Weekly Industry Update – 06.08.18

Category : News


Contents:

Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 30/07 – Ofgem publishes its framework decision on the RIIO-2 price control, confirming that the price control period from 2021 will run for five years, compared to the current eight years. The House of Commons Environmental Audit Committee publishes the government’s response to its inquiry into green finance, criticising a lack of commitments in the government’s answers.

Tuesday 31/07 – BEIS launches a £15mn fund to drive innovation in carbon capture, use and storage. The UK Energy Research Centre urges the government not to delay long-term policy decisions on gas, especially in the context of the risks Brexit poses to supplies.

Wednesday 01/08 – Ofgem publishes its annual reports covering the domestic and non-domestic Renewable Heat Incentive schemes during 2017-18.

Thursday 02/08 – Ofgem issues an update on changes following the introduction of the Electricity Balancing Significant Code Review remedies.

Friday 03/08 – It is announced that more than 5,500 churches and 15 cathedrals are now using 100% renewable electricity.

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Policy 1 | EAC criticises government over green finance inquiry response

The Commons Environmental Audit Committee published the government’s response to its inquiry into green finance on Monday, 30 July, criticising a lack of commitments in the government’s answers.

The government welcomed the committee’s inquiry into green finance highlighting its significance in supporting the delivery of its Clean Growth Strategy, to drive UK economic benefit as part of its Industrial Strategy and to enable the transition to a low-carbon economy.

However, in its response, the government made no commitment to address the fall in the UK’s clean energy investment since 2016 and made no explicit commitment to publish a delivery plan to achieve the UK’s fourth and fifth carbon budgets in full. Global investment in renewable energy fell by 7% in 2017 and clean energy investment in the UK fell by 56% in 2017, according to figures from Bloomberg New Energy Finance.

Instead, the government noted the work of its independent Green Finance Taskforce in shaping an “ambitious agenda to capture this global growth opportunity and deliver the investment required to meet the Paris Agreement and our government’s Clean Growth Strategy to 2032.” The Taskforce comprises senior industry leaders, from the finance sector, academia, international institutions and civil society. Within six months of its creation the Taskforce had consulted over 140 organisations and delivered 30 recommendations to the government.

The response also declined to adopt the committee’s recommendation to launch a consultation before the next Contracts for Difference auction in 2019 to explore how BEIS can continue to encourage new low-carbon generation with fixed-price contracts in the early 2020s. The government noted alternatives ways that new low-carbon generation can be brought forward as it reaches a level at or below the forecast wholesale electricity price.

Furthermore, the government acknowledged the need for further evidence to support its proposed policy of “green mortgages” and claimed that it is prepared for the possibility that the UK may lose European Investment Bank funding. The European Investment Bank is an important lender that ensures infrastructure projects – including clean and renewable technologies – can continue to be able to raise the finance they need.

However, as a result of Brexit, the government suggested it will be prepared for significant changes to the relationship. To prepare for this event the government has already taken steps to increase the support for infrastructure and businesses finance – for example, the government is investing £200mn into a new Changing Infrastructure Investment Fund to support the transition to zero emission vehicles, while the Infrastructure and Project Authority broadens its £40bn UK Guarantees Scheme to offer construction guarantees.

Committee Chair Mary Creagh commented: “The government is coasting on climate change. It is currently relying on past successes to scrape by on its carbon budgets and is not even on track to meet them in full.”

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Policy 2 | ENA consults on delivering a smarter, more flexible grid

The Energy Networks Association’s (ENA) Open Network Project has launched a consultation on how to design and deliver a smarter, more flexible and more decentralised energy system that can better harness distributed energy and flexibility.

The industry-wide project involves Ofgem, BEIS and all 10 of the UK and Ireland’s electricity network operators and aims to better manage intermittent generation from renewable sources to lay the foundations of a “smart grid” in Great Britain. The ENA said that such changes could save energy users as much as £40bn by 2050.

The report noted that the three challenges of decarbonisation, decentralisation and digitisation “have the potential to create whole system opportunities by transforming the way distribution networks behave and creating new flexibility market opportunities for potential service providers.” Accordingly, the document set out five potential industry structures, or “Future Worlds”, that can both meet these challenges and deliver customer benefits:

World A: DSO Coordinates – a scenario in which the DSO takes a central role for all distribution connected parties and acts as a “neutral market facilitator” for all distributed energy resources (DER), providing services on a locational basis
World B: Coordinated DSO-ESO procurement and dispatch – the DSO and ESO work collaboratively to manage networks through coordinated procurement and the dispatch of flexibility resources
World C: Price-driven Flexibility – a world where changes developed through Ofgem’s electricity network access and forward-looking charges reforms improve access and forward-looking signals for customers
World D: ESO Coordinates – the ESO acts as a counterparty for DER. The DSO’s role is to inform the ESO of their requirements, and
World E: Flexibility Coordinator(s) – a new national, or regional, third party takes the role of neutral market facilitator for DER and provides efficient services as required.
In setting out these worlds, the ENA said the transition to a smart energy grid will present the challenge of creating a market for flexibility that will both protect the competitive nature of the UK market while still providing “meaningful, new choices” for consumers.

It is therefore seeking views on how neutral market facilitation can be achieved for SOs and DNOs. The consultation is also asking for evidence on whether the five Future Worlds provide a reasonable view of potential futures and key enablers, such as regulatory, organisational and infrastructure changes, that will be necessary to implement the scenarios.

CEO of the ENA David Smith said the project could unlock a wide range of benefits for businesses and households, adding that the Future Worlds “represent a major change from the way our networks operate today, as they pioneer new ways to decarbonise our energy system to deliver new opportunities and reduced costs for household and businesses across the country.”

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Policy 3 | Cross-party group of MPs call for net zero emissions target

A group of more than 100 MPs from across all parties have written to Prime Minister Theresa May urging her to back the introduction of a new net zero emissions target for 2050.

The open letter released on Tuesday, 31 July, said: “It’s hard these days to find anything where all MPs are united […] but on climate change the House of Commons is mostly united.” The MPs highlighted compelling environmental, economic, and security reasons for backing a bolder long-term emission target that would be in line with the Paris Agreement.

The letter also stated that by 2030, the country’s low-carbon economy could be worth £600bn and that British manufacturers and scientists are “world leaders in hydrogen, smart grids and lightweight composites that will form the cars, planes and trains of the future”. The letter added that with most nations now heading towards net zero, setting the target was about “getting British business ahead of the curve”.

The letter also pre-empts likely criticism of a net zero target from those who argue it would prove unfeasible or too expensive. However, suggested that “setting ourselves the goal of net zero emissions will put us at the forefront of the race for investment in clean industries, creating jobs all around the UK and inspiring the next generation.”

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Policy 4 | BEIS launches CCUS innovation fund

On Tuesday, 31 July, BEIS launched a £15mn fund to drive innovation in carbon capture, use and storage (CCUS).

The funding is open to projects that lead to a significant reduction in the cost of capturing and sequestering CO2 or a quicker, more widespread deployment of CCUS in the UK and internationally. Up to £5mn will be considered for feasibility studies, industrial research or experimental development projects and up to £7mn for research infrastructure that enables the UK to conduct “world-leading research and innovation” into CCUS.

The call offers the full range of CCUS innovation which includes carbon capture, transport, utilisation and storage. This covers both power and industrial CCUS and includes greenhouse gas removal (GGR) approaches. Project funding will be available to companies for up to 24 months, with projects finishing by 31 March 2021.

In a combined effort between, government, Innovate UK, Research Councils, and BEIS around £162mn is expected to be invested in industrial research and innovation, including Carbon Capture, Use and Storage (CCUS). BEIS said the fund “will ensure the UK remains at the forefront of CCUS innovation”.

Applications are invited by 11 November.

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Industry 1 | Research warns Brexit set to exacerbate gas energy security fears

The UK Energy Research Centre (UKERC) released research on Tuesday, 31 July raising concerns over the UK’s future gas energy security, particularly in the context of Brexit.

The findings are based on a series of stakeholder meetings involving government, business, think tanks and academia, convened to discuss the impact of Brexit on the UK gas industry. The report is set in the context of March 2018’s “Beast from the East”, which saw the UK National Grid issue its first gas deficit warning for eight years as consumption spiked against a background of supply problems and the closure of the UK’s biggest gas storage facility, Rough.

Total gas demand is split three ways between: electricity generation (33.4%), domestic use (34.9%) and the energy industry, other industry and services (31.7%). Currently, the majority of UK imports come from the EU Internal Energy Market (IEM). Leaving the EU’s institutions means that the UK will no longer be a member of the IEM and will lose any ability to influence EU energy and climate strategies – but still be affected by them.

Brexit also creates regulatory risk for the UK market. It is unclear how the interconnectors which move gas between Belgium, the Netherlands and the UK will be regulated once the UK has left the IEM.

More broadly, the UK’s supply infrastructure is ageing and was designed to move gas onshore and south from the North Sea fields. The system is now being asked to move gas in new directions over very short periods of time, and does not always cope. Critical decisions with long-term consequences are being “delayed by uncertainty”.

The analysis concluded the government needs to provide clarity on the future role of gas in the UK in order to allow industry to make informed investment decisions. If the UK government chooses to continue towards its ambitious decarbonisation goals, the use of gas must decline. This can serve as a disincentive to infrastructure investment.

Report Author Professor Bradshaw commented: “The UK needs a flexible, adequate and resilient gas supply chain into the 2020s and beyond. But the industry is wrestling with an uncertain future. In the medium term, gas security faces challenges from increased import dependence and domestic demand constrained by climate change policy. While there is this degree of uncertainty, it is difficult for industry to justify investments in the supply chain, whether to maintain existing capacity, deliver new sources of flexibility, or explore carbon capture solutions.”

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Industry 2 | BEIS finds positive outcomes from public sector efficiency loans

BEIS has published its evaluation of the public sector energy efficiency loan scheme, which analyses activity between 2013-2017 for both the Salix Energy Efficiency Loans Scheme (SEELS) and the Recycling Fund (RF).

The report, published on Tuesday 31 July, said that between 2013-2014 and 2016-2017 the loan scheme provided over £235mn in funding for energy efficiency projects in England. Funding was provided across 564 organisations, with 76% of higher education institutes, 27% of local authorities, 9 % of NHS, 4% of emergency services and 1-2% of schools participating – higher education institutes and local authorities accounts for two-thirds of all projects.

Year-on-year, funding levels were noted as varying but BEIS recognised an overall significant increase in project size. The department said that, through the provision of interest-free loans, the scheme supports the installation of energy efficiency measures to reduce energy consumption, emissions and the cost of energy bills. “Clear differences” were highlighted in the range of technologies deployed through the scheme, but the report said that LED lighting has proved popular with “almost all participants” due to cost savings and falling technology costs.

It was reported that most participants in the scheme felt they had achieved energy and cost savings to date, with those undertaking scheme lighting projects noted as achieving a reduction of 12% in electricity use in the first year after project implementation and a decrease of 21% in the second year. Several co-benefits were also identified, including heightened ambition and leveraging funds to conduct other work. BEIS said the scheme had benefited from high awareness and good reputation but that there is still further potential in the market, with uptake highly variable across sub-sectors.

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Industry 3 | Gas transmission transportation charges confirmed for 1 October

On Tuesday, 31 July National Grid published its final gas transportation charges, which will apply from 1 October 2018. The TO Entry Commodity Charge levied on entry flows will see an increase from its current rate of 0.0434p/kWh to 0.0435p/kWh, while the TO Exit Commodity Charge is also set to increase to 0.0217p/kWh.

The report noted reductions in capacity bookings in the July 2018 Exit capacity application window, which National Grid said would have contributed to the above rises. Elsewhere, National Grid said that the 2018-19 allowed revenue is forecast to decrease by £24mn to £180mn, compared to when charges were set for April. Other SO Income has also fallen by £18mn, meaning that the overall income to be collected from the SO Commodity Charge has fallen by £7mn compared to the April 2018 charge setting.

The SO Commodity Charge – applied to both Entry and Exit flows – will fall to 0.0092p/kWh compared to the present rate of 0.0101p/kWh.

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