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November 2016

By Market Insight Team | Posted December 09, 2016

November 2016 – in brief


The government outlined its plans for the future of the UK’s energy mix in a series of key policy announcements. It confirmed that renewables developers would be invited to bid for a further round of subsidies to support their projects, and provided further details on how it intended to phase coal out of the power mix by the middle of the next decade.

But the Autumn Statement saw other important energy decisions deferred by chancellor Philip Hammond. He had been expected to confirm whether the government would keep in place the UK’s unilateral carbon tax beyond 2021, but is yet to reach a decision on the mechanism’s future.  


The government revised its view of the level of benefits that would be offered to businesses through the adoption of smart meters. An updated impact assessment said that the overall benefits of installing the technology within businesses’ premises would reach £2.4bn overall by 2030, while the costs would total around £400mn.

Energy regulator Ofgem and the government launched a major call for evidence on the most effective approaches to developing a smarter and more flexible energy system. This includes consideration of how businesses can be incentivised to provide demand-side response solutions that ease stress on the system.  


The government announced that it would provide further funding to support the development of ultra-low emission vehicles (ULEVs). Additional support of £390mn will be made available between 2017-21 in order to accelerate the low-carbon transition in the transport sector. The figure includes £80mn to support charging infrastructure, while tax measures will also be implemented to support the sector’s development.

A call for evidence was opened on how to unlock carbon savings in non-domestic buildings, which account for 12% of the UK’s greenhouse gas emissions. The Department of Business and Energy said that there was “significant potential” for savings from heat, cooling and energy efficiency within the different non-domestic sectors; however, accessing these savings was challenging owing to the diverse nature of energy usage within those premises.

Also covered in this Regulatory Report:


Government presses ahead with energy transition

The government has outlined its plans for the future of the UK’s energy mix in a series of important policy announcements.

As the UK seeks to achieve its long-term climate goals, the country continues to transition away from power generated by fossil fuels towards cleaner, low-carbon energy sources.

In support of this, the government confirmed on 9 November that it would make a further £290mn of subsidies available to renewable electricity projects through the so-called contracts for difference (CfD) scheme.

The programme sees green projects bidding into an auction that awards them payments in addition to the revenues that they can make selling power in the wholesale market, if they are successful.

The first CfD auction in early 2015 saw subsidies made available to both mature, relatively low-cost renewables such as onshore wind and solar, as well as less-established, more expensive technologies like offshore wind.

For the second auction, the government has decided to only make funding available to the second category, which also includes technologies such as combined heat and power, tidal stream, and geothermal.

On the same day, further details were also issued on plans to ensure that coal power was no longer part of the country’s electricity mix by the middle of the next decade.

In striving to phase out coal by 2025, the government is considering two main options. The first is to require existing coal plants to install carbon capture technology, while the second is to apply an “emissions performance standard” that would require power stations to invest in environmental technology.

Autumn Statement avoids key energy decisions

The government deferred the significant energy policy announcements that had been expected in this year’s Autumn Statement.

The statement, delivered on 23 November, had been expected to bring news of the government’s long-term plans for the UK’s unilateral carbon tax. The policy, known as the Carbon Price Floor, was introduced by the previous coalition government in order to provide confidence to low-carbon investors, but former chancellor George Osborne announced a freeze on the rate in 2014 over concerns that it was undermining the competitiveness of the UK’s energy-intensive industries.

Delivering this year’s Autumn Statement, Osborne’s successor, Philip Hammond, said that the freeze would remain in place until the end of this decade, and that the tax would be uprated with inflation in 2020-21. He said that the government would “continue to consider the appropriate mechanism for determining the carbon price in the 2020s”.

Hammond also avoided making a decision on the future of the government’s mechanism for controlling the cost of low-carbon subsidies, known as the Levy Control Framework (LCF). In 2012, the cost of policy schemes covered by the LCF was capped through to 2020-21 at £7.6bn, but over the past 18 months the government has faced repeated calls to set out its intended LCF budget into the next decade. A decision will be confirmed at next year’s spring Budget.

Coal continues to decline in electricity mix

Coal’s share of Britain’s electricity mix has hit a new low, according to official figures released on 24 November.

In its regular monthly update, the government said that coal contributed just 4.3% of the electricity generation from Britain’s major power producers between July and September. The continued decline was said to be due to poor market conditions and declining capacity – in total, supply from coal-fired stations fell 79% to 2.5TWh.

Coal’s decline was offset by an increase in supply from gas-fired stations, which rose 22% (+5.1TWh). In total, gas supplied 48.1% of the generation mix, while nuclear power supplied 29.0% and renewables accounted for 18.6%.

The rise in nuclear power generation was responsible for pushing up the share of electricity generation from low-carbon sources. This rose by 5.2 percentage points to 47.6% year-on-year, as in 2015 some major plants suffered outages.

Renewables the cheapest way to decarbonise, says E3G

A new report by E3G has argued that a higher use of renewables will be the cheapest approach to decarbonising the nation’s power mix, even when accounting for the cost of integrating these technologies into the system.

The study was released on 15 November. It highlighted an “increasing body of evidence” that showed that the power system could operate securely and at least cost with more than half of demand being met from renewables.

The report said: “System integration costs are predicted to remain less than £10/MWh for a wide range of system characteristics at these increased levels of penetration. This means that it is not only possible to securely operate the power system with high levels of renewable generation, it represents a cheaper option than employing any alternative generation solution.”

The report noted that actual savings could be even greater as system flexibility improved.

Government consults on emissions controls for power generators

The government has set out plans for implementing tighter controls on emissions from small power plants in order to improve air quality.

The Department for Environment, Food and Rural Affairs issued a consultation on the issue on 16 November. It highlighted evidence that the number of generators that had relatively high NOx emissions had grown in recent years and that this growth could continue if distortions in the wider policy landscape were not addressed.

In particular, the department highlighted the substantial number of small-scale generators that had pre-qualified to participate in the forthcoming “capacity market” auction, and that would consequently be in line for consumer-funded subsidies. As well as being concerned about these projects from an environmental perspective, the government is eager to ensure that they do not prevent more large-scale gas power plants from being successful in the auction, as these are regarded as an important part of the UK’s low-carbon transition.  

Under the department’s plans, all generators not exempt would be required to meet a series of standard requirements to limit their emissions.

Responses to the proposals are invited by 8 February 2017.


Smart meter savings trimmed in latest estimate

The average business premise is expected to achieve bill savings of approximately £128 in 2020 and £147 by 2030 through the use of smart meters, a new assessment has revealed.

The government has updated its calculations of the economic benefits that are available from the roll-out of smart meters across the UK, finding them to be lower than had earlier been expected.

A new impact assessment, issued on 10 November, said that the benefits of installing the technology within businesses’ premises stood at approximately £2.4bn overall, while the costs totalled around £400mn.

This left the overall value of the smart meter programme for businesses at approximately £2bn by 2030.

Updates to a number of the government’s assumptions related to, for example, fossil fuels prices were said to have had a considerable impact upon the figures.

When considering the roll-out to households, the net benefit of smart meters overall was expected to reach £5.7bn overall by 2030. Anticipated costs of the programme in its entirety were increased by £54mn since the last assessment. Gross benefits were reduced by £415mn.

Flexible system to unlock consumer savings

On 10 November the government and energy regulator Ofgem opened a major call for evidence on the most effective approaches to developing a smarter, more flexible energy system.

The announcement followed research suggesting that the implementation of innovative new technologies in the sector could save consumers as much as £50bn by the middle of the century.

As part of the call for evidence, officials are considering the steps necessary to make it easier for businesses to provide voluntary demand-side response – where they turn down their electricity use at peak times in return for payments, in order to ease stress on the system.

Ofgem CEO Dermot Nolan said that a smarter system would “revolutionise” the way in which consumers interacted with the energy markets.

UK’s network infrastructure needs upgrade, report says

A report has said that the UK’s network infrastructure will need to be upgraded in order to cater for the changing energy supply.

The Energy Technologies Institute (ETI) published UK Networks Transition Challenges on 1 November. It argued that the current governance and regulatory frameworks were not designed to enable and incentivise the “radical transformation” that would be needed to move to a low-carbon system. The report recommended that the UK incentivise and target investment so as to allow it to adapt and enhance existing networks, and said that clear decisions were needed on where the new networks would be located.

ETI strategy manager Liam Lidstone said: “As networks can take years or even decades to build, the right decisions must be made ahead of need because once they are built they cannot easily be moved or changed. Any future network investments therefore need to be robust to a range of possible transition pathway outcomes.”


Low-emissions vehicles get funding boost

The government has announced that it will provide more funding to support the development of ultra-low emissions vehicles (ULEVs).

Speaking on 23 November, chancellor Philip Hammond confirmed that an additional £390mn of spending between 2017-21 would be used to accelerate the transition to ULEVs. The figure includes £80mn to support charging infrastructure, £150mn towards support for low emissions buses and taxis, £20mn for the development of alternative aviation and heavy goods vehicles, and £100mn for new UK CAV testing infrastructure.

High prices and a lack of charging points have inhibited the growth of electric cars until now, with EVs accounting for just 1% of new cars sold in the UK.

The funding comes alongside tax measures that will be implemented to further support ULEVs. These measures include offering 100% first-year allowances to companies investing in charge-points for electric vehicles, and the confirmation that corporate tax breaks for ULEVs and cycle to work schemes would be retained.

MPs on the Parliamentary environmental audit select committee had forecast that Britain would need 9% of cars sold by 2020 to be ultra-low emissions to ensure that it remained on track to hit legally-mandated emissions targets in 2030.

Chief executive of charging point group PodPoint, Erik Fairbairn, said: “The combination of this new investment and the tax incentive really is a game-changer for our industry.”

Decarbonisation of non-domestic buildings under scrutiny

The government has opened a consultation on how to unlock carbon savings in non-domestic buildings, which account for 12% of the nation’s greenhouse gas emissions.

In issuing its call for evidence, the department said that there was “significant potential” for savings from heat, cooling and energy efficiency within the different non-domestic sectors; however realising this potential was challenging owing to the diverse nature of energy usage within those buildings.

Almost 60% of heat in the non-domestic sector is currently generated by gas. In rural areas, buildings are more likely to be heated by oil, while electricity is an important heat source for many of those in urban areas not connected to the gas grid, such as apartment blocks. The government noted that the low-carbon heating solutions that it deployed would need to accommodate this complexity, but would also need to be centred on consumers’ needs.

The call for evidence explained that, while the wider questions around the future of heat decarbonisation were being considered, there were a number of actions that could be taken in the short term – in particular, targeting those buildings that remained off the gas grid. Moreover, work is underway to reform the Renewable Heat Incentive subsidy scheme to ensure that it delivers value for money for consumers.

It is also hoped that new research will produce more innovation in the heat sector. This could “bring forward new products and ways of doing things that not only reduce carbon emissions but reduce the cost of success”.

Responses to the call for evidence are requested by 27 January 2017.

UK ratifies Paris Climate Agreement

The Paris Climate Agreement has been ratified by the UK government, it was confirmed on 18 November.

The news came during the COP22 climate summit in Marrakesh. There, talks focused on the implementation of the agreement, which provides a framework to keep global warming well below 2°c, while pursuing efforts to limit the temperature increases to 1.5°c.

Business and energy secretary Greg Clark said: “The Paris Agreement sends a clear signal that cutting emissions globally will not only help countries respond to the impact of climate change, but it is also compatible with economic growth.

“As we ratify this landmark agreement, we look ahead to continuing our leadership on climate action and ensuring that British business continues to play a key role in this new global low-carbon economy.”

Climate change minister Nick Hurd said that COP22 marked a shift “from aspiration to implementation”. He added: “We are going to use this positive momentum to grow the UK low-carbon sector, which is already worth over £46bn, as we continue to provide secure, affordable and clean energy to our families and businesses.”

Energy efficiency delivers £1.7bn economic boost

Investments in energy efficiency resulted in a £1.7bn improvement in the productivity of the UK economy between 2010-15, according to the Association for Decentralised Energy (ADE).

The ADE issued its 2016 UK Energy Productivity Audit on 18 November, ahead of the development of the government’s industrial strategy next year. It revealed that, between 2010-15, the industrial, services and domestic sectors had saved enough energy to heat 13mn homes, alongside the improved productivity.

However, more significant energy productivity improvements are needed to ensure the UK meets its long-term climate goals. It was revealed that the efficiency of the country’s electricity supply had only improved by two percentage points in the last five years.

ADE director Tim Rotheray said: “Despite limited policy focus, the industrial, services and domestic sectors have made substantial energy efficiency gains. Yet over 60% of energy in the power sector is lost before it reaches homes and businesses. […] The industrial strategy provides a key opportunity to implement the right policies that will not only support business competitiveness, but drive energy productivity in the UK economy and help us meet our carbon goals.”

Confidence in energy efficiency policy falls

A quarterly survey has revealed that confidence in the government’s management of energy efficiency policy has fallen to its lowest level among suppliers in the non-domestic sector.

EEVS issued its survey on 21 November, saying that the decline in confidence could have been influenced by a similar drop in sentiment with regards to the government’s management of the wider economy. Meanwhile, it said that the key concerns for the sector remained unchanged. Customer demand is still the dominant issue for 41% of suppliers, followed by national competition (14%) and uncertainty regarding subsidy and policy (14%).

However, among non-domestic customers, the report recorded a “sharp uptick” in project sizes, with 56% of firms reporting projects of over £100,000 - compared to 27% six months ago.

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