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March 2015

By Market Insight Team | Posted March 01, 2015

February 2015 - in brief

Generation
The headline news in February was the passage of the government’s Infrastructure Act. One of the last major pieces of legislation of this parliament, the Act implements a number of reforms in the energy sector; these include the introduction of a streamlined regulatory regime for shale gas development, a community “right to buy” into local renewable energy projects, and measures to support the government’s “zero-carbon” homes policy.

The government also opened a consultation on allowing third party ownership of measures installed under the Renewable Heat Incentive (RHI). It is hoped that the proposal might improve deployment under the RHI by addressing the barrier presented by high installation costs.

Delivery
The energy regulator Ofgem opened a review into the non-domestic gas meter market over fears that, 10 years after competition was introduced, the market is not delivering good outcomes for consumers.

A further consultation was launched by the government into whether street works permit schemes, such as those carried out by utilities companies, should comply with recent amendments to the permits regime. If implemented the changes would mean that, rather than having to obtain the consent of the secretary of state for transport, local councils will be able to authorise such works.

Usage
The government announced two significant adjustments to its approach to improving energy efficiency. From 2018, landlords in the private rented sector will have to make sure that their properties reach a certain standard of energy efficiency, whilst public organisations may no longer have to display certificates setting out their energy efficiency performance.

The first ever auction to reduce electricity demand was also run, with successful bidders being paid a total of £1.28mn.

Also covered in this Regulatory Report:

Generation
Infrastructure Act becomes law
Third party financing proposed for renewable heat scheme
Think tank warns of renewables subsidy loophole
Capacity market design to be tweaked
Political parties reach climate agreement
Next decade critical to low carbon transition: report

Delivery
Regulator to review non-domestic gas meter market
Government to simplify permit schemes for streetworks
Meter privacy regulations overhauled

Usage
Government plans energy efficiency reforms
Government to pay organisations to reduce electricity demand
Councils lack data to bid for energy efficiency schemes
Retailers plan to reduce energy consumption
Business leaders call for action on emissions reduction


Generation

Infrastructure Act becomes law
The government’s Infrastructure Act became law on 12 February, having successfully completed its passage through Parliament.

The Act will implement a number of the government’s energy policies; it will provide communities with the right to buy a stake in local renewable energy infrastructure projects, and introduce measures to support the delivery of the government’s zero-carbon homes obligation.

Most notably, however, the Act includes provisions intended to streamline the regulatory regime for shale gas development in the UK. Over the past couple of years, the government has consistently stressed its intention to support the establishment of an onshore oil and gas industry. The Infrastructure Act gives shale developers an automatic access right to resources at least 300m below the surface; they will no longer be required, as has until now been the case, to gain the landowner’s consent for drilling.

Transport secretary Patrick McLoughlin said: “This Act will hugely boost Britain’s competitiveness in transport, energy provision, housing development and nationally significant infrastructure projects. Cost-efficient infrastructure development is all part of the government’s long term economic plan, boosting competitiveness.”

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Third party financing proposed for renewable heat scheme
The government launched a call for evidence on 28 January on the possibility of allowing third party ownership into the both the domestic and non-domestic Renewable Heat Incentive (RHI).

The RHI is the central plank of the government’s plans for expanding the use of renewable heat solutions. Under the scheme, subsidies are paid to consumers for the deployment of renewable energy technologies to heat their buildings. By increasing the generation of heat from renewable sources, the scheme aims to cut greenhouse gas emissions and therefore to help the UK meet its climate change targets. A range of technologies are available for support under the RHI, including ground source heat pumps (GSHP), air source heat pumps (ASHP), biomass and solar thermal.

The government is of the view that one of the key barriers to uptake of the scheme – high installation costs – could be overcome by allowing consumers to pass this burden onto a third party. The arrangement, if implemented, would still allow consumers to benefit from lower heating bills over the lifetime of the renewable heat system, but the third party would receive the subsidies available through the RHI.

The government is considering whether it should allow third party financing for all of the current eligible RHI technologies and across the size range of installations, or whether it should apply a more restrictive approach. The latter would be implemented to try to encourage diversification of deployment, by incentivising the uptake of particular technologies. However, the government is wary that such an approach might also add to the scheme’s complexity and could reduce overall levels of deployment.

The non-domestic version of the scheme was launched in 2011, and there are already a wide range of ownership modes in operation. But the government is interested in views on whether adding flexibility by allowing for RHI payments directly to third parties would be useful. Responses to the consultation are invited until 13 March, but any decisions on implementation would not be taken until after the General Election.

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Think tank warns of renewables subsidy loophole
Wind developers are gaining excess subsidies under the government’s feed in tariff scheme by under-reporting turbines’ generating capacity, think tank IPPR has claimed.

Published on Tuesday 10 February, IPPR’s Feed-in Frenzy report said that, as of September 2014, almost half of installed turbines qualifying in the 100kW-500kW FiT subsidy band had been “de-rated”, and that each stood to make £100,000/ year in “excess” subsidies. The practice of de-rating turbines, the report said, meant that British consumers were already committed to £175mn in additional subsidies, and that this liability could increase to £400mn by the end of this year.

But trade association RenewableUK said the wind industry adhered strictly to legally-binding guidelines developed by the government on how turbines operated. It said that de-rating might be necessary because of limits in the capacity of the grid to cope with the amount of electricity being generated, or because a site at which the wind speed was lower might need a turbine with longer blades.

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Capacity market design to be tweaked
The government opened a consultation on 12 February on a limited range of design changes for its capacity market scheme.

The capacity market auction is intended to help ensure the UK’s security of electricity supplies. Through it, the government pays power stations to guarantee that, when requested, they will be capable of providing additional electricity for the system. In the first auction, held last December, the government secured just under 50GW of capacity for delivery in 2018-19, at an overall cost to consumers of £0.96bn.

The consultation follows a review of the lessons learnt from the first auction. It mainly covers proposed technical changes to the scheme; these relate to the requirements for refurbishing plant to demonstrate their eligibility for three-year contracts; the appropriateness of the current tools for ensuring delivery; and the participation in the scheme of aggregated generation. Responses are invited until 5 March.

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Political parties reach climate agreement
The leaders of the three biggest parties at Westminster have signed an agreement to work together to tackle climate change, irrespective of the outcome of the 2015 General Election.

The agreement, brokered by environmental think tank Green Alliance on 13 February, saw David Cameron, Nick Clegg and Ed Miliband acknowledge that climate change was “one of the most serious threats facing the world”. They also recognised that acting to tackle it represented an economic opportunity for the UK through innovation and new industries.

The leaders committed to seeking a global climate deal that would limit temperature rises, to agreeing carbon budgets in line with the UK’s long-term emissions targets, and to ending the use of coal-fired power stations without carbon capture technology.

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Next decade critical to low carbon transition: report
The UK can successfully make an affordable low-carbon transition but critical actions are needed in the next decade, according to the Energy Technologies Institute (ETI).

The organisation’s Insights report, published on Thursday 12 February, said that early decisions on the design of the future energy system would help to promote investment and ensure that long-term emissions targets remained achievable.

The report highlighted the potential of carbon capture and storage and biomass, concluding that failure to adopt either of these technologies would double the cost of delivering climate change targets from 1% of UK GDP to 2%.

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Delivery

Regulator to review non-domestic gas meter market
The energy regulator Ofgem published an open letter on 6 February to announce the launch of an in-depth review of the gas metering products and services market for non-domestic customers.

The provision of non-domestic gas meters has been open to competition for over 10 years. However, concerns have been raised about how well the market for these products and services is functioning at present. Ofgem is worried that a lack of effective competition will result in higher metering charges to gas suppliers, and that these would feed through to higher energy bills for non-domestic customers.

The review will look into three broad areas: the provision, ownership and associated financing of meters; the installation and management of meters; and the provision of data recording and communications equipment and services.

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Government to simplify permit schemes for streetworks
The government has launched a consultation on plans to aid utility companies by simplifying streetworks permit schemes across local authority borders.

Streetworks are a vital part of delivering essential public services. But they can contribute to delay and disruption on the road network, leading to additional costs. For works by utilities alone, the government estimates these costs at over £4bn a year nationwide. Local highway authorities have a range of tools for the management of these works, and these include the option to develop permit schemes.

Last summer the government set out its intention that, by October 2015, a highway authority wishing to introduce a permit scheme would no longer need the secretary of state’s approval before a scheme can be operated. The aim is to simplify the regime and improve consistency.

The government is now seeking views on whether its intention to implement the proposal by October is achievable. Responses are requested by 9 March.

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Meter privacy regulations overhauled
Consumers with remote access meters are to be extended the same privacy protection and control over their consumption data as smart meter users, the energy regulator Ofgem announced on 12 February.

Remote access meters are widely used in non-domestic sites, and relay much of the same data on energy consumption as smart meters. However, at present, only smart meter suppliers must comply with a range of privacy requirements that go beyond what is already required under the Data Protection Act.

Ofgem has now decided to extend these additional privacy requirements, so that consumers with remote access meters have the same level of control, in respect of the consumption data that suppliers can access, as those with smart meters. This will, the regulator hopes, give suppliers the right incentive to properly explain to consumers the benefits of allowing them to have access to more granular data. It will also ensure “fair and consistent” treatment of consumers.

The new requirements will be introduced from 9 August.

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Usage

Government plans energy efficiency reforms
New legislation designed to bring energy efficiency in the non-domestic private rented sector up to a minimum standard is to be introduced by the government, it was confirmed on 5 February.

Energy Performance Certificates (EPCs) were originally introduced by the Labour government in 2008. They show the energy efficiency rating (relating to running costs) of a property, and are produced by an accredited assessor. Properties are graded on a scale from A (an ultra-modern and incredibly energy efficient property) to G (the most energy inefficient property, likely lacking in any meaningful energy efficiency measures).

Under the proposals, the minimum energy efficiency standard would be set at the Band “E” EPC rating for leases to existing and new tenants. From April 2018, landlords will to be required by law to ensure that their properties achieve this rating or they will otherwise face financial penalties and be unable to rent out the property.

From April 2016, tenants will also be able to request energy efficiency upgrades, and landlords will not be able to “unreasonably” refuse these requests. But the legislation has been designed to ensure that there is no net or long-term negative financial impacts on landlords; they will be encouraged to make full use of schemes such as the Green Deal and the Energy Company Obligation (ECO) to cover the installation costs.

The government laid the regulations for parliamentary approval on 4 February. It will now work with the sector to develop industry guidance to help landlords, tenants, local authorities and wider sector bodies to prepare for the regulations before they enter into law.

Including concurrent changes to the domestic regulations, the government estimates that the benefits of the policy will include reduced energy demand, carbon savings, and smaller benefits associated with improvements in air quality.

The following week, on 11 February, the government opened a consultation on plans for rationalising the Display Energy Certificates (DEC) regime.

DECs seek to inform visitors to public buildings about the buildings’ energy use; they show the energy performance of a building, based on its actual consumption, as recorded over the preceding year. DECs and advisory reports are currently required for buildings of at least 500m2 of usable space that are occupied in whole or part by public authorities and frequently visited by the public. The certificate must be displayed prominently.

But the government thinks that the current regulations for the display of certificates in public buildings has “gold-plated” the requirements of EU legislation. It fears that the regulations could consequently have caused “unnecessary complexity” and expense to participating organisations. It is therefore seeking views on the extent to which the DEC regime might be adjusted in order to fully meet the requirements of EU regulations, while at the same time lowering the costs of compliance.

Abolishing the DECs and instead introducing a requirement for qualifying buildings to display EPCs is among the options being considered. The government says that such a move would save public authorities approximately £0.76mn.

But the proposals have been met with some criticism. The UK Green Building Council said that the possibility of removing the legal requirement for DECs “beggars belief”, and that there were economic advantages to exceeding the minimum requirements of EU law.

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Government to pay organisations to reduce electricity demand
The results of the UK’s first electricity demand reduction auction were revealed on 4 February.

The government held the pilot auction because it is interested in whether organisations can provide lasting electricity savings at times of peak demand. It is hoped that, in the long term, such projects could compete in the government’s capacity market – helping to reduce the need for the government to procure extra electricity generation in order to ensure the UK’s security of supply.

18 businesses and public sector bodies were awarded £1.28mn overall, for a total reduction in demand of 5,589kW. Successful organisations ranged from large companies such as BAE Systems, Network Rail and Tata Steel UK to local authorities like the London Borough of Havering.

Energy and climate change secretary Ed Davey said: “We want to see if reducing demand on the electricity grid can be a cost-effective solution that will work alongside building new power stations – guaranteeing our energy security, cutting emissions and lowering energy bills.”

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Councils lack data to bid for energy efficiency schemes
Council housing managers often lack the data required to successfully bid for government energy efficiency programmes such as the Green Deal, a study by the Energy Saving Trust (EST) has found.

The study, unveiled on 4 February, was undertaken because of the lead role that local councils regularly fulfil in implementing energy efficiency schemes and helping households that struggle with poorly insulated and energy inefficient homes. It said that central government funding for such schemes often became available at short notice, meaning councils needed to have key data readily available to them. David Weatherall, policy adviser at EST, said: “Meaningful data and insight can remove barriers to finding the homes and communities that we should target with energy efficiency programmes. There is a real opportunity for councils to develop cost-effective strategies”.

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Retailers plan to reduce energy consumption
A new initiative to enable UK retailers to improve their energy efficiency has been launched by the British Retail Consortium (BRC).

The group is aiming to help businesses to reduce the environmental impact of their operations and to drive down energy costs. A campaign, launched on 11 February, will see the BRC aim to harness best practice across the industry and to promote the deployment of low and zero-carbon technologies.

BRC said that, with business energy costs expected to increase significantly over coming years, greater efficiency could be essential to retailers’ viability. Actions taken over the past decade had, it added, achieved a 33% reduction in carbon emissions in stores between 2005-12; a 27% fall in carbon emissions resulting from store deliveries in the same period; and an overall drop in energy consumption from buildings of 50%, based on 2005 levels.

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Business leaders call for action on emissions reduction
An environmental campaign group, made up of leaders of some of the world’s largest companies, has called for world leaders to commit to a global goal of net-zero greenhouse-gas emissions by 2050.

In a statement on 5 February, the so called “B Team” said that achieving net-zero greenhouse-gas emissions by 2100 would provide only a two-in-three (66%) chance of limiting global warming to 2°C. The group argued that a 1-in-3 chance of failure was an “unreasonable” risk scenario to businesses, and that it carried unacceptable and significant cost implications.

The group is also advocating the implementation of effective carbon pricing and for governments to end all fossil fuel subsidies.

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