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April 2019 Regulatory Report

By Market Insight Team | Posted May 03, 2019


Energy and Clean Growth Minister Claire Perry said that she is confident that the UK can meet its fourth and fifth carbon budgets in the timeframe it has been given, when speaking to a Commons Science and Technology Committee evidence hearing. Perry said an acceleration of policy delivery and reduction in technology costs meant the UK was 95% of the way towards achieving the fourth budget and 93% towards the fifth.

The Committee on Climate Change published its recommendations to government on achieving net zero greenhouse gas emissions in the UK by 2050, urging it to legislate “as soon as possible” in order to reach the target. 


National Grid ESO published its Demand-Side Flexibility Annual Report 2018, finding that policy developments are helping achieve a more flexible and smarter energy system.

Ofgem issued a consultation seeking views on its proposed changes to the Capacity Market Rules, which formed part of its five-year review of the scheme. Changes include proposals to facilitate a more open and liquid secondary trading market.


The BEIS Committee released a report urging the government to provide clear policy direction on carbon capture, usage and storage and stating that the technology will be “necessary to meet the UK’s existing climate change targets at least cost”. It said that, if not deployed, the UK’s costs of meeting targets in the Climate Change Act could double.

A report published by PwC and Energy UK finds that 71% of businesses now have an energy strategy, and that the “appetite among businesses to invest in smart and sustainable energy technology is stronger than ever”.

Also covered in this Regulatory Report:



Perry confident UK can meet carbon budgets

Energy and Clean Growth Minister Claire Perry said that she is “confident” that the UK will meet the fourth and fifth carbon budgets in the timeframe given, in response to a question during a 23 April Commons Science and Technology Committee evidence session.

The hearing was held as part of the committee’s inquiry into technologies to help meet the government’s Clean Growth Strategy targets. Committee Chair Normal Lamb put it to Perry that the Committee on Climate Change (CCC) had concluded that current government policies did not put the UK on track to meet either its fourth or fifth carbon budgets – he asked when they would be achieved.

In response, Perry explained that there has been an acceleration of policy delivery and a reduction in technology cost, as well as an increased focus due to the publication of the IPCC Special Report – following this the government sought advice from the CCC (see below). She explained that one-third of the 50 policies or procedures for emissions reductions put forward by the CGS were not yet fully developed. Based on that, she said, the UK was 95% of the way towards achieving the fourth carbon budget and 93% towards the fifth.

She also said that the government had not yet factored in the carbon reduction effects of the Future Homes Standard which was announced by Chancellor of the Exchequer Philip Hammond in his Spring Statement. When pressed on specific timescales for when the UK would meet the fourth and fifth carbon budgets, Perry did not provide a response.

Additionally, earlier on in the same session, witnesses from the Tyndall Centre for Climate Change Research and UK Carbon Capture and Storage (CCS) Research Centre said that CCS needed to be deployed on a large scale by the 2030s to help the UK achieve net zero by 2050.

CCC recommends net zero UK GHG emissions by 2050

The Committee on Climate Change (CCC) has recommended that the UK achieve net zero greenhouse gas (GHG) emissions by 2050 in a new report, Net Zero: The UK’s Contribution to Stopping Global Warming.

Published on 2 May, the report was in response to an October 2018 request from the governments of the UK, Wales and Scotland, asking the committee to reassess the UK’s long-term emissions targets. In it, the CCC set out its recommendations for what the government needs to implement over the next decades, as well as areas where acceleration is required, detailing specific targets for different parts of the UK.

The report urged the UK to legislate “as soon as possible” to reach net zero GHG emission by 2050 (a 100% reduction in GHG emissions on 1990 levels), without the use of international carbon credits. The CCC concluded that the UK has the foundations in place to make significant progress towards achieving an 80% reduction and praised the expansion of low carbon electricity in the UK, which has led to a fall in power emissions from electricity generation by 50% since 2013 and 64% since 1990. It also highlighted that some policy development has begun on building energy efficiency, low carbon heating, electric vehicles, CCUS and afforestation.

It is expected that a net zero GHG target can be met at an annual resource cost of up to 1-2% of GDP to 2050, the same cost as the previous expectation for an 80% reduction from 1990.

Government urged to invest in nuclear innovation programme

The Nuclear Innovation and Research Advisory Board (NIRAB) has advised the government to invest “in the region of £1bn” in a nuclear innovation programme between 2021 and 2026, which will attract “significant private sector leverage.”

NIRAB recommended this in its NIRAB 2018/19 annual report, Clean Growth Through Innovation – the Need for Urgent Action, published in April, saying that this would help to meet ambitions for nuclear to play a broader decarbonisation and Clean Growth role and close gaps in the nuclear research and innovation landscape.

NIRAB noted that local government and the private sector will both play central roles in defining and realising nuclear energy’s future potential in achieving clean growth. However, urgent action is required by both government and industry to provide solutions that will make a difference and for economic growth to be maximised. This will require innovation and significant deployment of a range of nuclear technologies between now and 2050. NIRAB also stated that the government should work with private industry to define a roadmap for future new nuclear build to meet 2050 targets and implement essential policy and framework for the evolution and commercial deployment of Advanced Nuclear Technologies.

Additionally, it was recommended that the government work with industry to facilitate the development of Advanced Nuclear Reactors with a view to have this technology commercial operational by 2030.

Parliament declares national climate emergency

Parliament approved the Labour Party’s motion to declare a climate emergency on 1 May. Prime Minister Theresa May said in an accompanying press release that it is “impossible to meet our Paris [Agreement] commitments while waving through these climate destroying policies”, referring to “fracking for new gas supplies and subsidising fossil fuels in the UK to the tune of £10.5bn a year”. May outlined several areas of focus, including phasing out all subsidy to fossil fuels and tackling domestic emissions.

The Labour Party said in a press release that Parliament is the first in the world to declare a climate emergency. Labour Leader Jeremy Corbyn said it “will set off a wave of action from parliaments and governments around the globe.” The motion also called on the government to reach net-zero emissions before 2050. The proposal does not legally compel the government to act.

Britain breaks coal-free record

Britain broke its record for the longest period without generating any electricity from coal over the Easter weekend. UK Coal, an account which posts hourly updated of National Grid ESO’s coal generation, tweeted that Britain went for 90 hours and 45 minutes without any coal-powered generation, breaking the previous record of 76 hours and 10 minutes set in April last year.

As reported by the BBC on Monday 22 April, National Grid ESO Director of Operations Duncan Burt told BBC Radio 5 Live: “It's all about the sunny weather we've been seeing, so energy demand is low. There has been lots of lovely solar power off the panels too.” He added that solar generated roughly one-quarter of Britain’s electricity over the weekend.

While coal made up less than 10% of the country’ energy mix in 2018, in alignment with the government’s ongoing plans to eradicate the use of coal power plants by 2025, reduced usage could see increased demands for natural gas, rather than renewable sources.


National Grid ESO reports on demand-side flexibility

National Grid ESO published its Demand Side Flexibility Annual Report 2018, finding that policy and regulatory developments are helping to enable a more flexible and smarter energy system. However, “near-term uncertainty” is making the business proposition for demand-side flexibility (DSF) more complex. A recent European Court of Justice (ECJ) ruling on the Capacity Market has added further concerns.

The report considered policy, regulatory and market developments over the last year and recent trends in demand-side flexibility and demand-side response (DSR). It found that DSF participation has continued to grow in the GB electricity markets and that new opportunities are continuing to emerge thanks to markets being more accessible to smaller providers of flexibility.

Greater participation in Balancing Service Tenders has led to the increased liquidity and competitive prices, ensuring lower costs to consumers. Steps are also being taken by National Grid ESO to widen access to different Balancing Services and the Balancing Mechanism to improve accessibility and increase competition. 

On overall participation in DSF, ESO said it had seen an increase of 100% of new units in 2018, equating to an average of 10 new units entering the Ancillary Services markets per month. This was supported significantly by 39 new tenders in January 2018 and 35 in July 2018.

Ofgem sets out Capacity Market rule changes

Ofgem issued a consultation on 16 April, seeking views on changes to the Capacity Market (CM) rules as part of its five-year review of the scheme. Changes include amendments to reduce the complexity of prequalification and participation, along with proposals to facilitate a more open and liquid secondary trading market.

Ofgem has also stated its intention to reduce the burden of new build CM units having to supply independent technical expert reports ahead of the delivery year. The rules change process is set to move to an 18-month timeframe, with the introduction of a CM advisory group to assist in the development of proposals before they are submitted to Ofgem. The suspension of the CM was recognised as having resulted in resource implications and Ofgem noted that the pace at which it can implement changes has been reduced. Responses are requested until 28 May.

Postponed T-1 Capacity Market auction set for June

The EMR Delivery Body published the timetable for the postponed T-1 Capacity Auction announcing that it is due to take place on 11-12 June. BEIS published a letter from Business Secretary Greg Clark which was sent to National Grid Director of Operations Duncan Burt, requesting the rearrangement of the postponed T-1 Capacity Auction for the 2019-20 delivery year “as soon as reasonably practical”.

Clark said that this request followed the Electricity Capacity (No.1) Regulations 2019 (“2019 Regulations”) which came into force on Wednesday 10 April, which in turn brought into force the Capacity Market (Amendment) (No.2) Rules 2019. Clark also directed the EMR Delivery Body to allow Prequalified Capacity Market Users (CMUs), including CMUs which have prequalified subject to satisfaction of a further requirement, to withdraw from the postponed auction, to the methodology for interconnector de-rating factors to provide a floor factor.


BEIS Committee policy makes CCUS recommendations

The Commons BEIS Committee has urged the government to “move away from vague and ambitious targets” and provide clear policy direction on carbon capture usage and storage (CCUS) in a recent report, published on 25 April.

Titled Carbon Capture Usage and Storage: Third Time Lucky? the report was the culmination of the committee’s inquiry into CCUS, which was launched in May 2018. In it, the BEIS Committee recommended that the government adopt specific targets in line with the Committee on Climate Change (CCC) and target the development of the first CCUS projects in at least three clusters by 2025.

The Committee welcomed the government’s ambition concerning CCUS but stated that the technology “will be necessary to meet the UK’s existing climate change targets at least cost”. If it is not deployed, the committee warned that the UK’s cost of meeting targets under the Climate Change Act could double, rising from approximately 1% to 2% of GDP per annum in 2050.

The Committee also advised the government to enable the National Infrastructure Commission (or third party) to undertake a cost benefit analysis of the potential of CCUS in the decarbonisation of industrial emissions, which should factor into decision-making on spend for national infrastructure.

Additionally, it highlighted that the upcoming Comprehensive Spending Review should account for both CCUS’ costs and its wider benefits in prolonging the lifetime of heavy-duty industries which would otherwise face closure. The technology could be utilised in different areas of the economy, which should be underpinned by “the right policy levels to ensure the technology can deliver on its potential.” Concluding, the committee warned that, if CCUS is not deployed, the UK’s cost of meeting targets under the Climate Change Act could double, rising from approximately 1% to 2% of GDP per annum in 2050.

Businesses showing increased energy efficiency awareness

A survey conducted by PwC and Energy UK has found that 71% of businesses now have an energy strategy, up from 65% in 2017. It was also revealed that 53% of business energy strategies also include specific energy efficiency targets.

The survey work covered several areas of business, including SMEs, commercial and industrial organisations and large local authorities, finding that “the appetite among businesses to invest in smart and sustainable energy technology is stronger than ever”. SME’s were found to be more focused on their energy consumption monitoring, smart lighting and EV charging capabilities, while 67% of local authorities said that have invested in EV charge points to date.

The survey also said that, when fully engaged, SMEs tend to favour renewable energy sources and their energy strategies contain specific renewable energy targets. Overall, it was found that 57% of businesses are now planning to purchase at least one smart energy technology in the next two years. Only a third of industrial businesses expect to be fully reliant on the grid for all their supply within five years, where 46% of commercial and industrial businesses are now investing in renewable generation technologies. PwC also revealed that 67% of industrial businesses now expect to have their energy supply offset by onsite solutions within the next five years. Additionally, 25% of industrial and commercial customers also switched energy supplier to capitalise on innovative products or hardware in 2019.

£30mn fund created to develop smart local energy systems

UK organisations will be able to apply for funding to design proposals to develop smart, local and flexible energy systems, linking energy supply, storage and use, as well as power, heating and transport.

Announced by Innovate UK, UK Research and Innovation and Energy and Clean Growth Minister Claire Perry, the competition forms part of the Industrial Strategy Challenge fund programme and will bring together industry, academia, public bodies and local communities. All solutions will be rolled out across the UK in the 2020s.

All projects will be expected to develop novel market and business approaches for smart energy systems; integrate new technologies that can be reproduced at scale; design approaches that will lower ongoing costs and emissions; create economic benefits and development investment models to deploy low carbon technologies. The competition will open on 7 May and close on 7 August 2019.

IRENA calls for six-fold renewables deployment to meet climate objectives

The International Renewable Energy Agency (IRENA) has published a new report, Global Energy Transformation: A Roadmap to 2050: 2019, which revealed that to meet climate objectives, the deployment of renewables must increase “at least six-fold” compared with current government plans. IRENA also said that energy-related CO2 emissions reductions would have to decline 70% by 2050, compared with current levels to meet climate goals – energy-related CO2 emissions have increased 1.3% annually, on average, over the last five years.

The report found it essential that the share of electricity in total energy increase to near 50% by 2050 (up from 20%), with renewables making up two-thirds of energy consumption and 86% of power generation. As a result, it said, investment in infrastructure must be focused on low carbon, sustainable and long-term solutions that embrace electrification and decentralisation.

IRENA said that renewable electricity, combined with increased electrification, could reduce CO2 emissions by 60%. It added that a transition to increasingly electrified forms of transport and heat, when combined with an increase in renewable power generation, could deliver around 60% of the energy-related CO2 emissions reductions required to meet the targets in the Paris Agreement.

NIC urges government to accelerate electric vehicles transition

The National Infrastructure Commission (NIC) has recommended that the government sets out a strategy to ban all sales of new petrol and diesel HGVs by 2040. In its Better Delivery: The Challenge for Freight report, published in April, the commission recommended that a new Freight Leadership Council be created, whereby government and industry leaders can set clear objectives that meet UK climate goals.

It also called for detailed assessments for HGVs in order to support the UK’s transition towards zero emissions and said that government must “set the trajectory for a clean freight system, outlining clear, long-term objectives that enable the industry to be zero emissions by 2050”.

In a separate development, Chair of the National Infrastructure Commission Sir John Armitt suggested that the UK build a shared vision for infrastructure’s role in the economy. Speaking at a 1 May All Party Parliamentary Group on Infrastructure (APPGI) panel discussion, Armitt said that it was imperative that the government “send a clear signal that it is serious about giving the UK the world-class infrastructure the economy will need up to 2050.”

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