Weekly Industry Update – 16.07.18

Category : News


Contents:

Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 09/07 – The government releases its Road to Zero Strategy, confirming a target for at least 50% of new car sales to be ultra-low emissions by 2030. A range of reactions, including from Energy UK and the RAC, urge the government to go further faster on the electric vehicle (EV) roll-out. National Grid issues its latest Electricity Market Reform Electricity Capacity Report, with the government confirming the parameters for the next Capacity Market auctions. Mayor of London Sadiq Khan announces £500mn in energy efficiency funding for buildings across the capital.

Tuesday 10/06 – The National Infrastructure Commission releases its National Infrastructure Assessment, cautioning the government against committing to investment in new nuclear as renewables could provide a cheaper path to system decarbonisation.

Wednesday 11/06 – Environmental groups and academics write to ministers calling on them to revise planning laws to block the development of new UK coal mines.

Thursday 12/06 – In its Future Energy Scenarios, National Grid says peak electricity demand could soar above 85GW by 2050, from under 60GW today, driven by a shift towards electric heating technologies and EVs.

Friday 13/07 – Data from National Grid reveals that Britain has had more than 1,000 coal-free hours in 2018. Organisation for Economic Cooperation and Development (OECD) urges government to increase public spending on green energy.

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Policy 1 | NIC backs continued investment in renewables to achieve lowest cost transition

Independent advisers the National Infrastructure Commission (NIC) delivered their first National Infrastructure Assessment on Tuesday, 10 July, finding the UK has a “golden opportunity” to switch to greener methods of providing energy to homes and businesses without increasing bills.

The NIC was established in 2015 to provide clear advice to the government on how best to meet the country’s long-term infrastructure needs. Specifically, on energy it found that the UK should continue to invest in low-cost renewable technologies, such as wind and solar, so that these provide at least 50% of the country’s generating capacity by 2030. The NIC’s modelling found that a highly renewable generation mix is a low-cost option for the energy system. The cost would be comparable to building further nuclear power plants after Hinkley Point C, and cheaper than implementing carbon capture and storage in the existing system.

Specific recommendations included that the government should:

  • Set out a pipeline of pot 1 Contracts for Difference (CfD) auctions, to deliver at least. 50% renewable generation by 2030, as part of the transition to a highly renewable generation mix.
  • Pot 1 “established technology” auctions should be used for the overwhelming majority of the increase in renewable capacity required.
  • Move technologies that have recently become cost competitive, such as offshore wind, to pot 1 following the next CfD auction in Spring 2019.
  • Publish indicative CfD auction dates and budgets for the next decade by 2020.
  • Over time take whole systems costs into account in CfD auctions, as far as possible.
  • Not agree support for more than one nuclear power station beyond Hinkley Point C, before 2025.
  • It was also recommended that the UK government should look to ramp up efforts to improve the energy efficiency of the UK’s buildings and enable a rapid switch to electric vehicles.

Chairman of the NIC Sir John Armitt said: “Whether for cooking, lighting, keeping homes warm or electric cars on the road, where the UK’s energy comes from will need to change radically over the coming decades if the UK is to meet its legally-binding climate change targets. If we act now we have a golden opportunity to make our country greener, and protect the money in the pockets of consumers long into the future – something few of us expected to be able to do.”

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Policy 2 | Road to Zero details transport decarbonisation plans

The government released its Road to Zero Strategy on Monday, 9 July, confirming a target for at least 50% — and as many as 70% — of new car sales to be ultra-low emissions by 2030.

Transport has been recognised as the largest sector of UK greenhouse gas emissions, totalling 27% of total emissions, of which road transport accounts for over 90%. Progress to prevent this situation continuing has already been seen. Currently, there are over 150,000 ultra-low emission vehicles and around 14,000 public chargepoints across the UK. 15,000 people are employed in the low emission vehicle sector and one in every eight zero emission cars bought in Europe in 2017 was built in the UK.

The strategy will renew action to accelerate the widespread adoption of fuel efficient motoring by businesses operating fleet, company car owners and private motorists, to reduce emissions from the vehicles already on the roads. In addition to this the government will extend the Clean Vehicle Retrofit Accreditation Scheme (CVRAS) beyond buses, coaches and HGVs to include vans and black cabs. The promotion of low-carbon fuels will be essential to reduce emissions from conventional vehicle and industry.

Furthermore, the strategy will also see a push for chargepoints to be installed in newly built homes, where appropriate, and new lampposts to include charging points. It will also increase the grant level of the Workplace Charging Scheme from £300 per socket to 75% of the purchase and installation costs of a chargepoint, capped at a maximum of £500 per socket. The Plug-In Car and Van Grants will also be extended to at least October 2018 at current rates, and in some form until at least 2020.

The government plans to reduce emissions from heavy goods vehicles (HGVs) and road freight by:

  • Introducing a new voluntary industry-supported commitment to reduce HGV greenhouse gas emissions by 15% by 2025, from 2015 levels.
  • Working with industry to develop an ultra-low emissions standard for trucks.
  • Undertaking further emissions testing of the latest natural gas HGVs to gather evidence that will inform decisions on future government policy and support for natural gas as a potential near-term, lower emission fuel for HGVs.

Transport Secretary Chris Grayling commented: “The Road to Zero Strategy sets out a clear path for Britain to be a world leader in the zero emission revolution – ensuring that the UK has cleaner air, a better environment and a stronger economy.”

RAC Head of Roads Policy Nicholas Lyes added: “The electric vehicle revolution is coming and this strategy sets the framework for how the UK will be ready to benefit from it. Despite growing numbers of zero and ultra-low emission vehicles on our roads, the overall proportion of sales are still low. The UK government needs to be bold in its steps to encourage as many drivers to opt for the green option as possible. Motorists’ concerns about the limited range offered by electric vehicles needs to be addressed head on – manufacturers have a role to play here, but so too does the government in ensuring the necessary rapid charge infrastructure exists.”

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 | Heating innovation competition winners announced

BEIS has 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.

On Thursday, 5 July, 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. During the competition innovative technologies, processes and tools were eligible for support, with projects able to apply for a grant of £200,000 to £2mn. Winning projects included a heat battery 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.

These investments are part of a cross government commitment from Innovate UK, Research Councils and BEIS to invest around £184mn in research and innovation in the built environment. Furthermore, BEIS expects to invest around £90mn in low carbon heating and energy efficiency options for UK homes and businesses.

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Policy 4 | BEIS confirms details of industrial heat recovery competition

On Thursday, 5 July, BEIS released its decision on its Industrial Heat Recovery Support (IHRS) programme, following a consultation.

BEIS concluded that heat recovery technologies would save industry money and reduce emissions, but that “less than half of the potential is commercially viable at present”. The consultation was intended to address the barriers to uptake and inform future government support.

Currently, BEIS has received 34 responses to its online consultations. From these it decided to focus its support on technologies that have a technological readiness level (TRL) of 9 – TRL refers to the maturity of a specific technology, with 9 being the highest level and indicating the most mature technology. The intention is to use rolling applications for both phases of the programme in order to optimise the number of projects from different sectors that have the opportunity to deliver within the timeframe available.

As currently proposed, £6mn will be available for Phase 1 feasibility studies and £12mn for Phase 2 Capital Grant projects. However, the majority of respondents raised concerns that the funding was insufficient due to the high level of commitment and resources needed from applicants.

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Industry 1 | Trade association warns of renewables slowdown National Grid makes recommendations for upcoming Capacity Market auctions

On Monday, 9 July, National Grid released its latest Electricity Market Reform (EMR) Electric Capacity Report (ECR), which set out the System Operator’s (SO’s) recommendations on capacity procurement for the forthcoming Capacity Market (CM) auctions.

The SO’s modelling recommended that 46.7GW of capacity be procured in the T-4 auction for delivery in 2022-23. This is 3.8GW lower than the figure National Grid recommended be procured in the T-4 auction last year (for delivery in 2021-22).

The report noted that the factors contributing to this decrease fall into two categories: changes impacting on total de-rated capacity requirement and changes that affect the split of that total de-rated capacity between eligible and ineligible capacity. For 2022-23 there was a 1.6GW net reduction in the total de-rated capacity required. In addition, there was a further reduction of 2.2GW in the eligible capacity required because of the corresponding net increase in the level of assumed CM-ineligible de-rated capacity.

For the next T-1 auction (for delivery in 2019-20), National Grid recommended that 4.6GW be procured. In its 2015 analysis, the SO originally recommended that 2.5GW be set aside for this T-1 auction. The increase of 2.1GW was also attributed to changes affecting the total de-rated capacity and changes relating to ineligible capacity assumptions. The 2018 analysis found that there had been a 4.1GW net increase in total de-rated capacity requirement since the T-4 auction (held in 2015). This was partially offset by a 2GW reduction in the eligible capacity required due to corresponding increases in assumed ineligible capacity.

In response to the recommendations, the Secretary of State (SoS) set the auction targets at 46.3GW for the T-4 (a 300MW reduction) and 4.6GW for the T-1 (in line with the SO’s recommendation).

There were no significant changes to the de-rating factors of interconnectors for the upcoming auctions, although some interconnectors saw notable shifts. BritNED saw a 33pp reduction (from 76% to 43%), due to lower capacity margins on the continent, and the East-West Interconnector’s de-rating factor also fell from 59% to 33% due to an expected increase in Irish demand.

Battery storage sites also saw a reduction in de-rated capacity. One-hour duration storage saw its capacity de-rating factor fall by 7pp compared to the T-4 auction for 2021-22, down from 36.44% to 29.4%.

Alongside National Grid’s ECR and the SoS’s confirmation letter, the SO also published its Capacity Market Auction Guidelines for the two delivery years. The guidelines included notable changes to the auction format so that the auction itself will last no longer than two days. Each round will last between 30 and 60 minutes with the recess between rounds lasting no longer than 15 minutes.

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Industry 2 | Ofgem approves task force to tackle issue of unidentified gas

Ofgem announced on Friday, 6 July that it had approved UNC658 CDSP to Identify and Develop Improvements to LDZ Settlement Process, which will give Xoserve a mandate to assign resources and to investigate the root causes and influencers of unidentified gas (UIG).

UIG has been a major cause of concern for the gas industry since the implementation of new gas settlement arrangements in June 2017. The primary issue is that, on a given day the initial allocation of UIG volumes can range between -15% and +25% of all gas volumes flowing through the distribution networks. This means gas shippers are faced with unpredictable costs, which are translated into a risk premium to suppliers and ultimately customers.

The task force will have a target of reducing the volatility and scale of UIG and of developing a robust predictive model for daily UIG for use by all parties. Having recently set out its minded-to position to reject three proposals aimed at addressing the UIG issue (UNCs 642, 642A and 643), Ofgem considered more needs to be done to identify and address the root causes of UIG volatility. It also welcomed the development of the UIG predictive model, as this would not only address some of the asymmetries of knowledge that exist between shippers, but also allow for greater transparency in how any discrete UIG charges have been derived, increasing gas shippers’ accountability to their customers.

The task force will have a target of reducing the volatility and scale of UIG and of developing a robust predictive model for daily UIG for use by all parties. Having recently set out its minded-to position to reject three proposals aimed at addressing the UIG issue (UNCs 642, 642A and 643), Ofgem considered more needs to be done to identify and address the root causes of UIG volatility. It also welcomed the development of the UIG predictive model, as this would not only address some of the asymmetries of knowledge that exist between shippers, but also allow for greater transparency in how any discrete UIG charges have been derived, increasing gas shippers’ accountability to their customers.

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Industry 3 | New tool compares system costs of low-carbon energy generation

The Energy Technologies Institute (ETI) has launched a new free tool that compares the true system costs of low-carbon generation.

In a statement on Wednesday, 4 July, the ETI explained that the new tool will allow system operators and others, to explore the interaction and cost-effectiveness of different sources of energy generation, including back-up generation. It is hoped that this will allow users to understand the true cost of different energy sources.

The tool works by calculating the expected Levelised Cost of Energy for chosen technologies and linking it to the average annual cost of electricity with and without a carbon price. It can then compare how well a range of generating technologies are able to match half-hourly demand over a number of sample years and calculate what the total cost may be.

It also allows users to input their own data to optimise the cost of the selected generation technologies and uses either batteries or gas turbines as the back-up power used to ensure demand is met throughout the year. The ETI argued that by using this combination it can provide a more realistic cost of energy, rather than a net present value calculated over the operating life of a generating asset.

Andrew Haslett, Chief Engineer at the ETI, said: “Though the LCOE calculation is useful, it’s theoretical analysis can sometimes be misleading and hide the true system costs incurred by different technologies under different operating conditions. […] It is hoped that in creating this tool we are helping people to make more informed decisions upon an evidence base that is open and transparent to users.”

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