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October 2017

By Market Insight Team | Posted November 13, 2017

Generation

The government published its Clean Growth Strategy on 12 October, unveiling plans to decarbonise all sectors of the UK economy and meet the fifth carbon budget. It included curbing emissions from the power sector which will need to be close to zero by 2050. The strategy set out how low-carbon sources such as renewables and nuclear would need to grow to over 80% of electricity generation, while unabated coal power is phased out.

National Grid forecast increased security of supply for this winter, projecting a higher electricity capacity margin than it had originally predicted. The increase was due to increased plant without Capacity Market contracts indicating it will be available this winter.

Delivery

The government has announced a consortium of seven universities that are set to receive government funding for research into the next generation of battery technology. The Faraday Battery Institute forms part of the government’s £246mn investment in battery technology through the Industrial Strategy. It will be supported by £65mn from the Industrial Strategy Challenge Fund, with the universities involved including Cambridge and Oxford.

The government has revealed new measures to make sure that both homes and small businesses continue getting the most from their smart meters. The Smart Meters Bill, introduced on 18 October, will mean the government can continue to regulate the smart meter roll-out until it is completed. It also means it can act on any findings that are made after 2020 that would improve the experience for consumers and small businesses.

Usage

The Clean Growth Strategy also gave its backing to improving business energy efficiency. It pledged to develop a package of measures to support businesses in improving energy productivity by at least 20% come 2030. Policies towards this goal include a simpler, more ambitious and long-term policy and regulatory framework and an Industrial Energy Efficiency Scheme.

The government’s Electric Vehicles Bill passed its Second Reading in the Commons. The legislation looks to increase the access and availability of charge points for electric cars.

Also covered in this Regulatory Report:

Labour and Conservatives signal energy ambitions
EU agree measures to protect carbon market from Brexit
Citizens Advice finds “excellent” performance amongst DNOs
Government reveals energy efficiency scheme costs
Government calls for evidence for reforms to Green Deal
EU agrees new building energy efficiency measures


Generation

Government sets plans for clean energy future

The government published its Clean Growth Strategy on 12 October, detailing plans to decarbonise all sectors of the UK economy and meet the binding fifth carbon budget.  

This includes curbing emissions from the power sector which could need to be close to zero by 2050. Under one possible pathway to 2032 – the point to which the fifth carbon budget runs to – emissions could fall by 80% in comparison to today’s levels.

To achieve this, the strategy set out how low-carbon sources such as renewables and nuclear would need to grow to over 80% of electricity generation – while unabated coal power is phased out. To help meet this target, the government confirmed that £557mn will be made available for the next Contracts for Difference auction for less established renewable electricity projects (Pot 2). The next auction is planned for spring 2019. Furthermore, the government said it will also work with the Crown Estate to understand the potential for deployment of offshore wind into the late 2020s and beyond. The government also intends to ensure wind projects on the remote islands of Scotland that directly benefit local communities are eligible for the next Pot 2 auction, though this remains subject to obtaining State Aid approval from the EU.

The government, in partnership with the research councils and Innovate UK, also expects to invest £177mn to further cut the costs of renewables. This includes innovation in offshore wind turbine blade technology and foundations. It noted that new innovation opportunities may arise in a number of areas such as floating offshore wind platforms and advanced solar PV technologies.

On solar, the government said it wants to see more investment in the technology without state support and is considering options for small scale low-carbon generation beyond 2019. An update on this will follow later in this year. 

The strategy gave its backing to delivering new nuclear through Hinkley Point C and further pledged to progress discussions with developers to secure a competitive price for other nuclear projects that are in the pipeline.

The government stated the costs for nuclear need to be brought down, while safety is maintained through investment in innovation to help plants be built to both time and budget. The government, together with the research councils and Innovate UK, expects to invest close to £460mn in support of work in areas such as future nuclear fuels, new nuclear manufacturing techniques and advanced reactor design.

The government has also announced it will invest £7mn to further develop the capability and capacity of the nuclear regulators to support the development of advanced technologies. There is a potential nuclear sector deal being developed by industry as part of the government’s Industrial Strategy that is coordinated around the objective of achieving cost reductions.

The government also said it will work with industry to develop an ambitious sector deal for offshore wind. The strategy noted that as long as costs continue falling, then such a deal could deliver 10GW of new offshore wind capacity in the 2020s. This would support high value jobs and a sustainable UK industry exporting goods and services around the world. The government will also consider whether there could be opportunities for additional offshore wind deployment in the 2020s, provided it is cost-effective and deliverable.

Finally, the government also said it remains committed to carbon pricing to help reduce emissions in the power sector, with further details on carbon prices to be announced in the Budget.

National Grid reveals increased capacity margin for winter

National Grid has forecast increased security of supply for this winter, projecting a higher electricity capacity margin than it had originally set out in its Winter Review and Consultation in June.

It published its Winter Outlook 2017-18 on 12 October, raising its margin – the extent to which the supply of electricity on the system exceeds the expected level of demand from consumers – from a range of 3.7-4.9GW to 6.2GW (10.3%). The increase has been attributed to increased plant without Capacity Market contracts indicating it will remain available this winter.

Upon making initial projections, National Grid said it was basing calculations on the results of the Capacity Market as well as the potential for some plant without contracts remaining operational. In total, 66.1GW of electricity capacity is forecast to be available this winter on a de-rated generation basis. Transmission system demand is set to peak at 50.7GW in mid-December.

National Grid said that it remains confident it has both the right products and the right strategy in place to help it balance the system – even faced with the colder conditions that have been experienced in recent years.

National Grid also forecast a comfortable gas supply picture, with security of supply provided by the many diverse sources available to GB.

Labour and Conservatives signal energy ambitions

Business and Energy Secretary, Greg Clark, told the Conservative Party Conference that the government is “leading the way on energy” for the first time in a generation.

Clark, making his speech on 2 October, explained this was due to decisions taken on “new nuclear, rolling out smart meters and leading the way in clean growth”. Also at the conference, Climate Change Minister Claire Perry called for a debate on the impact of “green levies” on bills. Perry, speaking at a fringe event, said evidence had shown that while green levies increased certain energy costs, particularly for industrial users, overall energy bills had fallen.

With regards to renewables, Perry and fellow BEIS Minister Richard Harrington said onshore wind could return to compete in auctions for renewables subsidies – if it has competitive costs and local support.

Meanwhile at the Labour conference, the party reiterated its pledge to ensure 60% of UK energy comes from either low-carbon or renewables sources by 2030. Shadow Business and Energy Secretary, Rebecca Long-Bailey pledged to invest in energy infrastructure “to make it fit for the Twenty-First Century” and spoke of support for tidal lagoons and new nuclear.

EU agree measures to protect carbon market from Brexit

According to Reuters, EU lawmakers and member states have agreed how to safeguard the EU carbon market should Britain end up leaving the emissions trading scheme (ETS) because of Brexit.

The deal will look to prevent a mass sell-off in the carbon market should British companies suddenly find themselves outside of it. Reuters noted that Britain is the EU’s second-largest emitter of greenhouse gases and the country’s utilities are among the largest buyers of carbon permits. The EU ETS sees power plants and factories charged for the carbon dioxide they emit under a cap and trade scheme.  

Under the proposed deal, the EU would void permits issued by a country that leaves the bloc from January 2018.


Delivery

Government creates battery research institute

A consortium of seven universities are set to receive government funding for research into the next generation of battery technology.

The Faraday Battery Institute will form part of the government’s £246mn investment in battery technology through the Industrial Strategy. It will be supported by £65mn from the Industrial Strategy Challenge Fund. The universities involved are the Imperial College London, Newcastle University, University College London, and the universities of Cambridge, Oxford, Southampton and Warwick.

Making the announcement on 2 October, Business and Energy Secretary, Greg Clark said: “The Faraday Battery Institute will have a critical role in fostering innovative researching collaboration between our world-leading universities and world-beating businesses to make this technology more accessible and more affordable.”

Government reveals smart meter legislation

The government has revealed new measures to ensure both homes and small businesses continue to get the most from their smart meters through the Smart Meters Bill – introduced to Parliament on 18 October.

Every home and small businesses is expected to be offered a smart meter by the end of 2020. The new bill means the government will be able to continue regulating the roll-out until its completion, ensuring the government can act on the results of any findings after 2020 that could improve the experience for both consumers and small businesses. The bill also means in the unlikely event the company running the national and smart meters communications infrastructure goes bankrupt, consumers would be protected.

Shadow Energy Minister, Alan Whitehead, said the “very modest changes” in the bill had to be judged against “how far away we are from the goal of having a national smart meter presence that makes all other energy innovations – and cheaper energy and gas – possible”.

Citizens Advice finds “excellent” performance amongst DNOs

Citizens Advice released a study on 9 October which found that Distribution Network Operators (DNOs) have performed well when it comes to meeting the Guaranteed Standards of Performance in 2015-16.

The Guaranteed Standards are regulations that set out minimum levels of service to customers. In this period, Citizens Advice found that overall performance in meeting them was “excellent”. The research also found that networks paid out £5.4mn in compensation during 2015-16 as some customers did not receive services in keeping with the standards. It was a figure that should have been higher though with energy customers found to have missed out on a further £2.2mn.

Looking forwards, Citizens Advice called for the regulator to offer automatic compensation for all Guaranteed Standards and to extend the use of penalties against networks that do not pay due compensation to cover all standards. This would mean networks are incentivised to identify and compensate customers when they are not served in line with the Guaranteed Standards.


Usage

Clean Growth Strategy backs business energy efficiency

Improving business and industry energy productivity was listed among the key policies and proposals in the Clean Growth Strategy.

The government said it will develop a package of measures that will support businesses in improving energy productivity by at least 20% come 2030. A final decision on both the level of the goal and how to measure it will come in 2018, taking into account Dieter Helm’s recommendations from his independent review into the cost of energy. Helm’s recommendations included making industry exempt from the renewables costs, a unified auction and a universal carbon price.

The government offered some details on actions it plans to take. Firstly, it will put in place a simpler, more ambitious and long-term policy and regulatory framework. The new framework will make it easier for businesses to identify where they can save energy as well as ensuring those who lease premises to businesses continue refurbishing and improving the performance of their buildings. The government said all new commercial and industrial buildings should be more energy efficient as well. The framework will also ensure the government gains a better understanding of how to encourage greater investment in energy efficiency measures and technologies. This will include an Industrial Energy Efficiency scheme, helping larger firms to install measures to cut their energy use.

The government pledged to assess various schemes that relate to energy efficiency, such as the Energy Savings Opportunity Scheme (ESOS), while it also consulted on a new streamlined energy and carbon reporting framework. The reform package will reduce administrative burdens, raise awareness of energy efficiency, reduce bills and save carbon. The consultation seeks views on mandatory annual reporting and disclosure of energy and carbon information, who the requirements should apply to, reporting of cost-effective energy efficiency opportunities, complimentary disclosures and electronic reporting.

Electric Vehicles Bill progresses in Parliament

The government’s Automated and Electric Vehicles Bill passed its Second Reading on 23 October, and will now be considered by a Public Bill Committee.

The Bill, initially published on 18 October, will increase the access and availability of charge points for electric cars. It will do this by giving the government powers to make it compulsory for charge points to be installed across the country in UK motorway services and large petrol retailers. All charge points will have to be “smart”, the government noted, meaning they can interact with the electricity grid to manage demand for electricity across the country. The bill also enables drivers of automated cars to be insured on UK roads.

Transport Minister, John Hayes, said: “This bill will aid the construction of greater infrastructure to support the growing demand for automated and electric vehicles as we embrace this technology and move into the future.”

The Bill passed its Second Reading by 285 votes to 130. During the debate, Hayes explained putting in charging infrastructure that is both widely available, consistent and works was “vital”, with the government’s aim being that electric vehicles “break into the mass market”. Hayes was quizzed on the impact on the electricity grid and said that he wanted to ensure vehicle charging is flexible to meet the demands of the grid and avoid “extreme peaks” in demand.

Government reveals energy efficiency scheme costs

The government has examined the costs to UK participants of compliance with Phase 2 of the CRC Energy Efficiency Scheme, as well as how they can be simplified.

The CRC Energy Efficiency Scheme looks to incentivise energy efficiency and cut emissions in large energy users, both in the UK’s public and private sectors. The study looked into identifying both the types and amounts of administrative costs associated with participating in phase 2, to quantify the administrative time and costs participants are faced with due to being required to comply with the policy and to understand participants’ views about the scheme to help inform policy development.

It found that the costs of compliance for participants during the five-year period of phase 2 were estimated at £138mn for all 1,858 firms. This works out at around £7,400 per participant, or £15,000 per year. Under a third of total costs for the full five years were predicted to fall within the first year of phase 2. The private sector (£24,759) reported higher compliance costs than public sector organisations (£19,092) during the first year of the phase.

Some organisations felt the policy had raised the profile of energy use at senior level, leading to better management of energy. Despite this, a greater number delivered negative comments on CRC compliance such as how it diverts resources away from activities to improve energy efficiency. Half of respondents felt CRC was more “burdensome” than other environment regulations.

Government calls for evidence on future of the Green Deal

The government has released a call for evidence on all elements of the Green Deal framework, asking whether there is scope for changing it so it can better support current and future needs.

The call for evidence will look at factors such as the scope for simplification. The government said the Green Deal market did not develop as originally envisaged, with the current framework based upon assumptions about the level and type of activity. Because of this, there may be scope to simplify it, facilitating activity and reducing costs. Other factors include changes in the wider industry and policy context and technological developments. The government also noted how the Green Deal was originally designed to fund improvements at non-domestic properties as well, but it had so far only operated for domestic consumers. To this end, responses regarding non-domestic usage to any questions on the framework are welcomed. Views are invited until 23 November 2017.                                                                                                

EU agrees new building energy efficiency measures

New measures have been agreed by the EU Industry and Energy Committee to ensure all new buildings in the EU are as energy-efficient as possible by 2050.

On 11 October, MEPs explained that they wanted a clear strategy to make public and private buildings highly energy efficient by 2050. Around 75% of buildings were found to be energy-inefficient.

MEPs backed proposals such as introducing energy reduction benchmarks for 2030 and 2040, as well as measurable progress indicators. These would evaluate how new buildings contribute to the EU’s overall energy efficiency goals. Other measures approved include a requirement for infrastructure for electric vehicles to be added to all new buildings and to those undertaking major renovation, such as electrical recharging and parking infrastructure in buildings with more than 10 parking spaces. 

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