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August 2017

By Market Insight Team | Posted September 28, 2017

August – in brief

Generation

The government has confirmed the sale of the Green Investment Bank (GIB) to investment bank Macquarie has been completed in a £2.3bn deal. The bank’s new Australian owner signalled its commitment to the GIB’s target of leading £3bn of investment in green energy projects over the next three years, with the new company to be renamed the Green Investment Group (GIG), allowing it to make overseas investments.

BEIS’s latest Digest of UK Energy Statistics (DUKES) figures revealed a steep fall in coal generation in 2016. Coal’s output reached record low levels, offset by increased gas generation. Renewables continued to be relatively stable, while low carbon electricity’s share of generation rose slightly

Delivery

The energy regulator has said that electricity distribution network operators (DNOs) across all six groups could see their revenue cut by up to £13.9mn, following a review of how well they are dealing with new customers that request connections. Ofgem explained that managing these connection requests is considered an essential part of DNOs’ customer service. However, feedback from a July consultation had led Ofgem to the view that all DNOs may have fallen short of such expectations.

The Energy Network’s Association (ENA) has launched a consultation on how to create a smart electricity grid enabling new markets and opportunities for distributed energy technologies. The paper summarises five key considerations that will have to be addressed in order to ensure distributed energy resources (DERs) can provide services in a way to improve network coordination and reduce system costs.

Usage

The government has launched its independent review into the cost of energy, pledging to deliver the lowest energy costs in Europe for both businesses and households. The review is to be led by Professor Dieter Helm, and is expected to report back at the end of October 2017, tasked with the overall objective of uncovering how carbon objectives and security of supply can be met in the power sector at minimum cost, while ensuring further costs are not imposed on the government.

Santander and Gatwick Airport are among the latest private and public sector organisations to embrace the “Go Ultra Low” initiative, joining over 100 organisations. Specifically, these companies have committed to ensuring that at least 5% of their vehicle fleet will be made up of EVs by 2020.

Also covered in this Regulatory Report:

  • London to be a zero-carbon city by 2050
  • IPPR North warns of Brexit impact on energy sector
  • Second CfD auction bidding round closes
  • Cadent explores potential for introducing hydrogen to the gas grid
  • Less than one in seven firms back new energy efficiency rules
  • Number of Energy Performance Certificates rise for non-domestic properties
  • Smart Energy GB outlines how to engage employees on smart meters

Generation

Sale of Green Investment Bank completed

The government has confirmed the sale of the Green Investment Bank (GIB) to investment bank Macquarie has been completed in a £2.3bn deal.

The bank’s new Australian owner signalled its commitment to the GIB’s target of leading £3bn of investment in green energy projects over the next three years, with the new company to be renamed the Green Investment Group (GIG), allowing it to make overseas investments. Climate Change and Industry Minister Claire Perry said that now placed in the private sector, the newly named GIG can operate “on an international level to tackle the global challenge of climate change.” Perry also felt it to be “perfectly placed” to help finance green incentives for the government’s Clean Growth Plan and commitments under the Paris Agreement.

Throughout its lifetime, the GIB supported a range of green projects, from offshore windfarms to anaerobic digestion powerplants. It was also key in supporting a range of non-domestic projects through its £100mn non-domestic energy efficiency investment programme.

Reaction has been mixed, with Sir Vince Cable, Liberal Democrat Leader and former minister responsible for setting up the GIB, claiming the GIB’s environmental mission was “in danger of disappearing” under Macquarie’s ownership whose “track record does not inspire confidence”. Macquarie has been faced with accusations of “asset-stripping” since revealed as the preferred bidder.

Nick Molho, Executive Director of the Aldersgate Group suggested the government will need to develop a clear finance strategy in the near future, following the sale of the GIB and restricted funds from the European Investment Bank, post-Brexit.

In contrast, James Court of the Renewable Energy Association (REA) felt Macquarie’s pledge to focus on early-stage projects could bring substantial benefits for technologies where the investment community remains hesitant.

Coal generation continues to fall in government statistics

The government’s latest Digest of UK Energy Statistics (DUKES) release has revealed a steep fall in coal generation in 2016.

Coal’s output hit “record low levels”, more than halving from 76TWh to 31TWh, being offset by gas generation due to the comparative economics of burning the two fuels. Gas’ generation share rose from 29% in 2015 to 42% in 2016, equating to 143TWh. While fossil fuels continue to be the dominant source of energy supply, they have now fallen to a record low level (81.5%).

In comparison, renewables generation matched its 2015 share and proved to be relatively stable at 24.5% in 2016, just 0.1% lower than 2015. This was due to less favourable weather conditions for wind and solar resulting in lower output per plant from more connected renewable capacity. As a whole, low-carbon electricity’s share of generation rose slightly, reaching a record 46.5% in 2016 – up from 46.2% in 2015. Nuclear generation saw an increase of 2.7% compared to 2015, with this attributed to improved availability together with fewer outages. The UK has now exceeded its third interim target against the Renewable Energy Directive. DUKES confirmed 8.9% of total energy consumption came from renewable sources in 2016, up from 8.2% in 2015. Over 2015 and 2016, renewables averaged 8.5% against the 7.5% target that had been set.

London to be a zero-carbon city by 2050

London Mayor Sadiq Khan is planning to decarbonise the capital’s business sector through the city’s first ever “solar action plan” and driving forward non-domestic energy efficiency measures set out in his draft Environment Strategy.

The overall objective is for London to become a zero-carbon city by 2050, with energy efficient buildings, clean transport and energy. As it stands, energy used for heating and powering workplaces in London equates to over 40% of the city’s emissions, while 94% of the capital’s energy is imported from outside. Khan will look to change this by doubling London’s solar capacity by 2050, with a desire for non-domestic buildings to be at the forefront of the shift to solar.

The solar action plan outlines a series of actions through the flagship Energy for Londoners programme, which sets to help Londoners and businesses generate more renewable energy. Public sector organisations and providers of social housing will be encouraged to retrofit solar energy technologies through technical assistance programmes, while how to overcome barriers to solar PV deployment in the commercial sector will also be assessed.

The Mayor will also support the public sector to retrofit its buildings with carbon and energy reduction measures. Currently, 37% of non-residential buildings given an Energy Performance Certificate since 2009 have energy ratings of E, F or G – wasting both energy and money.

IPPR North warns of Brexit impact on energy sector

IPPR North has warned that the northern energy industry would face substantial risks from a hard Brexit in new research.

Released on 16 August, the think tank’s report, The Impact of Brexit on Energy in the North, highlighted that in theory greater support could be provided post-Brexit to a long-term industrial strategy outside of EU state aid rules that limit direct government support. Although, it noted this would take a “truly revolutionary effort” to be achieved. This would require explicit government intervention or significant devolution of authority.

If this was not the case, the report considered the risks of withdrawing from EU legislation such as the Euratom nuclear treaty to be “too great”. The research claimed the UK government favoured investment in London and the south east, whereas the EU had invested in other parts of the country – making this another potentially significant impact to arise once the UK exits the European Union.

Second CfD auction bidding round closes

The Contract for Difference (CfD) round two sealed bidding window opened on 14 August, closing at 5pm on Friday 18 August.

Applicants now await the conclusion of the independently audited auction. Once finalised, applicants are expected to be sent results on 11 September. The CfD is the government’s latest scheme to financially incentivise the deployment of low carbon technologies. The scheme replaces the Renewables Obligation (RO), which is now closed to new applicants. In order to win a contract under the CfD, participants must enter an auction. It is hoped this competitive element will drive down costs, which are paid through the consumer bill. This latest auction looks to allocate funding to projects using less established Pot 2 technologies, including offshore wind, wave power and tidal energy, set to be commissioned in the early 2020s.

Guidance was also issued to support Qualifying Applicants through the sealed bid process.

Delivery

Energy distribution companies could be fined for poor connection provision

The energy regulator has said that electricity distribution network operators (DNOs) across all six groups could see their revenue cut by up to £13.9mn, following a review of how well they are dealing with new customers that request connections.

Within its 2015-2023 price controls, the regulator set DNOs an incentive to engage effectively with larger customers that require new connections. Ofgem explained that managing these connection requests is considered an essential part of DNOs’ customer service as the energy system grows smarter and more flexible. However, feedback from a July consultation had led Ofgem to the view that all DNOs may have fallen short of such expectations.

On 21 August, Ofgem launched a consultation to seek additional evidence on the areas of concern that had been highlighted through the feedback. It said that many of the failings had involved poor communication and a failure to fully explain the costs of setting up a new connection.

Views are welcomed until 15 September, with a decision to be made by the end of November.

Energy networks consult on creating new markets for distributed energy

The Energy Network’s Association (ENA) has launched a consultation on how to create a smart electricity grid enabling new markets and opportunities for distributed energy technologies.

The consultation was published on 17 August and is being run through the ENA’s Open Networks Project, which itself seeks to lay the foundations of a smart energy grid in the UK. Specifically, the consultation will examine opportunities for technologies such as battery storage and solar panels. The paper summarises five key considerations that will have to be addressed to ensure distributed energy resources (DERs) can provide services in a way to improve network coordination and reduce system costs. Responses are requested by 29 September.

CEO of the ENA, David Smith, said: “Our energy networks increasingly need to access the latest technologies and services in order to ensure continued reliable and cost-effective electricity supply as part of a decarbonised system.”

Cadent explores potential for introducing hydrogen to the gas grid

On 9 August, Cadent revealed ambitious proposals to introduce hydrogen into the gas network in the North West of England. The move could be a significant development in tackling the decarbonisation of heat.

The conceptual study looks at how hydrogen could take the place of natural gas in the gas network around Liverpool and Manchester. Coming it at a cost of around £600mn, hydrogen would be used to power industry in the region with the excess hydrogen blended with natural gas to heat businesses and homes across the area. This would come without the need to change appliances such as boilers.

David Parkin, Director of Safety and Network Strategy at Cadent, said: “While this is a study on paper, it’s a very real project. It has potential to transform the future of energy in the UK and be a long-term solution to decarbonising heat.”

A final investment decision is expected to take place in 2022.

Usage

Government launches review into the cost of energy

On 6 August, the government launched its independent review into the cost of energy, targeting the lowest energy costs in Europe for households and businesses.

Professor Dieter Helm, an economist specialising in utilities, infrastructure, regulation and the environment, has been appointed to lead the review. Helm is expected to report back at the end of October 2017, working towards the overall objective of uncovering how carbon objectives and security of supply can be met in the power sector at minimum cost. This will include options for enhancing and extending the scope for auctions and other competitive mechanisms, while reducing complexity across the electricity supply chain. At the same time, this will look to ensure further costs are not imposed on the government.

The UK was the first country to set a long-term, legally binding target for emission reduction – at least 80% by 2050. It works towards interim targets set out by rolling five-year carbon budgets. Commenting on the review, Helm said the cost of energy mattered “especially now” to businesses and households with the “huge investment requirements” coming to meet the decarbonisation and security challenges in the next ten years and beyond.

In reaction, CBI Managing Director for People and Infrastructure, Neil Carberry, said competitive energy prices were an “important part of a meaningful industrial strategy”. Carberry added: “The CBI looks forward to working with the review to ensure any recommendations support continued business investment and innovation in a secure, flexible and low-carbon energy supply, together with efforts to improve energy efficiency.” Similarly, manufacturers group EEF referred to the review as “welcome recognition” from the government to industry concerns over “increasingly uncompetitive energy prices” and the need to act.

However, Shadow Business and Energy Secretary Rebecca Long Bailey accused the government of procrastinating. Long Bailey suggested businesses and homes needed action now on rising energy costs as they face a “bleak winter”, rather than another review.

Over 100 UK organisations embrace EVs

Oxford City Council, Santander, Swansea University and Gatwick Airport are among the latest private and public sector organisations to embrace the “Go Ultra Low” initiative, joining over 100 organisations.

The “Go Ultra Low companies” have signed up to a “clean, green motoring future” by embracing electric vehicles (EVs). Specifically, these companies have committed to ensuring that at least 5% of their vehicle fleet will be made up of EVs by 2020.

However, many companies are looking to set their sights higher. Santander, which currently operates 57 EVs, wishes for electric vehicles to represent 10% of its 1,400-strong fleet by 2020. Elsewhere, Oxford City Council is pledging 7% of its total fleet to be 100% electric by the end of the decade.

Poppy Welch, Head of Go Ultra Low, drew on how the UK government wants every new car and van in Britain to be ultra-low emission by 2040, explaining that “the corporate sector has a huge role to play in achieving this goal.” Welch added: “Forward-thinking organisations are well on the road to emission-free and low-cost motoring, taking significant numbers of EVs onto their fleets, learning where they are fit for purpose.”

Number of Energy Performance Certificates rise for non-domestic properties

New government statistics have shown that the number of Energy Performance Certificates (EPCs) lodged for non-domestic properties rose 7% in the second quarter of 2017, when compared to the same period a year earlier.

Around 18,000 EPCs were lodged for non-domestic properties in Q2 2017. EPCs indicate the energy efficiency of a building through an A+ to G rating scale. A is considered to be “highly efficient”, while G represents “low efficiency”. The largest proportion of non-domestic properties were placed in band D (35%), with this representing the average non-domestic building energy performance rating.

It is also the required level to have solar panels installed and receive the standard rate from the Feed-in Tariff renewable support scheme.

The report further noted that during the 12-month period ending June 2017, 70,000 non-domestic EPCs were lodged. This, again, marks a slight increase on the equivalent 12-month period in 2016.

Smart Energy GB outlines how to engage employees on smart meters

Smart Energy GB and the Carbon Trust have released a new report, explaining that improving employees’ awareness of their energy use at work, can lead to decreased organisational costs and improved productivity for businesses.

Specifically, the focus of the report was guidance on how employers can engage employees on both smart meters and energy efficiency awareness, whether at work or at home. The report detailed two approaches to running energy awareness campaigns in the work place – the first trying to instil in staff the environmental values that will motivate them to change their behaviour, while the second looked at building specific behaviour change campaigns around people’s existing values and motivations.

The report noted that while domestic energy efficiency campaigns focus on the benefits of cost-reduction, this does not translate easily to businesses. This is because employees are not individually responsible for business energy bills. It did suggest, however, that if a business has smart half-hourly metering then the data could be used to help employees feel more connected to their energy use.                                                                                                                                                                                  

Less than one in seven firms back new electrical energy efficiency rules

A new survey has found less than one in seven (13%) electrotechnical businesses support the inclusion of new energy efficiency rules within the draft 18th Edition update to the Wiring Regulations.

The survey, carried out by the Electrical Contractors’ Association (ECA), found that one in five businesses (20%) felt the energy efficiency rules should be included as an “informative annex” instead. Meanwhile, over half (51%) of respondents said that the rules should be moved into an entirely separate guidance document.

However, almost six in 10 (57%) felt clients would see a benefit in designing an electrical installation from an energy efficiency point of view, even if the initial costs were to be higher.

ECA Head of Technical, Steve Martin, said the survey had shown while electrotechnical businesses were supportive of improving the energy efficiency of electrical installations, updating what has “historically been a safety document” was not considered the “right solution”.

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