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July 2017

By Market Insight Team | Posted September 22, 2017

July 2017 – in brief

Generation

The government has announced that energy intensive industries (EIIs) will be made exempt from the indirect costs of the Renewables Obligation scheme. While this will benefit some of the country’s biggest energy users through lowering energy costs, it will slightly increase bills for others. The government recognised the impact for non-exempt users, but said it felt the benefits to EIIs justified proceeding.

National Grid has found new technologies and evolving business models are rapidly transforming the sector in its 2017 Future Energy Scenarios. In particular, it said there could be as many as 9mn electric vehicles in GB in 2030, adding an extra 8GW of demand at peak times without smart charging. It said market and regulatory arrangements must adapt swiftly to support a changing, flexible energy system.

Delivery

The government and Ofgem have released their plan to enable the delivery of a smart, flexible future energy system. The Smart Systems and Flexibility Plan outlined a wide range of actions to be taken to remove barriers to smart technologies, including energy storage, enabling smart businesses and homes, and to make markets work for flexibility provision.

Ofgem has launched its significant code review on electricity settlement reform, pledging to assess the case for a mandatory half hourly settlement (HHS) process for domestic and smaller non-domestic customers. This involves using data from smart and advanced meters, which can record half-hourly energy consumption and be remotely read, improving the accuracy and timeliness of the settlement process.

Usage

The government has announced that it will end the sale of all new conventional petrol and diesel cars and vans by 2040. It is part of a wider plan to improve air quality.

The Aldersgate Group has said the government should mandate the Net Zero Carbon Buildings standard for all new-build non-domestic buildings by 2030, among other recommendations in its Energy Efficiency Briefing. It suggested a managed transition from 2020 would be most appropriate to prevent a cliff edge change in regulations, using metered energy use for compliance with building regulations.

Also covered in this Regulatory Report:

  • Government considers Capacity Market rule changes
  • Non-domestic Renewable Heat Incentive installations fall
  • Defra decides on emissions controls for small generators
  • Networks set for tougher price controls following Citizens Advice research
  • Initiative to boost international competitiveness through energy efficiency
  • Leading businesses urge UK to pursue zero carbon economy
  • Government invests in vehicle to grid technology
  • UK had largest number of polluting facilities in EU in 2015

Generation

Heavy industry provided renewables cost exemption

The government has announced it will exempt energy intensive industries (EIIs) from the indirect costs of the Renewables Obligation (RO) scheme.

While this will lower energy costs for some of the country’s biggest energy users, it will slightly increase costs for other electricity consuming businesses and households. The government recognised the increased cost for non-exempt users, but felt the benefits to EIIs, including increased certainty in comparison to a compensation scheme, and real-time support through being exempt, justified proceeding.

Previously, EIIs, which include major manufacturers and the steel industry, had received compensation for these costs. By shifting compensation to exemption, the costs move from taxpayers to energy bills. Non-exempt business electricity bills are estimated to rise by around 0.2% - 0.6% over 2017-18 to 2027-28.

The exemption has been focused on businesses for whom electricity is a substantial part of their gross value added, operating in sectors considered “at risk” of losing out to international competition.

The government did stress it is still looking to “bear down” on wider business energy costs and considering what more can be done in the business energy area, referencing ongoing work on the Industrial Strategy and Clean Growth Plan.

The exemption is subject to Parliament providing the green light but has already gained State Aid approval from the European Commission. The intention is to bring the RO exemption in from 1 January 2018, but could be delayed if parliamentary approval is not secured in time.

National Grid finds rapid technology shift underway

In its 2017 Future Energy Scenarios (FES), National Grid has found new technologies and evolving business models are rapidly transforming the sector.

It found there could be as many as 9mn electric vehicles in GB in 2030, adding an extra 8GW of demand at peak times without smart charging. Electricity storage, totalling 4GW in 2016, was also tipped to grow rapidly to around 6GW by 2020.

Broadly, National Grid outlined how an energy system with high levels of distributed and renewable generation had become a reality. It explained the growth is set to continue and, as traditional sources of energy supply are replaced by new ones, and demand grows more dynamic, the complexity of operating a secure and cost-effective energy system increases. This means responsible balancing products and services will be needed to deliver flexibility.

Mapping out the potential energy future, National Grid said electricity peak demand could be as high as 85GW in 2050. This is compared to around 60GW today. It explained this would be driven by many factors, such as electric vehicles – projected to reach around 1mn by 2020, before rocketing to 9mn in 2030 – and increased heat pump demand.

It stressed the need for a coordinated approach across the whole system, involving investment in smart technologies, transmission and distribution infrastructure, as well as commercial approaches, such as consumer behaviour change.

Government considers Capacity Market rule changes

The government has launched a consultation detailing proposals on a number of rule changes to the Capacity Market (CM).

It explained that the rule changes were to better align segments of the rules with the original policy intent. Proposed changes are broadly aimed at improving electricity system security and certainty, including ensuring storage capacity is rewarded appropriately for its contribution to security of supply, and improving the delivery assurance for unproven demand-side response (DSR). The former follows concerns that the growth of battery storage in the CM could pose a risk to energy security as some systems are designed to only discharge for a relatively short time.

The government gave assurances that most of the proposals would have a minimal impact on CM costs for the majority of businesses. It said it supported the development of battery storage and DSR, but wanted it to happen in a way “consistent” with the continued achievement of high levels of security of supply through the CM.

Other proposed changes included shifting the planning consent deadline to January to avoid the Christmas period. Responses to the proposals are welcomed until 8 September.

Non-domestic Renewable Heat Incentive installations fall

The number of accreditations made under the non-domestic renewable heat incentive (RHI) decreased significantly in 2016-17, according to an annual report released by Ofgem.

During the financial year, 2,407 installations were accredited under the scheme. This is less than half the levels seen in the previous two years, for example 5,394 installations were accredited in 2014-15 and 5,184 in 2013-14. The RHI provides financial incentives to increase the uptake of renewable heat by businesses, the public sector and non-profit organisations, contributing to the UK’s target of meeting 15% of energy demands with renewable sources come 2020.

The government announced reforms to the scheme’s regulations in December, with these expected to come into force in Spring 2017. However, the parliamentary process was delayed because of the general election. An update on the progress of these reforms is to follow in due course.

Defra decides on emissions controls for small generators

The Department for Environment, Food and Rural Affairs (Defra) has announced it will implement the Medium Combustion Plant Directive (MCPD) and further emissions controls on generators.

The MCPD, which must be transposed into UK law by 19 December 2017, brings in controls for combustion plants in the 1-50MWth range, aiming to deliver improvements in air quality. It comes after an increasing number of businesses have opted in recent years to install onsite generation of this size, while small generators have been successful in capacity market auctions.

Originating from the EU, the controls will apply to new plants from December 2018. Dependent on size, existing plants must comply with requirements from 2024 or 2029. The intention is for full implementations to be achieved in 2030.

Generators with Capacity Arrangements from 2014 and 2015 Capacity Market auctions will be included in transitional arrangements, referred to as Tranche A. They will be joined by generators under 1MW with Capacity Arrangements from the 2016 auction. Tranche A generators will only be tasked with complying with standard permit conditions when their agreement ends.

Delivery

Pathway set for energy system as government targets storage leadership

The government, together with Ofgem, has unveiled a plan to enable the delivery of a smart, flexible future energy system.

The Smart Systems and Flexibility Plan outlined a wide range of actions to be taken to remove barriers to smart technologies, including storage, enabling smart businesses and homes, and to make markets work for flexibility. The plan recognised the role storage can play in a smart grid, as well as opportunities presented by battery technology designed to store surplus energy. To this end, the government also announced the launch of the £246mn Faraday Challenge fund, which is intended to support world-leading research and development in batteries.

Support for the proposals was widespread, with Energy UK lauding the plans for creating a level playing field for all technologies, while techUK said the plan showed how government, regulators and industry could join forces to deliver a cost-effective, flexible and low-carbon energy system that benefits its users. With regards to storage, Renewable UK’s Executive Director, Emma Pinchbeck, heralded the launch as “the starting gun for the UK to become the world-leader in innovative battery storage technologies […]”.

Ofgem to consider mandatory half hourly charging process

Ofgem is to assess the case for a mandatory half hourly settlement (HHS) process for domestic and smaller non-domestic consumers.

Mandatory HHS was implemented for medium and large businesses in April. Using smart and advanced meters, consumers’ half-hourly consumption can be recorded and remotely read. HHS means customers are settled based on their usage in each half hour, improving the accuracy and timeliness of the settlement process, which previously had been based on estimates of usage.

The regulator explained a move to half-hourly settlement on a significant scale can enable innovation in smart tariffs and be an enabler in achieving benefits from demand-side response. The move is part of Ofgem’s significant code review (SCR) on electricity settlement reform, which it launched on 24 July. An implementation decision will come around the end of 2019.

Networks set for tougher price controls

Following research carried out by Citizens Advice, which revealed consumers had been overpaying for energy networks by around £7.5bn over the course of the current eight-year price control, networks have been told to prepare for a “tougher” round of price controls.

Ofgem, which sets the revenues the network companies are allowed to recover in its “RIIO” price controls, was criticised in the Citizens Advice research. The paper said key decisions had allowed energy network companies to enjoy a “multi-billion pound windfall, paid by consumers” and called for said companies to rebate the money to users. In setting out its new price control, Ofgem said they would be adaptable to ensure a wide range of energy futures are considered, capable of attracting global investment and ensuring consumers get value for money.

The new RIIO-2 price control would reflect “clear evidence” the cost of investment required in networks was “significantly lower”, Ofgem explained. It noted this tougher stance was in line with the actions of other utility regulators. It further said it believed investors were willing to accept lower returns for regulated assets, with views on its initial plans invited until 4 September.

Usage

New petrol and diesel vehicles to be banned from 2040

The government has announced that it will end the sale of all new conventional petrol and diesel cars and vans by 2040. The ban does not include hybrid vehicles, which have both an electric and combustion engine.

Included in the government’s £3bn clean air strategy, the announcement is part of a wider plan to improve air quality, alongside progressing the transition to cleaner technologies and electric vehicles.

The government said its new Automated and Electric Vehicles Bill will enable the UK to retain its status a global leader in the electric vehicle (EV) market, allowing it to require the installation of charge points for EVs at motorway service areas and large fuel retailers. This will also make it “even easier” to use EV charge points across the UK.

It will help local authorities with a £255mn Implementation Fund, helping them to prepare their plans and deliver targeted action to improve air quality. It recommended their plans could include measures such as encouraging both public and private uptake of Ultra Low Emission Vehicles (ULEVs) and use of new fuels.

In 2011, the UK had signalled its intention for conventional car and van sales to end by 2040, with a goal for almost every car and van on the road to be zero emission by 2050.

The government further outlined how it was already committed to investing in excess of £2.7bn in air quality and cleaner transport, such as £1bn on ULEVs and a £27mn Clean Bus Technology Fund and Clean Vehicle Technology Fund, prior to the new measures.

Net Zero Carbon Buildings standard should be mandated

The Aldersgate Group has told the government that it should mandate the Net Zero Carbon Buildings standard for all new build non-domestic buildings by 2030.

The call came in the group’s Energy Efficiency Briefing, published on 24 July, in which it made a series of proposals for the government to undertake in pursuit of energy efficiency. It suggested a managed transition from 2020 would be the pathway to this, using metered energy use for compliance with building regulations.

Other proposals within the briefing included introducing mandatory operational energy ratings for all commercial buildings, as this would drive investment and innovation, and creating financial incentives for energy efficiency improvements at “trigger points” in a building’s life. These include maintaining lower VAT for energy efficiency measures.

Further proposed measures included creating financial incentives for the commercial sector to help energy efficiency improvements compete with investments in business growth, and strengthening the Energy Savings Opportunity Scheme (ESOS). The strengthening would involve mandating improvements identified through the scheme, provided they are able to pay back their investment in a reasonable time frame.

The group also called on the government to provide a stable policy landscape, as this would allow businesses to “plan ahead with confidence”.

Initiative to boost international competitiveness through energy efficiency

The Carbon Trust has confirmed it will be running the government’s new initiative to bolster the global competitiveness of British industry, and lower energy costs.

Launched in January, the £9.2mn Industrial Energy Efficiency Accelerator (IEEA) will aim to increase the number of available energy efficient technologies for a range of industrial sectors. It will do this through demonstration of near to market innovations. It is expected the funding will unlock a further £11mn of investment from the private sector to support demonstrations.

Claire Perry, Minister of State for Climate Change and Industry, commented: “This latest programme is a great example of how reducing emissions and growing our economy go hand-in-hand.”                                                                                                                                                                                

Leading businesses urge UK to pursue zero carbon economy

Leading companies and investors have written to the Prime Minister, urging Theresa May to raise the government’s ambition on a zero-carbon economy.

Sent from the likes of The Prince of Wale’s Corporate Leaders Group, IEMA, UK Green Building Council and techUK, the letter called on the government to set clear policies through flagship proposals such as the Industrial Strategy and Clean Growth Plan to meet its commitment under the Paris Climate Agreement.

The letter also called for the government to work constructively with the EU to deliver global emission reductions.

Government invests in vehicle-to-grid technology

The government has unveiled £20mn investment to support the development of electric vehicles capable of returning electricity to the grid.

The investment will be awarded to three types of “vehicle-to-grid” projects - feasibility studies, industrial research or experimental development, and demonstrator trials in the real-world environment. The funding will support projects as part of the government’s Industrial Strategy and help to create a smarter energy system, while bolstering the number of electric cars in the UK.

Minister of State for Climate Change and Industry, Claire Perry, said: “Vehicle to grid technology provides another opportunity for the UK to showcase to the world our leading expertise in research and development […]. This competition could unlock significant economic benefits for the UK - helping to create jobs in this burgeoning sector while helping to reduce our emissions.”

 UK had largest number of polluting facilities in EU in 2015

The UK had the most facilities responsible for the largest releases of air and water pollution in 2015, analysis published by the European Environment Agency (EEA) has found.

In total, the UK had 14 facilities, followed by Germany with seven, and France and Poland who both had five. The EEA further noted that coal-fired plants were responsible for the largest amount of key pollutants released into the atmosphere across Europe – this coming despite a decreasing level of coal generation in recent years.

The EEA added that coal-fired facilities had improved their environmental performance over the last few years. Fewer emissions to air/ energy unit consumed had been released, while biomass in combustion plants had increased threefold between 2004 and 2015.

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