Skip to main content

Regulatory Report - July 2022

By Market Insight Team | Posted August 01, 2022

Generation

Following the commitment set out in its Energy Security Strategy, the government published a consultation on the Review of Electricity Market Arrangements.

Following the announcement as part of the Queen’s Speech in May, the government announced the introduction of the Energy Security Bill into Parliament.


Delivery

Ofgem published a consultation on the draft determinations for Distribution Network Operators RIIO-ED2 price control which will run from April 2023 to March 2028.

BEIS opened a consultation titled Delivering a smart and secure electricity system: the interoperability and cyber security of energy smart appliances and remote load control.

BEIS and Ofgem issued a joint consultation on the future ownership of Elexon once the Future System Operator has been established.


Usage

The Society for Motor Manufacturers and Traders (SMMT) announced a 13.3% increase in UK car production in May 2022 – up for the first time since June 2021 – with 62,284 units leaving factories.

RenewableUK published its report, Roadmap to net zero: a manifesto for a fully decarbonised power system by 2035.

Also covered in this Regulatory Report:

 


 

Generation


BEIS consults on Review of Electricity Market Arrangements

Following the commitment set out in its Energy Security Strategy, on 18 June the government published a consultation on the Review of Electricity Market Arrangements (REMA). This aims to ensure that the electricity market design is fit for the purpose of maintaining energy security and affordability for consumers as the electricity sector decarbonises.

The consultation sets out a range of options for reform for all (non-retail) electricity markets, including the wholesale market, balancing mechanism and ancillary services, as well as policies that impact these, such as the evolution of and alternatives to the Contracts for Difference (CfD) scheme and the Capacity Market.

The document includes several chapters that explore areas up for discussion including its overall approach to market reform and options for delivering a net zero wholesale market, capacity adequacy, and flexibility.

The consultation closes on 10 October 2022 and is the first step in the REMA programme, with the government setting out its case for change of current electricity market arrangements. Following this, BEIS will seek to determine and develop what reforms are needed through engagement with the energy sector, and then establish a full delivery plan and oversee implementation.


Energy Security Bill introduced into Parliament

Following the announcement as part of the Queen’s Speech in May, the government announced the introduction of the Energy Security Bill into Parliament on 6 July. It said that it is the most ‘significant’ piece of energy legislation in a decade, setting out a range of measures to be introduced. These are aimed at reforming the energy system to protect customers from unfair pricing, leveraging private investment in clean technologies, and ensuring the safety and resilience of the UK energy system.

  • Enabling the extension of the energy price cap beyond 2023.
  • Establishing a new independent Future System Operator, which will take a whole-system approach to coordinating and planning GB’s energy system.
  • Establishing a buy-out mechanism under the Energy Company Obligation (ECO) scheme for suppliers.
  • Driving industry progress on the smart meter rollout.
  • Supporting the deployment of carbon, capture, usage and storage (CCUS) and hydrogen.
  • Establishing a market-based mechanism for the low-carbon heat industry.
  • Enabling the delivery of a large village hydrogen heating trial by 2025.
  • Ensuring that the UK’s oil and gas and carbon storage infrastructure remains in the hands of companies with the best ability to operate it.


The government said the bill will help drive an unprecedented £100bn of private sector investment by 2030 into new British industries that are built to last and help diversify our domestic energy supply.


CfD AR4 procures largest amount of renewable capacity to date

BEIS published the results of Allocation Round 4 (AR4) of the Contracts for Difference (CfD) scheme on 7 July. 93 projects, totalling 10.8GW of capacity, were successful in winning contracts, with Delivery Years ranging between 2023-24 and 2026-27.

Overall, a budget of £295mn (in 2011-12 money) was allocated to the round, £210mn of which was allocated to offshore wind. £75mn was allocated to Pot 2 technologies, with this including minimums of £24mn for floating offshore wind and £20mn for tidal stream. The remaining £10mn was allocated to Pot 1 technologies. Offshore wind represented the majority of successful capacity with 7.0GW, up from the 5.5GW procured in AR3.

Contracts were due to be issued to successful projects between 12 and 19 July with generators then having 10 working days to return a signed copy to the Low Carbon Contracts Company (LCCC) to formally accept the contract.


ESO publishes Pathway to 2030 with HND to support 23GW offshore wind

National Grid Electricity System Operator (ESO) published Pathway to 2030 including the Holistic Network Design (HND) on 7 July.

The HND primarily includes offshore wind projects that secured seabed leases through The Crown Estate’s Offshore Wind Leasing Round 4 and Crown Estate Scotland’s ScotWind Leasing Round. It states the HND is a coordinated design for onshore and offshore transmission infrastructure to support 23GW of offshore wind. It also states the 23GW of offshore wind could deliver up to £54bn in investment into the GB economy and save consumers £5.5bn in costs by 2030 through increasing network capacity compared to connecting wind farms individually. However, the HND will require ‘significant’ investment in the existing onshore system to transport electricity to where it will be used. The report recommends 94 reinforcements totalling £21.7bn, many of which need to be delivered before 2030.

The ESO states next steps involve a follow on HND to include further offshore wind development – including all ScotWind projects – by Q123. The HND will be followed by a Detailed Network Design (DND) and consenting process to determine transmission routes, technology choices, and the locations for substations and converter stations.


BEIS consults on design of a business model for GGR technologies

On 5 July, BEIS published a consultation – closing on 27 September 2022 – seeking views on the design of a business model for engineered greenhouse gas removal (GGR) technologies, to attract private investment and enable at scale deployment of GGR projects from the mid-to-late 2020s. It highlights that as part of the Net Zero Strategy, the government indicated that it would develop markets and incentives for engineered GGR technologies.

Views are sought on the intention to develop a contract-based business model for early GGR projects, options for the primary design features of the business model, potential market frameworks for negative emissions, the applicability of a GGR business model to specific technologies, and its approach to monitoring, reporting and verifying negative emissions.

On the same day, BEIS published a government response to the National Infrastructure Commission report on GGRs, which included eight recommendations. The government accepts recommendations one, two seven and eight, and partially accepts recommendations three, four, five and six.


 



Delivery


Ofgem issues RIIO-ED2 draft determinations

On 29 June, Ofgem published a consultation on the draft determinations for Distribution Network Operators (DNOs) RIIO-ED2 price control which will run from April 2023 to March 2028.

Having assessed the DNOs’ business plans, submitted in December 2021, Ofgem has proposed to allow almost £20.9bn total expenditure (totex) overall for RIIO-ED2, a 17% reduction from that requested in the business plans. Ofgem notes that it has set stretching efficiency targets and totex allowances based on well justified costs, as well as proposing uncertainty mechanisms to ensure flexibility to meet future investment needs when justification for the work is more certain.

In terms of the finance package for RIIO-ED2, Ofgem is proposing to set a return on equity of 4.75%, to better align with current market conditions, and a weighted average cost of capital (WACC) of 3.26%. Ofgem has also developed several common quality of service incentives for RIIO-ED2, including a new a distribution system operator (DSO) financial output delivery incentive.

Ofgem believes these proposals will ensure that additional investment can be made to deliver net zero at the lowest cost to consumers, with responses requested by 25 August. The final determinations will be published by the end of December 2022 and will include any costs driven by the recent Access and Forward-looking Charges Significant Code Review decision, which have not been included in the draft determination.


BEIS proposals for a smart and secure electricity system

On 6 July, BEIS opened a consultation titled Delivering a smart and secure electricity system: the interoperability and cyber security of energy smart appliances and remote load control. It proposes to require all organisations capable of remotely controlling large electrical loads (over 300MW in aggregate) to comply with Network and Information System Regulations, using the Cyber Assessment Framework, and to require energy suppliers to make time-of-use-tariff data openly available in a common format. Additionally, it proposes to ensure larger domestic-scale energy smart appliances (ESAs) are interoperable with response service providers, using ESA standards. It also proposes to require smart heating appliances and batteries to meet cyber security and grid stability requirements, to require electric heating appliances with the greatest flexibility potential to have smart functionality, and to establish a proportionate and flexible licensing framework for organisations providing demand side response (DSR) to domestic and small non-domestic consumers. The consultation closes on 28 September 2022.


BEIS and Ofgem consult on future ownership of Elexon

On 14 July, BEIS and Ofgem issued a joint consultation on the future ownership of Elexon once the Future System Operator (FSO) has been established. While Elexon is an independent entity, it is wholly owned by National Grid Energy System Operator (NGESO) and the future purchase of NGESO to create the FSO necessitates consideration Elexon’s ownership. The two leading options proposed are public ownership, as a subsidiary of the FSO, and the preferred option of industry ownership. If industry ownership were to be implemented, there is a risk that the process could cut across or even delay the wider changes proposed to ownership of the FSO. In this case, it is suggested that the risk of disruption is mitigated by deploying the public ownership option as a temporary fallback option. Responses to the consultation are requested by 22 September, with a webinar outlining the proposals planned in the next few weeks.

 



Usage


May BEV production up 108.3% and registrations rise in June

On 30 June, the Society for Motor Manufacturers and Traders (SMMT) announced a 13.3% increase in UK car production in May 2022 – up for the first time since June 2021 – with 62,284 units leaving factories. SMMT highlighted ongoing supply issues, rising economic uncertainty, disruption caused by the war in Ukraine and increasing business costs as issues, alongside supply chain constraints, particularly the semiconductor shortage.

Outputs increased for battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs), stating BEV production was up 108.3%, with 4,525 built. Additionally, alternatively fuelled cars totalled 22.6% of all cars built in May 2022, a 19.3% increase compared to the previous year.

SMMT subsequently confirmed on 5 July, BEV growth continued in June 2022, with uptake up 52.4% year-on-year to 2,105 units, and registrations up 60% on the same period in 2021. It states BEVs represent one in 13 new van registrations in the UK this year, with action needed urgently to boost consumer confidence and ensure uptake is at the speed needed for a successful transition.

Additionally, SMMT announced that – while June new car registrations decreased by 24.3% with ongoing challenges in component supply – BEVs saw a 14.6% increase in volume to 22,737 units, and market shared reached 16.1% - up from 10.7% a year prior. It states 115,249 BEV registrations year-to-date, a 56% increase on year-to-date 2021, reaching 8.1% market share


Government urged to accelerate pace of decarbonisation

RenewableUK published its report, Roadmap to net zero: a manifesto for a fully decarbonised power system by 2035. This sets out a framework to guide the transformation needed to fully decarbonise the power sector by 2035, urging the government to accelerate the pace and scale of decarbonisation.

The report covers a series of topics, from market reforms to support low carbon investment, to creating a net zero network, accelerating renewable deployment, the involvement of green hydrogen and maximising the economic opportunity. Each area of focus is supported with short-term and long-term actions for government.

The short-term actions include: developing proposals for Contracts for Difference (CfD) allocation reforms which enhance investment in resilience and sustainability, particularly in supply chains; designing the new onshore communities scheme in a way that enables maximum deployment in parts of England where there is local support; and defining a zero-carbon hydrogen standard and tailoring the Hydrogen Business Model to support green hydrogen production at different scales including exemption from levies.

The long-term actions include: using the existing Offshore Transmission Network Review to establish a long-term solution for planning integrated offshore grid infrastructure post-2030; maximising the potential for a wider range of flexible energy sources; and building upon the detail in the Net Zero Strategy, developing an overarching ‘2035 plan’ for addressing the strategic barriers to deploying the necessary low-carbon capacity, such as crosscutting planning issues and network delivery challenges.


UK businesses to adopt 163,000 EVs this year with £13.3bn investment

Centrica Business Solutions announced on 1 July, that – according to its new study – UK businesses are set to adopt over 163,000 electric vehicles (EVs) this year as part of investment in fleet electrification. It states this increase would mean 35% more business operated EVs on the road by the end of 2022 – compared to 121,000 registered firms last year.

Additionally, it states businesses spent £11.6bn on EVs and supporting infrastructure in 2021, planning a 15% increase over the next year, resulting in £13.3bn in investment. It also states 62% of fleet operating businesses expect a 100% electric fleet within the next four years, that 48% have installed EV charging points at their premises, and that 40% have invested in renewable energy generation technology to power their fleets – with 43% planning to do so in the year ahead


CCC warns government strategy will not deliver net zero

On 29 June, the Climate Change Committee (CCC) published its 2022 Progress Report to Parliament focusing on changes needed to achieve net zero.

The review of progress has shown little evidence of delivery against ambitious targets set by the government. The CCC has therefore warned that the existing strategy will not deliver net zero and reports slow progress on enablers of the transition – drawing attention to the lack of public engagement strategy and requirements around tax strategy and reform of planning legislation.

It has recommended that delivery be actively managed and based on realistic assessment, with contingency plans in place.


‘Make-or-break’ moment for ESG?

EY reported on 14 July that as interest in the environmental, social and governance (ESG) movement grows, there is a need for more trustworthy and useful ESG data.

To build this trust, it highlights its new research which has identified five areas of focus. This includes increasing the transparency of composite indicators, increasing understanding of the varying uses of sustainability information, putting in place conditions that enable assurance, developing comparable and interoperable taxonomies, and addressing barriers faced by market participants in emerging countries.

Overall, the report concludes that ESG is currently at a ‘make-or-break’ moment, with increasing demand from investors and consumers and more comparable, transparent, and verifiable ESG disclosures and ratings needed to build trust and involvement in the ESG ecosystem.


Government opens £75mn Nuclear Fuel Fund

On 19 July, BEIS announced that it has opened a £75mn fund designed to boost production of fuel for reactors. The Nuclear Fuel Fund will provide grants to projects that are expected to develop the UK’s domestic nuclear fuel sector. Funding will be used to design and develop new facilities, helping to reduce the need for fuel imports through the creation of material used in nuclear power stations to generate electricity. The announcement adds that the government backing will encourage private sector co-investment into the projects. In addition, it states that it is asking parties to register their interest in bidding for funding and inviting further information on the sector’s investment needs.

Accompanying the announcement, BEIS has issued a Request for Information to industry to gather views on the proposed fund design and pipeline of potential projects that might bid for funding.

 

Post a comment

Your email address will not be published.
CAPTCHA

Related articles

CCS Framework membership benefits

Crown Commercial Service is delivering value for the nation through outstanding commercial capability and quality customer service. EDF Energy is one of the UK's largest energy companies and the largest producer of low-carbon electricity. Together, we're working to help public sector organisations simplify their energy purchasing, understand the market and save time and money. Find out more