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July 2018 Regulatory Report

By Market Insight Team | Posted August 09, 2018

Generation

The government has opened two consultations seeking evidence on the practical implications of the closure of the Feed-in Tariff (FiT) and the future for small-scale low-carbon generation. The former proposes the closure of the export tariff and the generation tariff with no new applications for accreditation accepted after 31 March 2019, while the latter seeks to ensure that small-scale renewables can compete on a level playing field.

The Department for Exiting the European Union (DexEU) published its white paper on 12 July setting out its proposed future relationship between the United Kingdom and the EU post-Brexit. The paper confirmed the government seeks a “broad energy cooperation” with the EU regarding future energy collaboration and trading arrangements and is committed to close cooperation on civil nuclear matters.

 

Delivery

Ofgem has issued a consultation on moving towards a Significant Code Review for network access and forward-looking charges in response to an energy system it said is going through a “radical transformation”. The consultation is focused on the allocation of network access rights and connection, and use-of-system charges to ensure efficient and flexible use of the electricity network at lowest cost.

A group of industry representatives has called on the government to incentivise energy network companies to open up flexibility services and improve utilisation of the electricity grid. In an open letter to Energy and Clean Growth Minister Claire Perry the group called for the government to prioritise the procurement of flexibility services and urged Ofgem to make the approach central to the next price control mechanism.

 

Usage

The government’s Road to Zero Strategy was published on 9 July, confirming a target for at least 50% of new car sales to be ultra-low emissions by 2030. The strategy aims to accelerate the uptake of fuel-efficient motoring to reduce emissions and sets out plans including extending the Clean Vehicle Retrofit Accreditation Scheme to commercial vehicles and increasing the grant level of the Workplace Charging Scheme.

The CCUS Cost Challenge Taskforce has said the government must recognise the opportunities of deploying carbon capture, usage and storage technology and should act now if it is to be delivered at scale.

Also covered in this Regulatory Report:

Government confirms renewables auction timetable
NIC calls for greater ambition on renewables generation
Government announces £200mn nuclear sector deal
CMA calls for heat network regulation
Government published public sector energy efficiency loan scheme data
Large companies set for mandatory energy and carbon reporting
Non-domestic energy efficiency services have grown steadily, finds BEIS

 


Generation

BEIS consults on closure of Feed-in Tariff scheme

On Thursday 19 July the government opened a consultation on the Feed-in Tariff (FiT), seeking evidence on the practical implications of closing the export tariff alongside the generation tariff. This would effectively close the FiT scheme to new applications from 31 March 2019, with some limited exceptions.

BEIS noted that initial scheme projections at its opening in 2010 have been exceeded, with more than 800,000 installations – equal to around 6GW – confirmed on the Central FiT Register at March 2018. However, in the consultation, the department cited a changing energy system which means that the current FiTs flat rate export tariff “does not align with our vision for the future, given our desire to move towards fairer, cost-reflective pricing and the continued drive to minimise support costs on consumers.”

If closed, no new applications for accreditation would be accepted after 31 March 2019 and there would be no re-allocation of unspent funds from relevant technology bands to those that are over-subscribed. Exceptions would include: Microgeneration Certification Scheme (MCS) (<50kW) community or school projects that apply for pre-registration on or prior to 31 March 2019 have 12 months to go to their FiT licensee for accreditation; other MCS installs have until 31 January 2020 to apply for FiT accreditation if commissioned and holding a certificate on or before 31 March 2019; and pre-accredited standard ROO-FiT and community ROO-FiT (>50kW) projects that have applied for pre-accreditation on or before 31 March 2019. Evidence is sought by 13 September.

On the same date BEIS also opened a call for evidence on the future for small-scale renewables. The government said it is of the view that “small-scale low-carbon generation […] should compete independent of direct subsidy and on its own merits on a level playing field”. Several options were listed including a guaranteed route to market that would allow the creation of a competitive market that is beneficial to both small-scale low-carbon generation and flexible solutions. Other potential options following evidence received could include addressing regulatory barriers and ensuring access to additional revenue streams. Responses are requested by 30 August.

 

Brexit white paper outlines intentions for “broad energy cooperation”

The Department for Exiting the European Union (DexEU) published its white paper on 12 July. In setting out its proposed future relationship between the United Kingdom and the EU following Brexit, the government confirmed its commitment to delivering “cost-effective, clean and secure energy supplies”.

It said it is seeking “broad energy cooperation” with the EU regarding trade arrangements for energy, ongoing collaboration with EU agencies and bodies, and in data sharing operations. The paper highlighted several advantages to close cooperation on technical and regulatory energy arrangements and confirmed that the government is keen to explore options for continued Transmission System Operator participation in the Inter-Transmission System Operator Compensation Mechanism.

On the UK’s future position in the Internal Energy Market (IEM) two options were presented: leaving the IEM or continued participation in the IEM. The former option would explore how to ensure trade continued over interconnectors while the latter would call for the creation of a “common rulebook” detailing rules for carbon pricing and electricity trading. The government also said it remains committed to close cooperation on civil nuclear matters, proposing a revised relationship with Euratom that is “more comprehensive and broad” than existing agreements.

 

Government confirms renewables auction timetable

On 23 July the government confirmed that the next Contract for Difference (CfD) auction will commence in May 2019, with a subsequent auction in 2021 and auctions thereafter taking place roughly every two years. The CfD is the government’s main mechanism for supporting new large-scale low-carbon generation. Announcing the auction timetable, Energy and Clean Growth Minister Claire Perry said: “we understand that to make meaningful long-term investments, industry needs clarity of years, not months”.

The auctions will cover offshore wind and, for the first time, remote islands wind projects as well as other Pot 2 “less established” technologies such as wave, tidal, geothermal and biomass with combined heat and power. Perry said that, depending on auction prices, between 1-2GW of new offshore wind could be delivered every year in the 2020s. It was also confirmed that the government will provide up to £557mn of funding split across future CfD auction rounds with the aim of increasing the UK’s renewable generation capacity.

During her speech Perry praised the progress of the UK’s offshore wind industry, saying that the scale and breadth of ambition had driven innovation and made the UK a “world leader” with more than 7GW installed and operational. The Minister noted that the government will look at ways to manage future auctions to ensure the smooth delivery of low-carbon generation.

 

NIC calls for greater ambition on renewables generation

Independent advisors the National Infrastructure Commission (NIC) published the first ever National Infrastructure Assessment on 10 July, in which it suggested that at least 50% of the UK’s electricity should come from renewable sources by 2030.

The commission’s modelling showed that a “highly renewable, clean and low-cost energy” sector is achievable, recommending the continued deployment of onshore wind and solar. However, increasing renewables will require further system flexibility, with the NIC favouring existing market mechanisms including the Capacity Market and Contracts for Difference (CfDs) to ensure that improvements in the energy system can be made.

The assessment recommended government set out a pipeline of Pot 1 (established technologies) CfD auctions to deliver at least 50% renewable generation by 2030. It said that technologies such as offshore wind should be moved into Pot 1 following the next CfD auction in spring and that government should publish indicative auction dates and budgets for the next decade. The NIC also made a series of recommendations on government progress to zero carbon heat, including establishing a safety case for using hydrogen as a replacement for natural gas – to be followed by community-scale trials by 2021.  

 

Government announces £200mn nuclear sector deal

On 28 June Business and Energy Secretary Greg Clark announced a £200mn deal with the nuclear sector to ensure that nuclear energy “continues to power the UK for years to come”.

The deal will aim to increase innovation and the driving down of costs of nuclear energy to secure the UK’s diverse energy mix and provide lower bills for customers.

Included in the deal is a £32mn fund from government and industry to encourage new advanced manufacturing programmes and R&D into new technologies such as advanced modular reactors. It also commits to increasing diversity in the sector.

 


 

Delivery

 

Regulator set to change network access and forward-looking charges

On 23 July Ofgem issued a consultation on moving towards a Significant Code Review (SCR) for network access and forward-looking charges. The regulator said this will focus on the allocation of network access rights and connection and use-of-system charges to ensure efficient and flexible use of the electricity network.

The document said that the energy system is going through a “radical transformation”, with new technologies becoming widespread such as storage, electric vehicles, and heat pumps, adding that the current approaches to allocating and using capacity do not adequately address these challenges. On access arrangements, Ofgem proposes a wider choice of access rights and allocation be considered. For small users, including micro-businesses it aims to clarify a core level of access capacity to ensure basic needs are met while large users would be able to specify access terms with respect to firmness, time of use and short-term access rights. Views are also being sought on the value and feasibility of fixed, long-term or “evergreen” access rights. The regulator is also considering more granular Distribution Use of System (DUoS) charges to reflect actual network conditions. Responses are invited by 18 September.

 


 

Industry representatives call for greater network flexibility

A group of industry representatives has called on the government to incentivise energy network companies to unlock flexibility services and deliver an improved utilisation of the electricity grid. In an open letter to Energy and Clean Growth Minister Claire Perry the group called for government and the regulator to incentivise network companies to prioritise procurement of flexibility services ahead of traditional reinforcement measures.

The group urged Ofgem to make their approach, which they termed “flexibility first” central to the RIIO-2 price control mechanism. Among the key principles outlined were a shift by network companies to consider “whole system” outcomes that deliver low costs for consumers and still meet carbon reduction targets, and rewarding network companies for better using existing infrastructure. The letter said: “If we are to have any chance of a renewable future, decarbonising heat and transport, keeping energy costs low, and the grid stable, we need to find a solution. That solution is a Flexibility First approach.” It recognised the achieving of a smart and flexible energy system as “a core part of the Government’s Clean Growth Strategy”.

 

CMA calls for heat network regulation

Competition watchdog the Competition and Markets Authority (CMA) has called for BEIS and the Scottish government to establish a statutory framework that regulates all heat networks to protect consumers.

In a report published 23 July, the CMA said identified “poor outcomes” for certain heat network customers and that, unlike other comparable services like gas and electricity networks, they are not regulated.

Consequently, it recommends the setting up of a regulatory framework that, at a minimum, gives a comparable level of protection to customers of gas and electricity in the regulated energy sector. The scope of such regulation, it said, should cover price, quality of service, minimum technical standards and transparency. The report noted that Ofgem would be well placed to take on the role of regulator.


 

Usage

 

Road to Zero sets out transport decarbonisation ambitions

On 9 July the government released its Road to Zero Strategy, confirming a target for at least 50% – and as many as 70% – of new car sales to be ultra-low emissions by 2030. Transport is currently the largest UK sector for greenhouse gas emissions, totalling 27% of total emissions, of which road transport accounts for more than 90%.

There are presently more than 150,000 ultra-low emissions vehicles and roughly 14,000 public charging points in the UK, but the strategy aims to accelerate the uptake of fuel-efficient motoring to further reduce emissions. It also sets out plans to extend the Clean Vehicle Retrofit Accreditation Scheme (CVRAS) to include commercial vehicles such as heavy goods vehicles (HGVs) and black cabs. The strategy also sets out the government’s plans for a  “massive expansion” of green infrastructure, including a push for charge points in new-build homes and in lampposts. It will also increase the grant level of the Workplace Charging Scheme from £300 per socket to 75% of the purchase and installation costs of a charge point, capped at a maximum of £500 per socket. Plug-In Car and Van Grants will be extended to at last October 2018 at current rates.

With regards to HGVs, the government plans to work with industry to develop an ultra-low emission standard for trucks; to introduce a voluntary industry-supported commitment to reducing emissions by 15%; and to gather evidence that will inform future policy decisions. Transport Secretary Chris Grayling said: “The Road to Zero Strategy sets out a clear path for Britain to be a world leader in the zero-emission revolution – ensuring that the UK has cleaner air, a better environment and a stronger economy.”

 

CCUS Cost Challenge Taskforce outlines future opportunities

An independent report on progressing carbon capture, usage and storage (CCUS) has said that the government must recognise the opportunities of deploying CCUS technology and understand the “urgency of acting now” if it is to deliver the technology at scale and lowest cost. The report, published by the CCUS Cost Challenge Taskforce on 19 July, highlighted CCUS as a vital method of achieving the UK’s Paris Agreement targets.

It said that developing and deploying CCUS meets the three tests set out by the Clean Growth Strategy as it can support decarbonisation in a wide range of sectors while also supporting clean growth across the UK economy. The taskforce urged government and industry to collaborate to unlock the early potential of CCUS technology and to create new business models and policies that can support growth. It also recommended the creation of industrial clusters as a method of hastening deployment. These proposed regional groupings of CCUS technology – recommended for Teesside, Merseyside, Humberside, South Wales and Scotland – would enable the sharing of infrastructure and innovation.

Addressing the targets set out by the 2050 Climate Change Act, the report recognised the need for acting now, saying that to develop a CCUS sector capable of meeting these targets “will take considerable time and ambition”. It concluded by setting out a series of recommendations to government including publishing its CCUS Deployment Pathway by the end of 2018; working with industry to create a CCUS roadmap for the UK; creating the necessary policy and framework to support the deployment of CCUS and encouraging the sharing of innovation within industry. The taskforce also called for a commitment to having at least two operational clusters by the mid-2020s.

 

Government publishes public sector energy efficiency loan scheme data

BEIS has published an evaluation of the public sector energy efficiency loan scheme, covering activities between 2013-2017 for both the Salix Energy Efficiency Loans Scheme (SEELS) and the Recycling Fund (RF).

The paper, published 31 July, found that from 2013-14 to 2016-17 the scheme provided more than £235mn in funding for energy efficiency projects across 564 organisations in England, with 76% of higher education institutes, 27% of local authorities, 9% of NHS, 4% of emergency services and 1-2% of schools participating. Across the two funds, local authorities and higher education institutes are responsible for two-thirds of all projects. It notes that, while funding levels have varied year-on-year an overall significant increase in project size has been observed. Organisations undertaking scheme lighting projects were noted as achieving a reduction of 12% in electricity use in the first year after the project was implemented and a decrease of 21% in the second year.

 

Large companies set for mandatory energy and carbon reporting

The government has said that, from April 2019, large UK companies will be required to publicly report their energy use, carbon emissions and the measures they are implementing to improve energy efficiency. From the above date unquoted businesses are required to report energy use and their emissions related to gas, electricity and transport, and an intensity metric, through their company’s annual reports. Quoted companies must continue to report global emissions and an intensity metric but will also be required to report their total global energy use. Any UK-based company with more than 250 employees or an annual turnover greater than £36mn and an annual balance sheet total greater than £18mn will be eligible under the new rules.

The measures, published 18 July, form part of government plans to improve energy efficiency and to streamline business reporting requirements. They follow a consultation that sought evidence on the introduction of a framework to be introduced for large organisations that would replace the CRC Energy Efficiency Scheme – designed to improve energy efficiency and to cut emissions in businesses considered high energy users.

An impact assessment carried out by the government estimated businesses could save £20mn per year in administration costs under the new scheme. However, it also found it is likely to see an increase of around £2.1bn in capital costs, largely resulting from an increased uptake of energy efficiency measures.                                                                                                

 

Non-domestic energy efficiency services have grown steadily, finds BEIS

Research commissioned by BEIS and published on Wednesday 18 July, has found that the UK’s energy efficiency services market will have to grow at an annual rate of 20% if it is going to make a strong contribution to delivering the Fifth Carbon Budget targets for non-domestic buildings.

The Non-Domestic Energy Efficiency Services Market report found the UK’s energy efficiency market smaller than expected, estimated at £349mn in 2017. However, it said that that sector had grown steadily over recent years, driven by public sector procurement frameworks. BEIS highlighted the need to implement measures in other non-domestic sectors including industry,

if the UK is to meet the requirements of the Fifth Carbon Budget. The report noted a lack of publicly available data on the state of the sector and went on to make a series of recommendations including the promotion of standard contract terms, methods and guidance to improve confidence in the industry. 

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