables at 34.3%, nuclear at 17.5% and coal at 0.9%, over the three-month period.

 

Environmental groups call for end to biomass subsidies 

Over 50 environmental groups, including Extinction Rebellion and Friends of the Earth, have written an open letter calling on the government to redirect renewable subsidies from biomass burning to “genuinely renewable energy”. 

Dated 24 November, the signatories urge the government to remove subsidies paid to companies that burn solid biomass for electricity under the Renewables Obligation scheme and redirect the money to support wind, solar and wave/tidal power projects. The letter said the UK is the world’s biggest wood pellet importer.

The groups highlighted an open letter sent by 800 scientists in January 2018 to the European Parliament, which said: “Even if forests are allowed to regrow, using wood deliberately harvested for burning will increase carbon in the atmosphere and warming for decades to centuries – […] even when wood replaces coal, oil or natural gas. The reasons are fundamental and occur regardless of whether forest management is ‘sustainable’”.


 

Delivery

 

SLR changes to take effect from 22 January 

Ofgem published its decision on 26 November to modify the electricity and gas supply licences to reflect changes to ongoing requirements and exit arrangements for suppliers under the Supplier Licensing Review (SLR). The decision confirms the introduction of: 

  • Principles including a Financial Responsibility Principle requiring suppliers to take action to reduce the costs that will be mutualised in event of their failure.
  • An Operational Capacity Principle to require suppliers to have sufficient operational capability to be able to effectively serve their customers.
  • Milestone Assessment requests for information to be issued when a supplier meets 50,000 and 200,000 domestic customers per fuel.
  • Dynamic Assessments which can be undertaken by the regulator in response to financial warning signs such as missed payments or credit default. 

 

 

NGGT to amend Revenue Recovery Charges

National Grid Gas Transmission (NGGT) hosted a webinar on 10 November setting out its intention to update transmission service Revenue Recovery Charges due to an under recovery of revenue. 

From 1 October, both entry and exit capacity charges under UNC678A Amendments to Gas Charging Regime started to use a postage stamp methodology, leading to a uniform reserve price at both entry and exit on the national transmission system, irrespective of geographic location.

Since the implementation of UNC678A, NGGT has compared its initial assumptions used to forecast these charges with shippers’ actual booking behaviour. NGGT stated that there was substantial variation between what was forecast in the forecasted contracted capacity and shippers’ actual behaviour, and this had led to under recovery of charges. It also observed an increase of capacity revenue flowing through the Capacity Neutrality process which does not contribute towards its maximum allowed revenue. 

NGGT intends to amend the Revenue Recovery Charge from 1 January to ensure the charges accurately reflect market conditions. If not acted upon, large under recovery amounts could potentially have significant impacts on transmission charges in subsequent years.

 

Forward looking charges proposals delayed until 2021

At the Access and Forward Looking Charges Significant Code Review (FLC SCR) challenge and delivery group on 9 November, Ofgem gave an update on the progress of the SCR. It outlined that the planned policy consultation on minded-to proposals has been delayed until next year and consequently this will result in a delay to the final decision. Following these delays Ofgem is now seeking to understand whether 2023 is still a feasible implementation time period or not.

The regulator highlighted two reasons for the delay. Firstly, Ofgem stated it was still considering the links with the development of flexibility markets. Secondly, it considers there is a need to assess wider issues that have arisen with transmission charges before issuing its charging proposals. 

Ofgem intends to provide industry with a further opportunity to understand the impact assessment modelling. A key impact of the delays is on distribution network operators (DNOs) with their RIIO-ED2 business plans, due to be submitted in draft form by July. 


 

Usage

 

Public support for renewables continues to rise 

BEIS released the September Wave of its Public Attitudes Tracker on 12 November, which reveals that eight in 10 people (82%) were very concerned (38%) or fairly concerned (44%) about climate change, a slight increase from March 2020 (78%). The Tracker reveals that 66% of the public were aware of the concept of “net zero”, an increase from 63% in June 2020 and 52% in March 2020. Whilst most of the public were aware of “net zero”, only 5% knew a lot about it, 26% knew a little about it and 13% a fair amount. 
The proportion of people who supported renewable energy also reached 80% and has remained consistent with findings in June and March 2020 (79%), with just 3% of people opposing it. The majority of the public supported each of the renewable energy sources included in the tracker: solar (85%), wave and tidal (79%), offshore wind (77%), onshore wind (73%); and biomass (68%). Opposition levels also remained between 3% and 7% for all renewable energy developments.

With regards to insulation measures, 45% had three or more installed in their home. A further 26% had two measures installed and 16% had one measure installed. 13% did not have any insulation measures installed. In September, interest in solid wall insulation and under floor insulation was much lower compared with other insulation measures. The most common reason for not installing insulation measures was that it would be too expensive to install (27% for loft insulation or top up loft insulation, 48% for double glazing, 26% for cavity wall insulation, 29% for solid wall insulation and 38% for under floor insulation).

 

MPs hear that heat pumps ready to roll out 

Energy UK Chief Executive Emma Pinchbeck told MPs that heat pumps should be utilised to decarbonise homes because they are one of the few technologies ready to roll out and there is only 30 years to make the transition. Pinchbeck was speaking to members of the Environmental Audit Committee, during a 25 November session which also saw witnesses from the Energy Networks Association (ENA), the Regulatory Assistance Project and BEAMA questioned on the government’s target to rollout 600,000 heat pumps a year by 2028. 

Pinchbeck said that heat pumps fit the energy system of the future in being both electric and flexible. Dr Jan Rosenow, Director of European Programmes at the Regulatory Assistance Project added it was also the high efficiency of heat pumps that made them attractive. EAC Chair Philip Dunne asked the witnesses why households “weren’t keen” on heat pumps. BEAMA Chief Executive Dr Howard Porter said: “It’s not so much that people didn’t like them but that the public don’t really understand what they are” and there is a “complete lack of understanding to how the technology works.”

Dunne asked ENA Head of Innovation & Development Randolph Brazier how effective current government support mechanisms have been in helping the take up of heat pumps. Brazier stated they typically had not been successful, but he hoped that the Green Homes Grant will be better. Rosenow added that simply providing more subsidy was not going to solve the problem quickly enough. Pinchbeck said energy retailers should take the lead in customer propositions, as they are the specialists in this area. 

 

IPPR: £164bn injection needed to ensure a green recovery

According to new analysis by the Institute for Public Policy Research (IPPR), the UK economy needs a cash injection of £164bn in the year 2021-22 in order to “restart it fully” after the COVID-19 crisis and set it on course for a green recovery.

Published on 23 November, The Chancellor's Challenge: delivering a stimulus for post-pandemic recovery argued that the government should consider two stages of recovery. This would include continued fiscal support during the “rescue phase”, which the IPPR states will extend through the first six months of next year, then during the “reopening phase” in the second half of next year, in which the Chancellor should provide support for overall demand and economic activity.

The IPPR says the government should focus on three spending priorities: committing to invest an additional £33bn a year which IPPR previously calculated was needed to deliver the UK’s net zero emissions target; strengthening the welfare state and rebuild its resilience; and to support businesses and workers for a stronger, fairer economy.

 

O’Neill accuses of cavalier attitude to COP26 preparations 

Former COP26 President Claire O’Neill has accused the government of having a “cavalier attitude” to the preparations around the COP26 climate summit, due to take place in Glasgow next November. She was speaking to MPs in an evidence session for the Commons BEIS Committee on 1 December, during which she said that her tenure as COP26 President had been affected by “inter-departmental turf wars” over budget and ownership. 

O’Neill was appointed as COP26 President in September 2019 but was dismissed in February 2020. She has now joined sustainable business organisation, WBCSD. Whilst COP26 has been delayed as a result of COVID-19, O’Neill stressed the need for a climate agreement next year but remained sceptical of the government’s commitments.

Reported by the BBC, O’Neill explained that “as the climate minister and then [chair of the climate summit], I kept facing the inconvenient truth that for all the thousands of hours of diplomacy since the first COP our achievements to date are quite meagre. The truth is that the short-termism and trade-offs of politics make it extremely difficult for national governments to bring forward sustained climate leadership, and to make the sometimes-tough decisions needed for short-term disruption for long-term gain.”

However, she added that she believes that preparations for the summit are now progressing well.

 

Businesses urge PM to revise emissions target for 2030  

More than 70 businesses wrote a letter to Boris Johnson on 1 December urging the need for his government to set out a more ambitious emissions target for 2030. The call is supported by new modelling that indicates the 10-point plan for a green recovery is not sufficient to deliver net zero by 2050. Signatories include Tesco, BT, ScottishPower, Sky, EDF and Coca-Cola.

The letter outlines its support for an emissions pledge that businesses say is: aligned with business targets (a number have signed the Business Ambition for 1.5 pledge and investors have aligned their portfolios to the goals of the Paris Agreement), setting out clear ambitions for resilience, embedded in UK policy, and is supportive of the UK “building back better”.

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