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June 2017

By Market Insight Team | Posted July 03, 2017

Generation

National Grid has forecast a higher capacity margin this winter in its Winter Review and Consultation for 2017-18. The system operator predicted up to a 9.9% surplus of electricity generating capacity for this winter, up from 6.6% in 2016-17. Initial analysis suggested the margin for 2017-18 would be in the region of 7.2% to 9.9%, with the first year of delivery of the Capacity Market causing some uncertainty over which generators may be available. It explained the margin range had been used to reflect the uncertainty.  

The UK hit a new renewables peak record in June, with wind, solar, hydro and biomass delivering 19.3GW over lunchtime (12:30-13:00) on 7 June – equating to 50.7% of total demand. The day marked the first time wind, nuclear and solar all generated more electricity than gas and coal combined. With nuclear added to the figures, low-carbon sources were producing 72.1% of electricity in the UK.

Delivery

Government reiterated commitments on smart meters and set out long-term plans for nuclear in the Queen’s Speech. A smart meter bill will see the government able to continue to support the effective and efficient completion of the rollout past the 2020 deadline, while a new nuclear bill will ensure the UK continues to be a “responsible nuclear state”.

The energy regulator has announced it will change the transmission charging arrangements for embedded generation, in the hope it will lower bills for electricity users. Ofgem has claimed the move will save consumers £7bn by 2034, but there are concerns some businesses with their own generation equipment may lose out.

Usage

Analysis by Philips Lighting has found UK organisations are not doing enough to reduce emissions. In 2015-16 an average UK organisation reported CO2 emissions equivalent to 2,421 homes’ energy use for a year, while only a third (32%) were disclosing carbon emission reduction targets in their annual reporting.

Bloomberg New Energy Finance and EEVS have revealed a positive outlook in the non-domestic energy efficiency sector, in the latest Energy Efficiency trends survey. High efficiency lighting was found to be the lead technology, equating to seven in 10 consumer investments.

Also covered in this Regulatory Report:


Generation

National Grid forecasts higher capacity margin this winter

National Grid has predicted up to a 9.9% surplus of electricity generating capacity in its Winter Review and Consultation for 2017-18 – notably up on 6.6% in winter 2016-17.

The assessment compares the de-rated capacity, which considers the likelihood each technology will be generating during peak demand periods, against the expected peak demand during the winter months.

Its Winter Outlook Report will be released in October, though initial analysis suggested the margin for 2017-18 would be in the region of 7.2% to 9.9% (3.7GW – 4.9GW) on a transmission demand basis. In terms of underlying demand, where embedded generation and demand are not netted off, the figure equates to a range of 6.2% to 8.2%. This year also marks the first delivery of the Capacity Market. National Grid explained that some generators currently available had not been successful in capacity market auctions and so may not be available this winter. This meant significant uncertainty in the margin, and led to the large range in expected capacity. The system operator stressed the importance of embedded generation and demand response modelling in the GB security of supply assessment is “clearly growing”.

The report also looked back at 2016-17. It found transmission system demand was 50.9GW last winter, and was consistently lower throughout the season compared to 2015-16, despite colder weather. Temperature, wind, interconnector flows, embedded generation and customer demand management can all influence transmission demand, the system operator explained.

In the case of winter 2016-17, the difference had mainly caused by a fall in weather corrected demand and an increase in non-weather related embedded generation.

UK hits new renewables peak power record

Wind, nuclear and solar all generated more electricity than gas and coal combined for the first time ever on 7 June, as the UK set a new renewables peak power record.

At 1pm, renewables – wind, solar, hydro and biomass – delivered 19.3GW, equating to 50.7% of the total 35.4GW demand. When nuclear was added to the figures, by 2pm low-carbon sources were producing 72.1% of electricity in the UK.

Gas-fired power plants contributed just 20.8% to accommodate for the surge in renewable power.

Commenting, Energy UK CEO Lawrence Slade said: “Today’s renewables record shows that energy companies are embracing the opportunity to deliver the affordable, secure and clean energy that consumers demand.  We now need a stable policy framework that continues to encourage investment and an Industrial Strategy that promotes low-carbon growth.”

The landmark followed solar setting a record of its own on 26 May in which it generated almost a quarter (24.3%) of demand, producing 8.7GW.

The increased renewables capacity in the UK energy mix brings challenges for the system operator, who is tasked with balancing supply and demand on a second-by-second basis, dealing with intermittent power output influenced by the weather. Duncan Burt, Head of National Grid’s control room operations, said: “We have planned for these changes to the energy landscape and have the tools available to ensure we can balance supply and demand. It really is the beginning of a new era, which we are prepared for and excited to play our part.”

Energy market change inevitable after Brexit

The status quo of the energy market is “almost certainly untenable” after Brexit, according to a new report by law firm Herbert Smith Firhills, Global Counsel and the Boston Consulting Group.

The “best case scenario” for the UK would be one where it avoids becoming a “rule taker”, said the report. It added Brexit could allow it to rethink energy policy, developing nuclear power and achieving the decarbonisation agenda in a more cost-efficient way. Meanwhile, the report considered a transitional arrangement the “best hope” for getting an ambitious deal on energy for both the EU and UK in Brexit negotiations.

Similarly, transitional arrangements were regarded as key in preventing any cliff edges that may arise in relation to electricity trading, should Brexit negotiations on energy not be finalised under the two-year period set out under Article 50. Trade association Eurelectric said, should the UK leave the EU carbon emissions trading scheme (ETS), there would be a direct impact on the EU ETS price, with around 8-9% of demand potentially disappearing overnight. It noted there was no precedent for how this would be resolved, adding it could reopen political discussions on the EU’s 2030 climate and energy targets – agreed in October 2014.

If the UK were to continue to engage in the EU legislative process and commit to implement all legislation while it remains a member state, added the report, doing so constructively will aid the prospect of a continued strong energy relationship with the EU in future.

Businesses taking green energy opportunities: CBI

According to the CBI, the UK is on the verge of a “golden age” of infrastructure development, if backed by a pro-enterprise partnership between government and business.

CBI Director-General, Carolyn Fairbairn, was speaking at the National Infrastructure Forum where she called on government to take urgent steps to unleash the new age, including significant new investment in clean energy and green transport. Fairbairn said companies and communities were already seizing green energy opportunities, noting wind and solar, before adding the government must give businesses certainty by providing clarity on the investment framework beyond 2020.

Fairbairn noted that political and regulatory risks are concerns, explaining: “Just as we’re asking business to invest huge sums, policies like price caps on energy, which are vague on detail but big on headlines, will create uncertainty, knock confidence, and risk deterring investment.” She added government must work with business to “fill the blanks” on policy details and provide the certainty investors are looking for.

Energy sector concerned current policies will miss carbon budgets

The Energy Institute (EI) Annual Barometer 2017 has found that while seven in 10 members think there will be an emissions reduction of at least 53% by 2032, only two in 10 think the fifth carbon budget’s goal of 57% will be met.

Professor Jim Skea President of the EI commented: “Political uncertainty also may jeopardize the progress of the UK’s transition to a low-carbon economy. Electricity has been decarbonised substantially, but there is a growing need for action in decarbonising heat and transport.”

Respondents said supporting energy efficiency, renewable energy and nuclear power should be priorities to reach emissions targets and achieve the low-carbon transition at least-cost. Smart electricity grids, energy storage and flexible generation capacity were regarded as the most important infrastructural changes by members to achieve a flexible energy system.


Delivery

Queen’s Speech pledges action on smart meters and nuclear

Delivered in Parliament on 21 June, the Queen’s Speech saw the government reiterate commitments to smart meters and action on nuclear, once the UK leaves the European Union.

The government reaffirmed its manifesto commitment to ensure “smart meters will be offered to every household and small business by the end of 2020.” However, the government will also introduce a bill enabling it to continue to support the effective and efficient completion of the smart meter rollout past the 2020 deadline.

The bill’s main elements include a five year extension to the government’s ability to make changes to smart meter regulations, and the introduction of a Special Administration Regime. This will provide for the continual operation of the national smart meter infrastructure in the unlikely event the company responsible goes bankrupt.

The government also put forward the Nuclear Safeguards Bill. This would establish a UK nuclear safeguards regime as it leaves existing European arrangements. The new legislation will ensure the UK maintains its reputation as a “responsible nuclear state”.

Payments to small generators to be cut

The energy regulator is to change the transmission charging arrangements for embedded generation. It is hoped this will lower bills for electricity users.

Small-scale power generators, including most onshore wind, small-scale diesel and biomass, can receive the so called “Triad benefit” if they generate at peak times over the winter. As the power generated from these plants is judged not to use the transmission network, the supplier off-taking the power avoids associated transmission costs. These are passed through to the power station under terms of their offtake agreement, termed a power purchase agreement (PPA).

Under Ofgem’s ruling, triad payment to small generators will fall by up to 95%. The largest element (the “residual”) will fall in a phase approach from £47/kW in 2017-18 to between £3/kW to £7/kW in 2020. Ofgem noted the payments had been set to rise to £70/kW over the next four years.

Ofgem have claimed the move will save consumers £7bn by 2034. However, many groups have raised concerns that some businesses with their own generation equipment may lose out.

ENA defines Distribution System Operator role

The Open Networks Project, led by the Energy Networks Association (ENA) has set out the definition of the Distribution System Operator (DSO) role – clarifying how local power networks will change as the UK’s smart energy grid becomes a reality.

The project is re-defining how energy networks will operate in the future as the country heads into a new “smart era”. Under the new definition, a DSO securely operates and develops an active distribution system made up of networks, demand, generation and other flexible distributed energy resources.

A DSO will act as a “neutral facilitator” of an open and accessible market, enabling competitive access to markets and optimal use of distributed energy resources on distribution networks to deliver security, sustainability and affordability in the support of whole system optimisation. Customers are therefore able to be producers and consumers, the ENA said.


Usage

Large companies “can do more” to reduce emissions

Analysis carried out by Philips Lighting has found that UK organisations are not doing enough to reduce emissions.

Issued on 21 June, Philips said an average UK organisation in 2015-16 reported CO2 emissions equivalent to 2,421 homes’ energy use for a year. In total organisations included within the CRC Energy Efficiency Scheme had emitted over 41mn metric tonnes of carbon dioxide during 2015-16 – equivalent to greenhouse gas emissions of 8.7mn passenger vehicles driven for a year.

Nicola Kimm, Head of Sustainability, Environment, Health and Safety at Philips said: “The CRC scheme was designed to reduce the emissions of those organisations with the largest carbon footprints in the UK, but our analysis suggests that the country’s largest public and private sector bodies still have a long way to go.”

The CRC Scheme is a mandatory carbon emissions reporting and pricing scheme, covering large public and private sector organisations using more than 6,000MW of electricity/year. The sectors targeted by the scheme generate over 10% of UK CO2 emissions.

It was revealed just a third (32%) of organisations were disclosing carbon emission reduction targets in their annual reporting. Around 15% were not disclosing targets, while over half (53%) refused to say whether they did or did not. Furthermore, only 29% of organisations disclose their performance against carbon emission reduction targets. Again, over half (55%) did not say whether they did or did not, while 16% revealed they did not disclose their performance.

The analysis also found less than half (45%) of organisations said they were actively engaging employees to reduce carbon emissions at work. Kimm added: “Making concerted efforts to improve energy efficiency saves organizations money, improves their reputation and contributes to our climate change mitigation targets.”

Lighting dominates business energy efficiency upgrades

Bloomberg New Energy Finance (BNEF) and EEVS found a strong focus on energy efficiency in the non-domestic sector, in the latest Energy Efficiency trends survey, published on 20 June.

High efficiency lighting was found to be the lead technology to drive down energy consumption. This equated to seven in 10 consumer investments. However, it was found smart metering and cooling technologies saw sharp, atypical rises for the quarter, overtaking lighting controls and Building Energy Management Systems (BEMS).

Customer payback expectations softened slightly, moving out towards four years. It was also found almost 40% of consumers reported payback expectations of five or more years for their energy efficiency investments.

Views on government action in the non-domestic energy efficiency sphere remain negative – over half of suppliers of energy efficiency improvements considered energy efficiency policy to be ineffective. It did note, however, that the negative sentiment has softened over the last six months and the government could see cautious support for energy efficiency policy in a further six months.

Elsewhere, it was found customers were highly positive about the technology offering of UK energy efficiency suppliers. Seven out of 10 judged it to be “very satisfactory” or “superior”. Meanwhile, no respondents said they had received an unsatisfactory or poor level of service.

Policy Exchange calls for appropriate electric vehicle regulatory framework

The infrastructure impacts of transport decarbonisation should be tackled in new research, said Policy Exchange.

Released on 26 June, the report highlighted that electric charging infrastructure and services are currently unregulated. It called for the energy regulator Ofgem to put in place an appropriate regulatory framework that would allow the creation of a competitive market for battery electric vehicle charging and hydrogen refuelling.

The report also recommended the system of grants for ultra-low emissions vehicles (ULEVs) is continuously reviewed to ensure it represents value for money, while the grants for home, workplace, and on-street charging points should also be reviewed. This would prevent the over-subsidisation of their deployment, while the government should signal a phase out of subsidies for charging points around 2020.

The report further called for electric charging infrastructure to be smart and controllable, thus minimising the investment required into local power networks and additional electricity generation capacity.

Sainsbury’s to switch to 100% LED lighting in new deal

Sainsbury’s has signed a deal with GE division Current to deploy 100% LED lighting across its stores in what is said to be one of the UK’s largest ever energy efficiency projects.

The 250,000 new light fittings are expected to lead to energy savings of 58%. They are also forecast to cut greenhouse gas emissions by 3.4%/year. The deal makes Sainsbury’s the first UK grocery retailer to completely switch to LED lighting.

According to Paul Crewe, Sainsbury’s Head of Sustainability, Energy, Engineering and Environment, the upgrade will play a significant role in Sainsbury’s meeting its targets of cutting emissions 30% against 2005 levels by 2020. Crewe added: “We've almost halved the carbon emissions of our stores since 2005, and in the last 12 months reduced our electricity use by 11.6 per cent despite growing our operation by 54.2 per cent. This step will enable us to make significant reductions in carbon emissions.”

Investor group calls for bolder EU climate package

The Institutional Investors Group on Climate Change (IIGCC) has written to EU energy ministers urging them to agree an ambitious framework, which includes a long-term decarbonisation objective to 2050 aligned with the Paris Agreement.

The IIGCC encouraged ministers to support measures such as a 30% binding energy efficiency target, as this would send a “clear and positive signal” to investors, banks and businesses. It also backed extending the annual energy savings obligation post-2020 and increasing ambition beyond the current level of 1.5%. It also advocated the proper identification and “tagging” of green and energy efficiency investment on actual as opposed designed energy performance.

The group said it had been concerned proposals under the European Commission’s Clean Energy Package could be “watered down” and final agreements would not deliver the most cost-effective path to achieving climate and energy targets. It called on member states to do their part in setting an “appropriate and enduring” policy framework. The group added the EU had an opportunity to seize a leadership role following the US withdrawing from the Paris Agreement.

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