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August 2018 Regulatory Report

By Market Insight Team | Posted September 05, 2018


The month saw the government begin its long-awaited five-year review of the functioning of the Capacity Market; the government’s key electricity security policy. The government’s initial view is that the scheme is working well, and any changes will be relatively limited. However, planned changes include considering widening access to renewables and demand-side response providers.

August also saw the price of permits under the EU Emission Trading Scheme hit a 10-year high. The price of carbon is a major cost for fossil-fuel power generators, with the rises fuelled by a lack of auctions and imminent policy action to limit over-supply.


The government published the findings from phase 3 of the evaluation of the transitional arrangements auctions for demand-side response (DSR). The auctions were intended to act as a stepping stone for integrating DSR into the full capacity auctions, with key findings being the pre-eminence of aggregators and industrial DSR in the auction winners.

Ofgem also approved the necessary modifications to implement the Trans-European Replacement Reserves Exchange (TERRE) project into the GB market arrangements. Market rule changes will put in place the processes to enable the system operator to exchange balancing energy from replacement reserve.


A paper published by the UK Energy Research Centre shed new light on the scale and variability of local gas demand, highlighting the particular challenge of providing energy for heating and hot water throughout the winter.

Meanwhile, The Data Centre Trade Association urged operators to apply for entry to the government’s £9.2mn energy efficiency accelerator programme. Successful applicants could receive up to £1m in funding through the scheme to accelerate the development of their energy-saving innovations that must have been proven to work in the industry they have been created for.

Also covered in this Regulatory Report:

Government seeks views on further CfD reforms
Government offers updated information on no deal Brexit preparations
EU set to end Chinese solar panel import controls
DNO paper recommends a “flexibility first” approach for networks
London Mayor commits to 2030 zero carbon buildings target
Electric vehicle sales surge across Europe
International energy efficiency standard refreshed


Government launches five-year capacity market review

On 8 August BEIS launched its five-year review of the Capacity Market (CM), commencing a call for evidence as the first step. The review is intended to assess whether the CM, introduced by the government to ensure that electricity supply continues to meet demand as more renewable generation comes on stream, is still needed in the future. It will also assess whether it is meeting its original objectives of ensuring security of supply and cost effectiveness, and if these objectives need to change or develop in a way that can impose less regulation.

BEIS expects the call for evidence to reveal areas that can be enhanced, but it does not see the need for “fundamental reform” as the CM is currently operating “broadly as intended”. Rather, it said the five-year review is a good opportunity to consider how the CM should evolve in line with a changing energy system and changes in energy policy. In particular, it recognised the emergence of new technologies that are competing with traditional generation assets and aims to understand how the CM can include smart system services and aggregators, and better support Demand-Side Response (DSR).

BEIS listed several developments in its assessment of the CM that may have implications on future design changes. The department highlighted the significant growth in the electricity market of decentralised, often small-scale and innovative sources of capacity, including renewables, the costs of which are decreasing. In addition, changes to the sector as a result of energy policies such as the Industrial Strategy and the Cost of Energy Review have impacted the existing CM design, the government said. Taking a wider view, BEIS said that many of the original drivers that led to the CM being introduced still exist, including the need to underpin investment in capacity and the removal of barriers to entry, as well as significant plant closures expected in the 2020s.

The government recognised the participation of renewables into the CM as a key priority of the call for evidence, particularly with regards to the participation of unsubsidised renewables such as wind and solar. The CM, said BEIS, is intended to be “technology agnostic” and therefore the participation of these technologies would open the market to greater competition and liquidity. In order to achieve this the document said that several challenges must be addressed, including the development of an approach to de-rating renewables and how to enable access to hybrid projects – this, it added, could offer several advantages in terms of security of future supply. Elsewhere, the government proposed strengthening penalties and noted that it plans to address the CM embedded benefit in the review. Views are invited by 1 October.

EU carbon price reaches 10-year high

On 23 August EU Emissions Trading System (ETS) carbon prices reached a 10-year high at €20.67 per tonne.

The EU ETS is a system that charges industry and power facilities for every tonne of carbon dioxide that they emit in order to combat climate change and reduce greenhouse gas emissions in a cost-effective way.

This high price occurred in the same week that a report, published by Carbon Tracker, predicted carbon prices to continue to rise to more than €40 per tonne between 2019-23. Further, the report said that carbon prices will average between €35 and €40 per tonne over the next five years and that they could reach as high as €50 per tonne during the winters of 2020-21 and 2021-22.

Government seeks views on further CfD reforms

On 30 August, policy-makers published a consultation response and a supplemental consultation on further proposed amendments to the main mechanism for supporting new low-carbon generation – the Contracts for Difference (CfD) scheme.

The move comes as part of a process launched in December 2017, with part A of the response to the consultation published in June. The changes now being consulted on include: the way in which reference price forecasts are used during the allocation process; the treatment of technologies which are eligible to participate in the CfD scheme regardless of whether they deploy with Combined Heat and Power; changes to ensure that the scheme functions effectively after Brexit; and revised documents relating to increased efficiency requirements for CHP projects. The consultation closes on 10 October.

In a consultation response released on the same day, BEIS backed away from mandating specific community benefit provisions for remote wind projects on Scottish islands.

Government offers updated information on no deal Brexit preparations 

On 22 August a letter written by Energy and Clean Growth Minister Claire Perry was published, outlining government plans for a statutory instrument (SI) that would see several aspects of EU energy policy and legislation integrated into domestic law after Brexit. The SI will transfer energy-related legislative functions from the European Commission to the Secretary of State. It will include powers to create, in limited circumstances, new Network Codes governing the gas and electricity markets; will allow amendments to definitions and reporting requirements under the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT); and will transfer powers related to the existing Security of Gas Supply Regulation.

Following this, on Thursday 23 August the government released its first 25 guidance notes on preparing for a no deal Brexit, including two papers related to civil nuclear regulation and future nuclear research. The first examined how the ownership, movement and safeguarding of nuclear material will be regulated if the UK leaves the EU with no deal. It noted that, in preparation, the UK government has already passed new legislation that will allow the Office for Nuclear Regulation (ONR) to oversee domestic safeguards. In addition, it outlined that if no deal is reached the government plans to introduce a new domestic nuclear safeguards regime and expects supply contracts for nuclear material will need to be renegotiated by operators.

EU set to end Chinese solar panel import controls

According to a report by Reuters published on 24 August, the European Commission has indicated it will end EU import controls which will allow Chinese solar panel manufacturers to sell their products in Europe free of duties if they do so at or above a minimum price.

The report said that the existing anti-dumping and anti-subsidy measure will end in September after being extended for 18 months in March 2017. The measures were first introduced in 2013, since which the permitted minimum price has progressively declined – if sold for less than the minimum price solar panels are subject to duties of up to 64.9%.

The latest move is reported to come following the commission’s dismissing of a request for an “expiry review” by EU solar producers, who argued that the bloc would effectively be permitting a mass of dumped products. It was noted that the Commission’s move received backing from a majority of the EU’s 28 countries.


BEIS outlines findings from DSR auctions

On 8 August the government published the findings from phase 3 of the evaluation of the capacity market transitional arrangements (TA) auctions for demand-side response (DSR).

The second TA auction was restricted to load turn-down DSR and subsequently attracted a lower volume of capacity – 755MW compared to 1,560MW in the first TA auction. In total 14 organisations attempted to qualify 47 Capacity Market Units (CMUs) for the second TA. The final contracted DSR capacity being taken forward to delivery totalled 293MW across 28 CMUs. BEIS noted that while the total volume of capacity was lower than the first TA, the volume of turn-down DSR was higher than the estimated 60-90MW that was delivered through the first TA.

The report also highlighted the prominent role of aggregators in the TAs, who contributed 82% of the capacity to be delivered. Participating aggregators reportedly saw the second TA as an opportunity to build their business or build revenue for existing clients. The aggregators that chose not to participate in the second TA auction saw it as being incompatible with their DSR portfolios or the timing of their business development.

Ofgem approves Project TERRE proposals

The regulator Ofgem has approved the necessary modifications to implement the Trans-European Replacement Reserves Exchange (TERRE) project into the GB market arrangements.

In an announcement on 24 August it was explained that the modifications will put in place the processes to enable the system operator to exchange balancing energy from replacement reserve. As part of the implementation of Project TERRE a new category of Party to the BSC, the Virtual Lead Party, which will be able to register Secondary Balancing Mechanism (BM) Units with the sole purpose of providing balancing services under TERRE as well as the BM.

Ofgem also approved the original BSC proposal that would require customer consent for the relevant supplier to receive half-hourly delivered volumes. The regulator believed that the proposals should improve the efficiency, coordination and economic operation of the electricity system and result in greater competition for replacement reserve services.

DNO paper recommends a “flexibility first” approach for networks

UK Power Networks (UKPN) has announced that it intends to adopt a “flexibility first” approach to managing its network. In a roadmap released on 21 August the Distribution Network Operator (DNO) said that this type of approach would help to cut distribution costs, provide new revenue opportunities and build a stronger network.

The DNO highlighted the role of Distributed Energy Resources (DER) in providing flexibility to the network and has identified three core use cases where DER flexibility could support network operation: load related reinforcement deferral, managing planned maintenance and responding to unplanned outages. UKPN plans to launch a procurement event in September 2018 for its reinforcement deferral flexibility needs, with the tender process starting in December and to be held by March 2019. This will be designed to meet the DNO’s flexibility needs from 2019-20 and 2020-21 and it plans to repeat the process each year. Following the March 2019 tender it will also contract for its planned maintenance and unplanned interruption use cases on a rolling basis as required. 


Academics highlight challenges of swings in heat demand

A paper published on 17 August by the UK Energy Research Centre (UKERC) has shed new light on the scale and variability of local gas demand, highlighting the particular challenge of providing energy for heating and hot water throughout the winter.

By consolidating gas demand data from Great Britain’s local gas networks over a period of 11 months, the research highlighted the hourly variation in local gas consumption, revealing “immense swings” in demand throughout the day, emphasising the energy security issues at play.

The “Beast from the East” weather event led to the highest gas consumption of the 2017-18 heating season, with 214GW of local gas demand measured at 6pm on 1 March. Earlier in the day, National Grid issued a “Gas Deficit Warning”, calling for additional gas to be made available to ensure sufficient supply during this day of peak demand. A forecast drop in gas pressure was averted as market players brought more gas onto the system and withdrew less gas from the system than was originally forecast. The data reveals that this peak demand was only marginally higher than that of the previous day (+4GW higher), but there was significantly increased demand between the hours of 10am and 3pm. With many schools and businesses closed, homes were occupied throughout the day leading to a greater demand for heating, as a result increasing the load on the system “considerably”.

The data also highlights the formidable challenge of delivering the necessary amount of gas to meet demand on winter mornings. Between the hours of 5am and 8am there was an immense increase in gas consumption – the steepest rise was recorded on 28 February with an increase of +116GW. However, this was by no means atypical, a quarter of all days during the 2017-18 heating season measured an increase in demand of +100GW between 5am and 8am. For comparison, the peak supply of the entire electrical system over 2017-18 heating season was 53GW, and the highest 5am to 8am increase was +16GW.

Dr Grant Wilson, UKERC Researcher said: “The sheer scale of the variability in demand was particularly surprising. It highlights another important challenge for the decarbonisation of heat and provides even more evidence of the wider system benefits of improving the energy efficiency of homes throughout Britain.”

The Data centres urged to participate in efficiency challenge

The Data Centre Trade Association has urged operators to apply for entry to the government’s £9.2mn energy efficiency accelerator programme.

The programme is being delivered on the behalf of BEIS by the Carbon Trust, and aims to support technology developers, equipment suppliers and UK-based industrial companies with commercialising any newly created energy reduction technologies.

Successful applicants could receive up to £1m in funding through the scheme to accelerate the development of their energy-saving innovations that must have been proven to work in the industry they have been created for.

Data centre technologies that address cooling or waste heat can now benefit from the programme. This includes innovative pre-commercial cooling and/or waste heat utilisation technologies for data centres, particularly where there may be cross-sector industrial applications.

London Mayor commits to 2030 zero carbon buildings target

Mayors of 19 cities around the world, including London, have vowed to ensure all new buildings are carbon neutral by 2030.

The Net Zero Carbon Buildings Declaration was established by C40 – a network of cities committed to addressing climate change – and also includes a commitment to make all buildings, regardless of when they were constructed, carbon neutral by 2050.

It is recognised that delivering on the commitments will require a united effort, as city governments do not have direct control over all the buildings in a city. This commitment includes a pledge to work together with state and regional governments and the private sector to drive this transformation, and calls on national governments for equal action.

Mayor of London Sadiq Khan said: “My strategy to improve London’s environment includes some of the world’s most ambitious targets to reduce carbon emissions from our homes and workplaces. This includes expanding my existing standard of zero carbon new homes to apply to all new buildings in 2019. We want to make London a zero-carbon city by 2050 and we’re working hard to ensure its buildings are energy efficient and supplied with clean energy sources.”

Electric vehicle sales surge across Europe 

Market analysts EV-Volumes have revealed that plug-in vehicle sales in Europe reached 195,000 units in the first half of 2018 – 42 % higher than for the same period of 2017.

All European countries posted growth for H1 2018, many of them over 100%, albeit still from low volumes. For the full year of 2018 the analysts expect 430,000 plug-ins to be delivered in Europe, and a market share of 2.35 %. The UK achieved a 50% year on year increase.

Norway was still Europe's largest market for plug-ins, with a share was 46.5% of passenger car sales in H1 2018. This was identified as a “good indication of what is possible with compelling savings on vehicle taxes, much lower operating cost and a well-developed charging infrastructure.”

Models with more than 10,000 unfulfilled orders, each, are the Hyundai Kona, VW e-Golf, Jaguar i-Pace and Nissan Leaf and the Tesla Model 3, all of them Battery Electric Vehicles, reflecting consumer preference.

International energy efficiency standard refreshed

The flagship International Standard for improving energy performance – ISO 50001 has been updated for the first time since its creation in 2011.

The International Organization for Standardization created the standard as a tool for allowing businesses to take a strategic view of how to improve their energy performance. Updates reflect renewed terms and definitions and greater clarification of certain energy performance concepts. ISO 50001 also continues to offer a route to compliance with the mandatory Energy Savings Opportunity Scheme for affected organisations. 

Roland Risser, Chair of the ISO technical committee added: “There is a stronger emphasis on the role of top management as well, as it is important to instilling an organizational culture change […] It is also now aligned with ISO’s requirements for management system standards, making it easier to integrate into an organization’s existing management systems.”

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