Regulatory Report - November 2022
Chancellor Jeremy Hunt delivered the government’s Autumn Statement.
The Aldersgate Group released a new paper from University College London titled Separating electricity from gas prices through Green Power Pools: Design options and evolution.
Ofgem approved National Grid Electricity System Operator’s proposal to go-live with the Demand Flexibility Service.
Ofgem announced that the Default Tariff Cap level will be set at £4,279/year for cap period 9b (1 January – 31 March 2023).
Ofgem published the outcome of its third market compliance review, which investigated the treatment of vulnerable domestic customers by suppliers.
The government published COP26 President Alok Sharma's speech at the COP27 closing plenary.
Energy UK urged the new government to ‘ramp up’ support for the energy efficiency of buildings in the next Budget, stating that consumers are paying the price of the government’s inaction on leaky homes.
Also covered in this Regulatory Report:
- Inquiry launched into role of solar energy in UK’s net zero journey
- BEIS publishes Power CCUS business model
- BEIS publishes Q322 Renewable Energy Planning Database
- Energy Systems Catapult reports on carbon accounting
- ECIU reports on energy price shock and transition to EVs
- New trials show EV drivers could save over £600 a year by 2030
- The IEA examines coal’s contribution to net zero transition
Government delivers Autumn Statement 2022
On 17 November, Chancellor Jeremy Hunt delivered the government’s Autumn Statement.
Chief among the announcements was that the government will increase the Energy Profits Levy from 25% to 35%, during the period of 1 January 2023 – 31 March 2028, while also introducing the Electricity Generator Levy – a temporary 45% tax that will be levied on extraordinary returns from low-carbon UK electricity generation, to be implemented from 1 January 2023 to 31 March 2028.
The Energy Price Guarantee will continue for 12 months from April 2023, with the typical household bill rising from £2,500 to £3,000. On the Energy Bill Relief Scheme, a Treasury-led review will be conducted to determine support for non-domestic energy consumers, excluding public sector organisations, beyond 31 March 2023. Under the Terms of Reference, published on the same day, the review will aim to significantly reduce the overall burden on the taxpayer/public finances, while ensuring support is targeted at those most in need and unable to adjust or absorb to recent energy price rises, and that any support provided is consistent with businesses being incentivised to increase the efficiency of their energy consumption. The findings of the review will be published by 31 December 2022.
Further announcements in the budget include a national ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030 against 2021 levels, the provision of an extra £6bn in funding from 2025-28 to improve energy efficiency, a commitment to deliver the Sizewell C nuclear project, and changes to tax on electric vehicles.
On 22 November, HM Treasury published the Autumn Finance Bill 2022, legislating for key tax changes announced as part of the Autumn Statement.
The legislation includes raising and extending the Energy Profits Levy. The treasury stated that the measures introduced in the Bill will see “those with the broadest shoulders carry the heaviest burden”, aiming to reduce inflation and restore economic stability to the UK. The extension of the Energy Profits Levy aims to help fund cost of living support and ensure oil and gas companies pay a fair share of tax.
UCL proposes aggregation of CfDs into Green Power Pools
On 16 November, the Aldersgate Group released a new paper from University College London (UCL) titled Separating electricity from gas prices through Green Power Pools: Design options and evolution.
The paper demonstrates how gas prices currently dictate the cost of electricity in the UK and outlines how the introduction of a Green Power Pool could ‘significantly’ reduce the cost of electricity for vulnerable consumers and lower the burden on public finances by harnessing the rapidly falling costs of renewables.
Under the Green Power Pool, it is proposed the lower cost power generated by renewables under the Contracts for Difference (CfD) scheme would be sold in priority to vulnerable consumers, protecting them from the higher cost of electricity on the wholesale market.
The Aldersgate Group states that the option should be considered in the government’s Review of Electricity Market Arrangements (REMA) consultation.
Inquiry launched into role of solar energy in UK's net zero journey
On 3 November, the Environmental Audit Committee announced that it has opened a new inquiry examining the role that onshore solar energy technologies can play in the UK’s journey to net zero.
Forming part of the wider Technological Innovations and Climate Change inquiry, this inquiry aims to investigate the barriers to expansion of solar installations and the land-use risks associated with increasing the number of solar farms in the UK. It will also consider the security and sustainability of the supply chain for solar panels and energy storage technologies.
The committee issued a call for evidence seeking views on a number of questions, with submissions having closed on 1 December 2022.
BEIS publishes Power CCUS business model
BEIS published the outcome of its carbon capture, usage and storage (CCUS): Dispatchable Power Agreement (DPA) business model consultation on 15 November.
The DPA is a proposed contractual framework for CCUS, adapted from the standard terms and conditions for Allocation Round 4 of the Contracts for Difference (CfD), and is aimed at enabling natural gas fuelled CCUS facilities to displace unabated thermal generation power plants.
In the consultation response, the government provides a summary of the responses received and its view on the proposed business model to support Power CCUS deployment in the 2020s and the suitability of the proposed business model for incentivising efficient decarbonisation.
Alongside this, BEIS published the latest versions of the DPA business model and the Draft DPA.
BEIS publishes Q322 Renewable Energy Planning Database
On 28 October, BEIS published the Q322 update to its Renewable Energy Planning Database (REPD). This provides an overview of operational and planned renewable energy projects, including battery storage, across the UK.
Since the previous quarter, by development status, there is now a total of 46.9GW of operational renewable energy capacity, an increase of 1.7GW. This follows the 1.3GW Hornsea 2 Offshore Wind Farm reaching operational status, alongside 0.1GW of Onshore Wind capacity, 0.2GW of Battery capacity, and >0.1GW cumulatively of Anaerobic Digestion, and Solar PV. The total number of projects with a development status of awaiting construction has fallen by 2.5GW to 35.3GW; capacity classed as under construction now totals 13.0GW, up 1.7GW; application submitted capacity now stands at 30.2GW, up 1.1GW quarter-on-quarter; while projects classed as planning permission expired has increased by 1.6GW to total 2.8GW.
A further 394 projects have entered the planning database since Q222, representing 5.7GW of new capacity. Deducting for projects that are classed as application refused, application withdrawn, and operational, 5.4GW of this is pre-operational: 4.6GW classed as application submitted; 0.07GW classed as awaiting construction; and 0.02GW classed as under construction. By technology, Battery projects dominate new capacity, at 2.4GW, alongside 1.8GW of Solar PV projects, 0.08GW of Offshore Wind projects, 0.05GW of Onshore Wind projects.
With the outcome of Allocation Round Four (AR4) of the Contracts for Difference scheme (CfD) being published back in July, and with confirmation of annual CfD auctions being published earlier this year, the continued increase in CfD-eligible technologies comes as no surprise to the wider renewables development pipeline.
Demand Flexibility Service goes live
On 4 November, Ofgem approved National Grid Electricity System Operator’s (NGESO’s) proposal to go-live with the Demand Flexibility Service (DFS), which is now set to run through the winter until 31 March 2023. The DFS will allow businesses and the public to be paid for the first time to reduce/move their electricity use out of peak hours following a signal from NGESO.
NGESO has said that it will run a maximum of 12 demonstration tests between November and March 2023. These demonstration tests will have a guaranteed minimum price of £3kWh, meaning that a typical household could save ~£100 across the maximum 12 demonstration tests.
It has also noted that the DFS is open to as many participants as possible, who meet a number of requirements. This includes that all assets need to have a smart meter to send meter readings in 30-minute increments and that all assets need to be able to respond for a minimum of 30 minutes.
Ofgem announces price cap increase to £4,279/year
On 24 November, Ofgem announced that the Default Tariff Cap level will be set at £4,279/year for cap period 9b (1 January – 31 March 2023). This level is the amount a typical customer on a dual fuel direct debit tariff would expect to pay prior to the launch of the Energy Price Guarantee (EPG). As a result, the increase in cap level will not directly affect consumers, due to the protection afforded by the EPG, meaning the typical dual fuel direct debit bill will remain at £2,500/year. Ofgem confirmed increases for alternative payment types, with the standard credit cap level increasing to £4,533/year, and prepayment meter cap level to £4,358/year. The main factor in raising the cap level has been the increase in wholesale costs by an average of £669/year since the last cap update.
The regulator said bill-payers will remain protected by the EPG until the end of March 2024. In a letter from BEIS to Ofgem, the government noted the cap level is a key part of delivering the EPG as it enables the calculation of the discount required for consumers. The letter also stated that the Energy Prices Act 2022 has updated Ofgem’s duties, including the obligation to take account of the impact on public spending when considering modifications to the tariff cap conditions.
Compliance review reveals issues with vulnerable customer treatment
On 22 November, Ofgem published the outcome of its third market compliance review, which investigated the treatment of vulnerable domestic customers by suppliers.
The review focused on how vulnerable customers are identified, the process of adding them to the Priority Service Register and ensuring functionality of prepayment meters amongst other things. The assessed domestic suppliers were divided into three categories depending on the degree of the weaknesses identified in treatment of vulnerable customers.
The areas Ofgem highlighted for improvement include having clearer policies and procedures to identify customers in a vulnerable situation, as well as ensuring customer-facing staff are trained appropriately to identify and support customers in vulnerable situations. Ofgem’s Director of Retail said: “there is still much more to be done” to ensure good practice around vulnerable customers.
Key outcomes of COP27 published
On 21 November, the government published COP26 President Alok Sharma's speech at the COP27 closing plenary. He said: “We have had to battle to build on one of the key achievements of Glasgow. The call on all Parties to revisit and strengthen their Nationally Determined Contributions. We have ultimately reiterated that call here”, adding: “We joined with many Parties to propose a number of measures that would have contributed to this. Emissions peaking before 2025, as the science tells us is necessary. Clear follow-through on the phase down of coal. A clear commitment to phase out all fossil fuels. […] Friends, I said in Glasgow that the pulse of 1.5 degrees was weak. Unfortunately, it remains on life support”.
The developments at COP27 and the outcomes were also published in the House of Lords Library. This included the first high-level ministerial roundtable on ‘pre-2030 ambition’, with a call to urgently ramp up climate action and support; a draft decision document published by the UN reaffirming the Paris Agreement’s temperature goals; and the COP27: Sharm el-Sheikh implementation plan.
Speaking on 20 November at the conclusion of COP27, the First Minister Nicola Sturgeon said: “COP27 has finally seen an acknowledgement by developed countries that the people least responsible for global warming are the ones suffering its worst consequences and that we have an obligation to support those experiencing the impacts of the climate crisis in the here and now. […] It is deeply disappointing that the recognition of loss and damage has not been matched by greater action to prevent a worsening of the climate crisis. Keeping 1.5 alive and delivering the fastest possible transition away from fossil fuels is key to preventing greater loss and damage in the future. Alongside loss and damage, we needed to see progress on adaptation and mitigation, on the submission of new national contributions, a pathway to 2030 and a strengthening of the language of the Glasgow Pact.”
Energy UK calls for increased energy efficiency support
In a press release on 31 October, Energy UK urged the new government to ‘ramp up’ support for the energy efficiency of buildings in the next Budget, stating that consumers are paying the price of the government’s inaction on leaky homes. It highlighted that it has put forward proposals for a scheme, referred to as ECO+, which would build on the existing Energy Company Obligation (ECO) and be co-funded by the government.
It said that its analysis shows that if ECO+ had been in place in the run up to October 2022, it could have improved 702,000 homes with loft and cavity wall insulation and that those improved homes would have spent £280 less on their bills, each saving the government £120 in Energy Price Guarantee costs. It adds that this would have reduced spends on gas £85mn and £199mn respectively (October 2022 – March 2023).
Following this, on 28 November, BEIS launched a consultation seeking views on proposals for an Energy Company Obligation Plus (ECO+) scheme to deliver energy efficiency measures in homes across GB from 2023-2026. The ECO+ scheme would be in addition to ECO4 and have a value of £1bn over the three years.
Responses to the consultation are requested by 23 December 2022.
Energy Systems Catapult reports on carbon accounting
On 26 October, Energy Systems Catapult announced the publication of Carbon Accounting in Industry: Learning from the South Wales Industrial Cluster in which it recommends policies that it states support a more consistent and coherent approach to the monitoring, reporting, and verification (MRV) and the accounting of greenhouse gas (GHG) emissions in industry.
The report draws insight from industry stakeholders in South Wales with the intention of providing a starting point for the government to develop an improved carbon accounting framework that better captures and considers the entire industrial supply chain.
ECIU reports on energy price shock and transition to EVs
The Energy & Climate Intelligence Unit (ECIU) announced on 8 November that it has published a report titled The energy price shock and the transition to electric vehicles, in which it states that the global oil and gas crunch will further drive electrification of the energy system.
It adds that as greater value is placed on energy security and reducing costs, accelerated investment in electrification of heating and transport, as well as renewable power, is expected. It highlights that global electric vehicle (EV) sales more than doubled in 2021, with similar growth expected in 2022, and that EV battery prices have fallen 89% since 2010 and are projected to fall a further 66% by 2035.
On the costs of owning an EV the report says that in the UK average net savings are £8,300 over a 14-year lifetime. This increases to £8,700 if 10% of the battery is recouped at scrappage. It adds that EV adoption could be supported by the simplification of the rapid charging network.
New trials show EV drivers could save over £600 a year by 2030
On 21 November, Connected Kerb released data from its first trial of smart metered on-street electric vehicle (EV) chargers which indicates that smart charging at public chargepoints could save drivers £604.65 per year in charging costs compared to traditional non-smart public charging.
The government-backed project delivered by Connected Kerb, alongside other companies, also shows that peak energy demand would be reduced by as much as 240MW. The findings conclude that drivers could collectively save over £4.1bn a year by 2030 when using smart public charging.
In addition, the release states that the cost advantages of EV ownership had fallen to 3.9p/mile compared to 9.2p/mile before the rise in the Default Tariff Cap in October. Charging at home is more cost effective with a saving of 13.5p/mile when compared to internal combustion engine (ICE) cars. It notes that 62% of households do not have access to off street parking and must rely on the public charging network.
The IEA examines coal’s contribution to net zero transition
On 15 November, the International Energy Agency (IEA) published a report titled Coal in Net Zero Transitions: Strategies for rapid, secure and people-centred change, in which it highlights that a steep decline in coal emissions is essential to reach international climate goals.
The report, which is part of the World Energy Outlook series, explores the options for the power sector and other parts of the economy where coal plays a notable role and examines a range of policy and technology areas.
In addition, it provides guidance on how policymakers can achieve a reduction in coal emissions while supporting energy security and economic growth, outlining measures to finance energy transitions and address their social and employment aspects.