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Regulatory Report - July 2021

By Market Insight Team | Posted August 04, 2021

Generation

The government set out what it is envisaging for the future of the GB energy system in terms of digitalisation and flexibility.
The Energy retail market strategy for the 2020s policy paper, issued on 23 July by the Department for Business, Energy and Industrial Strategy (BEIS), describes how the government intends to work with the market by setting a framework that incentivises energy suppliers to innovate for and engage with their customers on the journey to net zero.


Delivery

In a blog issued on 27 July, Ofgem Chief Executive Johnathan Brearley alerted customers that the global increase in fossil fuel prices will have a knock-on effect for energy bills in the UK. 
The Department for Business, Energy and Industrial Strategy (BEIS) published a consultation on proposals for a Future System Operator, fully independent from National Grid. 
The government and Ofgem issued a joint consultation on 20 July seeking views on proposals for institutional code governance reform.


Usage

The Department for Transport (DfT) published the long-awaited Transport Decarbonisation Plan on 14 July, setting out new targets such as the phase-out of new petrol and diesel HGVs by 2040, as well as publishing other significant documents alongside it.
The Competition and Markets Authority published its final report on its market study into electric vehicle (EV) charging in the UK on 23 July.

Also covered in this Regulatory Report: 

 


 

Generation

 

Government sets out vision for digitalised energy system

The government set out what it is envisaging for the future of the GB energy system in terms of digitalisation and flexibility.

In the Energy Digitalisation Strategy, published on 20 July, the government says that in the mid-2020s there will be standards and regulatory frameworks in place that ensure energy data collection and applications meet best practice and that data assets are treated as open and accessible by default while privacy and security is protected. By 2030 and beyond, system operators will have visibility of all energy assets, making planning, forecasting and operations quicker, more accurate and cheaper.

BEIS published a policy paper on Transitioning to a net zero energy system: smart systems and flexibility plan 2021 on the same day, which sets out a suite of policies to drive a net zero energy system. 

The plan has four key areas of focus: support flexibility from consumers; remove barriers to flexibility on the grid; reform markets to reward flexibility; and to monitor flexibility across the system. BEIS says that a smarter and more flexible energy system will reduce costs by up to £10bn a year by 2050, create up to 24,000 jobs by 2050 and drive investment.  

 

BEIS unveils retail market strategy and switching proposals

The Energy retail market strategy for the 2020s policy paper, issued on 23 July by the Department for Business, Energy and Industrial Strategy (BEIS), describes how the government intends to work with the market by setting a framework that incentivises energy suppliers to innovate for and engage with their customers on the journey to net zero.

The report highlights two main objectives that the government has for delivering the strategy:

  • A sustainable retail market that delivers services or products that make it easy and rewarding for consumers to engage with energy and adapt their usage to support decarbonisation.
  • No matter how they engage in the market, all consumers should pay fair prices for their energy. They should be protected from paying excessive charges while a smart energy system is being built and on an enduring basis.

 

Also, BEIS issued on the same day its domestic energy retail consultation on the creation of a framework for an opt-in switching scheme alongside testing for opt-out switching.

BEIS aims to introduce the opt-in switching scheme to address the presence of a ‘loyalty penalty’ that affects some energy customers. This term refers to a situation where energy suppliers have been able to take advantage of consumers who do not engage regularly with the market by charging them excessively for their energy. BEIS believes the evidence shows that an opt-in switching scheme – where households on the most expensive tariffs are offered a simple method of switching to a cheaper tariff – on a wider scale would help remove barriers to market information and engagement for consumers making it easier to engage with the market and switch onto tariffs that can offer savings and/or that better suit their needs.

BEIS will also aim to test opt-out switching, where, unless they choose not to be, consumers who have not switched tariffs for a while are switched to a competitive new contract. BEIS will begin with small samples in a controlled and monitored environment, before potentially building to wider consumer segments to test how opt-out switching could work best for consumers.

 

New report stresses role of local government in net zero transition

Following its December 2020 report, Achieving Net Zero, the National Audit Office (NAO) has published a report examining local government and net zero and considering how effectively central government and local authorities in England are collaborating on net zero. The NAO scrutinises public spending for Parliament.

In the December 2020 report, the NAO highlighted local authorities will have a critical part to play in the UK government’s target to reach net zero greenhouse gas emissions by 2050. Its new report, published 16 July, seeks to clarify the role of English local authorities in contributing to the UK’s statutory net zero target and ensure local authorities have the right resources and skills for net zero.

The NAO says that while the exact scale and nature of local authorities’ roles and responsibilities in reaching the UK’s national net zero target are still to be decided, it is clear that they will have an important part to play. However, the NAO highlights “serious weaknesses” in central government’s approach to working with local authorities on decarbonisation, due to a lack of clarity over local authorities’ overall roles, inadequate funding, and diffuse accountabilities. This reduces local authorities’ ability to plan effectively for the long-term and creates significant risks to value for money as spending is likely to increase quickly.

 

Industry calls for regular low carbon generation auctions

In a statement on 26 July, RenewableUK Chief Executive Dan McGrail called for the government to demonstrate greater ambition in the next round of clean electricity auctions. The government has set a cap of 12GW for the fourth round of auctions for Contracts for Difference (CfD) which opens in December and will conclude in the first half of next year, but McGrail has urged ministers to raise the cap to at least 15GW; a 25% increase in capacity. The CfD is the primary government scheme to support the increase in low carbon generation capacity. Additionally, McGrail advised for CfD auctions to be held annually from 2023 onwards, rather than once every two years.

Mr McGrail said: “Accelerating the speed and scale of the energy transition is vital, starting this year with a more ambitious auction to secure 25% more clean energy capacity, and moving to annual auctions as soon as possible. The Government has said it wants to build back better after the pandemic and public support for renewables is sky-high.”

 

Government must ensure public engagement and fairness in net zero plans

On 8 July, the Commons BEIS Select Committee published a report on its inquiry into the findings of the Climate Assembly UK (CAUK) and its September 2020 report. The BEIS Committee’s report argues that the most important principle of the net zero transition is public engagement, with ‘fairness’ the second most important. As a result, the BEIS Select Committee urges the government to publish a Net Zero Engagement Strategy and the agreed Net Zero Treasury Review, as soon as possible. 

Public engagement, fairness, and clarity in explaining the net zero transition strategies are highlighted as key by the report. Moreover, the report further suggests their importance through encouragement of positive behavioural changes by citizens and businesses. The effectiveness of deliberative engagement is suggested by the report through data from the CAUK assembly; behavioural changes were reported by 83% of assembly members. Changes by the individual are further stated as important as the CCC estimate that 40% of the emission reduction necessary for the Sixth Carbon Budget will require consumer changes, with the inquiry arguing that public engagement will affect the pace, costs, and overall success of net zero.


 

Delivery

 

Ofgem warns of rising energy bills

In a blog issued on 27 July, Ofgem Chief Executive Johnathan Brearley alerted customers that the global increase in fossil fuel prices will have a knock-on effect for energy bills in the UK. The increase in wholesale costs will feed through to the price cap and initial analysis suggests an additional £150 per household. 

This is set come into effect on 1 October, affecting 15mn households on variable or default rates and prepayment meters covered by the cap. An official update will be released on 6 August. 

 

BEIS proposes ‘Future System Operator’

The Department for Business, Energy and Industrial Strategy (BEIS) published a consultation on proposals for a Future System Operator, fully independent from National Grid. Currently, the system operator roles are the responsibility of National Grid Electricity System Operator (ESO) for electricity and National Grid Gas for gas. They balance supply and demand to ensure the system works.

In the proposal, published on 20 July, BEIS says National Grid plc has significant commercial interests in the energy system. BEIS also stresses that there is no evidence that this potential conflict of interest has been acted on but says it can make it “challenging to effectively discharge existing roles and functions”.

The government and regulator are proposing for all current National Grid Electricity System Operator (ESO) functions to be carried out by this new FSO because of the synergies between balancing the electricity system and analysing its future needs. They consider the synergy on the gas side to be weaker, with the potential cost and risk of separating real time operation from gas asset ownership to greater. As such, the government is proposing that the FSO only take over responsibility for strategic network planning, long-term forecasting and market strategy. 

BEIS also puts forward two different ownership models for the FSO: a standalone privately owned model, independent of energy sector interests; and a highly independent corporate body model classified within the public sector, but with operational independence from government.

 

Ofgem and government consult on code governance 

The government and Ofgem issued a joint consultation on 20 July seeking views on proposals for institutional code governance reform. The consultation builds on proposals first issued in July 2019, which have been refined following stakeholder feedback. 

The preferred option for reform, Option 1, is for Ofgem to take on a role where it would set the strategic direction for codes in line with the government’s strategy, ensuring codes and code governance remains agile. There would then be a number of separate code managers that would be responsible for end-to-end delivery of code change. The proposals suggest that the code manager function should be accountable to the strategic body either via a licence or a contract and should be appointed by running a competitive tender process or creating a body, or bodies, with appropriate skills and incentives. 

The code managers would take on most of the roles that are currently held by industry-led code panels, but BEIS and Ofgem said industry input would remain key to the code change process, including through new stakeholder advisory forums. 


 

Usage

 

DfT sets out transport decarbonisation plan

The Department for Transport (DfT) published the long-awaited Transport Decarbonisation Plan on 14 July, setting out new targets such as the phase-out of new petrol and diesel HGVs by 2040, as well as publishing other significant documents alongside it.

DfT published a zero emissions vehicle (ZEV) transition delivery plan:

  • In 2021 – Infrastructure schemes expanded: EV Homecharge Scheme opened to renters, leaseholders and flats; Workplace Charging Scheme opened to charities and SMEs; and On-street residential scheme opened for larger projects.
  • 2022 – Local EV Infrastructure Fund launched; further consultation on the CO2 regulatory regime expected; and EV Homecharge Scheme to focus on renters, leaseholders and those living in flats.
  • 2024 – Potential date for introduction of a new road vehicle emissions regulatory regime.
  • 2025 – Existing company car tax rates for zero emission cars currently set to end in March 2025.
  • 2027 – Full progress review undertaken; government and van fleet to be 100% zero emission by 2027.

 

DfT also published the Green Paper on a New Road Vehicle CO2 Emissions Regulatory Framework for the United Kingdom, saying it will seek to define the ‘significant zero emission capability’ that all new cars and vans will be required to deliver between 2030 and 2035. These measures will establish a regulatory framework that could subsequently be applied to all forms of road vehicle.

 

Report highlights “postcode lottery” for charging

The Competition and Markets Authority published its final report on its market study into electric vehicle (EV) charging in the UK on 23 July. Setting out a package of recommendations to unlock greater investment, promote competition and build people’s trust in this sector.

The report highlights that 27% of emissions currently come from transport so the transition away from diesel and petrol cars is key to meeting net zero. A comprehensive and competitive charging network is essential to achieve this, and the report indicates that around 280,000 to 480,000 public chargepoints will be needed by 2030 – more than 10 times the current number of around 25,000. The report also highlights that getting access to chargepoints can be a “post code lottery”.

The report outlines several recommendations that will support the transition:

  • Government sets out an ambitious National Strategy for rolling out EV charging between now and 2030, alongside strategies from each of the Devolved Administrations.
  • Government rolls-out the Rapid Charging Fund as quickly as possible to increase capacity at motorway service stations and attaches conditions to this funding so that it opens up competition at these key sites.
  • Off motorways, governments consider targeting funding at gaps in remote areas which may otherwise not be served.
  • LAs take a more active role in planning and managing the roll-out of on-street charging to maximise competition and protect local residents, putting in place local plans.

 

IPPR calls for £7.5bn a year to be spent on enabling people to go low carbon 

On 14 July, the Institute for Public Policy Research’s (IPPR) Environmental Justice Commission (ECJ) published its two-part final report in which it sets out a vision for a “people-powered” plan for the green transition. The report, Fairness and Opportunity: A People-Powered Plan for the Green Transition, explores the changes needed in the UK’s approach to addressing the climate crisis and makes the case for a ‘new social contract’ – to ensure the transition is fair for all. The commission also proposes a number of practical steps needed to achieve this transition with a focus on what needs to be done, when and by whom.

The IPPR highlights the importance of public policy in supporting business stating that without clear government support, there are several common challenges to reaching a net zero target that businesses face across multiple sectors of the economy including policy uncertainty, international competition, price uncertainty and upfront costs. To counter these, the report calls for a number of actions from the government to provide businesses everywhere in making the transition such as the offer for all workers in high carbon industries to retrain for new low carbon jobs and an increase in incentives and support. Specifically, the report recommends that the UK Infrastructure Bank is appropriately capitalised to reflect the urgency of the climate crisis and embraces opportunities to increase fairness and levelling up opportunities.

 

Government seeks views on role of V2X and large-scale storage

The government launched a call for evidence to investigate the role of vehicle-to-X (V2X) technologies in a net zero energy system and possible barriers to their widespread use. Published on 20 July, the government has invited views and evidence on the role of V2X technologies in the energy system; barriers that might be preventing this, alongside the role of government. The call for evidence closes on 12 October.

BEIS also opened a call for evidence on 20 July regarding barriers to the deployment of large-scale and long-duration electricity storage, and on different approaches for supporting the deployment of these technologies. The call for evidence seeks information to help the government understand in more detail the barriers within the current market; how these might be addressed and the risks that may be associated with potential interventions to support the deployment of large-scale and long-duration electricity storage. The consultation closes on 28 September.

 

Lidl GB announces 2022 carbon neutrality target

On 12 July, Lidl GB announced that, as part of wider commitments made by the Schwarz Group, it has set ambitious climate targets, and will aim to become carbon neutral by 2022. Furthermore, Lidl will focus on reducing its international operational emissions by 80% – compared to 2019 levels – across all countries it operates in. To accomplish this the company will focus on cutting carbon emissions across its stores and distribution centres, including through the installation of solar panels on all new stores where possible, and its continued investment in the latest refrigeration and lighting technologies to improve overall energy efficiency. The supermarket chain will also commit to the operation of 350 electric vehicle charging points across its stores by 2022.

It aims to reduce CO2 emissions from its own operations (Scope 1 & 2), aligned to limit global warming to 1.5 degrees. By 2030, Lidl internationally aims to reduce its operational emissions by 80% (compared to 2019) across all countries it operates in.

To tackle scope 3, which represents over 98% of all emissions, Lidl will oblige suppliers, representing 75 % of product-related scope 3 emissions, to commit to their own climate protection targets according to the methodology of the Science Based Targets initiative by 2026.
 

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