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January 2019 Regulatory Report

By Market Insight Team | Posted February 05, 2019

Generation

Attention continued to focus on the fate of the UK’s suspended flagship energy security scheme – the Capacity Market. Government Ministers have stated they expect to get reapproval from the EU later in 2019, while industry has put forward plans for the costs of the scheme to continue to be collected to protect industry and energy users from a price shock when the scheme is reinstated.

There were also developments in nuclear as the 2.9GW Wylfa project plans were suspended by their developers. The Nuclear Industry Association continued to highlight the need for reliable low-carbon baseload power that new nuclear will offer.
 

Delivery

The government launched a consultation on 24 January on how to maximise the benefits for businesses from the smart meter roll-out. Proposals include free access to usage data which could lead to the development of innovative new offerings.

Grid operators group the Energy Networks Association put forward its plans for 2019 to progress work to create a GB smart grid, including more whole systems thinking on how heat and transport can integrate with the grid.
 

Usage

Work continues in the EU to finalise the various elements of the Clean Energy for All Europeans package. Reforms include granting consumers rights around self-consumption and reforming market rules to enhance cross-border trading.

The month also saw fresh analysis issued by consultants Deloitte, mapping the prospects for uptake of electric vehicles, finding the technology will achieve cost-parity with conventional cars in the UK by the early 2020s. 

Also covered in this Regulatory Report:



Generation


Debate on future of the Capacity Market continues

Industry and policymakers have continued to focus on the future of the Capacity Market in light of its recent suspension.

The Capacity Market was introduced by the government in 2014 to ensure that electricity supply continues to meet demand in the context of increasing levels of intermittent renewable generation and expected conventional power plant closures. Capacity providers bid into auctions to provide sufficient generation or load-management capacity in the system to cope with times of stress on the network in winter months. In a ruling in November 2018, an EU Court decided that the original investigation into whether the scheme met with “state aid” rules – that it was not an unfair subsidy by government – had not been thorough enough, and the scheme, and planned four year-ahead and one year-ahead auctions were suspended.

Chair of the influential House of Commons BEIS Committee Rachel Reeves wrote to Energy and Clean Growth Minister Claire Perry in late December seeking clarification on several key points. Perry’s response, published on 9 January, revealed that the government expects the European Commission to open a new state aid investigation “early” in 2019, with a final decision later in the year. Perry also confirmed that it was expected that past aid granted under the scheme would be able to be honoured, including making deferred payments. The government is also now minded to continue to collect payments during the standstill period.

Meanwhile energy industry governance body Elexon issued the consultation for a code change that would introduce an interim monthly charge. This would act as a contingency fund to protect the industry and customers from a price shock, in the event that the current Capacity Market standstill is lifted and back payments need to be made.

The proposal was granted urgent treatment by Ofgem and the panel has initially recommended that it be approved. The final modification report will go to Ofgem for decision on 5 February.

 

Wylfa nuclear project suspended

Hitachi’s UK subsidiary Horizon Nuclear Power confirmed on 17 January that it was suspending plans to develop a 2,900MW nuclear power station at the Wylfa site in Wales.

Duncan Hawthorne, CEO of Horizon Nuclear Power, said: “We have been in close discussions with the UK government, in cooperation with the government of Japan, on the financing and associated commercial arrangements for our project for some years now. I am very sorry to say that despite the best efforts of everyone involved we’ve not been able to reach an agreement to the satisfaction of all concerned.”

Trade group the Nuclear Industry Association (NIA) highlighted how if the UK is going to decarbonise its power supply and meet obligations to reduce carbon emissions, it needed to replace the 20% of electricity delivered by the current low-carbon, reliable, secure nuclear fleet - most of which will retire in the next decade. The NIA stated that new nuclear is an “integral part” of a future decarbonised power supply.

Earlier in January, EDF launched the third and final public consultation into its plans for a third power station – Sizewell C on the Suffolk coast. The project will create 25,000 jobs and bring millions of pounds into the local economy.


Clean air strategy suggests biomass burning could be limited

The government released its finalised Clean Air Strategy on 14 January, listing measures to cut the amount of harmful particulate matter in the atmosphere, with implications for the energy sector.

It was confirmed that the government will consult on making coal to biomass conversions ineligible for future allocation rounds of the Contracts for Difference renewables support scheme. The government also recently consulted on banning new Renewable Heat Incentive (RHI) biomass applications installed in urban areas which are on the gas grid, as well as introducing mandatory maintenance checks for those installations already accredited on the RHI, to which it will be responding in due course. There will also be an effort to strengthen inter-government collaboration, so that the trade-offs between energy and public health are transparently and fairly articulated.

Environment Secretary Michael Gove added: “Government cannot act alone in tackling air pollution. Our strategy sets out how we will work with businesses, farmers, industry and households to develop innovative new solutions to reduce emissions. It also highlights how we can all take action and play an important role in cleaning up our air.”

 

Analysts predict UK to join subsidy-free solar club

Market analysts Wood Mackenzie issued research on 21 January identifying key trends in the global solar market.

On a world-wide scale, it predicted the global solar market will top 103GW of deployment in 2019, while the top 20 largest global PV markets will account for 83% of new global demand to 2023. Technology costs have continued to fall rapidly, with global average utility-scale solar costs falling another 15% last year. More specifically, the UK is expected to join Europe’s “vanguard of subsidy-free utility-scale solar PV” in 2019 as project costs continue to fall.

The report pointed to a purported 2.3GW pipeline of projects that could be delivered, with the corporate Power Purchase Agreement market and rapidly declining project costs as the key drivers for the UK market in the coming year.

Wood Mackenzie expects solar PV costs “heading towards £40/ MWh in the UK”, a price which would make projects “look attractive to potential offtakers compared to power prices”.


Corporate Power Purchase Agreements rise in popularity across Europe

New figures from trade association WindEurope have revealed that corporate Purchase Power Agreements (PPAs) are growing in number and volume.

PPAs allow major businesses long-term energy supply at fixed-prices. Most contracts are set at around 15 years. PPAs were first signed in 2014 – mainly in the ICT sector to power data centres. But increasingly, energy-intensive industries are signing them. 2018 saw 1.5GW of new PPA deals with windfarms.

WindEurope CEO Giles Dickson said: “Industrial consumers across a range of sectors have now bought nearly 5GW of wind energy via PPAs. 2018 saw a record number of new deals, and the first PPAs in the automotive sector and in pharmaceuticals – and the first in Germany, Spain and Poland […] It shows industrial consumers see wind power as competitive and reliable. And it’ll help allow industry to reduce its energy costs.”



Delivery


BEIS seeks to unleash benefits of business smart meters

The government opened a call for views on 24 January on reforming parts of the smart meter roll-out to ensure businesses can achieve maximum benefits.

There is an obligation on energy suppliers to ensure that all homes and small businesses are offered a smart meter by the end of 2020. Information is recorded and transmitted by the smart meter every 30 minutes, allowing real-time monitoring of energy usage and greater energy savings.

The proposed changes would alter licence conditions to raise awareness of smart metering. In a recent survey, only around 30% of non-home-based microbusinesses were aware of the availability of smart meters. The consultation asks whether the national Smart Energy GB campaign should have to build microbusiness confidence in smart meters and the willingness of microbusinesses to use smart meters to change behaviour.

The second half of the consultation seeks views on whether providing non-domestic consumers with free access to their energy consumption data would improve non-domestic consumers’ engagement with their energy use.

Views are invited by 21 February.

 

Open networks project seeks views on 2019 priorities

Trade association the Energy Networks Association (ENA) launched a consultation on 21 January on the Open Networks Project 2019 Phase 3 Work Plan.

The grid operators group launched the project two years ago with the objectives of laying the foundations of the smart grid in Great Britain. In 2019, the project will expand upon its focus on the future of the whole electricity system by looking across the energy system at gas, heat, transport and waste. In the short-term, the project will continue to enable a staggered roll-out of new standards, procedures and processes. The project will also continue to provide valuable input to wider industry developments, including Ofgem’s network charging review and the government’s recently established Energy Data Taskforce.

David Smith, Chief Executive Officer at ENA, added: “We can expect a major boost to flexibility services markets in 2019, with the continued growth of smart energy technologies coupled with data to provide flexibility services to the grid, such as energy storage or demand-side response.”


Charging methodology for Belgian interconnector backed

The regulator has approved the Access Rules and Charging Methodology for the new 1GW UK-Belgium Nemo Link interconnector, it announced on 25 January. Together, these set out both the terms and conditions for accessing and using the interconnector, and the methodology by which charges will be derived for doing so.

Regulator Ofgem acknowledged consultee concerns that there would be no intraday product before the third wave of implementation of the pan-European cross-border within-day project in 2020 and voiced an expectation that Nemo Link would make one available as soon as practicable. The rules and methodology came into effect ahead of the interconnector beginning commercial operations on 31 January.



Usage


EU Clean Energy package moves towards completion

Work has been ongoing at EU institutions to finalise the elements of the Clean Energy for All Europeans package – a group of measures intended to complete the Energy Union and combat climate change.

It was confirmed late last year that new rules for making the EU's electricity market work better had been provisionally agreed by negotiators from the Council, the European Parliament and the European Commission. This agreement follows previous agreements on the Governance proposal, the revised Energy Efficiency Directive, the revised Renewable Energy Directive, the Energy Performance in Buildings Directive and the Regulations on Risk Preparedness and the Agency for the Cooperation of Energy Regulators (ACER).

Together, the eight elements of the package empower European consumers to become fully active players in the energy transition and fix two new targets for the EU for 2030: a binding renewable energy target of at least 32% and an energy efficiency target of at least 32.5% - with a possible upward revision in 2023. For the electricity market, it confirms the 2030 interconnection target of 15%, following on from the 10% target for 2020. The market design reforms, passed by MEPs on a key committee on 23 January, are set to bring about a more flexible, more market-oriented sector that is better placed to integrate a greater share of renewables.

Commissioner for Climate Action and Energy Miguel Arias Cañete said: “The new market will be more flexible and facilitate the integration of a greater share of renewable energy. An integrated EU energy market is the most cost-effective way to ensure secure and affordable supplies to all EU citizens.”

Once endorsed by both co-legislators in the coming months, the new laws will be published in the Official Journal of the Union. The Regulation will enter into force immediately and the Directive will have to be transposed into national law within 18 months.

 

Deloitte analysis predicts rise in EV uptake

Research conducted by consultancy Deloitte has predicted that ownership cost of battery electric vehicles (BEVs) will match petrol and diesel in the UK by 2021 and globally by 2022.

Released on 21 January, the research also suggested that this cost-convergence will cause a concurrent spike in electric vehicle (EV) purchases. The pace of global EV adoption will rise from 2mn units in 2018, to 4mn in 2020, 12mn in 2025, before rising to 21mn in 2030. By 2030, BEVs will significantly outperform the rest of the EV market, accounting for 70% of total EV sales.

While upfront purchasing costs of EVs remain the biggest barrier for consumers, the research reveals how, as technology improves, this and other consumer concerns will gradually ease over time. Deloitte predicts that by 2024, the cost to own a BEV will be on par with that of a petrol or diesel vehicle, which could boost demand further.

Michael Woodward, UK Automotive Partner at Deloitte, said: “In 2018, we saw global EV sales surpass 2mn units for the first time; twice those sold in 2017. In the UK, the cost of petrol and diesel vehicle ownership will converge with electric over the next five years […] From this point, cost will no longer be a barrier to purchase, and owning an EV will become a realistic, viable option for new buyers.”


Majority of major UK firms to incorporate climate reporting

Survey results published on 23 January by the Carbon Trust have revealed that over two-thirds (67%) of UK corporates will be disclosing climate-related risks and opportunities in their 2019 annual reporting.

A survey was conducted by polling firm Ipsos MORI as part of its annual Captains of Industry research study. The study warned though that less than a quarter of those surveyed would be complying with the more stringent Task Force on Climate-related Financial Disclosures (TCFD) standard.

Over the next three years, industry chiefs said the most commonly expected advantage from climate change disclosure in line with the TCFD recommendations is reputational, with seven in 10 (72%) believing that this reporting would increase brand value. On average, one third (31%) of respondents expect financial benefits from climate reporting.

 

Nottingham renews climate goals

Having reached its 2020 energy targets early, Nottingham City Council is aiming to become the first carbon-neutral city in the UK.

Its 2020 Energy Strategy target of 20% of energy generation coming from low-carbon sources has been achieved thanks to a reduction in the city’s energy demand and its renewable energy projects programme. Going forwards, the aim will be becoming a carbon-neutral city by 2028.

Portfolio Holder for Energy and Environment, Cllr. Sally Longford, said: “We need a shift in the way we produce and use energy, more sustainable management of waste, and ways to travel and to look at things like shortening supply chains by buying goods and services locally. We are looking at a range of schemes that involve innovative technology, such as installing large batteries that can store solar energy – initially at council premises but also exploring this for domestic properties too.”

 

Legislation for post-Brexit carbon trading published

The legislative measure that would ensure a carbon tax to replace the EU Emissions Trading Scheme (ETS) in the event of a no-deal Brexit has been unveiled and started its parliamentary journey.

The Greenhouse Gas Emissions Trading Scheme (Amendment) (EU Exit) Regulations 2019 revokes certain provisions that will cease to apply on exit day and amends others so that they will continue to be operable after exit day. This will ensure legal certainty for existing UK participants to the EU ETS in the event of a no-deal exit from the EU. Plans are in place to impose a unilateral carbon tax to replace the EU ETS.

 

Aldi becomes carbon-neutral in UK

Retailer Aldi’s 900 UK stores and 11 distribution centres are now carbon-neutral.

The milestone, announced on 23 January, was reached following confirmation that it will offset the equivalent of 160,000 tonnes of CO2 in 2019, both through its own carbon reduction work and support for offset projects globally.

Aldi said it has now cut greenhouse gas emissions per square metre of its sales floor by 53% since 2012, following implementation of measures such as the purchase of 100% green electricity and implementing an ISO 50001 certified energy management system business-wide.

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