Weekly Industry Update – 21.05.18

Category : News


Contents:

Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 14/05 – The Green Alliance warns that the government has overlooked resource efficiency as a climate policy to cut carbon emissions.

Tuesday 15/05 – UKERC highlights lobbying and regulatory pressure, innovation and investment as three key areas where incumbent behaviour may affect the future of heat. The Smart Meters Bill completes Third Reading in the House of Lords. Consultants Vivid Economics find that Carbon Capture and Storage requires improved dialogue and collaboration between public and private stakeholders if it is to successfully play a role in decarbonisation trajectories.

Wednesday 16/05 – The National Audit Office finds that changes to the rules for the 2017 Contracts for Difference caused an increased cost of around £100mn/ year. The Public Accounts Committee finds the Renewable Heat Incentive failed to meet its objectives of increasing rates of low-carbon heating or providing value for money for end users. The Environmental Audit Committee finds that government policy changes have resulted in investment in UK clean energy hitting its lowest level since 2008.

Thursday 17/05/08 – Housing Secretary James Brokenshire confirms plans in a written ministerial statement to consult on loosening planning laws for fracking. The proposals are criticised by a range of organisations, including Labour, Greenpeace and Friends of the Earth.

Friday 18/05 – Major investors overseeing $10.5tn in assets demand oil and gas companies intensify their efforts in addressing climate change in an open letter to the Financial Times.

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Policy 1 | CfD changes to cost energy users £1.5bn extra: NAO

The National Audit Office (NAO) has released the report on its investigation into the 2017 Contracts for Difference (CfD) auction.

Published Wednesday, 16 May, the report analysed the impact of government changes to the CfD auction. The Department changed the auction rules relating to capacity caps, allowing larger, cheaper-per-unit bids to be rejected in favour of smaller, more expensive-per-unit projects. The report revealed that BEIS changes to rules last year meant that the 2017 auction will cost consumers significantly more than the 2015 auction, relative to the additional capacity it secured.

In total, the Department awarded 11 CfDs in 2017 to projects with a total capacity of 3.3GW. Three offshore wind projects made up 3.2GW of the total awarded capacity. Two of these projects are estimated to begin generating electricity in 2022‑23 and will receive a strike price of £57.50/MWh. The third windfarm is forecast to begin generating electricity a year earlier, receiving a strike price of £74.75/MWh. The report found these strike prices were significantly lower than those awarded in the 2015 auction, in which offshore wind projects received strike prices ranging between £114/MWh and £120/MWh. The eight other CfDs in the 2017 auction were awarded to smaller “fuelled‑technology” projects.

As a result of governmental design changes the NAO found that the introduction of a capacity cap enabled small fuelled‑technology projects to raise the strike price of larger projects, which has resulted in an increased cost to consumers of around £100mn/ year – or a total additional cost of approximately £1.5bn over the 15‑year contracts.

BEIS has stated that because of this outcome it will not apply the capacity cap rule in the same form in future auctions.

However, the report highlighted some bidding scenarios where the Department’s design change would have provided better value for consumers, but it did not test the likelihood of these prior to making the change. The NAO suggested that ending the fuelled‑technology auction early would allow space within the budget limit for a higher bid from another technology, such as tidal stream, to set the strike price at a higher level for all winning projects. Furthermore, the Department expected wind projects to place higher bids than fuelled technologies, meaning the small fuelled‑technologies projects able to win contracts as a result of the rule changes would not have pulled up the strike price for offshore wind projects, which would have reduced additional costs.

Lawrence Slade, Chief Executive of Energy UK commented: “This report from the NAO further highlights the cost reduction to consumers and underlines the case for a level playing field in delivering all renewable technologies at future auctions. Ensuring that the least cost technologies have a route-to-market is the best way of minimising the cost to the consumer of delivering the environmental benefits of decarbonisation.”

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Policy 2 | Clarity sought on consequences for energy sector of no-deal Brexit

The European Commission (EC) has published a memorandum that details its views of the impact to the Internal Energy Market (IEM) if a ratified withdrawal agreement cannot be reached prior to Brexit, and if the UK subsequently becomes a “third country”.

This document stated that in the absence of any transitional arrangement in a withdrawal agreement EU rules that span the field of energy market regulation would no longer apply to the UK from 30 March 2019. The consequences of this, which are detailed in the memorandum, will not only impact the EU and national authorities, but also private parties says the European Commission.

The statement noted that on the above date a transmission system use fee will apply to imports of electricity from and exports of electricity to the UK. EU gas and electricity market legislation currently sets rules on the allocation of interconnection capacity but, as of the withdrawal date, UK-based operators will cease to participate in the single allocation platform for forward interconnection capacity, single day-ahead and intraday coupling and existing balancing platforms. In addition, said the statement, UK nominated electricity market operators (NEMOs) will no longer be entitled to participate in EU market coupling services.

On electricity and gas trading, the EC noted that as of the withdrawal date UK market participants will become third country participants. This will require those who wish to continue trading EU wholesale energy products to register with the national energy authority of an EU Member State where they are active.

In the subject of future exploration, the statement explained that individual EU Member States may refuse prospecting, exploration and production of hydrocarbons on the grounds of national security.

Following the publishing of the European Commission’s memorandum the Lords EU Energy and Environment Sub-Committee has written a letter to the Business and Energy Secretary Greg Clark.

The letter, published Tuesday, 15 May, seeks the government’s views on the advice given to energy stakeholders on preparing for a no deal Brexit. It raises a series of questions concerning various aspects of the energy sector should no deal be reached and there is no agreement on mutual recognition. On the subject of new transmission system use fees, the government is asked how much this fee would be and how it would impact UK businesses and consumers if it were applied to current trading levels.

Other concerns raised include how UK-based operators no longer participating in EU common platforms would impact the cost of consumers’ energy bills; the economic value of lost business should UK companies be refused exploration and production; possible consequences of nuclear material trading restrictions and the potential economic losses if UK NEMOs are no longer able to operate in the EU.

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Policy 3 | Non-domestic RHI reforms due to come into effect

The House of Lords considered the Renewable Heat Incentive Scheme Regulations 2018 in Grand Committee on 9 May, with the reforms set to come into force on 22 May.

As a result, a series of reforms to the Renewable Heat Incentive will come into effect that will “strengthen the focus on long-term decarbonisation, offer better value for money for taxpayers, increase protection for consumers and further support supply chain growth in the renewable heat sector.”

Included in the reforms are a new tariff to be introduced that allows RHI applicants to secure a place onto the scheme in advance of any construction, which will support investments in larger plants that deliver better value for money; an increase in the power threshold of combined heat and power technology from 10% to 20%; and changes that will permit more than one heat pump to use common or shared ground loops. In addition, the reforms will see increased tariffs for biogas and biomethane technologies in combination with restrictions on the various feedstocks that these technologies use. The aim of this is to increase the use of food and agricultural waste as an energy source and rebalance deployment away from biomass in the favour of heat pumps and other technologies.

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Policy 4 | UK industry must save resources to meet climate targets, says Green Alliance

A report from the Green Alliance has suggested that the government has overlooked the importance of resource efficiency as a “crucial area” of climate policy that can cut carbon emissions. The report, published Monday, 14 May said that while the UK has led the world in cutting carbon while growing its economy, UK emissions will “significantly exceed the fourth and fifth carbon budgets” covering 2023-32. It adds that, if the UK is to become a net zero emission economy by 2050 it must find new sources of carbon savings.

The Green Alliance recommended that savings be made in the construction industry as well as improving the use of resources in vehicles, food and drink, electronics and appliances, and clothing and textiles. Such a strategy would focus on helping businesses to “put less material in” when products and buildings are being made and to “get more out” by keeping those products and buildings in use for longer.

Doing so, says the report, could save close to 200 MtCO2e across the three carbon budgets to 2032, including 67 MtCO2e in the fourth carbon budget period and 92 MtCO2e in the fifth. If the savings estimated were achieved, the Green Alliance said that the UK would meet its fourth carbon budget and “reduce the expected overshoot for the fifth by nearly 80%”.

Among the proposed strategies offered are using low-carbon building materials such as timber and other renewable materials instead of high carbon resources, using vehicles for four more years in order to reduce the materials used for production, cutting avoidable household waste by 80% and extending our use of electronic goods. To deliver these strategies the government should look to establish sector specific-resource efficiency partnerships, regulate where necessary and demonstrate innovation, the report states.

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Industry 1 | EU targets higher energy efficiency

The revised Energy Performance of Buildings Directive (EPBD) was approved on Tuesday, 15 May by the Council of Ministers of the EU. The decision marks the first adoption of the eight legislative acts which make up the Clean Energy for All Europeans package.

Currently, buildings are responsible for approximately 40% of energy consumption and 36% of CO2 emissions in the EU, with 75% of the EU’s building stock being inefficient. Independent research by RoadMap2050 has suggested energy savings have the potential to cover half of the EU’s 80% emissions reduction target for 2050.

The main objective of revising the directive is to support and further reinforce the renovation of existing buildings, with the aim of gradually making the EU building stock evolve towards more efficient and smarter buildings. The EPBD objective of helping to achieve a 40% EU-wide cut in CO2 emissions by 2030 are pursued through five broad areas:

  • Advocating the use of smart technologies to introduce automation and control systems which could ensure buildings operate efficiently
  • Creating a smart readiness indicator which can measure a building’s capacity to integrate new technologies
  • Integrating and strengthening building renovation strategies
  • Supporting the introduction of new infrastructure for e-mobility in new buildings, and
  • Establishing a path towards zero-emissions buildings by 2050, incorporating national roadmaps.

The policies came as UK government data gave an insight into the energy efficiency of the UK’s non-domestic building stock.

During the first quarter of 2018, 22,000 Energy Performance Certificates (EPC) were lodged for non-domestic properties, an increase of 26% compared with the corresponding quarter in 2017. In the year ending March 2018, 80,000 non-domestic EPCs were lodged, an increase of 16% on the number lodged during the previous year.

The highest proportion of Certificates lodged (35%) were placed in Band D, whilst the lowest proportion were in Band A/A+ (2%).

Larger properties occupied by a public authority and frequently visited by the public must display a Display Energy Certificate (DEC). DECs show the actual energy consumption of a building and are accompanied by reports which provide recommendations on potential energy saving measures.

During the first quarter of 2018, 9,100 DECs were lodged relating to buildings in England and Wales, an increase of 2% compared with the corresponding quarter in 2017. The highest proportion of Certificates (36%) were in band D, whilst the lowest were in Band A.

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Industry 2 | National Grid launches regional carbon intensity forecast

On Tuesday, 15 May, National Grid announced it has added a regionalised forecast to its Carbon intensity API service.

The service consists of an online system to forecasts carbon intensity of power generation across GB was developed in partnership with Environmental Defence Fund Europe, University of Oxford and WWF and was initially launched in September 2017. The updated carbon intensity API uses machine learning and power system modelling to forecast the carbon intensity and generation mix 96 hours ahead for each of the 14 regions across Great Britain.

The update gives each area a carbon intensity score based on g/CO2/kWh and shows the percentage of energy being generated by different technologies in real-time. This allows customers and smart devices to schedule and minimise CO2 emissions at a local level.

Director of the System Operator at National Grid, Duncan Burt said: “This tailored information can tell people when’s best to turn on the washing machine, load the dishwasher or charge the car, helping everyone to use power when it’s cleanest and most likely more cost efficient.”

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Industry 3 | Research finds large gas plants not needed to replace coal

According to a report by WWF and think tank Sandbag, the UK is on track to phase out coal by 2025 and replace the lost capacity without building significant capacity of large gas power plants.

The report published Thursday, 10 May, highlighted the role of renewables in replacing coal generation, suggested that by 2025 electricity output from renewables will exceed the highest level of coal generated electricity. Therefore, with a renewables-dominated grid any new fossil fuel capacity will only be required to run infrequently, which is unsuitable for large gas stations.

The research found that 95% of the required renewables growth to replace coal is already contracted or under construction. Key recommendations laid out in the report for a successful phase -out of coal include not bringing forwards policy measures to build new gas plants, a subsidy-free CfD auction to support onshore wind and solar and increased funding for storage technologies to deal with intermittent renewable supply.

In addition, further policy is required to address both emissions from small peaking gas and to mitigate the risk of a slower decline in gas use caused by: increasing demand; delayed or cancelled new-build nuclear projects; or a reduced volume of electricity imports.

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