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March 2019 Regulatory Report

By Market Insight Team | Posted April 03, 2019

Generation

The European Commission sent a letter to the UK government announcing that it is to undertake a full investigation of the Capacity Market (CM). The CM is the scheme which guarantees the UK’s security of supply. The investigation will focus on whether the CM is sufficiently open to all relevant capacity providers.

The government published its Offshore Wind Sector Deal and announced measures intended to deliver one third of UK electricity from wind energy by 2030. The deal is intended to ensure that the UK would achieve 70% low carbon electricity by 2030 and that sector jobs could triple to 27,000 as a result of the developments.
 

Delivery

National Grid ESO published its forecasts for the summer, in its 2019 Summer Outlook Report. This outlined its view of electricity and gas supply and demand over the coming summer in GB.

Distribution Network Operator Western Power Distribution opened its tender window for the procurement of 93.4MW of demand-side response services on 19 March and will be seeking responses until 22 April.
 

Usage

Research from the International Energy Agency concluded that in 2018 global energy consumption increased at nearly twice the average rate of growth since 2010. Alongside slowing energy efficiency improvements meant that global CO2 production rose 1.7%, hitting a new record of 33.1 Gt CO2.

Distribution Network Operator UK Power Networks announced it is launching trials to test and develop different approaches to smart charging as part of its ‘Shift’ project. This aims to assess the technical and commercial requirements for electric vehicle users to be able to access the benefits of smart charging.

Also covered in this Regulatory Report:



Generation


Capacity Market under scrutiny from BEIS and EC


The European Commissioner for Competition Margrethe Vestagar sent a letter to Foreign Secretary Jeremy Hunt announcing that the European Commission (EC) is to undertake a full investigation of the Capacity Market (CM). The CM is the scheme which guarantees the UK’s security of supply.

The investigation will focus on whether the CM is sufficiently open to all relevant capacity providers, especially to demand-side response (DSR) providers. The EC also said it would focus on whether the CM treats DSR operators and conventional generators differently concerning the contract lengths offered, as well as whether the cost recovery method fails to sufficiently incentivise consumers to reduce their consumption during demand peaks.

The Department for Business, Energy and Industrial Strategy (BEIS) said it was confident that the investigation will determine that the CM is “fully compliant with State aid rules upon a full review of the evidence”. BEIS had launched a new consultation 12 days before the EC letter was published, which is inviting views on further technical amendments to be made to the CM.

The consultation will seek views on three main proposals, the first being a replacement T-3 auction to be held in early 2020. BEIS said this is its preferred replacement for the T-4 previously scheduled for January 2019, which was cancelled after it was decided that the CM violated State rules, as it will provide more certainty to investors than a delayed T-4 auction. The consultation will also seek views on proposals to introduce generation technology classes for renewables such as solar and wind, as well as to changes to the methodology for interconnector de-rating factors to provide a floor factor.


Government publishes Offshore Wind Sector Deal


BEIS has published the government’s Offshore Wind Sector Deal, announcing measures intended to deliver one third of UK electricity from wind energy by 2030.

The deal would mean that the UK would achieve 70% low carbon electricity by 2030 and that sector jobs could triple to 27,000 as a result of the developments. The government is targeting 30GW of offshore wind to be delivered in a “sustainable and timely way” by 2030. It confirmed that £557mn would be made available for future Contracts for Difference (CfD) rounds, with the next auctions to open by May 2019 and subsequent auctions around every two years thereafter.

Under the deal, industry will establish and fund a new £250mn Offshore Wind Growth Partnership (OWGP) to raise productivity and increase competitiveness over the next 10 years to support the 30GW target. The OWGP will implement structured productivity programmes and work with the developers to increase growth opportunities for the supply chain.

Additionally, BEIS said industry will deliver an estimated cumulative infrastructure investment of over £40bn to 2030 and has targets for increasing the amount of UK content in homegrown offshore wind projects to 60% and increasing exports to £2.6bn per year by 2030. Alongside the deal, government will provide more than £4m for British business to share offshore wind expertise globally and open new markets through a technical assistance programme.

Energy and Clean Growth Minister Claire Perry said the deal “will drive a surge in the clean, green offshore wind revolution that is powering homes and businesses across the UK, bringing investment into coastal communities and ensuring we maintain our position as global leaders in this growing sector.”


Renewed demand-side focus in Hammond’s Spring Statement


In the 2019 Spring Statement, Chancellor of the Exchequer Phillip Hammond announced plans for energy measures the government intends to introduce in the future.

The plans included a consultation to take place later this year assessing what is the appropriate mechanism to enable the decarbonisation of the UK’s gas networks, which may involve increasing the proportion of green gas on the grid.

Hammond also announced proposals for a small and medium-sized enterprises (SMEs) energy efficiency scheme. Three options were proposed: the first is a periodic energy efficiency auction based on competitive tenders in which energy efficiency installers or energy service companies bid to install energy efficiency measures for SMEs; the second is a business energy efficiency obligation which would work in a similar way to the Energy Company Obligation; and the third is to expand access to finance options for SMEs through green loans or an energy service contract from an ESCO. The consultation closes on 8 May.

Also announced in the statement was a new Future Homes Standard to future-proof new build homes to be zero net carbon by 2025, and a consultation to explore how the UK can become a global hub for offshore oil and gas decommissioning.


BEIS launches Industrial Energy Transformation Fund consultation


BEIS launched an informal consultation on the design of its Industrial Energy Transformation Fund (IETF), which will seek views on how to design the fund to maximise its benefits.

The £315mn fund aims to support businesses with high energy use to cut their bills and emissions through increased energy efficiency and transition to a low carbon future by utilising the use of low carbon energy and processes. The IETF will look to complement the Industrial Clusters Mission by supporting short-term projects across the UK while the Clusters will be more longer-term focussed.

BEIS said that the barriers for high energy use businesses to invest in energy efficiency include long payback periods, with many industrial decarbonisation technologies considered too expensive. The consultation will close on 31 May 2019.


Britain now generates twice as much electricity from wind as coal


The UK Energy Research Centre (UKERC) has calculated that wind now generates twice as much electricity as coal does in Britain. The figures show that wind provided 15% of Britain’s electricity demand last year while coal supplied 7%, compared to 40% in 2013.

Between 2016 and 2017 Britain’s wind output increased by 14TWh and in October 2017, over a quarter of Britain’s electricity supply came from renewable sources, a new record helped by ex-hurricane Ophelia and storm Brian. Since then, more large offshore wind farms have come online, including Dudgeon off the Norfolk coast and Rampion off the Sussex coast. According to the report, the uptake in generation has been helped by the declining cost of offshore wind projects, comparing the strike price of two projects last year at £57.70/MWh to the equivalent contract at Hinkley Point for £92.50/MWh.

The research also noted that the overall demand for electricity in the UK has fallen in recent years, with demand in 2017 equalling demand in 1987. This falling trend has continued over the last 12 years, however it is expected to reverse soon due to the accelerating uptake of electric vehicles and heat pumps.



Delivery


National Grid publishes 2019 Summer Outlook Report


National Grid ESO has published its 2019 Summer Outlook Report, outlining its view of electricity and gas supply and demand over the coming summer.

The ESO reported that demand in summer 2019 is anticipated to be similar to that of the previous year, and it is confident that there will be sufficient supply available at all times under all interconnector scenarios this summer. It also said that the right tools to manage operability are available, especially during periods of low demand, with no additional challenges expected to arise as a result of Brexit.

The report highlighted the need for ‘whole system thinking’ as there is a growing need for the gas and electricity transmission systems to interact more due to the rising trends of decarbonisation and decentralisation. Gas output mirrors renewables output and therefore gas-powered generation is becoming more variable. This has an impact on how the ESO configures and operates the NTS, increasing flexibility requirements and leading to a growing dependency on the NTS compressor portfolio to manage the variability in operational pressures.


Western Power Distribution opens DRS tender response
 

Distribution Network Operator Western Power Distribution (WPD) opened its tender window for the procurement of 93.4MW of demand-side response (DSR) services on 19 March and will be seeking responses until 22 April.

The capacity is being sought within 12 geographical zones across its network. All 12 zones have a need within 2019-20, and WPD has signposted ongoing needs out to at least 2023-24. WPD also released a postcode checker to help interested parties determine if they have a suitable site inside the zones. Potential participants are required to register interest by responding to WPD’s procurement notice. WPD confirmed that further zones will be released for procurement in July 2019.


Demand-side flexibility providers take stock of market


The Power Responsive Steering Group held its 14th meeting on 30 January to discuss provision of support for demand-side flexibility (DSF), as well as on future opportunities and the evolving value of flexibility.

At the meeting, National Grid ESO outlined its two-year Forward Plan deliverables for 2019-21. Its System Operability Framework was welcomed by aggregators, which noted that the fundamental challenge is that grid requirements are changing. This is creating discontinuity for providers who need forward views to be able to justify investment decisions and inform customers, and clarity is especially needed now, given the current Capacity Market (CM) standstill and the Targeted Charging Review (TCR).

BEIS provided an update on the CM standstill, noting that the UK’s scheme was the first one which the EU guidelines were close to and so if it was found to be problematic, this could have ramifications for capacity mechanisms across the EU. Furthermore, the Department gave an update on wider government initiatives related to DSF. The general view was that the timing for TGR proposals was open to question, and a clearer vision is needed. General discussion indicated agreement that DSF providers need to be given the “whole pot” of opportunity, nationally, regionally and locally, and be informed what problems need solving by when.



Usage


IEA finds record global growth of CO2 emissions in 2018


The International Energy Agency (IEA) has found that in 2018 global energy consumption increased at nearly twice the average rate of growth since 2010. This combined with slowing energy efficiency improvements meant that global CO2 production rose 1.7%, hitting a new record of 33.1 Gt CO2.

In the 2018 edition of its Global Energy & CO2 Status Report, the IEA reported that the increase in energy consumption was driven primarily by a 4.6% rise in natural gas, though renewables also increased by 4% - the fastest pace yet. Solar PV, hydropower and wind each accounted for about a third of the growth, with bioenergy also contributing. Oil and coal grew at similar levels, with growth in coal-fired power generation in Asia more than offsetting declines in coal in Europe and North America.

The rise in global demand for energy was driven principally by a 3.7% expansion of the global economy – 70% of which was accounted for by China, the United States and India. China saw the largest increase in demand, over 95% of which was for the power sector.

Energy efficiency improvements slowed for the third year running, with the global economy requiring 1.3% less energy for every unit of GDP than in 2017. Consequently, efficiency offset 40% less CO2 emissions than in 2017. This was attributed to static policy development; though many countries use obligations on utilities to meet energy saving targets, over half of these schemes globally have not changed since 2014.

The report concluded that economic growth, especially in emerging economies, will continue to put upward pressure on energy demand emissions, and governments will need to scale up the use of policy tools to curb the impact of this.


UKPN to launch EV smart charging trials


UK Power Networks (UKPN) is launching trials to test and develop different approaches to smart charging as part of its ‘Shift’ project, which aims to assess the technical and commercial requirements for electric vehicle (EV) owners to be able to access the benefits of smart charging.

UKPN is seeking to stimulate the market-led development of smart charging solutions through working with market participants to develop, enable and trial customer propositions for EVs. The ‘Shift’ project was launched following the findings of UKPN’s SmartCar project, which researched how smart charging can help avoid an increase in peak demand. The results of this venture showed that there was significant support for progressing smart charging trials. UKPN will develop processes, proof-of-concept systems and commercial arrangements to enable EV propositions and seek to understand customer response and the associated network impacts.

Head of Innovation at UKPN Ian Cameron said: “incentives from networks will not by themselves change people’s charging habits – it will need a mix of lower energy costs from retailers plus the reduced network cost incentives.” He said that smart charging is an alternative approach to installing failsafe network protection technology, as it gives consumers more choice.

Octopus Energy is partnering with UKPN on the Powerloop Vehicle to Grid trial. CEO of Octopus Energy Greg Jackson welcomed the launch of UKPN’s smart charging trial, commenting that by taking a “customer-centric approach instead of a command and control model, UKPN is demonstrating real innovation and leadership.”
 

Coalition of businesses calls on EU to increase climate change ambitions


The European Union (EU) has received a letter from the Coalition for Higher Ambition calling for increased action on climate change.

The letter – signed by an alliance of European businesses, associations, investor groups, trade unions, local and regional authorities, and civil society organisations – urged EU leaders to endorse the objective of net zero emissions by 2050 at the EU Summit in Sibiu in May this year. Furthermore, it said that at the UN Climate Summit in September the EU should announce a raise in the 2030 ambition level in order to meet 2050 net zero greenhouse gas emissions target in the most cost-effective manner.

The Coalition for Higher Ambition said that increasing the EU’s commitments under the Paris Agreement is an “urgent necessity” and the EU should send a clear message to say it is ready to review its 2030 contribution to the Paris Agreement in order for Europe to transition to a sustainable society and economy “as soon as possible.”

 

John Lewis announces zero carbon fleet ambitions


John Lewis has announced a commitment to convert its entire transport fleet to zero carbon by 2045.

The company said in a press release that it has already begun replacing its trucks with biomethane-powered vehicles, which emit 80% less carbon than standard diesel alternatives, with the aim of switching its entire fleet of over 3,200 vehicles to zero emission vehicles by 2045. Additionally, it will invest in upgrading the 75 electric vehicle charging points it currently has across its UK sites so that they offer a minimum of fast (7kW) charging.

The commitment forms part of the company’s wider strategy to make all shops, head offices, distribution centres and other UK sites zero net carbon “by 2050 at the latest”. It aims to remove a third of carbon from its operations by 2028 through investments in biomethane-powered trucks, electric vans, new refrigeration technology and renewable electricity.

The John Lewis Partnership has already made a 70% reduction in emissions against a 2010 baseline as of last year.

 

New £5mn carbon emissions reduction research centre to be established


Cardiff University has announced that it will be the main hub for a £5mn carbon emissions research centre, which will be funded by the Economic and Social Research Council.

The Centre for Climate Change and Social Transformations (CAST) – a collaboration between Cardiff, Manchester, York and East Anglia Universities and charity Climate Outreach – will explore how the UK population can live differently to achieve the carbon emissions cuts required to address climate change. It will focus on four key areas of research that impact climate change, including heating/ cooling in buildings to develop “workable visions of a low carbon future”. It will also focus on measures that can be taken to encourage behaviour change, including a shift away from the reliance on cars for transport. CAST will work closely with Welsh government and city councils to develop and apply approaches to tackle these issues, as well as UK policy-makers.

CAST’s Director, Professor Lorraine Whitmarsh of Cardiff University, said that while there is international recognition of climate change, “it is clear that critical targets […] will be missed without fundamental transformations across all parts of society.”

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