Regulatory Report - January 2023
Generation
Following an HM Treasury-led review of the current Energy Bill Relief Scheme (EBRS), the government announced a new Energy Bills Discount Scheme (EBDS) that will apply to eligible non-domestic customers from 1 April 2023 to 31 March 2024.
The government announced that it has published its final report on its independent review of the government’s approach to delivering its net zero target.
Delivery
Business and Energy Secretary, Grant Shapps wrote to energy suppliers calling on them to end the mistreatment of customers, following recent reports showing that some are not doing enough to support vulnerable customers.
Ofgem issued a press release detailing a speech delivered by its CEO Jonathan Brearley at the Institute for Government.
National Grid ESO issued a consultation on its annual review of the five C16 licence statements, which set out requirements for balancing products and services.
Usage
The government announced that, together with Ofgem, it has published The Electric Vehicle Smart Charging Action Plan, setting out steps to unlock the potential of smart electric vehicle (EV) charging.
Think tank the Institute for Public Policy Research (IPPR) published new research calling for a further £5.8bn planned investment to be brought forward from 2025 to provide better insulation and new heat pumps sooner.
Also covered in this Regulatory Report:
BEIS opens Capacity Market consultation
Regen paper calls for shorter EGL, among other changes
Views sought on Scotland’s Draft Energy Strategy and Just Transition Plan
Zap-Map publishes 2022 year-end figures
Government consults on proposals to improve energy efficiency of lighting
Organisations call for prioritisation of energy efficiency measures
CISL publishes report on role of banks in helping SMEs reach net zero
Generation
Government announces new EBDS from April
Following a HM Treasury-led review of the current Energy Bill Relief Scheme (EBRS), on 9 January the government announced a new Energy Bills Discount Scheme (EBDS) that will apply to eligible non-domestic customers from 1 April 2023 to 31 March 2024 once the EBRS comes to an end on 31 March 2023.
Eligibility under the scheme will be as per the EBRS, with a discount provided on gas and electricity unit prices up to a maximum amount. This will be applied if wholesale prices go above a certain wholesale price threshold and will be calculated as the difference between the wholesale price associated with a contract and the wholesale price threshold. The discount will be automatically applied and phased in until the maximum discount is reached. The maximum discounts and wholesale price thresholds for most non-domestic energy users in GB and Northern Ireland will be set at £19.61/MWh with a price threshold of £302/MWh for electricity and at £6.97/MWh with a price threshold of £107/MWh for gas. Energy and Trade Intensive Industries (ETII) will receive a higher level of support, with maximum discounts and price thresholds set at £89/MWh with a price threshold of £185/MWh for electricity and at £40/MWh with a price threshold of £99/MWh for gas. ETII customers will have to apply for the higher level of support, with further details to be published in due course. The government said that the EBDS “strikes a balance between supporting businesses over the next 12 months and limiting taxpayer’s exposure to volatile energy markets, with a cap set at £5.5bn based on estimated volumes”.
On the same day, the government published guidance on the EBRS for non-standard non-domestic customers.
Government publishes final report on net zero review
On 13 January, the government announced that it has published its final report on its independent review of the government’s approach to delivering its net zero target, to ensure that it is pro-business and pro-growth. This follows extensive engagement, through several roundtables and its September 2022 call for evidence, which highlighted a clear message that “net zero is creating a new era of opportunity, but government, industry, and individuals need to act to make the most of the opportunities, reduce costs, and ensure we deliver successfully”.
The review is split into two parts, with the first exploring the opportunity and benefits to individuals and the economy and the second part setting out how to achieve this opportunity across six pillars. It makes a total of 129 recommendations covering areas including electricity markets, renewable energy, nuclear, flexibility, hydrogen, and energy efficiency. This includes:
Removing the planning permission needed for solar installations on domestic or commercial buildings across the UK and reforming planning permission to achieve rapid deployment of onshore wind.
Speeding up the development of nuclear and setting targets for 2035, alongside those established for 2050.
Legislating for the Future Homes Standard so that no new homes will be built with a gas boiler from 2025.
Legislating by 2025 for the minimum energy efficiency rating for all non-domestic buildings, both rented and owned, to be Energy Performance Certificate (EPC) B by 2030.
Delivering the Review of Electricity Market Arrangements (REMA) as a priority.
BEIS opens Capacity Market consultation
On 9 January, BEIS opened a consultation on reforms to the Capacity Market (CM) to align the scheme with net zero and improve security of supply. The consultation follows on from its July 2021 call for evidence and represents the next step in the evolution of the CM considering the Review of Electricity Market Arrangements (REMA) programme.
The policy proposals from the consultation form three categories: strengthening security of supply, aligning the CM with net zero and other improvements to the CM. Proposals to improve security of supply include changing the rules of evidence provision of Previous Settlement Performance of Existing Capacity Market Units (CMUs) in order to remove barriers to mothballed plant from prequalifying for CM auctions; reorganising the Satisfactory Performance Day process to ensure regular checks on the availability and capability of CMUs; and strengthening the non-delivery penalty regime to send a clear signal to Capacity Providers about the importance of delivery during a System Stress Event. To better align the CM with net zero, BEIS is proposing to end the inconsistency between decarbonisation commitments and the availability of 15-year CM agreements to unabated fossil fuel generation. It intends to achieve this by significantly reducing the emissions intensity limits applicable to new build plants from 1 October 2034. In addition, BEIS intends to incentivise increased participation from low-carbon capacity by enabling such capacity with low capital expenditure to access three-year agreements without the requirement to meet capital expenditure thresholds. Additional improvements proposed include clarifying auction clearing mechanics.
The consultation is inviting responses until 3 March 2023, with the government aiming to publish a response in the spring of 2023.
Regen paper calls for shorter EGL, among other changes
A new paper issued by not-for-profit Regen on 6 January examines the government’s Energy Generator Levy (EGL) which places a tax on exceptional electricity generation receipts of qualifying generating undertakings from 1 January 2023 to 31 March 2028. Regen argues that, in its current form, the EGL will “deter investment in the renewable and low carbon technologies needed to meet the UK’s net zero targets”. To address this concern, the paper makes several recommendations including reducing the term of the EGL to 18 months, excluding new projects commissioned after 1 January 2023, and including capital tax allowances to encourage investment in low carbon technologies.
Views sought on Scotland’s Draft Energy Strategy and Just Transition Plan
On 10 January, the Scottish Government published its Draft Energy Strategy and Just Transition Plan for consultation. This sets out its vision for Scotland’s energy system to 2045 and a route map of the actions the government will take to develop a net zero energy system that supplies affordable, resilient and clean energy to Scotland’s workers, households, communities and businesses. Through the consultation, the government is seeking views on its visions and the actions that it plans to take and is looking to understand how it can secure the maximum social and economic benefits from Scotland’s energy transition. It states that it is already investing £5bn in the net zero economy during the current parliamentary term and sets out several ambitions for Scotland’s energy future, including more than 20GW of additional renewable electricity on- and offshore by 2030; for hydrogen to meet 15% of Scotland’s current energy needs by 2030; and the establishment of a national public energy agency – Heat and Energy Efficiency Scotland.
Responses are requested by 4 April 2023 and will help to inform the final version of the plan.
Delivery
More support needed for vulnerable customers
On 22 January, Business and Energy Secretary Grant Shapps wrote to energy suppliers calling on them to end the mistreatment of customers, following recent reports showing that some are not doing enough to support vulnerable customers. This includes the practice of forcibly moving customers over to prepayment meters, which under Ofgem rules must only ever be a last resort. As such, Shapps set out a five-point plan to tackle this behaviour, including: a call for suppliers to voluntarily stop the practice of forced prepayment switching; requesting the release of supplier data on the number of warrant applications they have made to forcibly enter homes to install meters; and urgent publication of a list of supplier redemption rates for the Energy Bills Support Scheme (EBSS) vouchers. The government is also planning to launch a public information campaign reminding and informing eligible consumers to redeem their EBSS vouchers and will coordinate with Ofgem to ensure it takes a more robust approach to the protection of vulnerable customers and conduct a review to make sure suppliers are complying with rules.
The following day, the government published figures showing which suppliers are supporting households this winter and those that it states need to do more to deliver the £400 government energy bill support for prepayment customers.
Ofgem CEO speaks at Institute for Government
On 24 January, Ofgem issued a press release detailing a speech delivered by its CEO Jonathan Brearley at the Institute for Government. The speech covers a number of topics, including security of supply, lessons learnt from the gas crisis, infrastructure, reform of the wholesale and retail markets, and finally the behavioural, financial, and pricing regulation of the industry with particular focus on the Default Tariff Cap. Looking forward, Brearley noted that Ofgem’s Forward Work Programme (FWP) for the year is still in development, and that it intends to outline how the regulator may approach some of these issues.
NGESO seeks views on its C16 Annual Review
On 16 January, National Grid ESO (NGESO) issued a consultation on its annual review of the five C16 licence statements, which set out requirements for balancing products and services.
This consultation has been produced in accordance with Condition C16 of NGESO’s Transmission Licence, which requires it to undertake an annual review of its C16 statements. This is the third stage of the review process following on from an early consultation and industry forum. The five statements are as follows: the Procurement Guidelines Statement (PGS), the Balancing Principles Statement (BPS), the Balancing Services Adjustment Data Methodology (BSAD), the System Management Action Flagging Methodology (SMAF), and the Applicable Balancing Services Volume Data Methodology (ABSVD).
NGESO’s proposed focus areas for review of the five statements include the addition of a new regulating reserve produce (Balancing Reserve); the addition of new constraint management services; separation of Dynamic and Static Firm Frequency Response; the removal of the Winter Contingency Service contracts; and the addition of wording for the Demand Flexibility Service.
Responses to the consultation are requested by 13 February. Following this, a report will be issued to Ofgem by 20 February, with the regulators decision expected by 20 March, before the changes to the C16 statements take effect on 1 April 2023.
Usage
Electric Vehicle Smart Charging Action Plan published
On 17 January, the government announced that, together with Ofgem, it has published The Electric Vehicle Smart Charging Action Plan, setting out steps to unlock the potential of smart electric vehicle (EV) charging.
It noted that smart charging harnesses the potential of energy use data and the latest energy innovations to deliver significant benefits for consumers, including allowing motorists to charge EVs when electricity is cheaper or cleaner and allowing customers to power their homes using electricity stored in their EV or sell it back to the grid for profit. It is expected that smarter charging could save an average driver up to £200 and high mileage drivers up to £1,000 per year.
The report outlined the visions and challenges, as well as a series of key commitments. One of the visions outlined is for it to be straightforward and convenient to use smart charging at home, the workplace or in public settings. Going forward it states that the vision will be for EV drivers to export energy from their EVs to the grid using Vehicle-to-X technology.
When looking at challenges to the vision, the report stated that “consumers who are considering EVs are not always aware of the benefits of smart charging, or consumers are concerned about whether the vehicle will be ready when they need it and how to select the most suitable goods and services.” Another challenge highlighted is that “the electricity demand, and flexibility capacity from EV public charging is not clear for energy system and network operators.”
The report also outlined the key commitments for BEIS and Ofgem. These include working with industry to improve smart charging information provision to customers from 2023 and supporting industry to implement voluntary EV energy consumer service code of best practice in 2024 and monitoring its take-up by 2025.
The government said that delivering the steps in the action plan will help make smart charging the norm at home and work by 2025 and aims for smart charging to become more commonplace at long-duration public charging in the late 2020s.
Government falling short of energy efficiency commitments
On 18 January, think tank the Institute for Public Policy Research (IPPR) published new research calling for a further £5.8bn planned investment to be brought forward from 2025 to provide better insulation and new heat pumps sooner, to address the cost-of-living crisis and to boost the UK economy.
It also found that the UK Government is falling £2.6bn short of its energy efficiency manifesto commitment to spend £9.2bn during this parliament. It noted that retrofitting homes with a combination of energy efficiency measures like insulation and low carbon heating could save the average household £500 on energy bills after the new £3,000 Energy Price Guarantee comes into effect in April.
When looking at recommendations, the report asks for the government’s new energy efficiency taskforce to support the creation of a new ‘GreenGo’ scheme, which would provide information on finalising support for energy efficiency and clean heat options to households. Key features of the scheme would be GreenGo funding to continue and uplift existing schemes such as the Energy Company Obligation; a nationwide awareness scheme for GreenGo; and GreenGo street-by-street to increase local capacity resources to carry out ‘heat zoning’.
Zap-Map publishes 2022 year-end figures
On 6 January, Zap-Map published new year-end figures for chargepoint installations in 2022. According to Zap-Map, the number of ultra-rapid chargepoints grew by almost 80% within last year (from 1,290 at the end of 2021 to 2,295).
Trends within the number of charging devices throughout 2022 show that there has been a 30% increase in the amount of charging points across the UK, with fast devices (up to 22kW) seeing the biggest rise – from 16,047 at the end of 2021 to 21,427 at the end of 2022. In terms of regional differences, West Midlands saw the biggest increase in charging infrastructure (52%), with Wales following with 42% and London displaying a 26% growth rate.
Government consults on proposals to improve energy efficiency of lighting
The government announced on 10 January that it is putting forward proposals to improve lighting efficiency to lower energy bills. The proposals set out in its consultation would introduce minimum energy performance standards for lighting that are higher than regulations currently in place in either the US or EU, ensuring that only the most energy efficient lightbulbs are available in shops.
By moving to more efficient lightbulbs, it is expected that households could save around £2,000 to £3,000 over the lifetime of the bulbs, depending on the size of the home. It is intended that the proposals will come into force in late 2023, with further increased minimum standards introduced from September 2027. The release adds that the proposed regulations could result in 1.7mn tonnes of carbon savings by 2050, the equivalent of a year’s worth of carbon emissions from 2.5mn UK households.
Organisations call for prioritisation of energy efficiency measures
Energy UK, the Local Government Association, the Federation of Master Builders, and the National Housing Federation have issued a joint call to the government asking that it continues to prioritise energy efficiency measures as a key solution to address the cost-of-living crisis.
In a release issued on 10 January, it is stated that insulating housing across GB will help reduce households bills permanently, while supporting the transition to net zero through a reduction in emissions. Among other things, it called on the government to speed up the review of its methodology that sits behind the Energy Performance Certificate (EPC) framework; create the conditions to enable local areas to develop the long-term skilled and qualified workforce needed to deliver retrofit and energy saving measures; and work in partnership with industry, local government and wider stakeholders by developing a deliverable long-term plan for energy efficiency.
CISL publishes report on role of banks in helping SMEs reach net zero
On 17 January, the Cambridge Institute for Sustainability Leadership (CISL), Business for Social Responsibility (BSR), the We Mean Business Coalition, and the SME Climate Hub published a new report, highlighting the role of commercial banks and multi-national corporations in helping small and medium sized businesses (SMEs) reach net zero.
The report identifies the obstacles that can hinder SME decarbonisation, from a lack of knowledge and limited time to a lack of standardised guidance on emissions reporting. It lays out how banks and corporates, those that finance and buy the products and services of SMEs, are well equipped to support net zero action.
Posted by Kate Morley-Hurst - Cornwall Insight
Kate Morley-Hurst is a Writer within the Content team at Cornwall insight, supporting the delivery of a range of publications capturing key developments across the GB energy sector and how businesses are adapting to net zero energy markets.