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September 2018 Regulatory Report

By Market Insight Team | Posted October 16, 2018

Generation

The month saw the government publish a series of guidance notes on how industry and the public can prepare for a no deal Brexit. Papers were published on 13 September addressing the Connecting Europe Facility energy funding, industrial emissions standards and oil and gas operations. Later, on 24 September, BEIS issued guidance on the potential impact of a no deal scenario on the generation of low-carbon electricity and installation certificates for various microgeneration technologies, including heat pumps and biomass units.  

The Labour Party held its annual conference in Liverpool from 23-26 September, in which Leader Jeremy Corbyn outlined ambitious plans on decarbonisation, including a commitment to reduce emissions 60% by 2030 should the party be voted into power.

Delivery

National Grid issued its latest five-year forecast of transmission network use of system (TNUoS) charges, indicating that demand tariffs are expected to increase every year during the five-year period. In 2019-20 the average gross half-hourly demand tariff is expected to be £50.75/kW, rising to £65.27/kw in 2023-24.

National Grid announced its intention to commence trialling same-day frequency response from June 2019. The trial will last for two years and will allow National Grid to test both parameters and approaches prior to full implementation. The auctions will help the system operator ensure energy security as it faces greater variability in coming years.   

Usage

Ahead of the UK’s first Zero Emission Vehicle Summit in Birmingham from 11-12 September, several businesses and industry representatives pressed the government to accelerate uptake of electric vehicles in the UK, to increase investment in related technologies and to roll out charging infrastructure on a wider scale.

The latest Energy Efficiency Trends report from EEVS found that commissions for energy efficiency projects were at a higher level in Q2 2018 than they have been since Q4 2016. The report says that more than 70% of non-domestic consumers commissioned energy efficiency projects during the quarter, with LED lighting installations the most popular measure.

Also covered in this Regulatory Report:


Generation

No deal notices outline government contingency plans

Through September the government has continued to publish a series of guidance notes on how industry and public can prepare for a no deal Brexit. On 13 September a second tranche of papers was published by the relevant government departments, covering several subjects including the Connecting Europe Facility (CEF) energy funding, industrial emissions standards and operating an oil and gas business.

Between 2021-27 the CEF, which backs the development of interconnected trans-European networks, will support €8.7bn of energy projects. The guidance note guaranteed that developers of these projects should be able to progress Projects of Common Interest that had achieved support prior to Brexit on the understanding that energy grants awarded by the CEF to UK companies and organisations before Brexit will be underwritten by the UK government. It was noted that any CEF energy grant awards to UK organisations that are not honoured in full by the European Commission will be underwritten.

The government also confirmed that the existing industrial emissions regime would continue to apply in the event of a no deal Brexit. Established environmental principles set by the EU Withdrawal Act 2018 will see present EU environmental laws – including the Industrial Emissions Directive (IED) – continue to have effect in the UK.

With regards to the oil and gas sector, the government said that it will amend relevant legislation to ensure broad continuity and that the existing regime for environmental procedures and hydrocarbon licensing would continue to operate. It added that any legislative amendments would not impact businesses in the energy sector.

Further guidance notices were published on 24 September, including information from BEIS on the implications of a no deal Brexit on generating low-carbon electricity. This said that GB would continue to recognise Guarantees of Origin (GoOs) and Renewable Energy Guarantees of Origin (REGOs) issued in Northern Ireland and EU Member States. However, those issued in GB and Northern Ireland would no longer be recognised in the EU, which it said may compromise existing contracts with EU traders and suppliers.

Trade association Energy UK welcomed the clarity provided, but called for further details on areas like electricity trading.

Labour unveils emissions reduction ambitions

The Labour Party annual conference, held from 23-26 September in Liverpool, saw the party discuss several aspects of its ambitious plans for the decarbonisation of the UK. Labour Leader Jeremy Corbyn stated that the party would commit to a 60% emissions reduction by 2030.

Shadow Business and Energy Secretary Rebecca Long Bailey said the UK had more work to do in order to meet its Paris Agreement target of limiting global warming to 1.5°C. Long Bailey said that a Labour government would back a net zero emissions target for 2050.

She also gave more detail on the party’s commitment to renewable energy, including plans for a tripling of existing solar power, adding 52GW of offshore wind and doubling the current onshore wind capacity. Long Bailey also said that maintaining access to the EU Internal Energy Market would be a priority for a Labour government.

Scotland looks to accelerate transition to low-carbon economy

On 4 September Scotland’s First Minister Nicola Sturgeon launched the nation’s Programme for Government 2018-19, which included a number of measures aimed at accelerating the transition to a low-carbon and high innovation economy.

The programme announced several plans to support Scotland’s uptake of electric vehicles (EVs), including a total of £15mn to be spent on 1,500 new electric charge points in businesses and homes, increasing the Low Carbon Transport Loan fund from £8mn to £20mn and the introduction in 2019 of 500 new ultra-low emission vehicles for the public sector. Offshore wind will continue to be supported, with a fresh £2mn of funding pledged to support innovation and reduce costs. The government has also launched a Just Transition Commission, which will advise on how Scotland achieves a carbon neutral economy.

On 24 September, a progress report to the Scottish Parliament published by the Committee on Climate Change revealed that Scotland’s total emissions fell by 10% in 2016 year-on-year. The report highlighted the progress in decarbonising the country’s electricity sector but warned that, following the closure of Scotland’s last coal plant in Longannet, it must now focus on other sectors, with transport highlighted as the biggest challenge.  

BEIS plans to invest in Advanced Modular Reactor development

BEIS has announced it is to invest up to £44mn in its Advanced Modular Reactor (AMR) Feasibility and Development (F&D) project. The department said that AMRs, which differ from conventional nuclear reactors that use pressurised or boiling water for cooling, can generate low-cost electricity, offer increased flexibility in delivering electricity to grid and can give greater functionality, including the provision of heat for industrial purposes or facilitating the production of hydrogen.

Project funding will be delivered over two phases, with the first offering a share up to £4mn for carrying out a series of feasibility studies for AMR designs. Phase 2, which will be dependent on Phase 1 demonstrating value for money and government approval, offers a share of up to £40mn to undertake development activities. BEIS said that an additional £5mn may be made available to regulators to support this development.  

To date, eight organisations have been awarded contracts to produce feasibility studies under Phase 1, including Advanced Reactor Concepts LLC, Westinghouse Electric Company UK and DBD. Abstracts providing further details on each project were also published by BEIS.

Prime Minister announces £106mn zero emissions technology funding

Prime Minister Theresa May has unveiled the government’s “ambitious mission” for the UK to become a world leader in low emissions technology

Speaking at the recent Zero Emission Vehicle Summit in Birmingham from 11-12 September, May announced £106mn in government funding for projects developing innovative battery, vehicle and refuelling technologies. May said that the way that we travel and transport goods is set to “change irrevocably” in the coming years, and that the electrification and automation of transport in the transition to zero emission vehicles will “ensure cleaner air for all our people”.

The Prime Minister also said that £500mn of new investment would come from the private sector, including £200mn from the EV Network for 200 fast-charging stations throughout the UK, funds towards the UK’s largest independent vehicle batter manufacturing plant in Coventry and £50mn from Aston Martin for its new centre for electrification in Wales.


Delivery

National Grid five-year forecast shows increasing demand tariff charges

On 14 September National Grid issued a five-year forecast of electricity transmission network use of system (TNUoS) charges. These recover the cost of installing and maintaining the transmission system in England, Wales, Scotland and offshore. Demand tariffs are forecast to increase every year during the five-year period, which National Grid attributed to a declining charging base for half-hourly (HH) and non-HH (NHH) tariffs and a growing amount of total revenue being recovered through demand tariffs as a result of the cap on generation tariffs.

The average gross HH demand tariff in 2019-20 is expected to be £50.75/kW, rising to £65.27/kW in 2023-24, while the average NHH demand tariff increases from 6.56p/kWh to 8.79p/kWh. During the same period, demand residual will increase from £51.70/kW to £66.79/kW. Average generation tariffs are forecast to fall from £5.61/kW in 2019-20 to £4.32/kW in 2023-24, with the generation residual decreasing from -£3.61/kW in 2019-20 to -£10.58/kW in 2023-24.

Embedded export tariffs paid to embedded generation reduces significantly during the first two forecast years, as the phased residual reduces from £14.65/kW in 2019-20 to zero in subsequent years. National Grid forecast that the volume of generation receiving the tariff will peak in 2019-20 at 7.7GW, before gradually decreasing to 6.6GW by 2023-24. 

National Grid to commence frequency response auction trials

Commencing June 2019 National Grid intends to begin trialling same-day frequency response. In a document published on 31August National Grid said the trial, which will last for two years, was designed to “ensure that we can test different parameters and approaches prior to full implementation”.

The document also outlined several key characteristics of the trial auction design, which will be in place to ensure National Grid can test several “parameters and approaches prior to full implementation”. The auction will be held every Friday morning, with results published by early afternoon in order to mitigate typical patterns of high frequency response demand at weekends.

National Grid said four products will be procured under the auction: high and low frequency dynamic response and high and low frequency static response, and that products will be auctioned by four-hourly electricity forward agreement (EFA) blocks over the week.

Businesses keen to participate in demand-side response, but fear disruption

Industry news site The Energyst released the results of its annual demand-side response (DSR) survey on 7 September, revealing that while businesses are eager to realise benefits, they fear disruption to their core operations.

Businesses on a DSR scheme commit to reducing or shifting their energy consumption when UK electricity demand from the grid threatens to exceed supply. The Energyst poll found that most (83%) of those that do not participate in DSR would be interested in doing so if it did not affect their operations, a higher proportion than last year. The key barriers for non-DSR participants remain unchanged: the perception of risk of disruption to core business was cited by 40%, as was a lack of understanding of the market and available options. Most (68%) of the organisations that already provide DSR remain satisfied with the outcome.


Usage

Organisations call for more action on EV transition

The UK held its first Zero Emission Vehicle Summit in Birmingham from 11-12 September. The summit looked to expand on the commitments outlined in the government’s Road to Zero Strategy, including plans to meet a target for all new cars and vans to be “effectively” zero emission by 2040, and for every car and van to be zero emission by 2050.

Ahead of the summit, a coalition of businesses, NGOs and policy makers – known as the Aldersgate Group – pressed the government to introduce measures to hasten the uptake of electric vehicles (EVs). In a report published on 11 September, the group made several suggestions to government including the introduction of fiscal incentives until the cost of EVs decreased to the level of conventional vehicles, considering of mandatory EV sales targets for car manufacturers and to accelerate the roll-out of charging infrastructure. The group also advised preparing for long-term developments in autonomous vehicles and disruptor businesses such as car sharing services.

The report said that further clarity is needed on new vehicle emissions in the UK post-Brexit, and that a systematic approach must be taken to the decarbonisation of transport that looks beyond “just technological changes”. The group highlighted the importance of these measures in capitalising on the estimated EV market opportunity of £1-2tn per year by 2030 and as much as £7.6tn per year by 2050.

On 7 September, a letter was sent to the Prime Minister from 15 organisations stating that industry was “ready to support a rapid transformation” of vehicles.

The group, which included Energy UK and RenewableUK, called for government to accelerate the UK’s phasing out of new petrol and diesel vehicles and to bring the 2% company car benefit-in-kind tax rate forward to 2019-20. This would, the group said, help eliminate short-term barriers to the uptake of EVs.

The Non-domestic energy efficiency installations rise in Q2

The latest Energy Efficiency Trends report, published on 10 September by EEVS, found that commissions for energy efficiency projects were at a higher level in Q2 2018 than they had been since Q4 2016.

EEVS said that more than 70% of non-domestic consumers commissioned energy efficiency projects during Q2 2018, ending a trend of five quarters of below-average investment in such projects. It was noted that commissions were still not as high as those levels seen in 2015.

Regarding the type of work undertaken, the report said that LED lighting projects remained the most popular. It also noted a growing trend for Building Energy Management Systems (BEMS) projects, with more than 60% of businesses commissioning such projects. EEVS predicted that BEMS could overtake LED installations in the next few months to become “a new market leader”.

Together with an increase in project numbers, the report found that the overall amount spent by businesses also increased. Data showed a rise in large-scale projects of more than £500,000 – these accounted for more than 42% of all projects commissioned during Q2 2018. It was also highlighted that project transparency and accountability continued to improve during Q2, with more than 60% of customers reporting demonstrable savings returns to their investments.

Green New Deal group calls for fresh investment in green infrastructure

The Green New Deal group, which includes Green MP Caroline Lucas, academics and heads of campaign groups such as Friends of the Earth has called for a programme of investment in green infrastructure to strengthen the economy.

In a new report, published on 10 September, the group said that funding of green infrastructure can help tackle climate change, generate jobs and create opportunities for businesses to make savings. It added that several world events have increased the likelihood of an economic downturn and that economic activity related to green infrastructure can help to mitigate this potential threat. The report made several recommendations, including making the UK’s 30mn buildings “super-energy efficient” and fitting solar PV systems to create generation capacity; encouraging the uptake of electric vehicles (EVs) and using them for journey-sharing; and accelerating the shift to renewable electricity supplies and storage.

Lucas said: “A decade after the collapse of Lehmann Brothers that marked the beginning of 10 years of austerity, it’s long past time we took steps to avoid a repeat of the 2008 crash. Our economy needs a complete overhaul to make it work for everyone.”

Corporate leaders back worldwide net zero emissions goals for 2050

During an event that coincided with the Global Climate Action Summit in San Francisco, the Prince of Wales’s Corporate Leaders Group (CLG) addressed methods of reducing emissions and called for a worldwide net zero emissions target for 2050 to accelerate the transition towards a low-carbon economy.

The Cambridge-based group, whose members represent several industries includes energy, banking and pharmaceuticals, said that setting a net zero “stretch goal” can help to galvanise both innovation and investment in the economy. The CLG said that businesses are not likely to decrease carbon emissions to zero and therefore deliver on the targets set by the Paris Agreement unless “ambitious and unequivocal targets” are set by governments. It added that the “lack of clear, long-term government signals and supporting policies that can drive the transition to a zero emissions economy” has discouraged the private sector from taking on the challenge of sustainability. While the CLG said that a growing number of companies are readying for the transition to low-carbon operations, a mandated target to do so would mobilise key players and provide a sense of urgency to such a transition.

August non-domestic RHI installations lower than average

On 20 September, the government published its Renewable Heat Incentive (RHI) deployment data for August. The document, which shows numbers of applications and accredited installations under the scheme so far, found that non-domestic deployment during the month was “much lower than average” for the prior 12 months. The RHI supports for 20 years installations like biomass boilers.

During August there was 50 new applications to the non-domestic RHI scheme, lower than the average 92 installations of the prior 12 months. Close to half of new applications were small or medium biomass, which follows trends set over the previous 12 months, but BEIS found that several very large ground source heat pumps (GSHPs) were applied during August, representing 6.9MW of capacity. This was considerably larger than 1.8MW per month average over the prior 12 months.

Total new non-domestic installations in August had a capacity of 13.2MW; the average for the prior 12 months was 56.84MW.

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