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August 2016

By Market Insight Team | Posted October 17, 2016

August 2016 – in brief

Generation

A survey by the Institute of Directors (IoD) has found strong levels of support for renewable energy among business leaders. Over seven in 10 respondents agreed that “the UK needs to decarbonise its energy use to mitigate the effects of climate change”, and even higher levels backed the increased deployment of solar and wave and tidal power.

The government has approved the world’s largest offshore wind farm. Hornsea Project Two. Located 89km off the Yorkshire coast, the project will deliver 1.8GW of low-carbon electricity.

Delivery

National Grid has confirmed that it will not be making use of one of its key tools for balancing electricity supply and demand this winter. The Demand Side Balancing Reserve service was intended to encourage consumers to reduce or shift their demand, but changes to the service made following a consultation in September 2015 have proven unsuccessful in raising levels of participation from businesses.

The communications infrastructure that will oversee the government’s smart meter programme has been delayed again, and is now set to go live at the end of September. The Data and Communications Company, which is owned by Capita, had initially been expected to become operational in 2015, but has since faced a series of delays.

Usage

The government has confirmed that it is considering raising the costs faced by energy intensive users when they fail to meet their emissions reduction goals. Specifically, it has opened a consultation on the buy-out price in the Climate Change Agreements scheme for the third and fourth target periods – with an increased price the government’s preferred option.

Ofgem has said that it is seeking swift action from energy suppliers after some consumers were overcharged following mistakes in reading their gas meters. As a result, some customers have been undercharged by around 60%, whilst others have been overcharged by up to 130%.


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Generation

Business leaders back renewable energy

A survey by the Institute of Directors (IoD) has revealed high levels of support for clean energy among business leaders.

Published on 19 August, the survey found that over seven in 10 company directors believed that “the UK needs to decarbonise its energy use to mitigate the effects of climate change”. Even more (87%) expressed support for the “increased deployment” of solar, wave and tidal power.

Nearly eight in 10 (78%) bosses said that they would want more offshore wind and over two thirds (67%) said that they would be in favour of more biomass power. Onshore wind was shown to be the least popular renewables source, yet it still had support from a majority (56%) of respondents.

Senior infrastructure policy adviser at IoD Dan Lewis said that the UK needed a mix of renewables, nuclear and the cleanest hydrocarbons going forwards, as it could not simply depend on intermittent technologies.

Lewis said: “Since the early 2000s, governments of all stripes have focussed on increasing use of renewable energy in order to reduce carbon emissions. Cutting CO2 is overwhelmingly supported by business, but politicians have underplayed the other two crucial aims of energy policy, delivering secure and affordable power. Following the creation of the new business and energy department, now is the ideal moment for the government to reconsider the direction of travel.”

However, the study did find strong concern about the success with which successive governments had delivered on the so-called energy “trilemma”. Most believed that policy-makers had failed to achieve energy security or to ensure that the UK had an affordable gas and electricity supply. 

Government approves world's largest offshore windfarm

The government has approved the Hornsea Project Two offshore windfarm, which at 1.8GW would become the largest development of its type in the world if constructed.

The project, located approximately 89km off the Yorkshire coast, would comprise around 300 wind turbines, and will connect to the grid at North Killingholme in North Lincolnshire.

It would create up to 1,960 construction jobs and 580 operational and maintenance jobs, with an overall investment approaching £6bn. The government believes that the scheme will provide a strong opportunity for economic growth in the Humber region.

Business and energy secretary Greg Clark, who gave the development consent, said: “The UK’s offshore wind industry has grown at an extraordinary rate over the last few years, and is a fundamental part of our plans to build a clean, affordable, secure energy system. Britain is a global leader in offshore wind, and we’re determined to be one of the leading destinations for investment in renewable energy, which means jobs and economic growth right across the country.”

DONG Energy’s UK chairman, Brent Cheshire said: “We have already invested £6bn in the UK, and Hornsea Project Two provides us with another exciting development opportunity in offshore wind. A project of this size will help in our efforts to continue reducing the cost of electricity from offshore wind and shows our commitment to investing in the UK."

The first phase of the development, the 1.2GW Hornsea Project One, is expected to be operational by 2020, and was given planning consent by the government in 2014.

Unions voice support for Hinkley Point

UK unions have voiced their support for the development of EDF’s Hinkley Point C nuclear power plant in Somerset.

In a statement on 15 August, the GMB union said that Hinkley offered the only low-carbon source of energy that could “keep the lights on for the one in six days where there is no wind or sun”.

This backing followed a joint-letter from four trade unions - Unite, Ucatt, Prospect and GM - to the chief executive of EDF, Vincent de Rivaz, on 1 July. In the letter, the unions declared their full support for the project; they emphasised the need for the electricity that Hinkley would provide as the UK was “rapidly losing capacity” as coal stations and nuclear stations reached the end of their operating lives.

The letter said: “We are committed to making a transition to a carbon-neutral balanced energy policy in the UK, including nuclear and renewables. It would be a tragedy, in both France and the UK, if all this work and the extraordinary opportunities it provides were to be lost.”

Renewables industry concerned by subsidy changes

A government proposal to cut the subsidies available to some combined heat and power systems (CHP) has been criticised by industry associations.

Biomass CHP plants that have a power efficiency of less than 20% will see a reduction in subsidy payments through the Renewable Heat Incentive (RHI) scheme, which the government says will “close a loophole” in the existing regulations.

The Department of Energy and Climate Change – which has since been abolished – had laid an amendment to the RHI before Parliament on 7 July. This legislation came into effect on 1 August and reduced the financial support for many CHP systems in the UK.

The change was defended by a government spokesperson, who said that companies could receive double the amount of subsidy by generating electricity as well as heat, even if the amount of electricity produced was very small. The changes would, he said, mean that companies received payments that better reflected the amount of electricity they actually produced.

But, speaking on 28 July, Renewable Energy Association head of policy and external affairs James Court said: “Over £140mn worth of investment is affected by this change, with a planned renewable energy capacity totalling 203MW heat and 20MW power. The industry was preparing for a new tariff structure from spring 2017, as outlined in the recent RHI consultation, but no one was warned about this change.”

Scottish onshore wind costs could fall sharply, report says

A report by Everoze - commissioned by trade group Scottish Renewables - has found that a range of barriers are holding back the cost-reduction potential of the onshore wind sector in Scotland.

Issued on 17 August, the study said that using the latest turbines could be particularly important in lowering project costs, but that developers’ ability to do so was constrained by planning guidelines that limited the height of turbines. It suggested that the industry should work with the Scottish government in developing guidelines that instead incentivised the use of the latest technologies.

The onshore wind industry in Scotland would also be boosted by reforms to the charging arrangements for using the networks, the report said. At present, power generators in Scotland face transmission costs that are significantly higher than the UK average, and Ofgem was urged to immediately re-evaluate the issue in order to lower this cost burden.

Further savings could, the report explained, be achieved by redeveloping and repowering some of the best existing wind power sites, improving the consenting process, and expediting the development of energy storage technologies.

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Delivery

National Grid withdraws system balancing scheme

The operator of the electricity system has announced that it will not be making use of one of its key mechanisms for balancing supply and demand this winter.

The Demand Side Balancing Reserve (DSBR) scheme was targeted at large energy users, who volunteered to reduce their demand during winter weekday evenings in return for a payment. It was designed to support National Grid in the event that there was insufficient capacity in the market to meet demand.

But, in a statement last month, National Grid said it was clear that changes to the service made following a consultation in September 2015 had not been successful in bringing forward more capacity.

National Grid said that it now intended to work with DSBR providers, who are capable of offering reserve capacity at peak times, to assess if any alternative delivery routes could be developed for the upcoming winter.

Smart meter IT system delayed again

The communications infrastructure that will manage the government’s smart meter programme has suffered a further delay, and will not “go live” before the end of September.

The Data and Communications Company, which is a wholly-owned subsidiary of Capita, had initially been expected to become operational in 2015, before facing a succession of delays.

The government wants every home and business to be offered a smart meter by the end of 2020, which requires 53mn meters to be fitted in over 30mn premises across the next four years.

A spokesperson for the government explained that the IT system was currently being tested to deliver “a long-lasting, world class system to bill payers”. But the latest delay has been met with criticism from those in the industry, with one source telling the BBC: “It’s yet another delay in what’s been a drawn out and badly managed project that we are rapidly losing confidence in.”

An industry executive said that the 2020 deadline for the smart meter roll-out no longer looked a “realistic proposition” and that there was “increasing dissatisfaction” as to how the programme was being handled.

 Battery storage projects win landmark contracts

A number of battery storage projects have been awarded contracts to help National Grid manage the electricity system when it is under stress.

To manage supply and demand, National Grid must maintain the frequency of the electricity system at 50Hz; however, this is increasingly difficult to achieve, given the growing levels of intermittent renewable technologies on the system. The company developed its “Enhanced Frequency Response” (EFR) auction to bring forward new technologies that could respond in under a second to periods of volatility on the system, bettering the previous response times of around 10 seconds. 

On 26 August, National Grid confirmed that, following the auction, it had awarded contracts to eight battery storage projects, with an overall capacity of around 210MW. It estimated that the ability of these projects to more effectively control variations in frequency would reduce costs by around £200mn, cutting costs for consumers in the long term.

The Renewable Energy Association welcomed the outcome of the auction. It noted that, while contracts had been awarded for just over 200MW of capacity, 1.4GW of projects had put themselves forward for the tender. This suggested that the battery storage market was significantly larger than had previously been anticipated. It said: “The conclusion of the EFR auction shows that storage is now ready to deliver, and with the right framework can provide vital services to UK Plc.”

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Usage

Energy intensives face stronger incentives to cut emissions

Energy intensives face stronger incentives to cut emissions

The government is considering raising the costs faced by energy intensive users who fall short of their emissions reduction goals.

Climate Change Agreements are voluntary agreements, made between UK industry and the Environment Agency, for the former to reduce energy use and CO2 emissions. They were established to allow energy intensive businesses to reduce the cost of the Climate Change Levy scheme, in return for improving their energy efficiency. Participants who fall short of their goals must pay a buy-out price.

The government is minded to increase the buy-out price broadly in line with the Retail Price Index to £14/tCO2e for target periods 3 and 4, falling between 2017-20. It said that this would provide a strong incentive for businesses to abate while also remaining mindful of the financial impacts on firms. Further options being considered include increasing the price to £17/tCO2e, and retaining the present price of £12/tCO2e.

Responses to the discussion paper are invited by 23 September.

Gas customers overcharged after meter mis-reads

A “very small number” of gas customers have been incorrectly charged for their usage, Ofgem has confirmed.

In an open letter issued on 12 August, the regulator said that a large supplier had notified it of a mismatch between the measurement unit and the type of meter, leading to some customers being undercharged by around 60%, and others being overcharged by 130% or more.

Going forwards, Ofgem stated that the affected supplier had adopted a set of principles for conducting redress activities; moreover, the regulator encouraged all suppliers to follow those principles, such as ensuring that there was a financial cushion provided for financially vulnerable customers to ease the transition to accurate bills.

 Businesses urger policy-makers to prioritise long-term strategy

A majority of business energy users have called on the government to focus on developing a long-term energy framework, as part of a survey conducted by consultants Inenco.

Released on 11 August, the research showed that over two thirds of business energy users believed that the government’s long-term policy was extremely important to their businesses. A common sentiment was that “investors and the market must have confidence in the security of their investments and a clear indication of the future direction”.

Once a long-term strategy has been created and investors have been assured, business energy users believe that the focus should move to climate change and renewable energy.

Outlining an approach to tackling climate change was seen as highly important by just under half (46%) of respondents. One user voiced a concern that the government’s abolition of the Department of Energy and Climate Change would see “climate change swept under the rug”; others believed it would ensure climate change was “embedded into business strategy”.

 Government energy efficiency plans will increase rents, warn landlords

The government’s decision to remove financial support for landlords seeking to make homes more energy efficient will inevitably result in an increase in rents, an industry group has said.

New laws, introduced in 2018, will make it illegal to rent out a property with an energy efficiency rating of F or G, and the Residential Landlords Association (RLA) argues that the cost of the work involved will have significant implications for tenants.

Previously, the government supported landlords in implementing energy efficiency through the Green Deal and a tax allowance. But these programmes have now ended, and the RLA has told landlords that they could face costs of up to £5,000 to improve properties.

RLA Policy Consultant, Richard Jones, said: “Whilst we all want to see improvements in the energy efficiency of homes to rent, that cannot come at the expense of driving up rents. The government’s proposals will amount simply to another tax on tenants.”

 Blackpool Council achieves record emissions reduction

Improved home insulation has been credited with driving a major reduction in emission in Blackpool.

Figures published on 23 August showed that the town had reduced its emissions by 30% over the last 10 years, mainly driven by a significant fall in the domestic use of gas and electricity.

Blackpool Council said that many factors had driven the fall; however, the improved insulation for homes delivered through the Energy Company Obligation had been particularly significant.

Gillian Campbell, deputy leader of the council, said: “Our insulation programmes are real statement of intent that this council is determined to reduce its carbon footprint and bring residents’ fuel bills down too.”

 Nottinghamshire AD plant receives investment

A Green Investment Bank (GIB)-backed fund has committed £6.6mn to the development of a new anaerobic digestion (AD) plant in Nottingham.

The funding from the Foresight-managed Recycling and Waste LP (RAW) Fund has been matched by the SQN Asset Finance Income Fund, meaning overall investment into the project totals £13.2mn. Construction of the 2.2MW facility at Stud Farm in Rufford, to be developed and operated by Future Biogas, is now underway. It will use poultry litter, straw and other agricultural feedstock from adjacent farms to fuel a combined heat and power plant, supplying electricity and heat to local businesses.

The project is expected to generate approximately 16,300MWh of renewable electricity each year, with any surplus electricity supplied to the UK grid.

 Aberdeen City Council to set up energy services company

Aberdeen City Council has announced the creation of an arms-length organisation to manage all of its energy-related activities.

The establishment of the energy services company will underpin the council’s plan to provide a range of new services for local residents, such as metering, billing and energy trading. An informal working group will now be established to develop a business plan.

The Council is seeking to reduce the city’s emissions by 50% by 2030.

Council leader Jenny Lang said: “The establishment of the energy services company will ensure the council becomes a leader in the energy market, and will in turn help attract new expertise to the area. It will also help to tackle fuel poverty, while at the same time investing in local clean energy, boosting jobs and growth in the local economy.”

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