Weekly Industry Update – 09.04.18

Category : News


Contents:

Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 02/04 – The UK and Welsh governments are urged to come to a swift decision on the £1.3bn Swansea tidal lagoon scheme. Minimum Energy Efficiency Standards come into force, meaning commercial and residential rental properties need to hit energy efficiency rating “E” for new tenants.

Tuesday 03/04 – Data shows emissions covered by the EU’s Emissions Trading System rose for the first time in seven years during 2017. Google confirms it exceeded its 2017 sustainability target by purchasing more renewably-produced electricity than its global operations consumed.

Wednesday 04/04 – The Energy Networks Association launches gas and electricity Network Innovation Strategies detailing priority areas and how future innovation in both gas and electricity networks will evolve to meet predicted challenges. UN statistics reveal a record 98GW of new solar capacity was installed across the globe in 2017, significantly exceeding new developments for any other technology.

Thursday 05/04/08 – A BEIS quarterly status update on major electricity transmission network projects, reveals that since February 2012, major electricity transmission projects have delivered 8.35GW of network capacity. The Oil and Gas Authority reveals up to 70% of large oil and gas companies operating on the UK Continental Shelf did not invest in researching and developing new technologies in 2016.

Friday 06/04 – The Solar Trade Association welcomes a rule change, meaning small and medium sized solar installations (up to 200kW in size) will find it easier and cheaper to connect to the grid in central and southern Scotland.

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Policy 1 | Government highlights role of green finance in delivering clean growth aims

The UK government’s Green Finance Taskforce has published a series of recommendations for accelerating green finance in the UK, including investing in innovative clean technologies, relaunching UK green finance activities through a new unified brand and publishing a National Capital Raising plan to align UK infrastructure planning with the delivery of the Clean Growth Strategy.

The report, Accelerating Green Finance: a report by the Green Taskforce, published Wednesday, 28 March details through 30 recommendations how the UK government and private sector can maximise clean growth, unlock a potential £30bn of clean infrastructure investment and fund the transition to a low-carbon economy.

There is, it state, an urgent need for investment to reduce emissions and to manage the risks of climate change. To achieve this the taskforce recommends the government establish a new Green Finance Institute and a “Green Fintech Hub”, through which UK green finance activities – including the raising of green bonds – can be undertaken.

Moreover, the taskforce recommends the government develop a dedicated UK Sovereign Green Bond framework that can be issued to secure the necessary investment required to secure UK Clean Growth and innovation targets. This would, the taskforce stated, signal that the government is “serious about green finance.”

The UK, notes the report, is currently delivering less than half of the green infrastructure projects needed to meet the binding carbon budgets. Further, as Brexit could result in the potential loss of significant infrastructure investment from organisations such as the European Investment Bank (EIB), urgent action is required to mitigate such risk.

The taskforce therefore recommended that the government align UK infrastructure planning with the delivery of the Clean Growth Strategy and Defra’s 25 Year Environment Plan through a National Capital Raising Plan. It proposed that this be delivered through the establishment of an “expertise hub” consisting of private sector representatives from a breadth of infrastructure activities and organisations.

Other key recommendations included driving demand and supply for green lending products; improving climate risk management through the use of advanced data and analytics technology; and implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

Finally, the taskforce points to a decline in UK cleantech investment in the period 2010-2017 and recommended government actively boosts investments by establishing of a Green Investment Accelerator (GIA). This would provide early-stage technology grant funding, a dedicated public-private green venture capital fund and focus on commercial opportunities for UK-based businesses. Going forwards the taskforce plans to work with government and stakeholders to support the implementation of its recommendations and secure UK Clean Growth.

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Policy 2 | UK energy production grows, average electricity prices rise, and renewables see record high

A series of statistical releases from BEIS examining the UK energy industry in 2017 have demonstrated an increase in total UK energy production, a record 18.8% increase in renewable electricity generation, a rise in average electricity prices and progress in meeting greenhouse gas emissions targets.

The department’s quarterly and annual gas and electricity prices for the non-domestic sector, published 28 March, showed that between Q4 2016 and Q4 2017 average electricity prices in cash terms – and excluding the Climate Change Levy – rose by 4.5%. The largest increase (14%) was reported in the very small band while the small/medium band witnessed a more modest rise of 3.3%. Aside from the extra large band, prices in all other consumer bands increased.

Conversely, the same report indicates that average gas prices fell overall by 7.1%, with the largest decrease seen in the medium band (7%). Only the very small and very large consumer bands experienced a rise in average gas prices of 1.6% and 3.2% respectively.

BEIS’s Energy Trends March 2018 report illustrated a rise in total energy production of 0.4% year on year in 2017. This growth, according to the report was “due to rises in output from gas, bioenergy and wind, solar and hydro.” Coal production, however, was 27% lower than in 2016 – a record low level attributed to both non-operational mines and mines reaching the end of production.

The report also pointed to a buoyant renewables industry, with renewable electricity generation reaching a record high of 98.9TWh in 2017 – an 18.8% increase on 2016 figures. BEIS notes that “increased capacity and higher wind speeds” contributed to the growth in renewable generation, while also pointing to a more general “switch in generation from coal and gas to renewable sources” in the industry.

Elsewhere, the trends report highlighted: a rise in imports (0.3%) and exports (4.4%) in 2017; growth in the natural gas production sector; a 1.3% decrease in total primary energy consumption for energy uses and a lower demand for gas; and that gas accounted for 39.7% of electricity generated during 2017.

BEIS has also published provisional estimates of UK greenhouse gas emissions for 2017, based on provisional inland energy consumptions statistics. While subject to revision, the figures provide early indication that the period 2016-2017 saw a 3% decrease in total UK greenhouse gas emissions.

The energy supply sector – including the power sector – is reported as experiencing the largest reduction in CO2 emissions from 2016-2017, with an 8% decrease. The reduction, says BEIS, is “driven by change in fuel mix for electricity generation in 2017, with less use of coal and more use of renewables.”

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Policy 3 | EU ETS emissions rise for the first time in seven years as carbon prices fall

Carbon market emissions regulated by European Union’s Emissions Trading System (ETS), rose for the first time in seven years in 2017 due to growth in industrial output, according to data analysis by Thomson Reuters.

Figures from the European Commission, published Tuesday, 3 April indicate an emissions total of 1.756bn tonnes of CO2 equivalent (CO2e) for those companies regulated by ETS (excluding airlines) – a rise of 0.3% on the previous year, said Thomson Reuters. According to analysts, while emissions from heating generation and power decreased, the overall figure rose as a result of a 1.8% increase in emissions from industry. “The European economy grew 2.5% last year,” said Ingvild Sorhus, Lead Carbon Analyst at Thomson Reuters. “Solid growth in the European economy resulted in increased activity, leading to higher emissions.” The ETS regulates close to 45% of the EU’s greenhouse gases output, capping the emissions of power plants, airlines and major non-domestic sites such as factories. It is expected to contribute as much as two-thirds of reductions necessary for meeting EU emissions targets.

Emissions figures allow ETS participants to gain a clear insight into the market, providing early indication of supply/ demand balance. Recent weeks, too, have seen fluctuations in EU carbon pricing, hitting multi-year highs.

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Policy 4 | ePower auction achieves highest recorded value

Recent analysis by energy consultants Cornwall Insight has revealed that the ePower auction held in January 2018 achieved the highest ever recorded price.

e-POWER offers generators access to the whole of the electricity supply base, whilst providing suppliers with an easy route to purchase renewable power. The auction saw the average value retention rise to 102.1% against post-auction maximum benchmark values. This was the second consecutive auction where the value retention was over 100% following the July 2017 auction, which averaged 100.8%. It was suggested that the 100% benchmark was breached for two reasons. The first was that suppliers bidding in the auction were placing a higher premium on sites that are able to generate baseload output profiles (e.g landfill gas, biomass, anaerobic digestion and municipal waste). These sites are also able to earn embedded benefits revenues from both Triad and Generator Distribution Use of System (GDUoS) red rates, which suppliers may have priced into their bids.

The second was the continuation of high bids for sites that benefit under the Renewable Obligation Certificate (Roc) scheme in the auction. The analysis explained that the post auction assessment of the maximum benchmark values uses the Roc buy-out price to value the certificates, which allows a more direct comparison with previous auctions. The results of the auction suggested that offtakers were pricing in an expected recycle value for Rocs into their bids in the auction in addition to the buy-out price, with recycle values of over £5/Roc expected for 2018-19. It was also found that a record 65 projects participated in the auction and won contracts.

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Industry 1 | Ofgem finalises priorities for the coming year

On Wednesday, 28 March Ofgem published its final Forward Work Programme (FWP) 2018-19, which sets out how it plans to “make the greatest positive difference for consumers” over the next financial year. Many of the key themes were revealed in the draft workplan, with the final version acting as confirmation.

The regulator has four key priorities for 2018-19, the first of which is to enable a better functioning retail market. Ofgem explained that it hopes to develop a retail energy market “that works for all consumers” and where competition helps to constrain prices, improve efficiencies and deliver the products and services “that customers need”.

To achieve this goal Ofgem has highlighted a number of key activities that it will undertake, including: enabling innovation in the way suppliers communicate with customers by removing “unnecessary prescriptive rules”; reviewing its approach to licensing suppliers to protect against poor customer service; working to remove barriers to innovation in supply market arrangements; and considering the case for shorter-term changes and more fundamental long-term reforms.

The next area of focus was facilitating changes in the energy system. The regulator noted that the energy system is currently transitioning to one that is “lower carbon, more decentralised, more flexible, more dynamic and responsive” and that it is aiming to “facilitate this transition so consumers benefit.” Within this Ofgem identified three work streams that will be required: working to ensure future network regulation, charging access and wholesale markets evolve to meet the future needs of consumers; continuing its targeted charging review to reduce the distortions caused by intermittent and distributed generation in the recovery of network costs; and putting in place the “critical smart infrastructure” and its associated arrangements.

The third area of focus highlighted by Ofgem was ensuring that network companies continue to deliver for customers in a changing energy system. It plans to do this in two ways, the first being using price controls and setting the outputs that monopoly network operators must achieve, and the associated revenues they generate. The second was “driving competition into parts of the network where this is most suitable”, through tenders to build and operate sections of the network and encouraging competition in connection through the electricity and gas distribution networks.

The final area of focus is to identify opportunities and manage any long-term risks on behalf of consumers. To achieve this Ofgem plans to: ensure an appropriate volume is procured in capacity auctions and ensure any beneficial changes to capacity market rules are implemented; proactively monitor market conduct and take enforcement action when required; and monitoring and investigating potential breaches of REMIT and the Standard Licence Conditions.

Ofgem CEO Dermot Nolan said: “This work programme is about articulating the most important things we want industry to do to help consumers, and how we’ll work together to achieve them.”

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Industry 2 | Conference highlights a potential £268bn of North Sea expenditures

Research by an academic from the University of Aberdeen – Alex Kemp – has suggested that the total field expenditures in the North Sea in the period to 2050 could be around £90bn (2018 prices). In addition, operating expenditure could total £124bn and decommissioning expenditure could possibly total £54bn.

Kemp also noted that while overall production has been increasing since 2014, a peak will soon be reached. However, he suggested that there was still 5.6bn boe of “unexploited potential” across 183 fields in the UK Continental Shelf, but that it would require a coordinated effort from industry to realise it. The majority of these fields are expected to contain less than 20mn boe of potentially recoverable reserves.

By 2050 it is expected that there will still be “modest production activity”, but that the geographic pattern of this activity will have changed. Oil production in the West of Shetland is predicted to become increasingly important, both for production and investment.

Kemp said: “The challenge for the industry and the regulator is to find ways to make these fields viable – new technologies such as those being promoted by the Oil and Gas Technology Centre will have a major role to play in this regard.”

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Industry 3 | Study finds UK construction sector must embrace innovation

The future of the UK construction industry is “shrouded in uncertainty” unless new technologies to improve sustainability are immediately embraced, according to a report released by energy and sustainability site edie on Friday, 6 April.

The State of Sustainability in Construction was compiled with data from a survey of construction sector sustainability professionals, along with industry statistics. The report detailed how the sector’s high-cost, high-risk business model faces immense challenges ahead from political uncertainty, escalating resource use and a nationwide skills shortage.

As well as outlining the current state of the industry, it puts forward proposals for a “radical change” in business models in order to accelerate the transition to low-carbon, resource-efficient practices. The report puts particular emphasis on the need to quickly embrace new technologies such Low Emissions Intensity Lime and Cement, which uses carbon capture storage to reduce emissions in the cement and lime industries.

“Many of technological advancements […] can be adopted and implemented by construction firms now, putting the sector on a unique platform to lead the low-carbon economy,” stated the report. “It is up to sustainability practitioners to adopt this leadership stance by convincing other key stakeholders that the time is now for construction businesses to decide what their future looks like.”

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