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April 2018 Regulatory Report

By Market Insight Team | Posted May 11, 2018

Generation

In its annual Summer Outlook Report, National Grid forecast supply and demand for the gas and electricity systems to September this year. The report said that both peak and minimum transmission system demands for the electricity system are expected to be lower this summer than last year – the result of increased wind and solar PV. National Grid also predicted gas demand to be slightly lower this summer. An increase in renewable generation combined with the lower electricity demand will result in less demand for gas-fired electricity, it said. 

Elsewhere, the Solar Trade Association has revealed that local authorities are leading UK solar development. The building of modern solar homes, planning smart neighbourhoods, and developing subsidy-free solar farms are all placing councils at the forefront of solar developments.

Delivery

The Energy Networks Association (ENA) has provided detailed roadmaps for future innovation in the gas and electricity networks. Its Network Innovation Strategies revealed how innovation can help deliver the transition to a cleaner energy system. Key areas of innovation for gas infrastructure include a focus on ageing infrastructure and developing “enabled customer markets”, whereas for the electricity network the ENA recommended developing new technologies and improving existing networks and system operability.

Meanwhile, Ofgem modified National Grid Electricity Transmission’s licence to implement its new Electricity System Operator (ESO) regulatory and incentives framework from 1 April.

Usage

Research from Regen examined the role of electric vehicles (EVs) in the UK’s transport system, answering key questions that policy makers will face as they are introduced en masse to the market. The report points to a number of challenges including supplying the electricity needed to power EVs in a secure, low-carbon and low-cost energy system; how charging is integrated to overall supply and demand; and how smart technology and new ownership models can be used to harness EV potential.

Energy and Clean Growth Minister Claire Perry indicated that the UK could implement a target to reduce emissions to “net zero” by 2050. In a submission to the UN’s climate change agency, Perry said legislating for such a target would “provide legal certainty on where the UK is heading”.

Also covered in this Regulatory Report:


Generation

National Grid forecasts lower system demand this summer

National Grid published its annual Summer Outlook Report on 10 April, providing forecasts of supply and demand for the electricity and gas systems to September 2018.

Looking at the electricity system, the report noted that both peak and minimum transmission system demands are expected to be lower this summer than the 2017 weather corrected return. National Grid forecasts minimum transmission system demand to be 17GW (21.1GW of underlying demand) and peak transmission system demand to be 33.7GW between June and August.

The downward trend, says the report, is a result of increased wind and solar PV output which is likely to continue should weather conditions permit this summer. Wind and solar PV generation connected to the distribution network are recorded as rising to 5.7GW and 12.9GW respectively. An increase in supply and demand variability because of ongoing periods of low demand and rising levels of renewable generation could, said National Grid, cause operability challenges. Should this occur, inflexible generators may be instructed to reduce their output to balance supply and demand.

According to National Grid’s forecasts, forward prices in GB are predicted to stay higher than in French, Dutch and German markets. The report also notes that an increase in intermittent renewable generation during the summer could see price fluctuations on the intraday and near-term markets.

Gas demand is predicted to be slightly lower in summer 2018 (35.7 bcm) than it was in summer last year. National Grid says that an increase in renewable generation combined with a lower overall electricity demand will result in less of a requirement for gas-fired electricity. Gas demand is also highly influenced by the weather, which has previously caused a 5% increase or decrease during the summer period. However, forecasts suggest that this summer will deviate little from the historical average temperatures. Total gas supply is predicted to exceed that required to meet GB demand this summer and, as a result, National Grid says that GB-sourced gas is likely to be routed to where the price is most attractive. This could result in transit gas demand on the network.

National Grid also noted that Summer could see one of the highest volumes of maintenance on the gas transmission system to date with Nation Grid maximising the period of lower demand.

Low-carbon power hits record proportion of GB supply

The government has revealed that in 2017 low-carbon generation accounted for more than half (50.4%) of total electricity generation in the UK for the first time.

The statistics, published in the government’s quarterly Energy Trends report, show that the figure was 4.7% higher than the 45.7% share held by low-carbon in 2016. It was reported that the increase was largely driven by increased renewable capacity and more favourable weather conditions. Last year saw nuclear generation stay relatively stable at 20.9%.

The government also reported that renewable generation during 2017 reached a record high of 98.9TWh, which represents an increase of 18.8% on 2016. The share of generation from gas fell to 40% down from 42%, but this still represented the fuel’s second highest annual share since 2011 largely as a result of it continuing to displace coal-fired generation.

Local authorities lead on UK solar projects

The Solar Trade Association (STA) has revealed that local authorities are “leading the way” in terms of the UK’s solar development.

In its report, Leading Lights, highlighted how local authorities are building modern solar homes, planning “smart neighbourhoods”, developing subsidy-free solar farms and utilising solar in a way that saves money and provides stable revenue to fund services. Local authorities are in an advantageous position to “make the economics of solar projects attractive”, said the STA, because of factors like long project timescales, positive terms of borrowing and easy to access council-owned roof space and land.

The report made 10 recommendations to local authorities to make solar work. Among these are improved building standards, granting solar business rate relief to community energy groups and state schools and developing solar and storage in conjunction with ongoing EV strategies. 

STA Chief Executive, Chris Hewett said: “Leadership on solar in the UK today comes from local councils, and increasingly from regional government […] Our message to councils is don’t wait on national government; there is a lot you can do today with solar and the UK solar industry wants to work with you to help meet your climate, air quality and economic goals.”

Perry reiterates importance of energy co-operation post Brexit

The government responded to the Lords’ EU Energy and Environment Sub-Committee’s Brexit: Energy Security report in a letter published 19 April.

The Lords report highlighted key concerns around Brexit and asked for clarity from the government. It argued that Brexit will put the UK’s existing frictionless trade in energy with the EU at risk, calling for the government to assess the impact that leaving the Internal Energy Market may have on consumer bills and to demonstrate how it will work with the EU to manage supply shortages.  

Responding, Clean Growth and Energy Minister Claire Perry said that the government is “exploring options” for continued participation in the IEM, that the UK’s energy system will remain closely linked to Europe post-Brexit and that continuation of emergency gas sharing arrangements “is possible” beyond Brexit. The response also noted the importance of interconnectors in achieving energy security, saying they “are a key part of a flexible energy system for the future”.

GB achieves new 76-hour coal-free record

National Grid has published data showing that Great Britain went 76 hours without burning coal up to 24 April, breaking a national record that was set just five days earlier.

The data, showed that the new record came after coal was not used to generate any of the country’s electricity from 9.05am on 21 April through to 1.10pm on 24 April. This surpasses a record that was set earlier in the same month when a continuous period without any coal generation of 54 hours and 50 minutes was set on 19 April. Last year was the first time that no coal was burned for 24 hours since it was introduced.

There are a number of planned outages at coal power plants scheduled for this summer, lowering capacity forecasts to 504MW and 1050MW in May and June respectively. If these planned outage periods correspond with periods of increased renewables generation and lower power demand forecast for this summer by National Grid, it is possible that the new record could be broken once again this year. 


Delivery

ENA highlights the role of innovation in delivering a cleaner energy system

The Energy Networks Association (ENA) has published its gas and electricity Network Innovation Strategies, in which it provided detailed roadmaps as to how future innovation can deliver the transition to a cleaner energy system.

Its Gas Network Innovation Strategy highlights how existing gas infrastructure can meet future demand for heat, power and transport in a low-carbon energy system. Key areas of innovation, says the ENA, include ageing infrastructure, decarbonisation and developing “enabled customer markets”.

Looking at the electricity network of the future, the ENA pointed to challenges such as changing consumer demands, shifting and evolving power generation sources, policy drivers and the shift towards a more flexible and smart future energy system. Innovation in this sector is said to require “fundamentally different approaches to our business”, with a focus on improving existing networks and system operability, developing new technologies and commercial evolution important.

Ofgem implements new ESO regulatory framework arrangements

Ofgem has modified National Grid Electricity Transmission’s licence to implement its new Electricity System Operator (ESO) regulatory and incentives framework from 1 April.

The development follows the regulator’s statutory consultation on ESO incentives, which took place over February and March. The new framework, says Ofgem represents a “material change” from its previous approach that aims to encourage the ESO to work more proactively in identifying how best to maximise consumer benefits over the entire spectrum of its roles.

Following consultations, a number of new principles are in place including a requirement to develop forward plans with stakeholders; a requirement for the ESO to “publish regular performance metrics and reports”; the establishment and introduction of a performance panel and the implementation of a wider and “more evaluative” financial incentive. Ofgem says that the new framework will be in place until March 2021.

National Grid forecasts transmission charging changes stable for October

National Grid issued indicative National Transmission System transmission charges on 1 May which will apply from 1 October. These represent the component costs of the national electricity network and are added to end user bills.

The forecast charging base has increased by 27TWh or 3% with no material change forecast to the Transmission Operator (TO) maximum allowed revenue. The TO entry commodity charge is forecast to be 0.0427p/kWh, down 0.0007p/kWh from the current rate while the TO exit commodity charge is forecast to be 0.0203p/KWh, an increase of 0.0001p/kWh. The System Operator commodity charge is forecast to be 0.0089p/kWh, down 0.0012p/kWh from the current rate. National Grid estimated though that is a regulatory change – the proposals under “UNC636 Updating the Parameters Used to Calculate the NTS Optional Commodity Charge” – are implemented, this could lead to up to a 10% reduction in the total TO and SO commodity charges from 1 October 2018, the suggested implementation date.

Final charges will be issued by 1 August.


Usage

Regen highlights role of consumer choice in EV uptake

A report published by Regen examined the role of electric vehicles in the UK’s transport system and how to best manage the potential impacts they may have on the energy network.

Regen’s Harnessing the Electric Vehicle Revolution report focused on key questions that policy makers will face as the introduction of EVs continues. The “big energy challenge”, says the report, will be in supplying the electricity needed to power EVs in a secure, low carbon and low-cost energy system. Accordingly, it addresses questions such as how EV charging is integrated with overall supply and demand to maintain a balanced system; how multiple vehicle charging can be supported by a distribution network; what improvements need be made to existing infrastructure and how can smart technology and new ownership models being used to harness EV potential.

On grid impacts, Regen believed that a more diverse portfolio of charging options, especially the use of workplace and destination charging, will help to spread demand load. Regen’s modelling found these measures could reduce peak EV demand by around 30%, from 6.6GW to 4.2GW in summer and 7.7GW to 4.9GW in winter.

Looking forward Regen offers several policy recommendations focused on four key areas: drive change, incentivise fleets, enable smart integration of EVs and electricity systems, and develop charging infrastructure. The UK, says Regen, is “in an excellent position to play a leading role in development of EVs” because of its historically successful automotive industry and strong government backing.

UK to consider a “net zero” emissions target by 2050

Energy and Clean Growth Minister Claire Perry has indicated that the UK could implement a target to reduce emissions to “net zero” by 2050.

In a submission to the UN’s climate change agency on 17 April Perry said that “The UK will need to legislate for a net-zero emissions target at an appropriate point in the future to provide legal certainty on where the UK is heading.” In the same submission, Perry pointed to several key policies that will deliver on the 2032 and 2050 carbon budgets.

These include: phasing out the use of unabated coal to produce electricity by 2025; accelerating the move toward low-carbon transport; supporting British businesses so that they can improve their energy productivity by 20% or more by 2030; and continuing to work towards a zero avoidable waste policy by 2050.

On the same date Perry, speaking at a Commonwealth heads of government meeting said that, following a global scientific review in the Autumn by the Intergovernmental Panel on Climate Change (IPCC) of the impact of, and the actions required to keep a 1.5C rise, the Committee on Climate Change will review the 2050 target set by the UK. Currently, under the Climate Change Act 2008 the UK is committed to reducing emissions by 80% by 2050.

During the same meeting Perry made further announcements, including confirming £1.2mn to support Pacific Nations decarbonisation under the Industrial Strategy and a further £3.5mn of support to extend the 2050 calculator – the aim of this is to help other countries develop strategies that will enable the further reduction of greenhouse gas emissions.

£320mn of heat network funding confirmed

The government announced on 11 April that its Heat Networks Investment Project (HNIP) will open to applications this Autumn.

The £320mn scheme, which is open to consumers and non-domestic users, will offer grants and loans to the public and private sectors in England and Wales, enabling connection to networks serving two or more buildings.

BEIS says that heat networks – dubbed “central heating for cities” - can lower bills for both domestic and non-domestic consumers and help to reduce the UK’s carbon emissions. It estimated that heat networks could meet up to 17% of heat demand in residential buildings and up to 24% in public sector and industrial buildings by 2050. The UK already has a number of successful heat network projects in operation, including sites in Sheffield and Southampton.

Energy and Clean Growth Minister Claire Perry said that the scheme “creates a route to market for innovative energy projects across the country and demonstrates a clear objective of the Clean Growth Strategy: to help deliver technologies that can lower bills, cut carbon and improve the quality of life for communities across the country.”

Arup predicts diversified and decentralised future of energy

Engineering consultancy Arup has predicted that, by 2035 the UK’s energy system will operate a decentralised and decarbonised model that will include diverse heating sources and the electrification of transport.

Its report, Energy Systems: A view from 2035, describes the next few decades as “the most transformative the energy sector has ever seen”. The energy system, it says, will require flexibility to achieve the government’s objectives of decarbonisation, security and affordability. It predicts a decentralised electricity system typified by small-scale generation and industrial and large non-domestic sites using microgrids and batteries.

The heat sector, says Arup, will be fragmented and include heat networks in cities, electrification in rural areas and hydrogen instead of gas in suburban areas. Elsewhere, the report predicts natural gas playing a small but vital role, the electrification of transport and the emergence of smart homes.

£30mn competition opened for development of low emissions vehicles

The Advanced Propulsion Centre (APC) announced on 23 April a new competition for UK businesses that will fund the development of low and zero-emission vehicle technologies (EVs).

The government-industry body has up to £30mn to invest in business developing “vehicle technologies that significantly reduce CO2 emissions and improve air quality”. Businesses could attract up to 70% of their project costs and the funding is available for both on and off-road vehicle technologies.

Areas that are covered by the APC’s funding are alternative propulsions systems, electric machines and power electronics, energy storage and energy management, thermal propulsion systems, and lightweight vehicle and powertrain structures. Projects must demonstrate a clear route to market and have a prove technology concept.

The £30mn fund is part of a 10-year, £1bn joint government and industry investment that is looking to develop innovative new low carbon propulsion technologies. The competition is being delivered by Innovate UK and runs until 27 June.

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