Weekly Industry Update – 23.07.18

Category : News


Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 16/07 – BEIS publishes its annual report and accounts, showing £598mn of investment towards delivering the government’s Industrial Strategy. A poll for RenewableUK finds the majority of the British public, including Conservative voters, support the development of new onshore wind projects.

Tuesday 17/07 – A coalition of industry representatives call on the government to incentivise network companies to unlock flexibility services. Policy Exchange research calls for an economy-wide carbon tax for the UK. The Treasury predicts a fall in revenues from fuel duty as vehicles switch from liquid fuels to electric power.

Wednesday 18/07 – BEIS confirms its plans for non-domestic energy and carbon reporting, with large companies forced to report CO2 emissions from April 2019. The Head of the Anaerobic Digestion & Bioresources Association says the industry could be turning a corner as new Renewable Heat Incentive rates are applied.

Thursday 19/07 – BEIS seeks views on the future of small-scale low carbon electricity generation support. At the same time the department consults on the proposed closure of the Feed-In Tariff Scheme. The CCUS Cost Challenge Taskforce delivers its report setting out the ideal pathway to enable the UK to have the option of deploying CCUS at scale during the 2030s.

Friday 20/07 – Energy SRS and partners secure funding for a second phase development of gravity storage research project.

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Policy 1 | Mandatory energy and carbon reporting to be introduced for large organisations

The UK government published its plans on Wednesday, 18 July for the new Streamlined Energy and Carbon Reporting (SECR) regulations.

It outlined the new mandatory reporting framework, which will replace the existing CRC Energy Efficiency Scheme due to end in 2019.

The framework will apply to all quoted and unquoted companies with at least 250 employees or an annual turnover greater than £36mn, and an annual balance sheet total greater than £18mn. However, companies using less than 40,000kWh of energy in the reporting year will be exempt.

BEIS received 155 written responses from a variety of organisations and individuals, with much of the feedback focusing on the complexity of current arrangements. The new framework has been designed to align with the Climate Change Levy (CCL) and Mandatory Greenhouse Gas Reporting (MGHGR) to streamline disclosures, which will be welcomed by those already reporting against these. To reduce the burden of additional reporting it is expected that the SECR requirements will be published in companies’ Annual Reports. UK energy usage should be calculated and reported, and will have to include electricity, gas and transport (such as road, rail, air and shipping).

In its accompanying impact assessment, the overall package under the preferred SECR framework leads to average annual energy savings of 4.0TWh, along with an associated increase in carbon savings of 0.8MtCO2e. Average annual administrative costs across all organisations are estimated to fall by around £1.9mn/ year due to the admin cost reduction.

Energy and Clean Growth Minister Claire Perry commented: “Our goal is to enable businesses and industry to improve energy efficiency by at least 20% by 2030. This will contribute to overall economic growth by reducing the amount of energy required per unit of output.”

Roz Bulleid, Head of Climate, Energy and Environment Policy at manufacturing organisation EEF, welcomed the simplification of reporting rules, but said the picture is still extremely complex for many companies. she commented: “EEF’s members would have preferred a reporting scheme that recognised all the other contexts in which they report energy consumption and/or greenhouse gas emissions and avoided overlaps […] Ideally, government would also have waited for a clear view on future UK involvement in the EU ETS, or at least the responses to its newly launched Call for Evidence, and then conducted a wider reform of energy efficiency policies.”

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Policy 2 | BEIS highlights growing energy efficiency services market

The non-domestic energy efficiency services market, in which organisations improve their energy efficiency by outsourcing work to separate service providers offering the delivery and management of energy efficiency measures, has “grown steadily over the past few years, strongly driven by public sector procurement frameworks”, according to a new report from BEIS.

The Non-Domestic Energy Efficiency Services Market research paper, published 18 July and prepared for BEIS by IPA Advisory, examined the size, shape and trends of the current UK market, details the findings of key stakeholders and offers several policy recommendations for driving further growth in the future. It noted that, while the UK’s market for energy efficiency services is “smaller than expected” (estimated to be worth £349mn in 2017), overall its energy efficiency performance is good.

The UK, said the report, has been active in stimulating demand for non-domestic energy efficiency, which is likely to benefit the energy services market. In 2016 non-transport and non-domestic energy represented 31% of UK consumption and around half of this is related to industrial processes. Improving the long-term energy efficiency of buildings in these sectors, therefore, is critical for supporting the UK’s decarbonisation goals.

Energy efficiency service providers have specialist skills that can deliver energy efficiency improvements more effectively than in-house teams, the reported highlighted. However, it added that if the UK energy efficiency services market is to make a strong contribution to delivering the fifth carbon budget for non-domestic buildings alone “it will have to grow at an annual rate of almost 20%, reaching an annual revenue of almost £5bn in 2032”.

Addressing the existing market, the report said the current sector is biased towards energy performance contracting than to energy supply contracts, a trend driven by “public sector demand for efficiency retrofits”. Regarding the typical services offered to non-domestic organisation, efficiency technologies such as LED lighting, Combined Heat and Power and battery storage technologies are noted as seeing growth in uptake. One respondent reported a “significant increase in distributed generation and self-consumption”, while others pointed towards technologies including demand-side response, smart meters and smart buildings.

Taking a long-term view, the report explained that BEIS’s previous work has illustrated a “significant backlog of viable unimplemented non-domestic energy efficiency opportunities, constituting a classic energy efficiency gap”. Consequently, the energy efficiency services sector could be “an important alternative mechanism” for delivering a backlog of savings.

The report concluded with a series of recommendations to government including continuing dialogue with energy services providers; continuing to monitor the UK energy services market; investigate the amount of guidance currently available on energy efficiency to ensure that “high value-added low carbon processes” are aligned with the UK’s industrial development goals; and work to raise the interest in energy efficiency services providers among UK businesses.

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Policy 3 | Taskforce urges UK acts now to deliver cost-effective CCUS

An independent report to government on progressing carbon capture, usage and storage (CCUS) by the CCUS Cost Challenge Taskforce was published by BEIS on Thursday, 19 July. It proposed several measures and actions to inform the government’s approach to CCUS deployment and meet its stated ambition of “having the option to deploy CCUS at scale during the 2030s, subject to costs coming down sufficiently”.

The last two decades have seen significant growth in the number of large-scale CCUS projects worldwide, rising from four to 20 since 2000. Nevertheless, said the taskforce, “to deliver the Paris Agreement the deployment of CCUS must be scaled up dramatically and must be commercialised at an accelerated pace.”

CCUS meets the three tests set out the by Clean Growth Strategy, it said, and can “support cost-effective decarbonisation across a wide range of sectors, while simultaneously supporting clean growth across the economy”. The taskforce recommended government and industry work together to deliver cost-effective CCUS. This would include unlocking early investment opportunities through creating long-term and supportive policies, developing viable business models and sharing infrastructure. It also proposed the creation of CCUS “clusters” that would share knowledge and infrastructure, drive down costs and benefit local communities.

Concluding, the report made several recommendations to government to drive CCUS deployment including the creation of a deployment pathway by the end of 2018 – including a commitment to having at least two operational clusters by the mid-2020s; industry and government to work together to publish a CCUS roadmap; government to fully assess the value of CCUS to the wider UK economy; and industry to foster sharing of innovation in line with the foundations set out in the Industrial Strategy.

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Policy 4 | BEIS proposes closure of FiT export tariff

BEIS opened a consultation on the Feed-in Tariff (FiT) scheme on Thursday 19 July which proposed to close the export tariff alongside the generation tariff. This would result in the full closure of the FiT scheme to new applications after 31 March 2019, aside from some limited exceptions.

In the consultation, the department cited a changing energy system means “the current FiTs flat rate export tariff does not align with our vision for the future, given our desire to move towards fairer, cost reflective pricing and the continued drive to minimise support costs on consumers, as well as supporting the vision set out in the Industrial Strategy and Clean Growth Strategy.” Responses to the consultation are sought by 13 September. The department has also launched a call for evidence on the future for small-scale low-carbon generation. The government’s view is that “small-scale low-carbon electricity generation […] should compete independent of direct subsidy and on its own merits on a level playing field”. Potential actions following evidence received could include options that addressing regulatory barriers, ensure access to additional revenue streams or that help guarantee a route to market. Evidence is requested by 30 August.

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Industry 1 | NIC backs continued deployment of solar and onshore wind

The National Infrastructure Commission (NIC) has delivered its flagship National Infrastructure Assessment with its headline recommendation in the power sector being continued deployment of onshore wind and solar.

Published on Tuesday, 10 July, the commission’s modelling showed a highly renewable generation mix is a low-cost option for the energy system. However, increasing the deployment of renewables will require further system flexibility, in line with the recommendations in the Commission’s Smart Power report. The NIC favours the use of existing market mechanisms such as, Contracts for Difference (CfD) and the Capacity Market, to ensure improvements in the energy system can be made.

The report recommended that the government set out a pipeline of pot 1 (established technologies) CfD auctions, to deliver at least 50% renewable generation by 2030, as part of the transition to a highly renewable generation mix. Within this, the government should move technologies such as offshore wind which has recently become cost competitive into pot 1 following the next CfD auction in Spring and publish indicative auction dates and budgets for the next decade. The NIC also warned that new nuclear may prove more expensive than renewables, with the government advised not to agree support for any more than one new nuclear station beyond Hinkley Point C before 2025.

The NIC noted the necessity for the government to make progress towards zero carbon heat in order to align with the low carbon transition. Therefore, the report suggested the government should establish the safety case for using hydrogen as a replacement for natural gas, followed by trialling hydrogen at community scale by 2021. The trial should progress to supply hydrogen to at least 10,000 homes by 2023, including hydrogen production with carbon capture and storage.

In buildings, recommendations included that the government allocate £3.8bn between now and 2030 to deliver energy efficiency improvements in social housing. A target of 21,000 energy efficiency measures installations a week should be implemented and maintained at this level until a decision on future heat infrastructure is taken.

Furthermore, the NIC found that government should provide the right environmental conditions to ensure the transport revolution is supported and encouraged, by guaranteeing that charging an electric vehicle is as easy as refilling a conventional vehicle. The report suggested a core network of fast or rapid chargers should be installed in visible location across the UK. The government should subsidise charger installation where the private sector will not build them, starting in the locations least likely to be delivered commercially. The government should also enable commercial investors to build charge points throughout the country and require local authorities to free up 5% of their parking spaces for electric vehicle charge points by 2020, and 25% by 2025. However, the energy system will need to prepare for an increase in electricity demand for electricity as result higher electric vehicle deployment.

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Industry 2 | Policy Exchange calls for economy-wide carbon tax post-Brexit

On Tuesday, 17 July, think tank Policy Exchange released a report which called for an economy-wide carbon tax for the UK.

It proposed the tax would be paid by both domestic and international producers and said it would prevent carbon leakage (whereby energy-intensive industries move abroad to avoid environmental taxes), level the playing field for Britain’s heavy industry and tackle climate change.

The report, The Future of Carbon Pricing, noted that Brexit makes it likely the UK will leave the EU’s Emissions Trading Scheme (ETS) and recommended the UK implement an independent carbon tax after its estimated EU ETS leaving date of the start of 2021. It proposed the tax would be paid by companies that sell fossil fuels, with ordinary consumers protected from price rises through the recycling of tax revenue back to the public in the form of a dividend.

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Industry 3 | Government urged by energy industry to unlock flexibility services

In an open letter to Energy and Clean Growth Minister Claire Perry, a group of industry representatives have called on the government to incentivise network companies to unlock flexibility services.

Released on Tuesday, 17 July, the letter contained 24 signatories, which included the Solar Trade Association and the Renewable Energy Association, who said change was necessary to have “any chance of a renewable future, decarbonising heat and transport, keeping energy costs low, and the grid stable”. The letter added: “The incentive structures that these electricity network companies operate under are not aligned to achieving a smart and flexible energy system, a core part of the government’s Clean Growth Strategy”.

The letter proposed rewarding network companies for making better use of their existing infrastructure and to look at whole system outcomes that deliver the lowest cost system for consumers. The letter highlighted both the government Clean Growth Strategy and independent research by Imperial College London identified £40bn savings in energy costs up to 2050 through increasing flexibility.

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