October 2020

Generation

Prime Minister Boris Johnson set out a series of new green energy policy commitments in a speech at the Conservative Party Conference on 6 October.

The government set out its energy policy plans for the rest of the year and beyond, including a Net Zero Strategy, in its Response to the Committee on Climate Change’s 2020 Progress Report to Parliament on 15 October.

Delivery

On 19 October, Ofgem issued its decision on new licence conditions to improve outcomes for customers affected by self-disconnection and self-rationing.

BEIS announced on 20 October that the Default Tariff Cap will be extended until the end of 2021. The decision follows a recommendation by Ofgem in August.

Ofgem Chief Executive Jonathan Brearley said that network companies have sent back more evidence for their RIIO-2 price control business plans.

Usage

Thinktank Bright Blue examined the attitudes towards the behavioural changes and policies for delivering net zero in its report Going Greener?, published on 12 October.

The Electric Vehicle Energy Taskforce (EVET) published a new report – Moving from Proposals to Actions – on 22 October, placing the delivery of a resilient charging infrastructure as one of its highest priority items.

Also covered in this Regulatory Report:

•             National Grid’s 2020 Winter Outlook forecast demand to be met

•             Energy UK says it would be “fairer” to shift policy costs onto taxpayer

•             Comprehensive Spending Review cancelled in favour of one year review

•             IEA: 2020 sees annual emissions fall to decade ago levels

•             SMMT: ‘No deal’ tariffs would stall uptake of EVs due to rising costs

•             EU Parliament votes for 60% emissions reduction target for 2030

Generation   

PM makes clean energy commitments in major speech

Prime Minister Boris Johnson set out a series of new green energy policy commitments in a speech at the Conservative Party Conference on 6 October.

Johnson set out new plans to ‘Build Back Greener’, confirming the 2019 Conservative election manifesto commitment to increase the installed offshore wind capacity target to 40GW by 2030 – up from 30GW previously. The UK has the largest installed capacity of offshore wind in the world, with around 10GW in operation off its coasts.

Additionally, he announced a new target of 1GW of floating offshore wind by 2030. This newer technology mounts offshore wind turbines on floating structures that allows the turbine to generate electricity in water depths where normal turbines are not feasible and take advantage of more consistent wind speeds.

The PM also announced the setting of a target to “support up to double the capacity of renewable energy” in the next Contracts for Difference auction “which will open in late 2021 – providing enough clean, low cost energy to power up to 10 million homes”. The Contracts for Difference is the government’s scheme which supports the growth of low carbon generation capacity (low carbon is renewables and nuclear). The outcome of the auctions will define costs for consumers as this is a scheme which is paid for through levies on consumer bills.

The government said these commitments represent the first stage outlined as part of the PM’s “ten-point plan for a green industrial revolution, which will be set out fully later this year”.

Government publishes its Net Zero strategy

The government set out its energy policy plans for the rest of the year and beyond, including a Net Zero Strategy, in its Response to the Committee on Climate Change’s 2020 Progress Report to Parliament, published on 15 October.

The Treasury’s Net Zero Review report will be published in spring 2021. In the meantime, the Treasury will publish an interim report this autumn. It said any decisions on future spending are for the upcoming one-year Spending Review. The National Infrastructure Strategy, due out this year, will set out further details on the government’s long-term ambitions, including on decarbonisation and levelling up, in the autumn.

On the Future Homes Standard, the Treasury will respond to the consultation in the autumn, where it will set out a “meaningful and achievable increase to the energy efficiency standard for new homes, as a first step towards the full standard”. It also intends to review the roadmap to the Future Homes Standard to ensure that implementation takes place in the shortest possible timeline. Concerning the CCC’s recommendations for BEIS, the government announced its intention to publish a “comprehensive Net Zero Strategy, setting out the Government’s vision for transitioning to a net zero economy” in the lead up to COP26.

The Heat and Buildings Strategy, which BEIS aims to publish later this year, will establish a strategic direction. BEIS will publish a consultation on the Small Business Energy Efficiency Scheme next year, and later this year it will consult on its approach to decarbonising the largest commercial and industrial buildings responsible for over half the emissions from non-domestic buildings. 

National Grid’s 2020 Winter Outlook forecast demand to be met

On 15 October, National Grid Electricity System Operator (NGESO) and National Grid Gas Transmission (NGGT) published their Electricity and Gas outlooks for this winter (2020-21). Both outlooks have considered a range of scenarios in place of a single forecast as a result of uncertainty caused by the COVID-19 pandemic, while both documents also note that no disruption is anticipated following the end of the EU Exit transition period.

NGGT expects gas demand to be met in all scenarios with the peak supply and demand margin unchanged at 79mcm/d. 1-in-20 peak demand has risen by 30mmc/d compared to 2019-20, due to the removal of a climate adjuster in the methodology and an increase in gas-for-power demand. NGGT expects this increased demand to be met even under conditions where the largest piece of gas supply infrastructure is unavailable with an N-1 demand margin of 9mcm/d, similar to last winter’s margin. Before the effects of COVID-19 are taken into account gas demand is expected to be similar to last winter (50.9bcm), with a reduction in domestic heating demand (-1.2bcm) and higher demand for power generation (+0.4bcm) and exports to Ireland (+0.6bcm).

NGESO expects Average Cold Spell (ACS) electricity demand to be across the whole winter under the high interconnector import scenario and in all but one week under a medium import scenario. In its base case, NGESO forecasts normalised peak transmission system demand at 44.7GW (-2.1GW on 2019-20) and ACS peak underlying demand at 58.0GW (-2.4GW). These demand figures include an average 5% reduction on last winter as a result of COVID-19. GB power prices are expected to be higher than those in interconnected markets and as such will incentivise power imports to GB with NGESO’s medium import scenario forecasting net imports of 2,050MW.

Energy UK says it would be “fairer” to shift policy costs onto taxpayer

Energy sector trade association Energy UK argued in a new report that that moving energy policy costs, especially those relating to energy efficiency, off bills and onto general taxation “would offer a fairer approach”.  Published on 13 October, Energy in the UK considers the past year in the sector, including the impact of COVID-19 and sets out recommendations for the energy transition.

The trade association said policy costs from renewables and low carbon support schemes such as the Feed-in Tariff and the Contracts for Difference are creating a financial burden for low income households and that shifting costs onto taxpayers would be fairer. The issue of whether to put energy policy costs onto taxpayers or energy consumers is a debate that has been around for a number of years, especially in the last decade as bills have risen largely as a result of policy costs. The Treasury is currently carrying out a Net Zero Review, which could look into the issue of bills versus taxation. The government said the review’s interim report will come out in the autumn.

Comprehensive Spending Review cancelled in favour of one year review

The three-year Comprehensive Spending Review, due out this year, has been replaced by a one-year Spending Review, in order to prioritise the response to COVID-19. Announced by the Treasury on 21 October, the Spending Review will be concluded in “late November” and will set departments’ resource and capital budgets for 2021-22, and Devolved Administration’s block grants for the same period.

The Spending Review will focus on three areas: Providing departments with the certainty they need to tackle COVID-19 and deliver the Plan for Jobs to support employment; Giving public services enhanced support to continue to fight against the virus alongside delivering frontline services and investing in infrastructure to deliver the government’s “ambitious plans to unite and level up the country”, drive the economic recovery and “Build Back Better”.

Delivery

Emergency credit to be offered to all PPM customers

On 19 October, Ofgem issued its decision on new licence conditions to improve outcomes for customers affected by self-disconnection and self-rationing. The decision will require suppliers to identify all domestic customers on a prepayment meter (PPM) who are self-disconnecting and to offer emergency and friendly-hours credit to all PPM customers to ensure continuity of supply for those struggling to top up their meter. The proposals will come into effect from 15 December.

There are minimal changes from the statutory consultation issued in June 2020 and 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. Following stakeholder feedback, it was made clear that identifying customers who are self-rationing is difficult and that it is not always a sign of vulnerability; rather, it could represent energy efficiency actions. However, the issue of self-rationing will remain on Ofgem’s agenda and proposals to this end may arise in the future.

The regulator is introducing a new licence condition (SLC27A) for suppliers to take all reasonable steps to identify prepayment self-disconnection. Ofgem considers this is an appropriate requirement and expects suppliers to identify if a customer is self-disconnecting through direct engagement with customers and proactive monitoring of PPM accounts.

Default Tariff Cap extended until the end of 2021

BEIS announced on 20 October that the Default Tariff Cap will be extended until the end of 2021. The decision follows a recommendation by Ofgem in August.

Introduced in January last year, the Default Tariff Cap limits the maximum suppliers can charge on tariffs that customers do not actively switch to regardless of their payment terms. It follows the Prepayment Meter Price Cap which came into force on 1 April 2017 and will expire on 31 December 2020.

Customers under the Prepayment Meter Price Cap will be transitioned into the Default Tariff Cap from January 2021, increasing its coverage to 15mn households.

Brearley: networks have sent more business plan evidence

Ofgem Chief Executive Jonathan Brearley said that network companies have sent back more evidence for their RIIO-2 price control business plans. Ofgem noted in its July RIIO-2 draft determinations, on some of the evidence for business cases so far, that it was not of the required quality and said it had requested more.

Brearley was speaking at the Energy UK annual conference held on 15 October. He added that Ofgem is working through the Competition and Market Authority’s provisional findings. He said that there has been “robust debate” on RIIO-2 and that the regulator accepts that there needs to be large-scale investment in networks to enable net zero through the electrification of heat and transport, but it needs to be fair on consumers. Brearley said Ofgem is working on five big change programmes: Investment in low carbon infrastructure such as networks and generation; Flexibility; Future of the retail market; Data and digitalisation and system governance

Usage

Public sees all of society as responsible for reaching net zero

Thinktank Bright Blue examined the attitudes towards the behavioural changes and policies for delivering net zero in its report Going Greener?, published on 12 October. The report shows that the UK public sees all agents – individuals, the government and businesses – as “highly responsible” for taking action to achieve net zero.

The report presents the results of polling undertaken by Opinium that was conducted between 12-17 June 2020 and consisted of 3,002 UK adults. Using Office of National Statistics data, the sample was weighted to be fully representative of the adult UK population according to gender, age, employment status etc.

82% assign the government a high degree of responsibility for achieving the target. People marginally prefer policies that use financial incentives to encourage behavioural changes over punitive measures. Strong majorities also think businesses (82%), local governments (78%), and members of the public (74%) have a high degree of responsibility.

Regarding the energy sector, 72% of the public thinks the energy system should integrate more solar (72%) and 68% support subsidising solar panels. The majority also think we need more wind (69%), tidal (64%) and hydro (62%) to reach net zero. 74% think we should be investing in energy storage methods. 70% and 65% respectively think we should be building offshore and onshore wind farms.

Investing in carbon capture and storage facilities (65%) and converting the existing gas network to run on hydrogen (55%) are also seen as important. 63% and 55% would like to see less burning of coal and oil, respectively. A minority thinks biomass and biogas (42%) and hydrogen (37%) are needed for the target. 33% would like to see more nuclear energy dependence, while 25% would like to see less.

EV Energy Taskforce identifies actions for electrification

The Electric Vehicle Energy Taskforce (EVET) published a new report – Moving from Proposals to Actions – on 22 October, placing the delivery of a resilient charging infrastructure as one of its highest priority items.

The report, prepared by Energy Systems Catapult with stakeholder support, follows the Taskforce’s Phase One report Energising our Electric Vehicle Transition, published in January. This identified 21 proposals to maximise the benefits and minimise the challenges to electricity networks and EV drivers as UK undergoes road transport electrification. The actions will be implemented through four themed working groups: Planning Energy & Transport, Consumer Experience, Smart Charging & Cyber Security, and Data Accessibility & Privacy.

Smart charging should be “the norm” for private charging by 2021. EVET will support the government in specifying strategy or best practice for public charge point and associated infrastructure planning. EVET will identify the body that will be responsible for the development of a campaign to promote smart charging.

The government and Ofgem should ensure overall operational coordination of industry parties seeking to exploit EV flexibility through smart charging and electricity market products by 2021.

IEA: 2020 sees annual emissions fall to decade ago levels

On 13 October, the International Energy Agency (IEA) published its World Energy Outlook 2020 report, focusing on the next 10 years as a result of uncertainty surrounding the impact of COVID-19 on the energy sector.

Insights provided in the report are based on four pathways. The Stated Policies Scenario (STEPS) reflects all of today’s announced policy intentions and targets with COVID-19 brought under control, and the global economy recovering to pre-crisis levels, in 2021. The Delayed Recovery Scenario (DRS) assumes the same policy intentions as the STEPS; however, a prolonged pandemic leads the global economy to return to its pre-crisis size in 2023. The Sustainable Development Scenario (SDS) sees investment and energy policies—including the Paris Agreement being met—to achieve sustainable energy objectives. In this report the IEA has also introduced a new scenario, the Net Zero Emissions by 2050 (NZE2050) case.

According to the report, global energy demand is set to drop by 5% in 2020, energy investment is expected to reduce by 18%, and energy-related carbon emissions are expected to fall by 7%. This reduction in annual carbon emissions, equating to 2.4Gt CO2e takes them to the level of annual emissions a decade ago. However, this trend is not reflected across all emissions; the IEA notes that initial signs indicate there has not been a similar reduction in methane emissions, despite lower oil and gas output this year.

SMMT: ‘No deal’ tariffs would stall uptake of EVs due to rising costs

A ‘no deal’ Brexit would be the “worst possible outcome” for the UK’s ambitions to become a world leader in transport decarbonisation, according to the Society of Motor Manufacturers and Traders (SMMT). In a statement on 22 October, the SMMT found that an immediate imposition of blanket tariffs under World Trade Organisation (WTO) rules would “add billions” to the cost of building and buying electric vehicles. New analysis shows that for fully electric cars, the cost increase, at £2,800, “will effectively make the £3,000 plug-in car grant for these vehicles null and void”. Additionally, this tariff would add around £2,000 on to the average cost of UK-built battery electric cars exported to the EU, making UK products less competitive and less attractive as a manufacturing investment destination.

EU Parliament votes for 60% emissions reduction target for 2030

The European Parliament has voted in favour of all Member States becoming climate neutral by 2050, with ambitious 2030 and 2040 emissions reduction targets. In the vote on 7 October, MEPs called for a reduction of 60% by 2030, adding that national targets shall be increased in a cost-efficient and fair way.

The EU’s current emissions reductions target for 2030 is 40% reduction compared to 1990. The Commission recently proposed to increase this target to “at least 55%” in the amended proposal for an EU climate law.

Parliament adopted this with 392 votes for, 161 against and 142 abstentions. The new law aims to “transform political promises that the EU will become climate neutral by 2050 into a binding obligation” and to give European citizens and businesses the legal certainty and predictability they need to plan for the transformation.

MEPs insisted that both the EU and all Member States individually must become climate-neutral by 2050 and that thereafter the EU shall achieve “negative emissions”. They also call for sufficient financing to achieve this.