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January 2018 Regulatory Report

By Market Insight Team | Posted February 09, 2018


The EU Energy and Environment Sub-Committee has warned the UK’s impending exit from the European Union could see it become more vulnerable to supply shortages. Published on 29 January, its Brexit: energy security report called on the government to set out how it will manage and mitigate any risks and potential price increases for consumers. It also urged a transition period for Euratom, separate to that of the EU membership, and that the government uses business connections to influence EU energy policy post-Brexit.

The government has confirmed new cost controls for biomass conversion, adopting an amended version of its proposed generator cap. It estimates that the cap will reduce the spend impact of the scheme by up to £25mn a year.


The High Court has refused an application for an injunction to delay Ofgem’s changes to embedded benefits payments. Ofgem is to cut the payments by up to 93% in a bid to deliver savings of up to an estimated £7bn by 2034. Had the injunction claim proven successful, the implementation date would have been pushed back to April 2019 and cost customers close to £500mn. It will take effect from April 2018, but a substantial hearing is planned for later the same month.

Media reports have said the National Audit Office (NAO) will review whether the UK’s smart meter rollout will deliver benefits to consumers and be delivered on time. It comes before news that the government will push back the SMETS1 end-date and Advanced Meter Exception end-date to 5 October 2018.


The Committee on Climate Change has warned that, even if its policies are delivered in full, the Clean Growth Strategy leaves policy gaps to meet later carbon budgets. In its response to the strategy on 17 January, the Committee found the UK would miss the fourth and fifth carbon budgets by around 10-65MtCO2e, and recommended policies be firmed up and others implemented where action was required.

The Head of the Green Investment Group (GIG), Edward Northam, has said cost reductions, policy and the size and scale of projects have all played a role in a reported shortfall in the UK’s clean energy investment in 2017. Bloomberg New Energy Finance had reported a 56% decrease in UK renewable investment last year, however Northam did not believe this would tally with capacity installations.

Also covered in this Regulatory Report:


Committee warns of Brexit risk to energy security

The UK’s exit from the European Union could see it more vulnerable to supply shortages, the EU Energy and Environment Sub-Committee has said.

Its report, Brexit: energy security, was published on 29 January and found Brexit will put the UK’s current frictionless energy trade with the EU at risk, while access to specialist EU workers will be needed to ensure future nuclear generation sites can still be built. It called on the government to set out how it will work with the EU to anticipate and manage cross-continent supply shortages that will affect the UK. The committee called for an assessment on what impact leaving the Internal Energy Market will have on the price paid for energy in the UK and how the government will mitigate this. It also stressed the government should assess the workforce needs of the energy industry and ensure they are reflected in the post-Brexit immigration policy.

The report stressed the provisions of the Euratom treaty were “vital” to functioning of nuclear energy generation. It said there were big implications if the UK failed to replace provisions at the point of withdrawal, including for energy security. It did note the UK’s membership of Euratom was “legally distinct” from EU membership and suggested the government explore the possibility of a Euratom-specific transition period, separate from the wider Brexit process.

The report warned that the UK’s influence in EU energy policy is likely to be “severely constrained” after Brexit. In a bid to work around this, the report called on government to encourage and facilitate businesses in making connections to European non-governmental organisations and trade associations as through these connections, they could be able to influence EU energy policy.

Looking ahead to the UK’s future relationship, the committee explained the industry needs “as much certainty as possible” on the future of UK energy policy to inform long-term investments. It recommended the government assess what “irreplaceable services” the UK can offer the EU energy system to improve its negotiating position. 

Government confirms cost controls of biomass conversion

The government responded to its consultation on controlling the costs of biomass conversion and co-firing under the Renewables Obligation (RO), opting to control costs by implementing an amended version of its proposed generator cap.

The amended generator cap should provide increased flexibility and wider system benefits, the government explained. For relevant fossil fuel stations, a station cap of 125,000 Renewables Obligation Certificates (Rocs) per obligation year per eligible unit will be applied to generation eligible for Rocs at the biomass conversion and co-firing bands. Stations will be able to optimise generation across units and decide whether to use one or more units to generate up to the cap for their station. The government has estimated that the cap will reduce the spend impact of the scheme by up to £25mn a year.

In reaction, the Renewable Energy Association (REA) welcomed the decision, stating it did not undermine existing biomass assets. It said that while it will limit the sector’s growth, it signalled a softening on previous proposals and will support an emissions reduction.

Benedict McAleenan, Head of Biomass UK at the REA, said: “This decision will support the Government’s ambition of phasing out coal by 2025 while controlling costs for taxpayers.”

Policy Exchange report gives backing to SMRs

Policy Exchange research, published on 25 January, has found that Small Modular Reactors (SMRs) have a role to play in providing reliable low-carbon energy and tackling the UK’s energy challenges.

The report argued that decarbonisation of the existing electricity system through 100% renewable energy would prove “unnecessarily expensive and perhaps unsustainable”. It determined that nuclear had a “crucial role” to play but with developers struggling to finance large scale projects, SMRs could prove a solution to the problem. It recommended the government “proceed swiftly” with the development of at least one 3rd generation reactor design following the outcome of its current consultation.

Policy Exchange stressed the government should maintain its current ambition of deploying up to 16GW of large nuclear by the 2030s to meet decarbonisation targets under the Climate Change Act. It should also review its current strategy for deployment to ensure it is as cost-effective as can be.

It also made some more general energy policy recommendations, such as scrapping renewable-specific energy targets when the UK leaves the EU for a focus on the objectives of sustainable, low carbon and affordable energy. The government should also properly assess the future costs of intermittency, assess the UK’s energy storage capacity and create a carbon capture and storage hub.

T-1 Capacity Market auction delivers lowest ever price

On 1 February, the T-1 2018-19 Capacity Market auction cleared at £6.00/kW/year, its lowest ever clearing price.

The EMR Delivery Body said that after examining the Capacity Market Register, 10663.717MW of de-rated capacity entered the auction with 54.23% (5,782.892MW) awarded Capacity Agreements. The majority of this was existing capacity (4.7GW). Combined Gas Cycle Turbines were the most successful technology, with 2,215MW winning agreements, while 88.86MW of energy storage was successful. The auction also saw 443MW of demand-side response (DSR) awarded agreements.

In the case of the T-4 2021-22 Capacity Market Auction, set to begin on 6 February, there is a target capacity of 49.2GW in the most recent guidelines.

Defra confirms emission restrictions for combustion plants to come in force

Defra has confirmed that measures to bring the emissions from medium sized combustion plants (MCPs) and generators in line have been given the greenlight.

On 24 January, the department announced the statutory instrument had been debated and passed by Parliament to curb the emissions from plants often used to heat hospitals, hotels, offices, large buildings and industries. It has been estimated that the regulations will deliver 43% of the sulphur dioxide emissions reduction, 9% of the reduction for particulate matter and 22% of the nitrogen oxides emissions reduction needed to hit the UK’s 2030 targets. They will come into force from 20 December 2018 for new plants, with existing ones having to do the same from 2025 or 2030.

Environment Minister, Therese Coffey, said: “These regulations will help deliver further substantial reductions in emissions, while minimising the impact on energy security and costs to businesses.”


High Court rules out delay to embedded benefits changes

Ofgem’s implementation of changes to embedded benefits payments are to proceed as planned, after the High Court refused an application for an injunction.

Ofgem plans to cut the triad payments small generators receive. It will reduce the value by up to 93%. They will fall from around £47/kW to between £3/kW and £7/kW, delivering estimated savings to consumers of up to £7bn by 2034. Ofgem said that if the claimants had been successful with the injunction, pushing the implementation date back to April 2019, then it could have cost customers close to £500mn.

While the decision will come into force from April 2018, as planned, a substantive hearing is set for late April. This could reverse the decision, requiring a mid-year change to charges.

Smart meter rollout review planned, while deadline changes

Media reports have said that the National Audit Office (NAO) is to investigate whether the UK’s smart meter rollout will deliver benefits to consumers.

On 12 January, the BBC reported that the NAO will examine the current economic case for the £11bn rollout of smart meters and whether it is on track to hit the 2020 deadline. In a further development, the government announced that both the SMETS1 end-date and the Advanced Meter Exception (AME) end-date will be pushed back to 5 October 2018.

 Senior Responsible Owner Daron Walker, in a letter issued on 18 January, said that despite “considerable efforts” it had become apparent larger suppliers would be unable to meet the original deadlines “without significant risk”. This risk would impact consumers and the public perception of the smart meter roll-out in a negative way.

No further extension to the deadline is anticipated.

Northern Powergrid launches £83mn smart grid programme

Northern Powergrid has set out plans for the North to become a low-carbon leader with the launch of a new £83mn smart grid programme.

Smart Grid Enablers will run until 2023, supporting the North’s ambitions to put low-carbon technology at the centre of its economy, enabling solutions that could save up to £500mn by 2031. It will replace or install more than 1,900 substation and transformer control units, allowing engineers to monitor and control equipment in real time. 

Northern Powergrid said it will deliver “the most radical change” to its network since the 1970s, underpinning its transition into a Distribution System Operator, providing a platform to roll out “smart, cost-effective solutions to actively manage a network with complex power flows that are hard to predict.”

Patrick Erwin, Policy and Markets Director at Northern Powergrid, said: “Our Smart Grid Enablers programme is putting our region at the forefront of the low-carbon revolution. It will make us ready to support rapid growth of electric vehicles, heat pumps and solar power in the next decade, while maintaining a reliable system and keeping costs as low as possible for all our customers.”


Report warns of Clean Growth Strategy policy gaps

The Committee on Climate Change (CCC) has warned that later carbon budgets will not be met even if policies in the Clean Growth Strategy (CGS) were “interpreted generously and […] delivered in full”.

It was responding to the CGS on 17 January, it said that while the strategy had ambition it did not “go far enough” and urgent action was needed to “flesh out current plans and proposals” and implement additional measures to hit carbon targets in the 2020s and 2030s. It found that at present, the UK would miss the fourth and fifth carbon budgets by around 10-65 MtCO2e.

The response called for policies such as improving the energy efficiency of UK businesses and industry by 2030; deploying carbon capture and storage technology at scale in the UK in the 2030s; the phase out of new petrol and diesel cars and vans by 2050; and generating 85% of the UK’s electricity from low-carbon sources by 2032 to be “firmed up”. On new policies, the CCC said an additional 50-70TWh of low-carbon electricity supplies for delivery during 2025-2030 would need to be contracted. It also said the government should take action to drive greater uptake of ultra-low emission vehicles and improve energy efficiency of conventional ones by 2030.

Commenting on the strategy, CCC Chairman, Lord Deben, said: “The Clean Growth Strategy is ambitious in its aims to build a thriving low-carbon Britain but ambitions alone are not enough. As it stands, the Strategy does not deliver enough action to meet the UK’s emissions targets in the 2020s and 2030s. The Government’s policies and proposals will need to be firmed up as a matter of urgency […]”

Cost reductions have caused investment shortfall: GIG head

The Head of the Green Investment Group (GIG), Edward Northam, has claimed the considerable cost reductions in renewables have caused an apparent shortfall in clean energy investment in the UK during 2017.

Northam gave his comments while providing evidence to the Environmental Audit Committee (EAC) on 23 January, as part of the EAC’s inquiry into green finance. Northam was asked by EAC Chair, Mary Creagh, on figures released by Bloomberg New Energy Finance (BNEF) which had shown the UK’s clean energy investment fell 56% in 2017.

From the perspective of the GIG, Northam said that the drawn out sales process to Macquarie had made it difficult to operate under “business as usual”. Northam explained: “Our role here is to invest in long-term green infrastructure assets. That informs forming deep partnerships with people in that industry. The challenge when you are under a change of ownership is that prospective partners need to take a view on who their future partner may be, given the change of ownership, so undoubtedly that had an impact.”

From the context of the UK, Northam said there were a range of contributing factors, citing policy, the size of a particular investment and the clean energy cost reductions all as reasons. Northam drew on how the government had changed its support for onshore wind and solar, suggesting this had contributed to the fall, while large projects, such as the £4bn Hornsey offshore windfarm in 2016, can distort the figures. Northam also suggested investments were getting cheaper and that if data was collected, it would show that there has not been a fall in capacity installations or, if there had, not one to the extent that the 56% investment fall suggests.

PwC calls for electric vehicle roadmap

PwC has said that a strategic electric vehicle (EV) roadmap, developed by government and industry, is “vital to convert EV ambition into action”.

Its report Charging Ahead, published on 26 January, said that public charging infrastructure – particularly in cities – needed a boost to both create and meet future demand. The roadmap would contribute to this boost for workplace and public charging sites, while going some way to supporting residential grid demands, allowing the UK to convert its ambition for EV adoption into reality. PwC’s research found three-in-five (60%) of petrol and diesel drivers had not considered a battery-powered EV when buying their last car. Over half (51%) ranked initial price and availability of charging as the top two barriers.

Steve Jennings, PwC Energy and Utilities Leader, said the roadmap would “provide further momentum and clarity on issues such as the type of UK-wide charging infrastructure needed, where power network investments are required to meet future demand, the commercial and regulatory framework and the timeline for implementation.”

Government could save NHS “millions” through sustainability support

The NHS Sustainability Campaign has released its third annual impact report, stressing that government backing and funding could save the NHS millions in years to come.

The report highlighted a range of sustainability leaders within the NHS community. These include Manchester University NHS Foundation Trust which has reduced its carbon footprint per patient contact by 12.1% since 2014, and the North East Ambulance Service NHS Foundation Trust which expects to save £1.2mn each year owed to a carbon management plan. It called on ministers to meet with leading Trusts to establish how best practice can be shared nationally and support Estates teams in continuing to deliver financing savings across the NHS.

Campaign Manager, Scott Buckler, said: “This report demonstrates the important role estates and facilities teams play in ensuring we have an NHS fit for the future. As we approach the NHS’s seventieth birthday we must ensure we have a plan for the next seventy years and beyond.”

Faraday Institution announces £42mn for energy storage research

On 23 January, the Faraday Institution announced £42mn in funding for four UK-based consortia to carry out application-inspired research that aims to overcome battery challenges to speed up the electric vehicle (EV) “revolution”.

The battery research institute, established as part of the government’s £246mn investment in battery technology, said that if successful, the research would position the UK “at the forefront of battery technology worldwide”. It explained the technology carries the potential to significantly increase the speed that the UK can move to electric vehicles, decarbonise its energy supply and provide benefits to the environment. The four projects awarded funding include extending battery life, led by the University of Cambridge, battery system modelling, led by Imperial College London, recycling and reuse, led by the University of Birmingham, and next generation and solid state batteries, led by the University of Oxford. Industrial partners are to contribute a total £4.6mn in in-kind support to the projects.

Business and Industry Minister, Richard Harrington, said: “Government investment, through the Faraday Institution, in the projects announced today will deliver valuable research that will help us seize the economic opportunities presented by battery technology and our transition to a low-carbon economy.”


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