Week in Energy

Monday 03/07 – After unveiling plans to extend the prepayment meter cap to vulnerable customers, Ofgem confirms it will look at how it can help microbusinesses moving forwards, including potentially extending domestic protections.

Tuesday 04/07 – Junior BEIS minister Richard Harrington confirms that the government will support the development of onshore wind in the remote islands of Scotland, where projects will directly benefit local communities. The government launches the £2.3bn Housing Infrastructure Fund, which will help to drive physical infrastructure projects such as energy networks.

Wednesday 05/07A new report released by the Association of Decentralised Energy claims the capacity market is failing businesses and has led to hundreds of millions in extra costs to decarbonise the energy system. The same report calls on the government to back combined heat and power, which could save between £656mn to £774mn on energy bills a year by 2030. Wind and solar power will be the cheapest generation in every G20 country by 2030 at the latest, a new study by Greenpeace reveals. New research finds the members of the Better Buildings Partnership have increased their portfolio energy efficiency by 25% since 2011, saving £16mn in energy costs in the process.

Thursday 06/07The CBI calls for the government to seek to stay in the single market and a customs union until a final Brexit deal is in force, allowing a “bridge” to a new trading arrangement and continuity for business operations. SSE urges the Scottish and UK governments to provide support for continued onshore wind development, with Director of Generational Development Paul Cooley outlining how it believed expansion of the sector was in the interests of consumers.

Friday 07/07In a letter to National Grid, Business and Energy Secretary Greg Clark confirms a target of 50.1GW to be secured in the upcoming T-4 capacity auction for 2021-22 (with 400MW set aside) and 6GW for the 2018-19 T-1 auction (with 300MW set aside). Greener UK, a coalition of green groups, and a group of cross-party MPs join forces in a push to strengthen the government’s Repeal Bill to ensure environmental protections remain strong post-Brexit. The Unite union calls on the government to “stop stalling” and give the Swansea Bay tidal project the go-ahead.

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Policy 1 | Commercial energy prices rise in first quarter of 2017

New statistics released by the government on Thursday, 29 June have revealed that average industrial prices for energy increased during the first few months of 2017, in comparison to the same period a year earlier.

When including the Climate Change Levy (CCL) – an energy tax paid by non-domestic users in the UK as an incentive to increase energy efficiency and reduce carbon emissions –  average industrial prices for electricity rose by 2.4%. With the CCL included, the average price of electricity was found to have increased every quarter, from the second quarter of 2004 until the fourth quarter of 2008 – except in Q2 2007. Prices trended down from then until Q3 2011, where they began to trend upwards once again.

With regards to gas prices, average gas prices with the CCL included have trended upwards from 2004, but then downwards since 2013. In Q1 2017, the revealed the inclusion of the CCL raised the average price of gas by between 3% and 6%. The report outlined how gas wholesale prices had generally been more volatile since 2008, in line with crude oil prices. Between 2008 and 2010 gas overtook coal as the dominant fuel used in electricity generation, however since 2011 the relative prices of coal and gas have meant coal use has increased again at gas’ expense.

Elsewhere, in the manufacturing sector average fuel prices for electricity have been on an upward trend since 2005. There have been falls in 2007, 2010 and 2016 however. For gas, the report noted average prices were more variable. However, since peaking in 2013, average gas prices had fallen by 37%. Average industrial energy prices had grown 13% between 2011 to 2016, though decreased 1.5% on the previous year. Industrial gas prices had fallen by 24% for the same period and 18% on the previous year.

The report also explored how the UK’s non-domestic energy prices fare compared to international competitors last year.

In 2016, average UK industrial electricity prices, including taxes, were the third highest in the G7, and were 54% per cent above the IEA median price. UK industrial electricity prices were more than double the price in the US. The UK price increased by 13% between 2015 and 2016; while in other countries increase ranged from 1% to 36%.

Average UK industrial gas prices for the period July to December 2016, including taxes, for medium consumers were the lowest in the EU 15 and were 17% below the median price of 2.6p/ kWh.

The next set of figures, set to be published on 28 September, will present provisional Q2 2017 energy prices for the manufacturing sector, industrial and domestic fuel price indices, and the price of fuels for major power producers.

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Policy 2 | Climate watchdog warns lack of government action threatens low-carbon transition

Although significant progress has been made in reducing UK greenhouse gas emissions, headway is stalling according to a new report.

The Committee on Climate Change (CCC) released its latest progress report to Parliament on Thursday, 29 June. It said emissions are around 42% lower than in 1990. This means the UK is around halfway to the 2050 commitment of reducing emissions by at least 80% on 1990 levels. Despite this, since 2012, emissions reductions have been mostly limited to the power sector. Meanwhile, emissions from transport and the UK’s building stock are rising.

The CCC said effective new strategies and new policies are “urgently needed” to ensure emissions continue to fall in line with commitments agreed by Parliament – the next milestone being 50% on 1990 levels by 2025. The body made a raft of recommendations to spark the low-carbon transition back into life.

The report called for the urgent delivery of a plan to continue reducing emissions across the economy. It said it was neither justified nor wise to delay the publication of the emissions reduction plan. Such a plan should address the gap between Parliament’s agreed targets and the impact of existing policies.

This would include plans to bring forward additional low-carbon electricity generation through the 2020s. The report suggests this would be around 80-100TWh. It also called for accelerating the uptake of electric vehicles, while the government should also provide a path for the uptake of low-carbon heat alongside energy efficiency. A clear, combined strategy for energy efficiency and low-carbon heat is needed. The heat strategy must “significantly increase” the delivery of energy efficiency measures, heat networks, biomethane and heat pumps in cost-effective locations for both households and businesses.

The CCC also called for a strategy to be set out for carbon capture and storage deployment. It should also describe how the measures included would meet the requirements of the fifth carbon budget, covering 2028-2032 and how it keeps the UK on the cost-effective path to the 2050 target. Moreover, the CCC said the plan should clarify which combination of policy instruments, in which sectors, will be used to support the changes.

The CCC concluded that the transition to a low-carbon economy is already underway and presents opportunities for UK businesses – both new and existing firms. Grasping those opportunities and ensuring a smooth transition must be integral to the Government's new industrial strategy. UK businesses must adapt to meet this need in place of the declining demand for high-carbon goods and services.

Commenting, CCC Chairman, Lord Deben said: “The UK has shown global leadership on climate change, but progress will stall at home without urgent further action. New plans, for a new Parliament, are needed as a matter of urgency to meet our legal commitments, grasp the opportunities offered by the global low-carbon transition, and protect people, businesses and the environment from the impacts of a changing climate.”

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Policy 3 | CBI outlines energy and climate priorities for the new government

The Infrastructure and Industries Director of major business group the CBI Rhian Kelly has called on policy makers to make energy policy decisions for the long term, not coming days or weeks.

The CBI called for the backlog of “parked” key energy and climate change policy decisions to be resolved, claiming this would create the conditions for the market to thrive. Publishing the emissions reduction plan this autumn, providing clarity on post-2020 energy investment, and promoting competitive energy markets that work for energy users were among the group’s recommendations, which it said would deliver “the much-needed certainty that will allow the UK to invest, innovate and create a competitive low-carbon economy.”

The group further called on the government to ensure business energy costs remain a priority. It said that the government had signalled a “clear ambition” to minimise costs. The CBI added that working together, government and business should look to understand the impacts of energy costs on firms, particularly those that are energy-intensive and trade-exposed, and focus on enabling greater energy efficiency across the industrial and commercial sectors. 

It also called for certainty to provided quickly upon leaving the European Union. This includes answers to “complex questions” regarding the UK’s future engagement with the Internal Energy Market and carbon trading.

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Policy 4 | Phase 2 of ESOS underway

Phase 2 of the UK government’s Energy Savings Opportunity Scheme (ESOS) is now active and organisations can start carrying out energy audits as part of the compliance process. Large UK companies, defined as those with over 250 employees or annual turnover above €50mn, will need to ensure they meet the relevant criteria of the energy assessment and energy saving scheme before 5 December 2019.

Some organisations will qualify automatically if they hold ISO 50001 accreditation but ,bar some exemptions for public bodies, the regulations require large UK organisations to implement three steps towards energy efficiency:

  • Conduct audits to identify cost-effective energy efficiency opportunities
  • Measure total energy consumption for a 12-month consecutive period incorporating 31 Dec 2018
  • Report compliance to their national scheme administrator (Environment Agency, Scottish Environment Protection Agency, Northern Ireland Environment Agency and Natural Resources Wales).

An Environment Agency newsletter this week stated that it had already issued in excess of 300 enforcement notices to non-compliant organisations, with another 200 to be issued penalties this financial year.

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Industry 1 | Coal-fired generation at record low for first quarter

The latest Energy Trends report published by BEIS on 29 June found that the use of coal in energy generation was continuing to fall, with a 32% year-on-year decline. The 10.52TWh generated by coal-fired power stations represents a record low for the first quarter of the year.

The shrinking role of coal in the generation mix, which decreased from 15.9% to 11.3%, was offset by increased generation from gas-fired power stations, renewables and nuclear power plants. Renewable electricity generation hit a record high of 24.8TWh in Q1 2017, representing a 5.1% increase on the same period in 2016.

Overall electricity generation increased by 1% but, combined with a 3.1TWh fall in imports, the quantity of electricity supplied was 2.2% less in Q1 2017 than Q1 2016. This reflects the reduced demand in February and March due to warmer than average weather.

Figure 1: Shares of electricity generation

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The share of generation from low carbon sources (nuclear and renewables), increased from 44.4% to 45.6% over the year. The growth in renewables was the main driver in this trend, increasing 1% on Q1 2016 and reaching just short of its record generation share of 26.8% seen in Q4 2015.

Generation from onshore wind increased 20% from 6.4TWh to 7.7TWh, whilst generation from solar PV increased 16% to 1.7TWh. Due to less favourable weather than the previous year, in the form of reduced average wind speeds and rainfall, generation from offshore wind and hydro-power plants fell in Q1 2017 by 2.7% and 15% respectively.

BEIS attributed the growth in renewable generation to increases in the overall installed capacity of wind and solar capacity, rather than increased productivity.

At the end of Q1 2017, the UK’s renewable electricity capacity totalled 36.9GW, an increase of 12% on that installed at the end of Q1 2016, and 3.3% higher than the previous quarter.

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Industry 2 | Major businesses back new climate disclosure recommendations

The Financial Stability Board (FSB) has welcomed the recommendations published by the Task Force on Climate-related Financial Disclosures. The Task Force was created by the FSB in 2015 to create a framework to enable companies to provide potential investors and underwriters with information on climate-related financial risks to their businesses.

Following consultation, the Task Force made four cross-sector recommendations on what aspects of climate-related financial information should be disclosed:

  • The organisation’s governance around climate-related risks and opportunities
  • The actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
  • The processes used by the organisation to identify, assess and manage climate-related risks
  • The metrics and targets used to assess and manage relevant climate-related risks and opportunities

Governor of the Bank of England, Mark Carney, who also chairs the FSB said that widespread uptake of the recommendations would provide investors, banks and insurers with the information they need to “minimise the risk that market adjustments to climate change will be incomplete, late and potentially destabilising.”

More than 100 major firms have provided statements of support welcoming recommended disclosures and encouraging take-up of the recommendations.

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Industry 3 | Focus on energy efficient buildings helps Heathrow meet its 2020 targets

Heathrow published its sustainability report on 29 June, giving an overview of performance against its Heathrow 2.0 sustainability commitments launched in February 2017. The commitments include improved living, working and travelling conditions in the area as well boosting commercial possibilities for local businesses.

The report states that in 2016 Heathrow met its 2020 energy efficiency targets to limit electricity consumption per passenger to 6.5kWh. This was driven by the installation of over 100,000 LED lights across the airport and included a 64% reduction in electricity usage on its aircraft stands. Overall energy usage at the airport fell 4.5% in absolute terms in 2016. The airport’s water consumption has been reduced, as a new metering and leak detection system has enabled the airport to save around 130mn litres of water each year.

Through its partnership with the UK Green Building Council, the airport reported it reduced its CO₂ emissions from its buildings by 37% compared with 1990 levels, already exceeding its target to achieve a 34% reduction by 2020. Beyond the CO₂ emissions from its buildings, Heathrow has also been looking at emissions from transport and has implemented 900 electric vehicles across its operations and achieved 94.5% of flights being undertaken in newer, less-polluting aircraft.

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