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September 2016

By Market Insight Team | Posted October 21, 2016

September 2016 – in brief

Generation

The government gave the final go-ahead to EDF’s plans to develop a new nuclear power plant at Hinkley Point C in Somerset. The company reached a Final Investment Decision on the project in late-July, but the government chose to undertake a final review before giving its seal of approval.

In a speech to the United Nations, prime minister Theresa May confirmed that the government would ratify the Paris climate agreement before the end of the year.

Delivery

New research revealed that many companies would be interested in earning revenues by adjusting their energy usage to help balance the power system. But it said the uptake of so-called Demand Side Response services had been stifled by concerns among businesses as to how their operations would be impacted by the changes required.

A committee of MPs told the government that it must improve the way in which it communicated the benefits of smart meters to households. The science and technology select committee said further steps should be taken to highlight the national benefits of the programme. It also argued that households and businesses were in need of tailored advice on how they could benefit from smart metering, warning a “fit and forget” approach to the roll-out would be a “wasted opportunity”.

Usage

A survey warned of a continuing decline in confidence within the business energy efficiency sector during the third quarter of the year. EEVS’s Market Monitor said that the fall was driven by concerns about the consequences of the UK’s vote to leave the European Union. Half of energy efficiency suppliers believed that Brexit would, over the next year, result in reduced levels of customer demand.

The UK will fall short of its targets for rolling out renewable energy technologies by 2020, according to the energy and climate change select committee. The committee warned that good progress in the electricity sector was being undermined by insufficient uptake of renewable technologies in transport and heat, and that policy changes were therefore necessary.

Also covered in this Regulatory Report:

Generation

New nuclear power project gets government approval

EDF’s plans for a new nuclear power project at Hinkley Point C in Somerset have been granted the government’s final approval, following the conclusion of a “comprehensive review”.

In a statement on 15 September, the government said that Britain needed to upgrade its power infrastructure, and that nuclear generation would play an important role in ensuring that supplies remained secure during the low-carbon transition.  

EDF had announced a Final Investment Decision in July, but the new government – under the leadership of prime minister Theresa May – opted to examine the project in detail before providing its backing. It has now confirmed that Hinkley can go ahead under a revised agreement that seeks to provide ministers with stronger safeguards around foreign investment in the UK’s energy infrastructure. The EPR reactor that will be used at Hinkley has already been approved by the Office for Nuclear Regulation.

The plant is expected to cost around £18bn to construct, with first electricity scheduled to be delivered in 2025. Under the terms of a subsidy contract agreed with the government, Hinkley will receive £92.50/MWh for the power that it generates. Official analysis, issued on 30 September, suggested that this represented “value for money” compared with other energy technologies.

EDF will take forward Hinkley Point C alongside its Chinese partner CGN, which holds a 33.5% stake in the project. The two companies will further progress proposals for new nuclear power plants at Sizewell C in Suffolk and Bradwell B in Essex.

EDF Energy CEO Vincent de Rivaz said: “Hinkley Point C will kickstart Britain’s nuclear revival. It has overcome obstacles and challenges which will benefit our next nuclear projects in Britain. This huge investment has been made possible by the consistent policies of successive governments to provide secure, affordable, low-carbon electricity.”

The government’s announcement was also welcomed by a number of unions. The GMB said that having secure low-carbon energy available for those days of the year when no renewable energy sources were available was crucial to meeting the country’s energy needs and reducing dependency on foreign imports of power. It said attention should now shift to other nuclear power stations, such as Sizewell, saying these were “badly needed”.

UK to ratify Paris climate agreement

Prime minister Theresa May has announced that the UK will ratify the Paris climate agreement by the end of the year.

The agreement, announced last December, commits signatories to seeking to limit global temperature increases to 1.5˚c. The UK was involved in the talks as part of the European Union, but the government has assured that the vote to leave the bloc will not undermine domestic efforts to reduce emissions. Meanwhile, the world’s largest emitters, the US and China, have already made a joint commitment to ratifying the Paris agreement.

In a speech to the United Nations on 20 September, Theresa May assured that the UK would continue to play its part in the global effort to tackle climate change, adding: “In a demonstration of our commitment to the agreement reached in Paris, the UK will start its domestic procedures to enable ratification […] and complete these before the end of the year.”

Carbon capture industry needs government backing, report says

The establishment of a state-owned enterprise to progress carbon capture and storage (CCS) will ensure the technology is delivered at the lowest cost possible, an independent report has said.

CCS is a technology that can capture up to 90% of the CO2 produced in fossil fuel plants, thus substantially easing concerns about the way that these plants impact on the environment. The Committee on Climate Change has suggested that the technology will play a key role in ensuring that the UK meets its long-term decarbonisation targets in a cost-effective way. 

The study, prepared by a parliamentary advisory group, said that a government-backed firm should be established to construct “anchor” power projects at CCS hubs, and should also deliver the necessary transport and storage infrastructure.

The report recommended that the enterprise be formed “as soon as possible” and “certainly during 2017”. It would, the report said, need up to £300mn of funding over the next five years.

Renewables developers warned on changing subsidy schemes

Firms seeking to bid into auctions for renewables subsidies will need to take account of the “likely evolution” of these policy mechanisms, a report by consultants NERA has said.

The study, issued on 19 September, said it remained to be seen whether the UK would continue to pursue its existing contracts for difference (CfD) model, which sees renewables projects bidding against one another for subsidy contracts. It could instead, the report said, shift towards a Dutch model, in which bids are made for the right to build government-developed projects.

The report praised the UK’s current auction format for avoiding, as far as possible, discriminating between technologies, as this helped to promote competition and lower costs for consumers. But is said that such schemes might, in the future, need to evolve to reflect the fact that electricity produced at different times of the day or year had different values.

The report further said: “It is likely that as renewables continue to expand, so will the pressure to ensure that auction designs account for these differences, to keep overall system costs down. Prospective bidders should watch this space.”

Community energy hit by policy changes

The number of new community energy organisations registering in the UK has fallen by nearly 80% on last year, new figures have revealed.

The report, issued by Co-operatives UK on 7 September, said that the picture was “even bleaker” in terms of energy generation, with new projects being described as “not financially viable”.

The fall was ascribed to policy changes introduced by the government. While, in 2014, the then coalition government unveiled a community energy strategy that outlined ambitious plans for the sector, this year has seen tax reliefs withdrawn and sharp reductions in feed-in tariff payments for small-scale renewables projects.

Ed Mayo, general secretary of Co-operatives UK, said: “We are in the midst of Community Energy Fortnight, a time to celebrate this hopeful and grassroots movement. But the government’s policy changes have dealt it a hammer blow, causing confusion and bringing growth to a virtual standstill.”

Community Energy England warned the government that it risked missing an important opportunity by implementing “obstacles” to the sector’s growth.

Delivery

Participating in demand response measures “disruptive”, say companies

New research has shown that many companies would be interested in earning revenues by adjusting their energy usage to help balance the power system. But uptake of demand-side response (DSR) measures has been hindered by companies’ concerns that their operations would be disrupted.

The Energyst’s 2016 Demand-Side Response Report, issued on 8 September, gauged views on DSR from more than 200 end users in public and private sector organisations. Close to three-quarters of those polled (73%) were non-DSR participants, while a slight majority (51%) said that they had not been contacted by suppliers or aggregators concerning DSR.

It was revealed that nearly nine in 10 (87%) of those non-DSR providers would be interested in earning revenue from it; however, 37% feared a disruption to their business or believed that their processes or equipment were not suitable (39%).

The Energyst said that the findings highlighted the need for continuing education of the market, focused at the operational level of firms.

Government lacking clarity on smart meter benefits, say MPs

A committee of MPs has told the government that it must improve the way in which it communicates the benefits of smart meters to households.

In a report, issued on 24 September, the science and technology select committee said further steps should be taken to highlight the national benefits of the programme, including the delivery of a smarter energy system that could enhance Britain’s energy security and reduce emissions.

The report further argued that households and businesses were in need of tailored advice with regards to how they could benefit from smart metering. It warned that a “fit and forget” approach to the roll-out would represent a “wasted opportunity”.

Smart power revolution at risk from “tinkering” with grid charging

Piecemeal adjustments to the charges for using the energy networks would place the smart power “revolution” at risk, according to analysts at Regen SW.

A report, issued by the company on Tuesday 20 September, came as energy regulator Ofgem consulted on plans to change the network charges faced by those projects connected at the local level, rather than to the national transmission network. Ofgem is concerned that certain financial benefits enjoyed by these projects are distorting competition in the market at present.

But Regen SW argued that Ofgem should avoid tinkering with these charges, and that it should instead conduct a full-scale review of network charges.

The paper said that any reforms to charging must be aligned with other energy policies to ensure that long-term decarbonisation and energy security objectives were met. The reforms would also need to deliver a transparent charging regime that supported innovation and the development of new technologies and business models.

Chief executive Merlin Hyman said: “As we transition towards a more decentralised, flexible power system based on renewable power, the way we charge people to use the electricity grid sends critical signals to investors and businesses.”

Usage

Confidence falls in business energy efficiency sector

A survey has warned of a continuing decline in confidence within the business energy efficiency sector during the third quarter of the year.

EEVS’s Market Monitor, which looks at trends in supplier order books, staffing levels, sale prices and government action, said that the fall was driven by concerns around the consequences of the vote by the UK in June to leave the European Union.

More than half of suppliers (56%) considered that the decision to leave the EU had had a negative impact on their businesses, with just over a third (35%) reporting “business as usual” activity following the referendum.

Half of energy efficiency suppliers believe that Brexit will, over the next year, result in reduced levels of customer demand, while around three in 10 (29%) also expect their overheads to rise.

In negotiating Brexit, six out of 10 suppliers considered that energy-related regulations should be retained in full, while very few (3%) said EU-derived regulations should be removed completely.

Meanwhile, high efficiency lighting saw one of the largest drops in deployment by businesses during the quarter. Although it remained the leading technology deployed, it was significantly down (59%) on its rolling four-quarter average (70%).

UK set to miss renewables target, MPs warn

The UK will fall short of its target for deploying renewable energy by 2020 unless significant policy reforms are introduced, a parliamentary committee has said.

In a report published on 9 September, the energy and climate change select committee said that good progress had been made in deploying renewables projects in the electricity sector, but that in the heat and transport sectors progress had been underwhelming.

The committee said that it was “unacceptable”, given its reputation for leadership on climate change, that the UK looked set to fall short of its overall target of meeting 15% of energy consumption from renewables by 2020. Among its recommendations to remedy this, the committee proposed reforms to the government’s Renewable Heat Incentive scheme (RHI), saying that the subsidies available to consumers should reflect the fact that biomass technologies have proved more popular than heat pumps.

The report also called for an improved marketing strategy for the scheme; this would emphasise the comfort, health, and environmental benefits of renewable heat technologies.

The report concluded that it would only be possible for the UK to meet its transport sub-target through “rapid progress” on the Renewable Transport Fuel Obligation (RTFO). This is the main policy supporting the use of biofuels in the UK, and sets a minimum quota - currently of 4.75% - for the proportion of biofuels in the sales of major transport-fuel suppliers.  The report argued that the quota should be raised to around 9% by 2020.

More generally, the report highlighted evidence that the government’s strategy for encouraging renewables development had been inconsistent, but it suggested that this could be addressed through the establishment of the new Business, Energy and Industrial Strategy department. It recommended that any policy that deployed scarce resources to achieve decarbonisation should be compared with the costs and benefits involved in other possible uses of these resources.

Green vehicles increasing in popularity

Record numbers of new ultra low emissions vehicles (ULEVs) are on Britain’s roads, according to figures published by the Department for Transport.

The figures showed that, from April to June, 9,657 ULEVs were registered in the UK - a 49% increase on the same period last year and 253% higher than in 2014.

The government has committed to spending £600mn in this parliament to support the roll-out of ULEVs as part of its aim for almost all cars and vans to be zero-emission by 2050.

Roads minister John Hayes said: “These statistics show our investment is making a real difference in encouraging people to choose electric and help protect the environment.

Price comparison site warns firms overpaying for energy

Small and medium businesses have overspent on energy supplies to the tune of £7bn in the last year, according to research by energyhelpline.com.

The research, published on 7 September, explained that firms that did not “shop around” were overpaying, on average, by £532/ year. Just under half (45%) of small businesses were found to be on deemed and out-of-contract tariffs, which could be up to 116% more expensive.

Nevena Mulyachka, executive at energyhelpline.com, said: “Businesses are increasingly suffering due to their passive approach to energy contracts. In a competitive market place, companies cannot afford to spend more on utilities than is necessary […].”

Businesses urged to prepare for zero-emissions future

The Cambridge Institute for Sustainability Leadership (CISL) launched a new business briefing on 19 September to help companies prepare for the transition to a zero-carbon future, in the wake of the Paris climate agreement.

The guide said that, although the impacts of the agreement would have varying impacts on different sized businesses, all companies would be affected.

James Cole, director of corporate relations and communications at the CISL, said: “The private sector has a crucial role to play in the implementation of the Paris Agreement and we are already seeing great progress by leading businesses that are increasingly aware of the climate challenge and its associated risks and opportunities. […] It is crucial that this momentum continues and that all businesses […] wake up to the changes ahead and plan accordingly.”

More companies putting a price on carbon

Internal carbon pricing is “gaining popularity” amongst companies around the world, according to a new report by the Carbon Disclosure Project (CDP).

More than 1,200 companies have adopted or are planning to adopt an internal carbon price, and the study showed the practice – where firms apply a monetary value to their emissions outside of a regulatory regime – was up 23% year-on-year. Many companies credited the approach with driving investment in energy efficiency and other low-carbon initiatives.

CDP chief executive Paul Simpson said: “Incorporating climate change as a line item delivers improvements in managing the environmental risks associated with climate change […] Our research shows that carbon pricing is gaining popularity across multiple markets.”

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