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December 2017 Regulatory Report

By Market Insight Team | Posted January 09, 2018

Generation

The government released a consultation on a series of planned changes to its Contracts for Difference (CfD) scheme on 15 December. The reforms included a new proposed definition for remote island wind energy, enabling remote island wind projects to apply for a CfD in the next competitive auction. Views were also sought on proposals to increase the efficiency requirements for Combined Heat and Power (CHP) and Advanced Conversion Technologies (ACT).

The government confirmed that Energy Intensive Industries (EII) will be made mostly exempt from the costs of the Renewables Obligation (RO) for 1 April 2018, and published the revised RO for 2018-19. The RO level is 3.5% higher than before the heavy industry exemptions were applied.

Delivery

Energy networks have committed to creating new markets to enable flexibility services. It is estimated that the commitment could help to deliver £17bn back into the UK economy by 2050, while providing new opportunities for both businesses and communities to offer flexibility services to local network operators. The commitment is part of the work being done to enable a smarter, more flexible energy system.

National Grid published its Product Roadmap for frequency response and reserve markets. The System Operator said the changes it has made will help to increase competition in markets, while simplifying the procurement process could help to attract new players who may have found the barriers to entry too high until now.

Usage

It was revealed that 13 clean energy records were broken in the UK in 2017 which saw its “greenest year for electricity ever”. A record 52% of electricity came from low-carbon sources over summer, while 7 June saw wind, nuclear and solar collectively generate more than gas and coal combined for the first time ever.

The National Audit Office said the government lacked evidence as to whether or not the Green Investment Bank (GIB) achieved its aims in a new report. The report also found that while in the government’s valuation range, the final sale price of the GIB to Macquarie fell at the lower end. The GIB’s internal valuations had shown assets under construction could have been worth £63mn more once operational.

Also covered in this Regulatory Report:

 


Generation

Government reveals changes to renewables support

On 15 December, the government released a consultation on a series of proposals aimed at reforming its Contracts for Difference (CfD) scheme.

The CfD scheme is one of the government’s main mechanisms towards supporting new large-scale low-carbon generation. The planned changes will ensure it can continue supporting new generation, while also providing best value for bill payers. They include enabling remote island wind projects, including off the coast of Scotland, to apply for a CfD in the next competitive auction for less established renewable technologies.

The government set out a new proposed definition for remote island wind energy and set out how it can benefit local communities. It also said that if a sufficient number of projects are successful, it should lead to the construction of new transmission links.

UK Government Minister for Scotland, Lord Duncan said: “Enabling these projects to compete in future auctions will reinforce the UK’s position as a world leader in renewable generation, as well as providing Scottish jobs in any projects supported.”

The consultation also seeks views on changes to increase the efficiency requirements for Combined Heat and Power (CHP) and Advanced Conversion Technologies (ACT). This will occur as the technology improves. It makes sure only plants which are sufficiently advanced and efficient are awarded subsidy under the CfD scheme.

Other proposed changes included ensuring the costs of future projects can be accurately forecast and that future schemes continue to drive carbon emission reductions.

Views are invited until 9 March 2018.

Revised Renewables Obligation published for 2018-19

Energy Intensive Industries (EII) will be made exempt from the majority of costs of the Renewables Obligation from 1 April 2018, the government has confirmed.

The confirmation came on 18 December as the government published the revised Renewables Obligation (RO) for 2018-19. The revised RO will be set at 0.468 Renewables Obligation Certificates (ROCs) per MWh of electricity produced from April 2018. This is a 3.5% increase from before the heavy industry exemptions were applied, rising from 0.452 ROCS per MWh.

The total amount of EII excluded electricity likely to be supplied to customers in Great Britain in 2018-19 was estimated to be 9.9TWh. This is because 11.7TWh of EII demand will be made 85% exempt from the costs of the scheme.

The exemption aims to counter the impact the costs of renewables schemes can have on UK EII’s competitiveness. The government explained competing businesses in other countries may not be subject to similar energy and climate change policy costs. As a result, it is estimated the exemption can save EIIs around £196mn annually.

It is predicted that, under the government’s best estimates, non-exempt, smaller business users will face annual cost increases of £160 as a result, while medium-sized businesses will incur a rise of circa £6,700. Large-size energy users outside of the exemption are set to deal with an additional £62,900.

Reduced Capacity Market auction procurement targets recommended

National Grid has published its recommended procurement targets for the upcoming T-1 and T-4 Capacity Market auctions.

It published the document on 2 January, in which it recommended the auctions aim to procure 4.9GW in the T-1 auction and 49.5GW in the T-4 auction. These are 1.1GW and 0.6GW lower than National Grid, in its role as the EMR Delivery Body, had suggested within the guidelines published in August 2017.

The target capacity for the T-4 auction is also lower than the 51.7GW target that had been set for the previous T-4 auction, scheduled for delivery in 2020-21.

Government introduces Brexit EU ETS changes to Parliament

On 6 December, the government laid The Greenhouse Gas Emissions Trading Scheme (Amendment) Regulations 2017 before Parliament.

This legislation enables it to bring forward the 2018 EU Emissions Trading System compliance date for UK operators. The government has opted to do this as it means a previously planned EU measure, which effectively voids allowances from installations in a country that is leaving the European Union from 1 January 2018, will now no longer be needed.

EU nations had already endorsed these Brexit safeguard measures. However, at the time, the EU’s Climate Change Committee said that it was aware of the UK’s planned changes and confirmed if the law came to pass, UK allowances would still be available for surrender in 2018.

The changes mean the date when installations have to submit a verified report for the 2018 scheme year shifts to 11 March 2019. It also means the date when installations need to surrender sufficient allowances to cover their annual reportable emissions for the 2018 scheme year moves to 15 March 2019.

These are both before the UK’s planned exit from the bloc on 29 March 2019.

Applications invited for small modular reactor funding

The department for Business, Energy and Industrial Strategy (BEIS) launched its competition for funding of feasibility and development projects regarding nuclear advanced modular reactors (AMRs).

In the first phase of the competition, which was unveiled on 7 December, £4mn in funding will be made available to undertake a series of feasibility studies for advanced modular reactor designs. Contracts are worth up to £300,000 and will last for eight months.

It explained that it would be primarily interested in schemes that can demonstrate the production of low cost electricity; increased flexibility in delivering electricity to the grid; increased functionality, including the provision of heat output for industrial purposes or facilitating the production of hydrogen; and alternative applications that may generate additional revenue or economic growth.

In phase 2, a share of up to £40mn is forecast to be available for successful projects from phase 1 to undertake development work. This funding is subject to government approval, though projects will receive 100% of their eligible costs.

Submissions are invited until 14 February 2018.


Delivery

Networks commit to create new flexibility markets

Energy network companies have made a commitment to provide new opportunities to the developing British smart grid that could help deliver £17bn back to the UK economy by 2050.

On 7 December, the electricity distribution network companies across England, Wales and Scotland pledged to “create new markets to enable flexibility services that will compete alongside traditional investment”. The move will reduce the cost of running the network to customers, while also providing new opportunities for both businesses and communities to offer flexibility services to local network operators.

Such services include businesses adjusting electricity use at the times of the day when they least need it and using new smart energy efficiency technology to adjust consumption remotely, as well as buying electricity from battery storage.

Minister for Energy and Industry, Richard Harrington said: “A smarter, more flexible energy system will create opportunities to reduce energy costs, increase productivity and put UK businesses in a leading position to export smart energy technology and services to the rest of the world.”

National Grid publishes Product Roadmap for frequency response

National Grid published its Product Roadmap for frequency response and reserve markets on 19 December, marking an “important milestone” in its wider review of balancing services.

Eight products have been removed from active procurement, meaning the number of balancing service products is now 22. This provides more clarity to National Grid’s procurement activities, it said. National Grid has also sought to improve understanding of its existing products by reshaping them into a more standard form.

It also said a faster acting response around the standardised firm frequency response market will be introduced.

The System Operator said the changes will help to increase competition in markets and that simplifying the procurement process could help to attract new players. These players may have found the barriers to entry too high up until now.

Government stats reveal rise in smart meter installations

In its Quarterly Smart Meter Report, the government has revealed a rise in the installation of non-domestic smart meters.

In the third quarter of 2017, it was found that 15,200 smart and advanced meters had been installed in smaller non-domestic sites by large energy suppliers. This accounted for a 10% increase in non-domestic smart and advanced installations when compared to the previous quarter from July to September.

To date, 901,500 smart and advanced meters are estimated to have now been installed in smaller non-domestic sites by both large and small energy suppliers, as part of the energy suppliers’ rollout obligations.

The number of meters in operation was found to have fluctuated. The government’s report explained that this happens due to a range of reasons. These include meter installations in new buildings, building demolitions and customers choosing to switch energy supplier.


Usage

UK sees “greenest year for electricity ever” in 2017

In 2017, 13 clean energy records were broken in the UK, with National Grid figures revealing that the country achieved its greenest year of all time.

Records broken in 2017 included the first 24-hour period without coal generation since the Industrial Revolution (21 April), the longest period without coal generation at 40 hours, 35 minutes (28-29 October) and the greenest summer on record with close to 52% of electricity coming from low-carbon sources (21 June-22 September). Another notable record came on 7 June when, for the first time ever, wind, nuclear and solar were collectively generating more than gas and coal combined.

Other highlights were the lowest amount of carbon produced by electricity production at any one moment (73gCO2/kWh on 2 October) and the largest amount of electricity produced from renewables at any one moment on 21 March (19.2GW). Both solar and wind produced record amounts of electricity, with solar delivering 8.9GW on 26 May and wind producing 285GWh on 7 December.

The low strike price for offshore wind – £57.50/MWh – in the latest Contracts for Difference subsidy auction in August/ September was another record.

Gareth Redmond-King, Head of Energy and Climate Change at WWF, said that the country was on course for an “even better year” in 2018, but added “more ambition” was needed by bringing forward the ban on the sale of petrol and diesel cars to 2030.

Government lacked evidence on whether GIB had achieved aims: NAO

The government did not have clear criteria or evidence to judge if the Green Investment Bank (GIB) was achieving its intended green impacts, a new report has concluded.

On 12 December, the National Audit Office (NAO) released its assessment of the creation and sale of the bank. It said that while the Department for Business, Innovation and Skills, now the Department for Business, Energy and Industrial Strategy, had set out how to judge the GIB’s success in most areas, it had not done so in terms of its green impact. Furthermore, it had said it wanted it to be an “enduring institution”, but had not made clear what this would mean in practice.

The report also found the GIB’s internal valuations showed that its assets under construction could have been worth £63mn more once operational. However, the government wanted to transfer both the construction and market risks of the holding to the new owners. The final sale price, while within the government’s valuation range, fell at the lower end of the scale.

The analysis said that the sale process of the GIB took close to 18 months to complete. This was more than twice the expected timescale. The delay, together with uncertainty, had led to an impact on the operations of the GIB. This also saw a number of key staff leave their posts. As a result, the GIB’s ability to invest had been limited and had to be managed carefully in order to avoid more severe impacts. 

Amyas Morse, Head of the National Audit Office commented: “A key test will be whether the Government needs to intervene again in this way to stimulate growth in the green economy and to help it achieve its climate change commitments.”

EDF Renewable Energy provides finance for vehicle-to-grid solution provider

Nuvve, a vehicle-to-grid (V2G) solution provider, has announced it has received financing from EDF Renewable Energy and Toyota Tsusho Corporation to accelerate the commercialisation of its products.

Making the announcement on 15 December, Nuvve said it offers the world’s first and only commercially available true V2G solution that enables select electric vehicles (EVs) to store and resell energy to the grid. Nuvve’s aggregation technology is cloud connected and ensures that each vehicle has sufficient charge for its next trip, before then calculating how much remaining capacity is available to sell to the grid.

Raphael Declercq, VP of Portfolio Strategy at EDF Renewable Energy, said: “Commercial and industrial organizations are increasingly asking for electric vehicle charging infrastructure to offer the onsite benefit to employees and customers. EDF RE can deliver cost-effective, clean and reliable solar power to charge the EVs, while Nuvve brings a V2G solution that can reduce the cost of the kWh for the growing number of EV drivers while serving the local grid.”

Government confirms funding for reducing emissions from industry

The government has revealed plans to invest around £100mn in low-carbon industrial innovation.

It explained this will seek to reduce the risks and costs of speeding up the uptake of low-carbon technologies to allow UK industry to remain competitive. The funding includes up to £20mn allocated for the design and the construction of carbon capture and utilisation (CCU) demonstration projects.

The government said th programme will encourage industrial sites to capture their carbon emissions. In turn, this would help enable a pathway for learning and development of capture technologies at an intermediate scale. This will then reduce both costs and risks.

The programme is to be run in three phases, with the first an initial scoping study for an engineering supplier to work on the government’s behalf with potential host sites, carbon dioxide users and technology suppliers. This will produce site-specific cost estimates for deploying CCU at UK industrial sites. Phase 2 will fund projects to conduct design studies for constructing CCU equipment at UK host sites, followed by a third phase that will see funding for projects to be constructed and demonstrate CCU.

Businesses could save £14bn through EV switch

New research has claimed that through switching all of Britain’s vans and HGVs to electric vehicles, businesses in Britain could save £14bn a year in fuel costs.

Hitachi Capital released its Future of Fuel report on 14 December. It explained that electric power works out as 15p/mile cheaper than petrol or diesel vans. In the case of diesel for HGVs, it is 38p/mile cheaper. With the number of alternatively fuelled cars rising 280% over the past four years, with 62% occurring in fleets, the report said this equates to a saving of almost £13.7bn/ year based on 2017 fuel prices.

The report explained that these substantial savings, previously spent on fuel, can then be redirected towards other areas. These may be innovation, jobs and expansion.

Jon Lawes, Managing Director of Hitachi Capital Vehicle Solutions, said: “If businesses take a long-term decision when it comes to investing in their fleet, it could save significant amounts of time and money.”

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