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Weekly Industry Update – 25.06.18

Category : News


Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 18/06 – Ofgem delivers its annual report on the Capacity Market, finding National Grid’s performance against the Capacity Market incentives was below the baseline levels. BEIS announces the winners of an £8.8mn innovation competition aimed at helping small businesses control their energy use with tailored smart meters.

Tuesday 19/06 – The Energy Institute Annual Barometer finds energy professionals are increasingly concerned about the lack of clarity over the impact of Brexit but think transport decarbonisation is progressing well.

Wednesday 20/06 – Eurelectric calls on policymakers to minimise disruption to the energy and climate agenda resulting from Brexit. SSE confirms that its Seagreen project is aiming for to secure a Contract for Difference in the Spring 2019 auction.

Thursday 21/06 – BEIS Permanent Secretary Alex Chisholm delivers a speech predicting that the UK is “on the cusp” of the next transformational change in energy, which would allow the sector to move “beyond the trilemma”. The UK’s first energy-positive office, which generates more solar energy than it consumes, is opened at Swansea University.

Friday 22/06 – BEIS opens a consultation on widening the cost exemption for energy-intensive industries from the cost of renewables. The judicial review of Ofgem’s decision to cut so called “embedded benefits” is rejected by the court, in a move expected to save end users over £370mn/ year.

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Policy 1 | BEIS consults on widening EII exemptions for renewable support schemes

BEIS has launched a consultation on widening the eligibility criteria for energy-intensive industries (EIIs) to be made exempt from the indirect costs of the government’s renewable electricity support schemes.

In an announcement on Friday, 22 June, the government said it was seeking evidence of intra-sectoral competitive distortions. Based on whether the evidence suggests the current exemption level of 20% electricity intensity is causing significant competitive distortions, the consultation is also seeking views on lowering the threshold to 17%, 15% or 10%.

BEIS noted that while lowering the electricity intensity threshold would allow more EIIs to benefit, it would also increase electricity costs for non-eligible consumers. In order to mitigate these potential issues, the department set out three options to reduce aid intensity (the amount of exemption that a company receives) for EIIs with lower levels of electricity intensity to: 50% for businesses with electricity intensity at or above 17% and below 20%; 50% for businesses with electricity intensity at or above 15% and below 20%; or 35% for businesses with electricity intensity at or above 10% and below 15%. Under all of these scenarios the aid intensity would remain at 85% for businesses with electricity intensity at or above 20%. BEIS said this was to give businesses that are eligible under the current electricity intensity threshold to receive relief at 85% aid intensity the certainty that they will continue to do so.

BEIS noted that under EU state aid laws, the value of any over-exemption of EIIs must be recovered. The government has previously consulted on options to redistribute any revenues recovered back to customers via electricity suppliers. However, the options considered would not guarantee that any over-exemption was fully recovered. BEIS is therefore also consulting on an alternative proposal to recover the value of any over-exemption, without redistribution of this value back to consumers.

In this option, BEIS estimates that newly exempt EIIs would see electricity costs fall by up to 50% of the Renewable Obligation (RO), Feed-in Tariff (FiT) and Contracts-for-Difference (CfD) policy costs. This would see electricity bills fall by an estimated average of £1.6mn per business. Non-eligible consumers are estimated to see an increase in their bills of: £100/year for a small business user; £3,000 for a medium business; and £50,000 for an ineligible business operating in an energy-intensive industry.

The consultation is also seeking views on proposed changes to the regulations on the CfD exemption, as BEIS believes this would improve the overall operation of the EII exemption schemes. These changes relate to: how quickly an existing business installing a new meter may receive the exemption for that meter; how quickly the level of exemption may be adjusted for either a business that starts or stops sharing a meter with another business, or a business that starts or stops making an eligible product using electricity from an exempted meter; the expiry date for EII certificates; and the timing of quarterly reports from businesses.

Responses are requested by 7 September.

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Policy 2 | Energy industry raises concerns over lack of Brexit clarity

The Energy Institute’s annual barometer survey of industry professionals was released on Tuesday, 19 June, finding rising levels of concern over the impact Brexit is set to have on the sector.

The rise from fifth to second of Brexit as the most pressing concern was seen as the “most notable development identified”. Concerns identified in last year’s survey around skilled workforce availability and the future relationship between the UK and the EU Single Energy Market have “intensified”. However, Brexit was not universally seen as a negative. When asked about possible opportunities for the UK post-Brexit, professionals pointed to the ability to negotiate new trade agreements with non-EU countries, the flexibility to support new electricity generation capacity, renewable heat and transport, and greater control over UK carbon pricing policy.

When asked what the first priority in developing the UK energy system should be, energy efficiency was a clear favourite. Half of respondents identified energy efficiency as a priority for the UK to meet its carbon reduction targets in the most cost-effective way. And, with UK productivity 18% lower than the OECD average, progress in this area is seen as a test of success for the UK’s wider Industrial Strategy. Respondents continued to rank policies around energy taxation simplification as some of the least effective, despite plans by ministers to streamline energy and carbon reporting.

Scepticism has also continued as to levels of industry confidence on whether the UK will be able to hit its binding carbon targets. Five times as many respondents in the 2018 Barometer say they expect the UK to fall short of the target than expect us to meet it. The Energy Institute said this reflects a lack of confidence in energy policy, which is once again ranked as the single biggest challenge facing the industry.

Government policy supporting the development of low-carbon transport ranks number one in terms of effectiveness in the 2018 Barometer. Energy professionals are confident that major changes in road transport fuels are closer than some previous projections have suggested. Half of the vehicles on the road are expected to be low carbon – even before the UK government’s proposed 2040 ban on new petrol and diesel cars comes into effect.

Malcolm Brinded, President of the EI, said: “this year’s survey doesn’t allow us to say we have shaken off past uncertainties. The fog surrounding Brexit has thickened despite negotiations being a year further on. And confidence in meeting the UK’s carbon targets has worsened, despite publication by ministers of the Clean Growth Strategy. Past policy switches have created caution in many future investments.”

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Policy 3 | Government announces funding to help businesses control their energy costs

The government has awarded £8.8mn to projects aiming to help small businesses better control their energy consumption through the use of smart meters.

In an announcement on Monday, 18 June, BEIS explained that the funding is being spread across nine UK-based competition winners and an evaluation project. It is being targeted at the hospitality, retail and education sectors, such as cafes, restaurants, shops, schools and universities.

These sectors together currently account for the same energy consumption as 4.3mn homes. However, BEIS suggested that through more efficient energy usage, this could fall by more than a quarter. The funding as therefore been allocated to help develop and evaluate technologies that could, with smart meters, help these sectors better control their energy consumption.

Energy and Clean Growth Minister Claire Perry said: “Energy costs for businesses can be one of the hardest things to understand and control, but these projects can change that, as well as help educate the next generation in our schools on the importance of controlling our energy consumption. Smart meters are an opportunity for us to rewrite the rules on how we engage with the energy market and these winners will ensure that the benefits can be felt by businesses and schools as well as homes.”

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Policy 4 | Scottish government to provide funding for energy efficiency

The Scottish government has announced that it is providing £2mn of funding to help businesses and homes improve their energy efficiency.

In a statement on Sunday, 17 June, the Scottish government explained that it has provided the funding to 15 councils to help finance projects that will support businesses and homeowners to install energy efficiency measures as part of the wider Energy Efficient Scotland programme. The funding will also be used to help local authorities develop local heat and energy efficiency strategies. These are new tools that allow councils to identify local opportunities for energy efficiency improvements and heat decarbonisation.

Scottish Energy Minister Paul Wheelhouse said: “There will be challenges and opportunities in transforming Scotland’s homes and buildings to be warmer, greener and more energy efficient, and so we are testing various approaches to drive further action on energy efficiency during the programme’s transition phase. This includes how best to engage with consumers, communities and Scotland’s businesses on this important issue.”

He added: “Local authorities are key and valued partners in delivering Energy Efficient Scotland and the funding announced today also delivers on our commitment to councils that we will support them in the development of Local Heat and Energy Efficiency Strategies.”

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Industry 1 | National Grid to review gas warnings in wake of last winter

National Grid’s Winter Review and Consultation 2018 was published recently, comparing the events of winter 2017-18 against its original forecasts and seeking stakeholder feedback to inform future energy analysis and enable preparation for the coming winter.

The report outlined how the winter commenced with average seasonal temperatures, during which both the gas and electricity networks “delivered reliable sources of energy to meet demand”. During this settled period, it is reported that 29 October saw the lowest overnight minimum demand during the winter period ever seen on the electricity transmission system, dipping to 18.6GW. This was caused, National Grid says, by “very high distribution connected wind generation” combined with warmer than normal temperatures.

On 1 March the Beast from the East event resulted in the UK gas network having to manage the highest demand recorded for seven years. At the same time, upstream gas supply losses were experienced as a result of the sub-zero temperatures. On this date, National Grid reports the seventh coldest day in its 58-year weather record history.

Gas demand reached 417.6 mcm and electricity transmission system peak demand reached a high of 50.7GW on 1 March. The winter peak, referred to as the “darkest peak (DP)”, fell outside of National Grid’s triad period (November to February) for the first time since records began in 1976-77, meaning that no triad-related customer demand management was available to assist in reducing system stresses.

These conditions gave rise to the release of a Gas Deficit Warning (GDW) after the gas system was an “unprecedented” 100mcm less than instantaneous demand. Typically, a GDW is issued in order to inform the market of a significant supply deficit, to encourage shippers to balance their portfolios and to prepare them to respond to any balancing requests that may subsequently be issued by National Grid. In this instance, the warning resulted in trading throughout the day that improved supply/ demand balance and led to a rise in gas prices, attracting imports. National Grid’s overall prognosis is that both the electricity and gas systems responded well to the period of extreme weather. However, several consultation questions are posed throughout the Winter Review, one of which requests views on the effectiveness of the GDW service.

Elsewhere, the Winter Review found that gas supply and demand was also majorly affected by the Forties pipeline closure in December. National Grid’s earlier forecasts for the winter expected gas demand to be lower than 2016-17, but in the event, it was only marginally (0.2bcm) below 2016-17 level despite a 1.1bcm drop in the amount of gas burned to produce electricity.

National Grid stated that it has reviewed the events leading up to and during the cold weather and is working with industry on a range of follow-up activities including a review of the suite of gas balancing tools and industry communication, gaining a better understanding for LNG and interconnector response to UK price triggers, analysing 1-in-20 cold spell calculations and re-evaluating its local distribution demand (LDZ) forecast model.

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Industry 2 | Ofgem finds shortcomings in operation of key energy security scheme

Ofgem has published its latest annual report on the performance and functions of the Capacity Market (CM), covering the period 1 April 2017 to 31 March 2018. The report covers the fourth year of auctions and the first delivery year, with Ofgem concluding that National Grid Electricity Transmission (NGET) has met its Capacity Market deliverables and obligations.

The scale and complexity of delivering and facilitating the CM has risen annually, the report finds, with the increased number of capacity agreements after each auction adding further demand on NGET in relation to managing processes. Ofgem notes that this year saw the highest number of Prequalification Applications to the CM and that NGET’s auction system management has received largely positive feedback from stakeholders. However, it is also highlighted that stakeholders referred to “a lack of consistency in the service provision and ranging quality of advice by the different parts of the delivery body”.

Together with the largely positive outlook, Ofgem highlighted several areas that it suggests NGET address in the next reporting period including the functionality of the CM portal, design of the CM portal and IT system arrangements. Ofgem said that NGET should reconsider its approach to resourcing given the increasing scale of demand and participation in the auctions. Despite meeting its deliverables and obligations, the report added that NGET’s performance against the CM incentives was lower than baseline levels, resulting in a financial loss estimated at around £190,000.

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Industry 3 | Siemens to open world’s first ammonia energy storage plant

A pilot project developed by Siemens is set to become the first ammonia energy storage plant in the world. The Green Ammonia Energy Storage Demonstrator is the first of its kind to show the complete cycle of renewable power, storage as ammonia and conversion back to electricity.

Ammonia is currently produced using natural gas or other fossil feedstocks to provide the energy needed to power the synthesis process, and as a source of hydrogen – a method that releases large quantities of CO2. Siemens’ demonstrator uses water electrolysis to provide a hydrogen supply and extracts nitrogen from the air using renewable energy, the two elements are then combined to make ammonia in a “completely carbon-free” way.

Siemens states that using renewable electricity to make ammonia has the potential to save more than 40mn tons of CO2 per year in Europe and 360mn tons worldwide. Ian Wilkinson, Programme Manager for Siemens Corporate Technologies said that green ammonia “has the potential to work alongside other storage methods such as batteries and help increase the penetration of renewable power into our energy systems”. The £1.5mn project has been developed by Siemens in collaboration with the Science and Technology Facilities Council, the University of Oxford and Cardiff University. It is part of Innovate UK’s Decouple Green Energy project and has received £1mn in funding as part of this project.

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