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Regulatory Report - May 2021

By Market Insight Team | Posted June 08, 2021

Generation

The government announced it will “shortly publish” a call for evidence on affordability and fairness concerning how energy policy costs are paid for. 
Three energy industry trade associations issued a joint call urging the government to take immediate action on grid decarbonisation.

 

Delivery

Ofgem issued the statutory consultation and associated draft impact assessment on its finalised package of policy proposals for microbusinesses, designed to improve their experience of the retail energy market.  
Ofgem announced a £300mn Green Recovery Scheme aimed at accelerating low regrets, “shovel ready” network investment by distribution network operators to stimulate economic recovery and enable faster delivery of decarbonisation benefits for consumers.
National Grid Electricity System Operator (ESO) issued a five-year view of transmission network use of system (TNUoS) tariffs from 2022-23 to 2026-27. TNUoS charges are part of the electricity bill.

 

Usage

The International Energy Agency said the world has a viable pathway to achieve a net zero emissions energy sector by 2050 but will require an “unprecedented clean technology push”.
An open letter, signed by a coalition of UK energy organisations has set out six policies for the government to implement to decarbonise heat and buildings.

Also covered in this Regulatory Report: 

 



Generation
 

Government considering how energy policy costs fall on bills

The government is to “shortly publish” a call for evidence on affordability and fairness concerning how energy policy costs are paid for. This was announced on 13 May in the government’s response to the Environmental Audit Committee’s (EAC) report on energy efficiency of existing homes. 

The government said current price signals present a barrier to uptake of key technologies, such as heat pumps, including how the costs of decarbonising energy are apportioned between gas and electricity bills. It hopes this call for evidence will begin a strategic dialogue between government, consumers and industry on affordability and fairness and will set out further details through the Treasury’s Net Zero Review. This was in response to the EAC recommendation to consult on the balance of levies on electricity versus gas/other fossil fuel heating sources, to encourage heat pump uptake.

In the original report, EAC had criticised the Green Homes Grant Voucher Scheme as being “rushed in conception and poorly implemented”, arguing that the government had not adequately consulted with industry on its delivery. In response, the government conceded that the scheme had “not been delivering at the rate and scale we had originally hoped”. It said that with over 52,000 vouchers issued, worth over £221mn, the scheme has made encouraging progress, “but it was important to take stock and consider our approach to upgrading the energy efficiency of homes”, after which it decided to close it to new applications on 31 March.

The government said the Green Homes Grant Voucher Scheme was “designed to provide a short-term economic stimulus while tackling our contribution to climate change”, arguing that it was important to roll out the scheme quickly to help stimulate the economy. On EAC’s criticism that the government did not adequately consult with industry, the government said: “It is standard practice that government departments cannot discuss potential fiscal stimulus measures prior to announcement. We engaged industry representatives extensively at our earliest opportunity.”

 

UK low carbon industries call for new capacity targets

Three energy industry trade associations have issued a joint call urging the government to take immediate action on grid decarbonisation. The statement, released 20 May, says that National Grid Electricity System Operator data shows that Britain’s grid is “dirtier” now than it was this time last year, with an approximate 5% increase in the carbon intensity of electricity over the first four months of 2021 compared to the same period in 2020. 

RenewableUK is calling for the government to set specific 2030 deployment targets for key renewable technologies by 2030: 30GW of onshore wind, 2GW of floating wind, 5GW of green hydrogen electrolyser capacity, in addition to 1GW of marine energy in the 2030s. 
The Nuclear Industry Association is calling for the government to endorse a financing model for new nuclear projects this year and to set out a plan to restore nuclear capacity to existing levels by the early 2030s.

Solar Energy UK is calling for a specific government target of 40GW solar deployment by 2030, and to support this by reinstating funding and ending VAT for green home upgrades, reforming business rates for large solar roofs, and providing annual CfD auctions for solar until the end of the decade.

 

Government to legislate to commit to new nuclear

Business Secretary Kwasi Kwarteng announced that the government has an “ongoing commitment to increasing, not decreasing, capacity in nuclear power” in the UK, and will bring forward legislation in this Parliament to further commit the UK to creating more nuclear power. 
He was speaking in the Commons on 18 May on the progress made on the government’s 10 Point Plan, released in November last year. In response, Tom Greatrex, Chief Executive of the Nuclear Industry Association, said: “We urge the government to introduce the legislation as soon as possible, so we can get on and build the nuclear capacity we need to hit net zero and create good jobs across the country.”

The Business Secretary highlighted the strategies due out this year, such as the Heat and Building Strategy, saying he is “very confident” that the strategy will be published “soon”. He also said that the Hydrogen Strategy is backed by a £240mn net zero hydrogen fund investment, stressing that it will support “both green hydrogen produced by electrolysers, and blue hydrogen enabled by carbon capture and storage”. 

 

Study highlights lack of female representation at top of UK energy sector

A new study from POWERful Women, a professional initiative to advance gender diversity within the energy sector, and consultancy PwC has highlighted that the UK energy sector has an under-representation of women at the top. 

Published on 19 May, the state of the nation on gender balance report argues that the lack of diversity and talent lowers companies’ abilities to innovate and meet the challenges of the net zero transition. The study focused on the top 80 largest energy employers, finding that only 18 out of 80 companies have female executive directors and women hold just 24% of all board seats and 14% of executive director positions. 28% of top UK energy companies have no women on the board and 78% have no women in executive director positions.

The study also considered the “executive pipeline”, which follows the Hampton-Alexander definition of combined executive committee and direct reports. For the 31 companies that responded, an average of 32% of their executive pipeline is female, which POWERful Women described as “very positive” – the Hampton-Alexander target across all sectors, which has been reached this year, is 33%.

 

YouGov poll finds renewables growth at top of public’s green agenda

New polling from YouGov has found that the growth of renewables is the public’s top priority when it comes to green policies. Published on 18 May, the survey asked a weighted sample of 1,700 people to rank the ten key areas highlighted in the government’s 10 Point Plan, finding that 45% of the public consider renewable power growth to be the first priority for government investment in the green sector. 

The survey also found that 33% of people say they have a more positive opinion of onshore wind then they did five years ago. This is stronger amongst Conservative voters, 36% of which feel more positive, as well as people over 65 (37%), 18- to 24-year-olds (36%) and those who live within five miles of a windfarm (40%). 

RenewableUK Deputy Chief Executive Melanie Onn said: “It’s great to see overwhelming public support for the Government prioritising investment in renewable energy. This will in turn attract billions in private investment as well as creating thousands of high-quality green jobs.”

 


 

Delivery

 

Ofgem announces final microbusiness policy package  

On 1 June, Ofgem issued the statutory consultation and associated draft impact assessment on its finalised package of policy proposals for microbusinesses, designed to improve their experience of the retail energy market. Ofgem had carried out a microbusiness review to find out what issues microbusiness are having in the energy market.

Microbusiness consumer experiences of the retail energy market have been found to be mixed, ranging from those that are highly engaged in the market to those that are unengaged and enduring particularly high prices, opacity around brokerage costs and poor practice. As many microbusinesses use brokers to engage with the market, the poor practices of a minority of brokers are having a detrimental impact in some cases.  

To address these issues, in July 2020, Ofgem consulted on an initial package of proposed policy measures, aligned with its vision for a positive microbusiness customer journey. Having considered stakeholder feedback, the regulator is now seeking views on its refined package of policy proposals. These include strengthening the rules around the provision of principal contractual terms; increasing the transparency of brokerage costs; introducing a broker dispute resolution scheme; introducing a 14-day cooling off period for microbusiness contracts; banning suppliers from requiring microbusinesses to give notice of their intention to switch supplier; and improving awareness and information provision for microbusinesses. 

Responses are requested until 9 July, with a final decision expected in the summer. Ofgem anticipates that policy measures will take effect from autumn 2021 onwards. However, the regulator is proposing a start date of 1 January 2022 for the cooling-off and broker dispute resolution arrangements.

 

Ofgem announces £300mn green recovery scheme

Ofgem announced a £300mn Green Recovery Scheme aimed at accelerating low regrets, “shovel ready” network investment by distribution network operators (DNOs) to stimulate economic recovery and enable faster delivery of decarbonisation benefits for consumers.

Ofgem’s decision issued on 24 May followed an open letter in February on the scheme, which addresses projects that could be brought forward and delivered under the existing price control for electricity distribution (RIIO-ED1) that runs until March 2023. The open letter coincided with calls for evidence by the DNOs (in collaboration with the Energy Networks Association) where the DNOs engaged with key stakeholders, including local authorities and developers, to identify locations where investments in the networks could be made quicky to support developments to enable the transition to a net zero economy.

 

Five-year TNUoS forecast shows impact of TDR changes

National Grid Electricity System Operator (ESO) issued a five-year view of transmission network use of system (TNUoS) tariffs from 2022-23 to 2026-27. TNUoS charges are part of the electricity bill.

In the forecasts issued on 4 May, the ESO has included the Transmission Demand Residual (TDR) banded charges methodology from 1 April 2023, according to Ofgem’s minded-to position on 1 April. This will place the whole of the residual element of TNUoS on final demand sites on a fixed charge per site per day basis. The total TNUoS revenue to be collected is forecast at £3,366mn for 2022-23, an increase of £47.4mn from the current year, rising to £3,550.2mn in 2026-27.

 



Usage

 

IEA sets out 2050 roadmap to net zero global energy sector

The International Energy Agency (IEA) said the world has a viable pathway to achieve a net zero emissions energy sector by 2050 but will require an “unprecedented clean technology push”.

Published on 18 May, Net zero by 2050: a roadmap for the global energy sector is, the IEA says, “the world’s first comprehensive study of how to transition to a net zero energy system by 2050 while ensuring stable and affordable energy supplies, providing universal energy access and enabling robust economic growth”. 

Disincentives should apply to the use of certain fuels and technologies, such as unabated coal‐fired power stations, gas boilers and conventional internal combustion engine vehicles. Governments must lead the planning and incentivising of the massive infrastructure investment, including in smart transmission and distribution grids. 

For the final period – 2030 up to 2050 – IEA says achieving the level of emissions reductions required for net zero will rely on further rapid deployment of available technologies as well as widespread use of technologies that are not on the market yet. This means that major innovation efforts must occur in the 2020s to bring these technologies to market in time. The pathway finds most of the global reductions in carbon emissions to 2030 come from technologies readily available today, but in 2050, almost half the reductions come from technologies that are currently at the demonstration or prototype phase. This proportion increases when it comes to heavy industry and long‐distance transport.

The roadmap puts forward over 400 milestones up to 2050, including, starting immediately, no investment in new fossil fuel supply projects and no further final investment decisions for new unabated coal plants. By 2035, there are no sales of new internal combustion engine passenger cars, and by 2040, the global electricity sector has reached net zero emissions. IEA also urges for a ban on new fossil fuel boilers to start being introduced globally in 2025, driving up sales of electric heat pumps.

 

Energy organisations outline six policies to decarbonise heat 

An open letter, signed by a coalition of UK energy organisations has set out six policies for the government to implement to decarbonise heat and buildings. Published by Regen, signed by various energy companies and published on 19 May, the letter stresses the importance of the upcoming Heat and Buildings Strategy in enabling large-scale heat decarbonisation to occur. It calls for the government to implement a long-term, funded support scheme for energy efficiency and heat decarbonisation retrofit. The organisations say this should avoid the “boom and bust” cycles created by previous policy schemes, such as the Renewable Heat Incentive, the Energy Company Obligation, the Green Deal and the recently close Green Homes Grant.

Regen also recommends the government address the “distortion” of environmental levies being paid on low carbon electricity bills through the implementation of a carbon levy scheme based on the carbon intensity of heating fuels, which would also support consumer adoption of low carbon heating solutions.

Regen said the Heat and Buildings Strategy should provide VAT relief for all energy efficiency and low carbon technologies and services, as well as targeting property owners at key trigger points when owners are likely to consider or undertake works.

 

One in three UK SMEs are concerned about energy prices rising

Citizens Advice Scotland (CAS) has warned that nearly one in three (29%) SMEs in the UK are concerned about energy prices rising. This rose to more than half (58%) for hospitality and leisure businesses. In a new report, published on 19 May, the charity stated that progress towards net zero might stall if small business are not given more support to improve their energy efficiency. 

Research also found that almost half of SMEs in the UK had taken at least one step towards decarbonisation, but more work should be done by the government and regulators to help business transition. CAS recommended: regulators to conduct more research to interrogate low rates of switching; a targeted campaign to help SMEs understand their contribution to climate targets; and targeting advice and funding by business size, age, and turnover as well as sector to reach SMEs who need it most.

 

Energy Systems Catapult calls for the creation of a carbon regulator

In a report, published on 29 April, industry research body Energy Systems Catapult (ESC) has called for the creation of an economy-wide carbon regulator to oversee monitoring, reporting and verification (MRV) of greenhouse gas emissions reduction and removal across the economy. The report explores three possible options for the regulator: a single economy-wide body, a single economy-wide body with devolved administrative responsibilities and a single economy-wide body with devolved and policy specific administrative responsibilities.

A single economy-wide body would see the UK setting up a single body with MRV and administrative responsibilities across all carbon policies. ESC concludes that this option is likely to be politically unpopular and complexity could delay necessary action.

A single economy-wide body with devolved administrative responsibilities is similar to the first option, but with key devolved authority bodies taking on the administrative aspects. In this scenario, MRV for all policies could be rolled into the Environment Agency for England, Scottish Environment Protection Agency, Northern Ireland Environment Agency and Natural Resources Wales. The broad remit of these agencies could see this approach simplifying decision-making, but would require significant restructuring of people and governance, ESC argues.

A single economy-wide body with devolved and policy specific administrative responsibilities builds on existing MRV arrangements, utilising policy (or sector) specific expertise, but supported by an economywide governance framework that ensures consistency in MRV practices across the UK.

 

First UK ETS auction clears at £43.99/t

The UK’s first auction for its new Emissions Trading Scheme (UK ETS) was held on 19 May, between 12:00-14:00, hosted by the Intercontinental Exchange (ICE). The auction cleared at a price of £43.99/t, selling all 6,052,000 allowances available for purchase. Out of a total 15 bidders, 14 were successful. The auction clearing price was broadly comparable to the EU ETS carbon price on the day of €50.86/t (equivalent to ~£43.74/t). 

The UK ETS came into effect in 2021 as the UK left the EU ETS as a result of Brexit. The scheme is a cap and trade emissions scheme and is of similar design with similar aims to the EU ETS. However, it will have a 5% reduction in the emissions cap that would have been set under the EU ETS. The government’s aim is to align it with the UK 2050 net zero target by 2024 at the latest.

The next UK ETS auction is set to take place 2 June 2021.
 

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