Skip to main content

February 2016

By Market Insight Team | Posted February 05, 2016

February 2016 – in brief

Generation
The government’s Energy Bill continued its progress through Parliament, facing in-depth scrutiny from MPs. The bill would close the Renewables Obligation support scheme to new onshore wind projects, as well as establish a new regulator for the North Sea oil and gas industry.

The Solar Trade Association (STA) said that, despite cuts in government subsidies, solar remained a good investment for businesses. The group claimed that the pace at which the technology was deployed in the UK had increased ahead of the support rates being cut. 

Delivery
The European Union unveiled €217mn of spending to improve Europe’s energy infrastructure. The money is targeted at areas in which interconnection and energy security is weakest, with the aim of supporting progress towards an integrated European energy market,

In a letter to MPs, the chief executive of system operator National Grid defended the costs of the electricity supply “crunch” last November as “not extraordinary”. The letter also reaffirmed National Grid’s confidence that it had the necessary tools to safeguard supplies this winter. 

Usage
New analysis from the Renewable Energy Association (REA)  revealed that investment in battery storage in combination with renewables is already cost competitive for businesses. But the REA said a number of barriers could prevent storage from realising its potential in the UK. 

RE100 - a group of 53 major companies - confirmed that it was more than halfway to achieving its target of sourcing 100% of its electricity from renewables.

Covered in this Regulatory Report:

Generation

Energy Bill progresses through Parliament
The government’s Energy Bill had its Second Reading in the House of Commons on 18 January, and will now face further scrutiny by MPs.

The Bill has two key components: it seeks to establish the new Oil and Gas Authority (OGA) as the regulator of the North Sea to maximise extraction; and it closes the Renewables Obligation (RO) support scheme to new onshore wind projects from April this year. The latter of these was a commitment in the Conservative Party’s manifesto for last year’s General Election.

Amendments to the Bill, proposed both by government and opposition MPs, will now be debated as the Bill enters its Committee Stage. The Labour Party is seeking a change to the legislation that would require the government to issue a report, within six months of the Bill passing into law, on how its cuts to support for renewables will affect the UK’s progress towards its 2020 targets. The party also wants the Oil and Gas Authority to investigate the potential for repurposing defunct North Sea infrastructure for use in carbon capture and storage (CCS) projects.

Meanwhile, the Scottish National Party (SNP) has proposed clauses that would require the UK government to produce a new strategy for CCS and to introduce a 2030 decarbonisation target. The party also wants the bill to provide a firmer commitment to the government’s new subsidy regime for large-scale renewables projects, the contracts for difference (CfD) mechanism. Specifically, the SNP is seeking to ensure that the auctions for these contracts are held at least once annually while the carbon intensity of the UK’s electricity remains above a certain threshold.

Energy and climate change secretary Amber Rudd said the changes in the bill were essential to keeping energy affordable to households and businesses. The new framework for the North Sea would also help ensure the security of the UK’s energy supplies.

Rudd further used the Second Reading debate to confirm the government’s intention to publish a new emissions reduction plan by the end of the year. She said that the purpose of the plan would be to lay out the government’s policy approach to supporting the low-carbon transition. It would, she added, be a long-term plan and would use “new thinking” to find innovative solutions to problems in areas such as energy efficiency.

Solar remains a good investment, says industry group
Solar technology remains “a good investment” despite cuts to the subsidies available through the feed-in tariff (FiT) scheme, according to the Solar Trade Association (STA).

Introduced in 2011, the FiT is the government’s primary support mechanism for small-scale renewables technologies. But the support offered to solar projects is being reduced over concerns that deployment levels under the FiT risk pushing up consumers’ energy bills.

The cuts, announced by the government last month, were implemented on 15 January. Small-scale solar installations will now be eligible for a rate of 4.39p/kWh, which would mean a return on investment of around 5%. Statistics released by the government on 21 January showed a notable increase in the deployment of the technology ahead of the new, lower rates.

STA chief executive Paul Barwell said: “Costs have come down so fast solar is much more affordable today than five years ago - around half the price of a new car. There has never been a greater need to go solar because acting on climate change is more urgent than ever.”

Carbon trading up in 2015, research finds
Analyst Thomson Reuters has unveiled its latest review of the global carbon market, finding that the volume traded fell by nearly a fifth in 2015.

In carbon trading schemes, organisations receive permits that allow them to produce a specified amount of carbon dioxide and other greenhouse gases. These permits can be traded with other organisations. The EU operates its own emission trading scheme (EU ETS), which covers more than 11,000 power stations and industrial plants in 31 countries. In 2020, emissions from sectors covered by the EU ETS are expected to be 21% lower than in 2005. By 2030, the Commission expects them to be 43% lower.

In a report, published on 11 January, Thomson Reuters identified 6.2 gigatonnes worth of emissions allowances and offsets traded in 2015. This was a decrease of 19% from 2014. However, due to the higher price in most carbon markets last year, the total value of these trades increased by 9% to €48.4bn. This growth was particularly pronounced in North America, but the European carbon market shrunk.

The decrease in activity in Europe, which occurred for the second consecutive year, was partly due to a surplus of allowances in the market. Traded volumes in the EU ETS fell by 29%, though overall value fell less steeply, by 8%. The EU is currently “back-loading” allowances in a bid to push up the carbon price, and will in the longer term implement further measures to stabilise the market. The report said low-carbon investors therefore remained confident that the EU was serious about improving the scheme.

Business leaders urge government to pursue stable energy policy
The low-carbon transition must be pursued while keeping costs affordable and the UK’s energy supply secure, a group of business leaders has said in an open letter to the government.

The letter, issued on 26 January, was signed by the heads of organisations including the Confederation of British Industry, Aviva, Veolia and Amec Foster Wheeler. It said that, to deliver decarbonisation, the government needed to provide a stable policy framework that could improve the confidence both of investors and consumers.

The group recognised that, in order to ensure that the shift to more intermittent renewable energy did not undermine security of supply, it would be important to examine the potential of electricity storage and the possibility of managing peak-time demand. The government would also need to support the development of new gas and nuclear capacity, the group said.

The letter concluded: “We also need an overhaul of complex regulations holding back investment in energy efficiency – so that the best intentions to support firms to reduce their energy use and carbon impact are not lost in bureaucratic green tape.”

Climate watchdog warns decarbonisation costs to double without CCS
The costs of hitting the UK’s 2050 climate targets will be twice as high unless carbon capture and storage (CCS) technology is deployed, government advisory body the Committee on Climate Change (CCC) has warned.

CCS is a technology that can capture up to 90% of the carbon dioxide emissions produced from the use of fossil fuels in electricity generation and industrial processes, thereby preventing the emissions from entering the atmosphere. Without it, the CCC warned, other, “much larger” and “more costly” measures must be deployed in sectors including transport, buildings and agriculture in order to meet the UK’s 2050 targets and successfully decarbonise.

In a letter to energy and climate change secretary Amber Rudd, issued on 28 January, the CCC also explained that the climate agreement struck by diplomats in Paris last December “is more ambitious than the basis of the UK’s statutory target for 2050”. It said the UK’s target reflected a path towards holding global temperature increases to below 2˚c, while the Paris agreement would seek a limit of 1.5˚c and net zero emissions in the second half of the century.

Government aims to improve energy market competition
The Department for Energy and Climate Change (DECC) has published new draft legislation that aims to increase competition in the energy market and reduce costs for consumers.

On 21 January the department revealed plans to help ensure smart meters are rolled-out to homes and businesses by 2020. Specifically, the legislation will ensure that the secretary of state retains powers to intervene in the roll-out programme beyond the end of the decade.

The legislation will also provide energy regulator Ofgem with powers that support the introduction of arrangements for next-day switching, and for ensuring that suppliers use consumers’ actual half hourly electricity consumption data in settlement processes.

The government also plans to enable competitive tenders for some onshore electricity assets, as is currently the case for offshore assets. The government is confident that this will drive down the costs of delivering new energy infrastructure.

 Top


Delivery

EU to invest in energy infrastructure
The EU announced on 19 January that it had made €217mn available to fund infrastructure work across Europe to “fully integrate” the continent’s energy market.

The funding will support 15 projects designed to connect currently-isolated countries to the wider European network. This will increase the countries’ energy security, and support the move towards a comprehensive European energy market. The projects include modernising the Bulgarian gas transmission network, and a scheme to help gas flow between France and Spain. The UK is also to benefit with support for a study on the IFA2 electricity interconnector between the UK and France, which could help lower UK wholesale prices.

European commissioner for climate action and energy Miguel Arias Cañete said: “Modern energy networks are also crucial to ensuring efficient use of our energy resources and therefore key to reaching our climate goals."

Grid balancing costs not excessive, says system operator
National Grid has rejected suggestions that the cost of balancing the electricity network when supply margins tighten is too high.

In a letter to the parliamentary energy and climate change select committee, published on 13 January, National Grid director Cordi O’Hara addressed the supply “crunch” that occurred on 4 November last year, which prompted the system operator to issue a Notice of Inadequate System Margin (NISM). This is a signal to power stations that the network’s reserve margin of spare electricity is low. The first NISM since 2012, the event on 4 November last year saw power stations selling electricity to the network at prices several times higher than average.

O’Hara put the total cost of that day’s measures to balance the system at £2.4mn, of which around £1.05mn was incurred during the NISM period. The average daily cost for balancing activities in 2014-15 was £2.33mn, so the day of the NISM was only marginally more costly than usual. O’Hara concluded: “Although we are never complacent, we do believe that we have the right tools in place to manage this winter. We of course keep the position under constant review.”

Government aims to improve energy market competition
The Department for Energy and Climate Change (DECC) has published new draft legislation that aims to increase competition in the energy market and reduce costs for consumers.

On 21 January the department revealed plans to help ensure smart meters are rolled-out to homes and businesses by 2020. Specifically, the legislation will ensure that the secretary of state retains powers to intervene in the roll-out programme beyond the end of the decade.

The legislation will also provide energy regulator Ofgem with powers that support the introduction of arrangements for next-day switching, and for ensuring that suppliers use consumers’ actual half hourly electricity consumption data in settlement processes.

The government also plans to enable competitive tenders for some onshore electricity assets, as is currently the case for offshore assets. The government is confident that this will drive down the costs of delivering new energy infrastructure.

Top


Usage

Battery electricity storage already attractive, finds research
Battery storage is already cost competitive and attractive for businesses when integrated with renewables, according to a report by the Renewable Energy Association (REA).

Energy storage systems allow electricity or heat to be stored in different forms so that it can used at a later time. There are a wide range of storage technologies – but at present its role in the power sector is largely limited to pumped hydro storage. This sees hydroelectric dams using their turbines to pump water to their upper reservoirs when electricity is plentiful, and then releasing it to generate electricity when there is a lull.

Storage is seen as particularly relevant in the context of growing levels of intermittent renewables generation like wind and solar power, allowing their electricity to be stored and used when supplies are low.

The REA’s report focused on lithium-ion batteries, which are steadily becoming cheaper, and are easier to deploy than other systems. These will be able to underpin “decentralised energy systems”, simplifying the use of local renewable generation, smart grids and electric vehicles. Combined with new tools to help manage energy use, decentralised systems should help to reduce consumers’ bills and support the low-carbon transition.

The report suggested that the cost of lithium-ion batteries could fall by 10% annually over coming years. The industry is hopeful that the technology’s cost curve will follow that of solar panels, as increasing demand allows manufacturers to achieve economies of scale.

In its central estimate, the report said the capital cost of commercial battery systems per kWh (currently £700) would be less than £400 in 2020, declining more slowly to around £200 in 2030. For a business, the REA suggests that a battery system could offer a return of 6.2%/ year.

REA chief executive Dr Nina Skorupska said: “2016 is going to be the breakthrough year for energy storage and the growth of decentralised energy […] We are not asking government for subsidies, what we need is a stable policy environment that has been so lacking in the past year, coupled with a common sense approach to regulation and the ability to fully participate in the electricity market.”

Business renewables initiative on course to hit targets
A group of 53 major companies is more than halfway to achieving its target of sourcing all of its electricity from renewables.

The RE100 group is a global initiative designed to engage, support and showcase influential companies committed to using 100% renewable power. Its membership includes Coca-Cola, Starbucks and Microsoft.

On 20 January, it was announced that the companies had, on average, passed the halfway mark and should be sourcing 80% of their electricity from renewables by 2020. The technology, retail and professional services companies had all achieved at least 60% renewable sourcing, though the food and drink sector had only reached 23% on average.

Roberto Zanchi, technical manager of renewable energy at CDP, said: “This […] shows us that business corporations around the world are stepping up in making commitments to renewable energy and working with RE100 to drive forward a global market for renewable energy.”

Funding confirmed for low-carbon transport projects
Five projects aimed at developing the future of low-carbon transport have won £75mn of funding.

Announced on 15 January, the funding has been awarded by the Advanced Propulsion Centre, a 10-year, £1bn joint partnership between the government and the automotive industry.

Projects that will benefit from the funding include the London Taxi Corporation’s scheme to deliver a series of light-weight, zero-emissions capable, vehicles. Among other successful bidders, a consortium led by AGM Batteries has been awarded £5.4mn for a project to develop the next generation of battery packs for high-performance, low-carbon vehicles.

Business secretary Sajid Javid said: “These new projects will cement the UK’s position as a leading global centre for low carbon innovation and manufacturing.

Scottish government to back business energy efficiency
The Scottish government has created a new £14mn fund to enable local authorities across Scotland to roll out energy efficiency measures to public buildings and businesses.

The funding, unveiled on 22 January, is intended to help improve warmth in buildings and homes, drive down energy bills and work towards reaching climate change targets through a series of pilot schemes, before a major new energy efficiency programme is established in Scotland in 2018.

Scottish social justice secretary Alex Neil said: “Over 900,000 energy efficiency measures have been carried out across homes in Scotland since 2008. Scotland’s Energy Efficiency Programme will work with businesses and the commercial sector to see how we can achieve similar successes. This pilot phase will allow councils to test the effectiveness of new approaches to energy efficiency.”

Paris talks mark “tipping point” in business climate attitudes
A survey conducted by InfluenceMap has identified a number of companies as “true leaders” for the strength of their climate policies.

Released on 20 January, the report suggested that a “tipping point” had been reached in corporate attitudes to climate policy, with more than half (52) of the world’s top 100 industrial companies advocating plans for emissions reductions in line with the 2˚c target.

Firms such as National Grid and electric vehicles company Tesla were said to both be strongly supportive of progressive climate policy.

However, InfluenceMap warned that companies had to be wary of misalignment between the official position of senior management and the actions of other parts of the business. For example, climate action in some parts of a company, such as greening transport, may incur additional costs in other arms.

Government offers guidance on ESOS
The government has released a new guide for businesses on how they can take advantage of the Energy Savings Opportunity Scheme (ESOS).

ESOS is an energy efficiency scheme that is compulsory for organisations with over 250 employees or an annual turnover of €50mn. As part of the scheme, organisations have to complete a self-assessment of their energy use and submit it to the Environment

Agency every four years. The first deadline for compliance with ESOS was 5 December 2015, though the Environment Agency said it would be unlikely to take action against companies that complied between then and 29 January so long as they provided notification of the delay.

On 13 January the government published a step-by-step guide to aid organisations in quantifying the savings offered by the opportunities identified. It is particularly aimed at those companies that have little experience of energy savings and may lack an energy manager.

Post a comment

Your email address will not be published.
CAPTCHA

Related articles