The government announced that it’s planning on introducing a levy on gas bills to pay for a new gas decarbonisation scheme, with proposals set out in a consultation.
Announced in a press release published by Ofgem on 2 October, Ofgem is consulting on issuing final orders to seven suppliers which owe £34mn in Renewables Obligation (RO) and Feed-in Tariff scheme levelisation payments, with the initial RO compliance deadlines for 2019-20 now passed.
The Second Balancing Services Use of System (BSUoS) taskforce issued its final report, recommending a volumetric approach.
On 28 September Ofgem approved the use of National Grid Electricity System Operator’s (ESO’s) new Dynamic Containment product.
The administration of the Renewables Obligation (RO) is forecast to cost £6.67mn for the 2020-21 compliance period. This represents a 20.6% increase compared to the previous scheme year.
On 24 September, BEIS released its Energy Trends and Energy Prices publications covering data on energy production and consumption and prices for domestic and industrial consumers for the April to June period of 2020.
bp’s latest Energy Outlook report concludes that “the world is on an unsustainable path” and that decarbonisation is “likely to require a series of policy measures”. Published on 14 September, the report said policies would likely include a “significant increase” in carbon prices.
Also covered in this Regulatory Report:
- Opposition parties highlight green aims
- EDF confirms that Sizewell B has returned to full power
- EU Court of Justice approves State aid for Hinkley Point C
- EDF Energy publishes new green recovery paper
- EcoAct: only 16% of FTSE 100 companies have a net zero strategy
- PepsiCo commits to 100% renewable electricity for its operations
Gas suppliers to pay levy for Green Gas Support Scheme
The government announced on 22 September that it’s planning on introducing a levy on gas bills to pay for a new gas decarbonisation scheme, with proposals set out in a consultation.
In March, the Chancellor announced the GGSS, designed to increase the proportion of green gas in the grid, through support for biomethane injection. Anaerobic digestion producers would be paid for the amount of biomethane gas they inject into the gas grid, helping to decarbonise heating. The scheme is planned to open to new applications in autumn 2021 and run until autumn 2025, when it will close to new applications.
In order to pay for the scheme, the government is planning a new Green Gas Levy (GGL). The government has proposed the new levy to be placed on gas suppliers, which the government anticipates “will pass costs onto their customers”.
The government has opted for a flat rate approach to the levy, initially. This means that all gas customers, whether they are households, SMEs or large factories, will pay the same amount extra per year for the levy. The government has calculated that the impact on annual gas bills will “peak at around £6.90”. Government analysis suggests all gas users would expect to see their bills increase by around £1.40 at the start of the levy in 2021, increasing to roughly £6.90 at the peak of the levy in 2028.
This flat rate will be the case until 2024, when the government hopes to change the system to a volumetric one – this means the size of the levy will then depend on the amount of gas a customer consumes. Government analysis has estimated that this would result in a SME seeing its bill increase by around £50 per annum by 2028. A larger business consumer would pay an increase of around £500 per annum, compared to paying no levy.
£34mn owed in RO and FiT scheme levelisation payments
Announced in a press release published by Ofgem on 2 October, Ofgem is consulting on issuing final orders to seven suppliers which owe £34mn in Renewables Obligation (RO) and Feed-in Tariff scheme levelisation payments, with the initial RO compliance deadlines for 2019/20 now passed.
From the initial deadline of 31 August to pay the buy-out price (of £48.78/Roc), or 1 September to present Rocs against their obligations, 24 active suppliers missed the deadline for compliance for the 2019/20 period. Of these suppliers, 17 have since paid the amount owed or provided satisfactory assurances to Ofgem that they are able to meet their obligations.
The remaining seven suppliers are: Co-Operative Energy Limited; Flow Energy Limited; MA Energy Limited; Nabuh Energy Limited; Robin Hood Energy Limited; Symbio Energy Limited; and Tonik Energy Limited, who collectively owe £34mn in payments. Co-Operative Energy Limited, Flow Energy Limited and Symbio Energy Limited also failed to meet the deadline for the Quarter 1 2018/19 RO/ROS mutualisation payment, with outstanding payments totalling £148,534. Additionally, Robin Hood Energy Limited and Tonik Energy Limited failed to make their payments for Year 10 annual levelisation for the FiT scheme, with £158,814.47 outstanding.
Should the final orders on these seven suppliers be confirmed later this month, they will be required to make payments by the late payment deadline of 31 October or face further action. These payments are also inclusive of any interest accrued to this date. If by the late payment deadline outstanding payments are not met, Ofgem could commence the process of revoking supply licences from any non-compliant suppliers.
The Liberal Democrats have agreed to pursue a green recovery as an official party policy. The motion passed at the party’s conference on 28 September, with the party noting: “The need for government intervention to ensure that the UK economy recovers from the impacts of the lockdown offers an unprecedented opportunity to rebuild the economy to face the climate emergency.”
It reaffirms pledges in the party’s 2019 manifesto to:
- Cut greenhouse gas emissions by 75% by 2030 and achieve net zero emissions by 2045 at the very latest.
- Undertake a ten-year programme to retrofit homes and business premises by 2030 to reduce emissions, cut energy bills and eliminate fuel poverty.
- Invest in renewable power so at least 80% of electricity is generated from renewables by 2030, while permanently banning fracking.
The Liberal Democrats called on the government to set out plans for a green recovery, ensure that a large proportion of new jobs created are ‘green jobs’ and refocus Treasury spending on to green projects and infrastructure such as investment in public transport instead of new roads.
Labour Party Conference took place from 19-22 September with Keir Starmer addressing it as Labour leader for the first time. In his speech, Starmer said the British people will only be won by a party that “understands the need for an economy that’s healing the climate crisis”. He said the UK should lead by example in tackling the climate emergency.
EDF’s 1,200MW Sizewell B station returned to full power on Friday, the company announced on 28 September. National Grid ESO requested EDF’s support in late April to help manage the impact of very low power demand on the stability of the UK’s electricity network. The agreement involved halving output at Sizewell B for a period of over four months and ran in parallel to the ESO’s existing balancing of all forms of electricity generation.
“We are pleased to have Sizewell B power station back at full power and playing its important role to help Britain achieve net zero,” commented Matt Sykes, Managing Director for EDF’s Generation business. “It’s not normally desirable to reduce such a major source of low carbon power, but these are exceptional times and we were pleased to be able to help National Grid ESO deal with the challenges of system stability.”
The government’s plans to provide support for the development of Hinkley Point C (HPC) were approved by the European (EU) Court of Justice, following a ruling on 22 September. The EU Court of Justice dismissed a case brought by Austria, which had sought to block construction of the plant by appealing against a 2014 decision by the European Commission to approve the Contracts for Difference support for HPC under State aid rules.
The EU Court of Justice stated: “Hearing an appeal brought by Austria, the Court of Justice was, essentially, called upon to answer the question, not previously addressed in the case-law, whether the construction of a nuclear power station may benefit from State aid approved by the Commission pursuant to Article 107(3)(c) TFEU. Dismissing the appeal, the Court answered that question in the affirmative.”
Volumetric demand BSUoS recommended
The Second Balancing Services Use of System (BSUoS) taskforce issued its final report on 30 September. Set up in January 2020 as part of Ofgem’s Targeted Charging Review (TCR) decision, the taskforce considered who should be liable for BSUoS charges and how they should be recovered. BSUoS is a charge that National Grid levy in order to balance the electricity system and recover the costs incurred as the System Operator. As put forward in the interim report released in July, the taskforce’s conclusion is that “Final Demand” should pay all BSUoS charges, subject to sufficient notice to industry prior to implementation. This will remove BSUoS charges from transmission-connected generators, correcting the existing market distortion that arises when transmission and distributed generation – which does not pay BSUoS – compete for the same services. This will improve competition, enabling more economic and efficient outcomes, delivering consumer benefits.
The taskforce has now recommended that a £/MWh basis is the more appropriate option, echoing supplier responses to the consultation which all stated that a volumetric approach was their preferred option. The primary reasons for preferring a volumetric charge were that using a £/site/day approach means the creation of complex bands that can cause distortions and has the potential to overload industry parties. Per site charges would expose certain industry parties to higher costs which they previously took action to avoid. The taskforce was concerned that adding more costs could result in parties collapsing.
Dynamic Containment approved as frequency product
On 28 September Ofgem approved the use of National Grid Electricity System Operator’s (ESO’s) new Dynamic Containment product. The ESO is expected to procure up to 1GW of flexibility in both directions through daily auctions, which aims to arrest fast changes to frequency in the event of sudden losses to demand or generation. Participating balancing service providers will be expected to act quickly on signals from the ESO in order to help maintain system frequency.
The regulator said that Dynamic Containment will be able to help counteract rapid changes in system frequency, being used in specific situations where there is need for a product to arrest frequency in low-inertia, large loss scenarios. It also noted that this new Frequency Containment Reserve (FCR) product should help to ensure operational security and efficiently maintain system balance. Ofgem expressed disappointment that the ESO had not performed a bespoke consultation on its proposal to define and use Dynamic Containment as a specific FCR product, and requested that it begin such a consultation in October.
Forecast costs for administering the RO increase by ~20%
The administration of the Renewables Obligation (RO) is forecast to cost £6.67mn for the 2020-21 compliance period. This represents a 20.6% increase compared to the previous scheme year. Announced on 28 September, the regulator said that the increase is largely due to its continued focus on audit and compliance. Ofgem noted the introduction of a statistically sampled audit aspect to its audit programme for 2020-21, which requires increased volumes of audits and staff to manage the process and work through the outcomes of the audits. It also cited a new audit software used by the regulator’s appointed external auditors to conduct and upload the audits to a centralised portal. Ofgem said that this will enable greater insights across audits such as helping to identify potential non-compliance themes.
Final energy consumption in Q220 down 30% year on year
On 24 September, the Department for Business, Energy and Industrial Strategy (BEIS) released its Energy Trends and Energy Prices publications covering data on energy production and consumption and prices for domestic and industrial consumers for the April to June period of 2020.
The report provides an analysis of the year on year changes in production and consumption and energy prices. Many of the energy trends observed in Q220 have been directly linked to the COVID-19 pandemic, especially energy consumption which saw a record low quarterly level and a particularly significant impact on demand for main transport fuels.
Total primary energy consumption was shown to have fallen by 24% compared to the same quarter of 2019, or 19% when taking weather differences into account. The fall in consumption was observed to take effect from the 23 March when the UK lockdown was first imposed, linking the decrease directly to the COVID-19 pandemic. Natural gas consumption fell by 8.2% as schools, shops and workplaces were forced to close as part of the lockdown restrictions.
Renewables share of electricity generation was up on last year levels, increasing to 44.6% compared to 35.6% in 2019. This was partly due to increased renewable electricity capacity, which increased 5.4% on last year to 48.5GW, with 80% of this from offshore wind. Total renewables generation for the quarter was 30.1TWh, up 12% on 2019. Low carbon’s share of electricity generation also increased to 62.1% in Q220 compared to 52.8% in the same period last year.
Energy prices also saw some large changes in Q220. The Office of National Statistics price indices for the quarter showed a decrease of 18% in the real term price of gas for both domestic and industrial users compared to the same quarter in 2019. Ofgem data also indicated a decrease in domestic customers switching suppliers compared to the second quarter of 2019 and were 16.0% lower for electricity and 8.3% lower for gas.
bp Energy Outlook: “the world is on an unsustainable path”
bp’s latest Energy Outlook report has concluded that “the world is on an unsustainable path” and that decarbonisation is “likely to require a series of policy measures”. Published on 14 September, the report said policies would likely include a “significant increase” in carbon prices.
bp put forward three scenarios for the path to 2050. The Business-as-usual Scenario (BAU) assumes that government policies, technologies and social preferences continue to evolve in a manner and speed seen over the recent past. Primary energy demand increases by 25%. bp said a continuation of that progress, albeit relatively slow, would see carbon emissions peaking in the mid-2020s.
The Rapid Transition Scenario (Rapid) would see a series of policy measures, led by a significant increase in carbon prices and supported by more-targeted sector specific measures. Primary energy demand increases by 10%. This would result in carbon emissions from energy use falling by around 70% by 2050. bp said this fall is consistent with limiting the rise in global temperatures by 2100 to well below 2C above preindustrial levels.
The Net Zero Scenario (Net Zero) assumes that the policy measures embodied in Rapid are both added to and reinforced by “significant shifts in societal behaviour and preferences”, further accelerating the reduction in carbon emissions. Primary energy demand increases by 10%. Global carbon emissions from energy use fall by over 95% by 2050, broadly in line with limiting temperature rises to 1.5C.
On 23 September, EDF Energy published Helping Britain Net Zero: Our Plan For a Green Recovery, outlining its perspectives on how the energy sector can deliver jobs, support decarbonisation and help Great Britain achieve net zero. EDF Energy states that “with the right policies in place, it plans to enable investment in low carbon technologies in the UK worth over £50bn by 2035”. The supplier sets out three areas of focus with a plan for each:
- Creating a decarbonised power system and an electrified economy. Delivered by investment in low carbon electricity generation from wind, nuclear and solar.
- Growing emerging low carbon sectors with a focus on decarbonising transport, heating and industry.
- Ensuring a green recovery is affordable for all energy customers.
The steps to achieve point one include the delivery of Hinkley Point C to meet 7% of UK electricity demand; developing Sizewell C, creating 1,500 apprenticeships; growing its renewable business; investing in the UK’s low carbon supply chain; and maintaining the nuclear expertise in Britain through the running of eight nuclear power stations while investing in the current and future generations of nuclear experts.
International consultancy EcoAct has claimed that, although 45% of FTSE 100 companies are committed to net zero by 2050, only 16% have a strategy to realistically meet the commitment. It published its findings in the 10th edition of Sustainability Reporting Performance of the FTSE 100 on 23 September, which includes a leader board ranking the top 20 companies for environmental sustainability disclosure.
The top scoring companies include Unilever, BT, Landsec, SSE and NatWest Group. The report also claims that a key driver for best practice reporting is increased pressure from investors demanding better climate-related disclosures.
The report also shows that companies are more likely to be on track to meet carbon reduction targets if they set Science Based Targets (SBTs), but only 35% of FTSE 100 companies are currently doing so.
PepsiCo announced a new target to source 100% renewable electricity across all of its company owned and controlled operations globally by 2030 on 21 September. The target is extended to its entire franchise and third-party operations by 2040. According to PepsiCo, the transition has the potential to reduce approximately 2.5mn metric tonnes of greenhouse gases by 2040.
With this announcement, PepsiCo joins the RE100, an initiative led by the Climate Group in partnership with CDP, which looks to bring together the world's most influential companies committed to 100% renewable electricity. To achieve this, PepsiCo will employ a diversified portfolio of solutions, including Power Purchase Agreements (PPAs) that will support the development of new projects, such as solar and wind farms, as well as through purchased energy certificates that will enable the near-term transition to renewable sources.
Additionally, the company signed the Business Ambition for 1.5°C pledge earlier this year, joining other leading companies in committing to set science-based emissions reduction targets in line with limiting global warming to 1.5°C, while also developing a long term strategy for achieving net zero emissions by 2050.