Weekly Industry Update – 09.07.18

Category : News


Contents:

Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 02/07 – The European Offshore Wind Deployment Centre in Aberdeen Bay generates first power. The Nuclear Decommissioning Authority confirms that Magnox will become a subsidiary.

Tuesday 03/06 – BEIS consults on a final end date for the installation of first generation smart meters. The candidate for Chair of Ofgem, Martin Cave, is questioned by the BEIS Committee. The All-Party Parliamentary Group on Hydrogen has its inaugural meeting. National Grid’s Black Start Strategy and Procurement Methodology for 2018-19 is approved.

Wednesday 04/06 – Phase seven of the Energy Entrepreneurs Fund is opened by BEIS. Vodafone and Dell unveil an Internet of Things energy platform for businesses.

Thursday 05/06 – Business and Energy Secretary Greg Clark announces new energy efficiency targets for the public sector. The Housing, Communities and Local Government Committee concludes its inquiry into fracking planning guidance. BEIS publishes a policy paper setting out the government’s vision for the future of the construction sector, including enhanced energy efficiency.

Friday 06/07 – Energy UK warns that the uncertainty around whether the UK will remain in the European Emission Trading System is already having a “direct impact on the day-to-day business of energy companies”.

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Policy 1 | Non-domestic energy prices rise year-on-year

The latest quarterly statistics from BEIS have found that between Q1 2017 and Q1 2018 the average price of gas in the non-domestic sector rose by 5.4%. The price of non-domestic electricity and coal also increased by 6.4% and 26% respectively. These increases were in real terms and included the Climate Change Levy. Over the same period the price of gas used for electricity generation increased by 7.7% in cash terms. The cost of coal for electricity generation decreased by 4.1%.

These figures were averages for the entire non-domestic sector and varied by individual industry. In the power production sector, it was found that gas wholesale prices have generally been higher and more volatile since 2008, in line with crude oil prices. BEIS said that, other than other than a slight dip in October 2017 and a large dip in January 2018, wholesale gas prices rose between Q1 2017 and Q1 2018. They averaged a high of £0.72 per therm in March 2018 – the highest recorded for over four years. The colder weather in Q1 2018 compared to the previous year saw wholesale gas prices increase by 26%.

Between Q1 2017 and Q1 2018 the use of coal in power generation fell despite the cost falling by 4.1%, which was attributed to a reduction in coal capacity. It was also noted that the increase in the cost of gas for electricity generation, combined with increased renewable output, saw gas’s share of generation decrease.

BEIS also published statistics relating to energy generation in the UK during Q1 2018. It was revealed that low-carbon generation accounted for 48% of electricity generation, up from 45.8% in the previous year. The share of renewables increased from 27% in Q1 2017 to reach a record quarterly high of 30.1%. Total renewable generation was a record 27.9TWh during the first quarter of 2018, a 10.2% year-on-year increase. BEIS attributed these increases to greater wind and solar capacity and higher wind speeds. Renewable electricity capacity was 11.2% higher than the previous year at 41.9GW.

Coal’s share of electricity generation decreased from 11.1% to 9.4%, while gas’s share also fell from 40.5% to 39.9%. Nuclear’s share of generation fell from 18.8% in Q1 2017 to 17.9% in Q1 2018.

Final energy consumption (excluding non-energy use) was 7% higher year-on-year. However, on a seasonally and temperature adjusted basis this increase reduced to 0.5%. Gas and electricity demand levels were 7.4% and 2% higher in Q1 2018 respectively. BEIS said these increases were primarily driven by colder temperatures.

Natural gas production fell by 4.1%, compared to particularly high production levels in Q1 2017. Coal production in Q1 2018 was 27% lower year-on-year due to decreased demand – generators’ demand for coal fell by 13%. Despite this, coal imports rose by 30%.

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Policy 2 | Electric-green gas combination most cost-effective heat decarbonisation pathway, researchers find

Imperial College London has produced a report analysing alternative heat decarbonisation pathways for the UK. The report accompanied the Committee on Climate Change’s (CCC’s) 2018 emissions progress report, released on Thursday, 28 June.

The Imperial research noted that the CCC has identified a number of potential decarbonisation pathways for low-carbon heating. The three central scenarios are: “greening” the gas supply by shifting to low-carbon hydrogen; the electrification of the heating sector supported by low-carbon power generation; or hybrid solutions, where the bulk of heat demand is met by electricity and peak demands are met by green gas. It was explained that each of these pathways have significant challenges and that it was unclear whether there was a dominant solution. It was also unclear what the implications would be for future infrastructure requirements and the operational coordination across the UK’s energy systems.

The Imperial study aimed to quantify the system costs of each of the decarbonisation pathways. It focused on: the cost performance of each pathway and cross-cutting analysis across pathways; the interaction and optimal capacity portfolios of power system infrastructure, hydrogen infrastructure; carbon capture and storage infrastructure and heating infrastructure; the impact of uncertainties in key modelling assumptions and input parameters; the role and benefits of technologies that improve system flexibility and reduce emissions; the impacts of energy efficiency and climate change; and the technical feasibility of the existing gas distribution infrastructure to transport hydrogen.

The report found that to reach both a 30Mt and 0Mt of carbon scenario, the hybrid pathway would be the most cost-effective. It was also found that: in general systems with lower carbon emission targets will result in higher costs; the electrification and hybrid pathways would provide greater optionality towards deep decarbonisation compared to the hydrogen pathway; and technologies such as micro-combined heat and power could provide alternatives to electric heating and improve cross-energy flexibility between the electricity and gas systems.

It was also revealed that regional scenarios for deploying hydrogen and district heating are more attractive than national deployment for the specific solutions considered. Imperial noted that in some cases regional heat decarbonisation choices – such as district heating schemes in densely populated areas – within a wider national system can result in lower overall costs.

However, the report noted that there were “significant uncertainties” in the assumptions that underpin all of the scenarios considered. Therefore, it could not identify a “clear lowest cost solution across the three decarbonisation pathways.”

In addition to the decarbonisation pathways considered, the report also found that: energy efficiency “is of key importance”; the overall costs of a zero-carbon energy system will be dominated by capital rather than operating costs; and system flexibility will be vital for cost-effective decarbonisation.

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Policy 3 | Government announces actions to improve energy efficiency in buildings

On Thursday, 5 July the government announced a range of measures to improve the UK’s buildings sector, including energy use.

Business and Energy Secretary Greg Clark announced a new government-industry partnership with the construction sector worth £420mn. The Construction Sector Deal aims to transform the sector by promoting innovative technologies to increase the speed at which buildings can be constructed, as well as help meet the target of halving the energy use of new buildings by 2030 and therefore reducing bills.

Clark said: “As buildings account for around 30% of total emissions, we want to ensure that we are at the global forefront in designing and building smart, energy efficient and affordable homes and buildings.”

On the same day, the government announced project winners for two innovation competitions aimed at reducing carbon emissions associated with providing heat and hot water, and improving energy efficiency for UK buildings.

It was revealed that eight projects had been awarded a total of £8.49mn from the Low Carbon Heating Technology Innovation Fund and 12 projects would share a total grant of £7.05mn from the Thermal Efficiency Innovation Fund. Projects include a heat battery by OVO Energy designed to store heat generated from renewable electricity and a gas heat pump that the University of Warwick claim will use at least one third less gas than a normal boiler.

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Policy 4 | Welsh government sets first carbon budgets

The Welsh government has set its first two carbon budgets as well as interim emission reduction targets.

In a statement on Thursday, 28 June, the Welsh Cabinet Secretary for Energy Lesley Griffiths explained that the Welsh government has set the level of Wales’s first and second carbon budgets. The first carbon budget aims to reduce emissions by 23% on average between 2016 and 2020. The second aims to reduce emissions by an average of 33% between 2021 and 2025.

It has also agreed to set interim targets of reducing emissions against a 1990 baseline by 27% by 2020, 45% by 2030 and 67% by 2040. Wales has so far reduced emissions by 14% since 1990. The Welsh government also announced that it will be launching a consultation in July on how best to achieve its low-carbon pathway to 2030 and maximise benefits on its “well-being goals”.

Griffiths noted that the targets will be “extremely challenging” to meet as historic data shows emissions are “disproportionately volatile in Wales”. It was noted that nearly 60% of Welsh emissions currently come from heavy industry and electricity generation, which Griffiths said reinforced the need for setting emission reduction targets.

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Industry 1 | Trade association warns of renewables slowdown

The Renewable Energy Association (REA) delivered its annual verdict on the outlook for the low-carbon power sector on Thursday, 28 June.

On the one hand, the annual report illustrated a record-breaking year for renewable power generation. In total 29.4% of all UK electricity generated by clean technology providers in 2017, an increase of 4.9% on 2016.

This achievement was credited in the paper to higher renewables capacity (now 40.5GW), primarily observed in the onshore/ offshore wind and solar sectors, coupled with higher wind speeds.

However, the report also highlighted the challenges faced by the industry due to prolonged political uncertainty and the future energy relationship with Europe. The REA argued that, despite the UK’s clear commitment to leading the smart energy revolution and the transition to low-carbon transport, it may be too late in delivering on its domestic and EU environmental agreements. The REA cited concerns related to the government’s abrupt policy changes, which it believes is hampering growth.

The example the report noted is the government’s inability to compile a cohesive heat strategy that clearly addresses the legacy of the nation’s poorly insulated homes, renewable heat source alternatives and improves energy efficiency in industry.

The report also highlighted the lack of growth observed in employment figures. Total jobs in the sector rose just 0.9% compared to 2015-16. The major trend in the figures was the 20.3% drop in employment in the solar sector – this loss linked to the early closure of the Renewables Obligation and cut in support under Feed-in Tariffs.

The number of companies working in the renewables sector has decreased by 2.3%, largely as a result of the contraction of the solar PV sector. Solar PV has also fallen from its top position of having the largest number of companies. This has been overtaken by those linked with offshore wind.

The renewables industry’s market value has increased over that time by only 2.1% – the lowest rate the REA has reported to date – to £17.9bn. The analysis forecasts the potential to increase to £22bn by 2019-20, a 22.9% increase.

Nina Skorupska Chief Executive of the REA said: “It’s been a Jekyll and Hyde year for the renewable energy industry, on the one hand we’ve seen record levels of clean energy pumped into the grid, powering nearly 30% of our business and domestic energy needs, but sadly also companies leaving the sector as the loss of government subsidies has shattered their business models. The next two or three years are crucial for our sector, the last year shows that wind, solar, biomass, battery storage, waste-to-energy, wave, tidal and the other new clean technologies entering the market can meet the UK’s energy needs, help us reach our climate targets, and create high-skilled British jobs in the process.”

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Industry 2 | £122.8mn to be recovered for Shetland interim energy solution

On 29 June Ofgem announced that Scottish Hydro Electric Power Distribution (SHEPD) will be permitted to recover £122.8mn of costs during the remainder of the RIIO-ED1 price control in relation to the interim energy solution for Shetland.

SHEPD had originally submitted projected costs of £133mn for the period between 2019-20 to 2022-23, but Ofgem initially proposed to allow the recovery of £188mn for three key cost areas: the extended interim energy solution (£110mn), the preparatory work for enduring solution post 2025 (£3mn), and the costs incurred by NG Shetland Link since the publication of the regulator’s minded to decision on the Shetland New Energy Solution (£5mn).

Following a period of consultation, Ofgem has decided to remove the proposed 10% efficiency reduction for the majority of ex-ante allowances, and to provide a battery storage allowance. Ofgem said it welcomes the latter “as part of the mix for the extended interim energy solution” but that is “still not fully satisfied” with the cost evidence that has been presented. It will therefore provide a battery allowance on a “use it or lose it” basis.

The regulator also decided to retain the proposed uncertainty mechanism for ex-ante costs in order to provide flexibility during the interim solution whereby any material underspend is returned to consumers.

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Industry 3 | Mayor expands London solar panel scheme

The Mayor of London Sadiq Khan has revealed plans to expand the city’s solar panel scheme after 4,000 participants signed up during its first phase.

On 29 June it was announced that eight more London boroughs had signed up to the Mayor’s Solar Together scheme, taking the total to 12. The scheme allows residents and businesses to register to buy high-quality solar panels in order to generate their own renewable energy and to use a “group buying model to unlock significant savings from suppliers”. iChooser, an independent group buying expert, helped to deliver the first phase of the scheme and will administer the second phase.

The announcement formed part of Khan’s Solar Action Plan for London, also published 29 June. The plan outlines Khan’s ambition for more a greater amount of London’s energy to be generated by solar technology – estimates suggest that to achieve the Mayor’s target of making London a zero-carbon city by 2050 will require 20 times more solar energy generation technology to be installed across the city.

Khan said: “I’m delighted to launch the second phase of Solar Together London. This will offer even more Londoners the opportunity to buy and install solar panels for their homes and small businesses at a significant saving. Solar offers an increasingly low-cost source of energy for Londoners and we need to speed up its roll-out across the capital.” He added: “The government urgently needs to outline the future form of financial support for solar and how it intends to seize the opportunity to provide low-cost, reliable and clean power.”

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