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September 2015

By Market Insight Team | Posted September 02, 2015

August 2015 – in brief

Generation

The government launched a consultation on measures to reduce the cost of its feed-in tariff (FiT) subsidy scheme for small-scale renewables projects. The proposals could see the scheme closed entirely in early 2016, or a rapid scaling back of the amount of support on offer to green technologies. These are the latest in a series of proposals set out by the government to bring under control the level of consumer-funded subsidies for renewables.

Statistics released by the International Energy Agency (IEA) confirmed that renewables generation overtook gas to become the second largest source of electricity worldwide in 2013.

Delivery

Consumer group Citizens Advice has recommended a series of reforms to improve openness and transparency under the RIIO model of network regulation. The RIIO framework will allow network operators to recover £70bn in infrastructure costs from consumers over the next eight years.

In response to a parliamentary investigation, an industry group representing the energy networks urged policy-makers to give the sector regulatory stability in order to ensure that it can deliver the best value for energy users. 

Usage

HM Revenue & Customs (HMRC) opened a consultation on the government’s intention to remove the exemption from the Climate Change Levy currently applied to renewables electricity. The consultation confirmed that the transitional arrangements that have now been implemented will remain in place until at least next April.

The development of a new heat policy in the UK must be regarded as a “necessity not a nice to have”, according to industry association the Energy & Utilities Alliance (EUA). The group said that policy-makers should give more thought to reducing business carbon emissions.

Also covered in this Regulatory Report:


Generation

Renewables subsidy reforms aim to hold down costs

The small-scale feed-in tariff (FiT) scheme could be closed to new applicants from next January or see its generation tariffs revised sharply downwards, as part of a series of reforms proposed by the government.

The FiT is a government subsidy scheme designed to promote the uptake of a range of small-scale renewable electricity generation technologies. Its costs are initially met by electricity suppliers, but are then reflected in the price paid for power by businesses and households.

The scheme was slow to get off the ground. During the period April 2010 to March 2011, its costs were around 0.004p/kWh; but they have since been rising markedly. In 2015-16, costs arising from the scheme paid by businesses are expected to reach 0.42p/kWh.

In a bid to control these rising costs, on 27 August the government set out plans to reduce FiT generation tariffs and to introduce a cap on new expenditure. Under the proposals, generation tariffs for new accreditations will, from 1 October, be cut across the board, with small-scale solar PV bearing the brunt of the reductions.

PV installations of up to 10kW will now receive just 1.63p/ kWh, compared to the previous rates of 11.3p/ kWh for the <4kW band and 12.47p/ kWh for the larger 4-50kW band - equating to a cut of 87%. Commercial-scale solar will also see notable cuts, with a 150-250kW installation that would have secured a 9.21p/ kWh payment now attracting 2.64p/ kWh.

Stakeholders within the energy industry have criticised the changes. Lawrence Slade, chief executive of Energy UK, said: “While it is understood that as the cost of technologies such as solar PV fall, subsidy support should be expected to also reduce, the cuts announced today will effectively put an end to small scale renewables in the UK, including rooftop solar and community projects. Such a dramatic cut will fundamentally undermine investor confidence in the UK’s renewable sector - putting jobs and future growth at risk.”

Other trade associations, such as Renewable UK, the Renewable Energy Association, and the Solar Trade Association have also voiced concerns over the changes.

Responses to the government’s consultation are invited until 23 October.

Renewables become second largest generation source

Renewables generation overtook gas to become the second largest source of electricity worldwide in 2013, figures released by the International Energy Agency (IEA) have shown.

The figures showed that, in that year, renewables were responsible for 22% of total electricity, or 5,130TWh. In addition, global non-hydro renewables electricity, which rose to 1,256TWh or 5.4% of global production, surpassed oil-fired generation for the first time ever. However, despite this, in the same year, electricity generated by coal reached its highest level yet at 9,613TWh, representing 41.1% of global electricity production.

On a global level, the majority of renewable energy was consumed in the residential, commercial and public services sectors. The IEA also noted that, in economically developed countries, more than half of the renewable primary energy supply (58.5%) was used to generate electricity and heat.

Environmental group presses for stronger carbon trading reforms

The EU should increase its ambition on reducing emissions by 2020 to avoid stalling progress on climate action in the next decade, according to campaign group Sandbag.

The EU Emissions Trading Scheme (EU ETS) operates on a “cap and trade” principle. A limit is set on the total amount of greenhouse gases that can be emitted by factories, power plants and other installations in the system. The cap is reduced over time so that total emissions fall, providing an incentive for investment in low-carbon power technologies.

A report issued by Sandbag on 3 August said that, under current policies, domestic economy-wide emissions could fall by as much as 29% by 2020, resulting in a large surplus of carbon allowances within the EU ETS. The group consequently recommended cancelling 1.5bn allowances from Phase III of the scheme, bringing the EU to a 25% emissions target for 2020 - above the 20% target already established. 

The report suggested that a surplus of 2.1bn allowances will have accumulated within the EU ETS by that year. This would mean that, even if 1.5bn allowances were cancelled, there would remain a “buffer” of roughly 600mn allowances that could be returned to the market if allowances subsequently became scarce.

Manufacturers back on-site generation

On-site solutions such as rooftop solar PV and anaerobic digestion (AD) will be essential for businesses looking to secure future energy supplies and lower their bills, manufacturer’s organisation, EEF has suggested.

In comments to edie.net on 3 September, the organisation said that businesses had taken significant steps towards maximising their energy efficiency over the past 10 years, but that there was “only so far you can go before you have to start looking elsewhere” to lower costs.

EEF said that, in this respect, on-site generation offered a “triple win”: lower energy bills, increased energy security and lower waste disposal costs. It added: “That’s one of our biggest goals […] Getting through to these high-level executives and telling them: If you want to be here in five or 10 years’ time, it isn’t about making incremental savings on energy, or diverting waste from landfill, it’s about doing something fundamental with your business strategy; looking at where you get your energy from and how you can reduce your reliance on vulnerable supply chains.”

Ofgem changes stance on new interconnector

The energy regulator Ofgem issued a consultation on 10 August on its latest assessment of Element Power’s proposed Greenlink interconnector, which would provide a 500MW link between Great Britain and the Republic of Ireland.

Interconnectors are underground and undersea cables that allow energy to be transmitted across borders. They physically link countries’ electricity transmission systems to one another, meaning that energy can be traded between them.

The development of interconnectors has, over the past decade, been strongly supported by the European Commission, which regards them as important both to enhancing security of supply and reducing energy costs for users.

But, following a consultation in March, Ofgem said it was minded not to support the Greenlink project through its new “cap and floor” regulator regime for interconnectors. This was due to analysis by the regulator that showed the project was unlikely to be in the economic interests of UK consumers.

However, following the consultation, Element Power provided new information that impacted on Ofgem’s economic modelling. The regulator’s new analysis indicates that the benefits for Greenlink could be approximately £150mn higher than was previously estimated, and Ofgem considers the trade benefits are more likely to be positive for UK consumers than had been thought.

Responses are requested by 11 September and a decision is expected in the autumn. 

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Delivery

Citizens Advice calls for transparency on network costs

Consumer advocate Citizens Advice has called for a “refreshed focus” on openness and good reporting under the RIIO model of network regulation.

All three parts of the RIIO price control for energy networks are now in place. Collectively, RIIO-ED1, RIIO-GD1 and RIIO-T1 will allow gas and electricity network operators to collect over £70bn from consumers’ energy bills over the next eight years.

Given this investment, the report argues that it is essential that transparency over costs is maintained to guarantee the best deal for energy users. In its Beginning To See The Light report, published on 11 August, Citizens Advice said that, while some of the information on networks’ performance under RIIO was “helpful”, it had “tended to be obscure, irregular, tendentious, non-comparable and hard-to-find”.

The paper therefore recommended that Ofgem provide a one-page template, to be completed by each network company, that would provide key information about their progress under RIIO. It would show the companies’ performance in those areas that were financially incentivised, plus a brief summary of non-incentivised areas.

Energy networks call for stable regulation

The energy networks will require regulatory stability in order to ensure they can deliver the best value for energy users, an industry group has said.

The Energy Networks Association (ENA) set out on 18 August the key policy areas on which it would like the energy and climate change select committee to focus its scrutiny over the coming years. The group highlighted the need for the committee to consider the long-term impacts of energy policies, and how short-term aims affected wider energy goals. This approach would, it said, be particularly important in defining a strategy for incorporating new renewables onto the networks.

The ENA stressed the central role that the committee should play in shaping energy policy in the years to come, and the networks’ desire to co-operate in policy formation.

Energy regulator welcomes proposed smart meter rules

The energy regulator Ofgem has supported changes, proposed by the government, to the rules that will govern the operation of smart meters in the UK.

Smart meters automatically send suppliers meter readings, promising an end to estimated bills and allowing consumers to closely monitor their own usage – helping them to identify where energy could be saved.

As such, by 2020 the government is intending that all homes and micro-businesses in the UK will have a smart meter installed. End-to-end management of the smart metering roll-out programme will be performed by a new organisation called the Data and Communications Company (DCC).

Ofgem said in the letter that it wanted energy users to benefit from smart meters irrespective of their supplier, thus facilitating easier switching. The regulator said consideration would need to be given to how this would work when the DCC had the ability to utilise first generation smart meters.


Usage

HMRC plans changes to non-domestic energy levy

HM Revenue & Customs (HMRC) opened an informal consultation on 7 August on the transitional arrangements for removing the Climate Change Levy (CCL) exemption for renewables electricity.

The CCL is a tax on power delivered to non-domestic energy users in the United Kingdom. It aims to provide an incentive for them to increase energy efficiency and to reduce carbon emissions. Electricity supplied from renewable sources was previously exempted from the levy, but chancellor George Osborne confirmed in his Summer Budget that this exemption was to end.

During a transitional period that began on 1 August, utilities will still be able to continue to redeem Levy Exemption Certificates associated with renewables electricity generated before that date. 

HMRC is now consulting with stakeholders on an appropriate length for the transitional period, but does not expect it to end before 31 March 2016 “at the earliest”.

Responses are invited by 31 October.

New UK heat policy needed, says industry group

The development of a new heat policy in the UK must be regarded as a priority, according to industry association the Energy & Utilities Alliance (EUA). The organisation issued its response on 12 August to the House of Commons energy and climate change select committee’s call for evidence on the aspects of government policy that will require the most scrutiny over the coming years.

The response said that the “mechanics” for reducing carbon emissions from the non-domestic market required further exploration. It also called for a review of the case for strategic investment in long-term gas storage, as the UK currently has “one of the lowest percentages of stored gas despite high annual usage”.

Isaac Occhipinti, head of external affairs at the EUA, said: “A new UK heat policy is a necessity not a nice to have. We believe a new Heat Policy examining how a decarbonised gas grid could meet UK carbon reduction cost effectively is needed

Scottish motorists to benefit from electric vehicle fund

Scottish government agency Transport Scotland has made available a new £2.5mn fund to provide interest-free loans for electric or plug-in hybrid vehicles.

The Electric Vehicle Loan fund, announced on 14 August, provides a loan of up to £50,000 to be repaid over a period of as much as six years. The new scheme runs in addition to the UK government’s Plug-in Vehicle Grant, which offers grants of up to £5,000 for those buying a new electric car and £8,000 for a van.

Scottish transport Minister Derek Mackay said: “Encouraging mass changeover to electric vehicles, from more polluting ones running on petrol or diesel, is a key to cleaner road transport in Scotland and a fundamental factor in achieving our ambitious climate change targets while also improving local air quality.”

Businesses can also apply for an interest-free loan, of up to £100,000 for electric vehicles. All applications to the fund close on 31 March 2016.

London mayor launches energy efficiency scheme

London mayor Boris Johnson launched a tool on 4 August for London’s public sector organisations to deliver up to £1.6bn of energy upgrades and improvements.

RE:NEW, the mayor’s energy efficiency retrofitting programme for homes, has established a framework of 11 specialist suppliers that will provide solutions to public sector landlords such as London boroughs, housing associations, and universities. Housing providers need to fund the work themselves, for example through planned maintenance programmes, subsidies or borrowing.  Retrofitting through the scheme can include low-carbon technologies such as LED lighting, new and upgraded boilers, insulation, solar panels, and double glazing.

World’s largest companies back climate action

Companies that account for more than a quarter (26%) of global greenhouse gas emissions, including some of the world’s largest energy firms, are backing an ambitious climate deal at the UN talks in Paris this December, research by campaign body CDP has found.

Published on 2 September, the research found that 13 of the 28 heavy emitters said that their management boards would welcome a global agreement on climate change, with none opposed. Of the other companies that were surveyed and that had formed an opinion on climate change, 806 companies expressed support for a climate deal compared with 111 that did not.

CDP executive chairman Paul Dickinson said: “It is time for governments to listen to the business voice in support of climate progress rather than to be influenced by a minority and downgrade environmental priorities. Companies are telling us – and their investors – that they welcome climate action.”

Green Investment Bank supports streetlighting programme

Southend-on-Sea has become the second local authority in the UK to secure finance from the Green Investment Bank (GIB) for energy-efficient streetlighting.

The council has secured £8.2mn from the GIB to replace 14,000 streetlights in the area, with a further £5.1mn being provided by the Department for Transport. The scheme qualified for the GIB’s Green Loan, which offers UK local authorities a low, fixed-rate financial arrangement over a period of up to 30 years. The GIB is in discussions with several local authorities about funding further low-carbon streetlighting.

Ed Northam, head of investment banking at the GIB, said: “Local authorities throughout the UK are increasingly adopting cost-effective ways of improving their services. Our Green Loan is tailor-made to fit the needs of individual authorities and is geared towards creating an invest-to-save mentality that saves both energy and costs while cutting greenhouse gas emissions.”

Green Deal applications see last minute surge

More retrofit measures than ever before were installed through Green Deal finance plans in the month before the scheme was axed, according to official figures.

The latest figures, released on 20 August by the government, showed that 1,568 measures were installed in June 2015 - over 200 more than in the previous month. May’s figures were also revised up, with 1,314 measures installed under the finance plans, as opposed to the 1,295 that were recorded in last month’s statistical release.

The number of households with measures installed under Green Deal finance plans was also at its highest in June, with 1,112 households using the scheme to have energy efficiency measures fitted.

The government announced it was stopping funding for the Green Deal Finance Company and Green Deal Home Improvement Fund last month, explaining that the scheme had seen low take-up and concerns over industry standards.

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