Week in Energy
Monday 11/09 – The second Contract for Difference (CfD) auction sees low-carbon projects secure support, with major falls in the cost of offshore windfarms. Ofgem seeks comments on updated guidance for the Renewables Obligation, which reflects the exemption of energy-intensive industries from the indirect costs of the policy. The UK half of the first subsea electricity interconnector between the UK and Belgium is installed.
Tuesday 12/09 – Reacting to the CfD auction, energy industry groups welcomed the results and called for further auctions. PwC analysis finds that the UK decarbonised at the fastest rate among G20 countries in 2016. The Scottish Carbon Capture and Storage group urges the government to ensure a CCS industry is developed domestically.
Wednesday 13/09 – Energy UK research highlights how the UK can benefit from a transition to electric vehicles and calls for an acceleration in the infrastructure and support needed to progress the transition. The Green Alliance finds a “policy freeze” on renewable energy led to a 95% fall in investment between 2017 and 2020, taking the UK off track from its climate targets. The UK100 group of local government leaders calls on central government to support the development of low-carbon infrastructure through creating “Clean Energy Action Partnerships”. Consultancy Inenco calls on businesses to invest in energy managers to help meet carbon targets.
Thursday 14/09 – Business and Energy Secretary Greg Clark confirms that the UK will establish a domestic nuclear safeguards regime as “comprehensive and robust” as that currently provided by Euratom. The EU says that investment in batteries is of “strategic importance” in its Industrial Strategy.
Friday 15/09 – The government explores options for controlling the costs of non-grandfathered biomass conversion and co-firing units under the Renewables Obligation. The Prince of Wales Corporate Leaders Group says that EU legislation is needed to support business moves towards greater resource productivity.
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Policy 1 | Renewables auction clears at lower than expected price
The government’s latest auction for support for renewables has seen some offshore wind projects reach a strike price of £57.50/MWh – far lower than predicted by many analysts and 50% lower than the average price in the first auction held back in 2015.
The government announced on Monday, 11 September, that 11 new projects had been successful. Worth up to £176mn per year, the projects are set to deliver 3GW of new low-carbon electricity capacity. With the auction delivering an average strike price of £66.13/MWh, the government added that the capacity procured will cost up to £528mn/ year less than it would have in the absence of competition.
A generator that wins a CfD is paid the difference between the “strike price” – a price for electricity reflecting the cost of investing in a particular low carbon technology – and the “reference price”– a measure of the average market price for electricity in the GB market. The scheme is designed to give greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, whilst protecting consumers from paying for higher support costs when electricity prices are high.
Aside from offshore wind, other successful technologies included Advanced Conversion Technologies and Dedicated Biomass with Combined Heat and Power. These also achieved significant savings.
Commenting on the results, Energy Minister and Industry Richard Harrington said: “The offshore wind sector alone will invest £17.5bn in the UK up to 2021 and thousands of new jobs in British businesses will be created by the projects announced today. This government will continue to seize these opportunities as the world moves towards a low carbon future, and will set out ambitious proposals in the upcoming Clean Growth Plan.”
The auction has been widely hailed by the industry, with some calling for further auctions to take place. For example, RenewableUK highlighted how the cost of offshore wind was now cheaper than new nuclear and the levelised cost of gas. Welcoming the results, the group’s Chief Executive, Hugh McNeal labelled the figures “astounding”. McNeal added: “[…] this young, ambitious industry can go even further. The government can help us by continuing to hold fiercely competitive auctions for future projects”.
On the back of the auction, Energy UK urged the government to set out “an ambitious, long-term plan” for further decarbonisation through the upcoming Clean Growth Plan. In a statement, Energy UK Chief Executive Lawrence Slade also called for certainty to be provided in relation to the timing for further auctions, allowing all technologies to compete for contracts.
However, Atlantis Resources, whose MeyGen tidal stream project was unsuccessful, said it had experienced the “difficulties” of competing on a level playing field with relatively established technologies such as offshore wind. The SNP, meanwhile, criticised the government’s energy policy approach as “wrong-headed” and called for support to be redirected from nuclear towards renewables.
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Policy 2 | PwC finds UK leading G20 in decarbonisation
PwC analysis has found that the UK is “strongly outperforming its peers” when it comes to decarbonisation within the G20.
The group’s initial Low Carbon Economy Index (LCEI) analysis found that in 2016, the UK achieved a decarbonisation rate of 7.7%, while energy related emissions fell by 6%. This figure was almost three times the global average of 2.6%, placing the UK at the top of the rankings.
The research explained that the UK’s fall in emissions was driven mainly by a dramatic fall in coal consumption, while maintaining GDP growth of 1.8%. PwC said that energy demand fell by 1.4% in 2016. This was because of continued improvements in energy efficiency in buildings, vehicles and appliances. The reduction in coal consumption was considered the most important factor in driving the fall in carbon intensity. Coal represents just 7% of the UK’s energy consumption, down from 23% in 2012.
Commenting on the results, Climate Change Minister Claire Perry said: “The government recognises there is still work to do. The upcoming Clean Growth Plan will outline our ambitious plan for reducing emissions in key sectors, while taking advantage of opportunities to grow the economy throughout the 2020s.”
According to its analysis, PwC said that since the start of the century, on average, the UK has outperformed China, the US and other EU countries in reducing carbon intensity. The UK has seen an average fall in carbon intensity of 3.7% from 2000 to 2016, ahead of China (-2.7%) and G7 (-2.2%). It noted this rate is significantly better than average reductions needed by countries to meet their national Paris targets.
Other trends uncovered through the research in relation to the UK included renewable energy more than tripling since 2000. This was due to substantial investment in wind and biomass. The research also found a 13% reduction in total energy consumption during a period where the UK economy grew by over 31%. This was due to energy efficiency improvements and a slight structural shift away from heavy industry. It explained industry’s share of UK GDP fell 25% in 2000 to 19% today. Strong growth in the services sector, which represents 80% of UK GDP and are low-carbon in comparison, was another trend found.
Jonathan Grant, Director of Climate Change and LCEI co-author at PwC, said that policies in the next one to two years will provide signals to investors and consumers to sustain the UK’s decarbonisation.
Grant said: “The UK now needs to tackle other parts of the economy – whether it’s increasing renewables or efficiency improvements – in order to maintain its position as a climate leader. Despite strong performances in reducing carbon emissions particularly within the electricity sector, the UK continues to rely on oil and gas. Tackling transport emissions and heating and cooling will be the next big challenges.”
The full results of the LCEI are set to be published in October 2017.
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Policy 3 | MEPs agree emergency gas supply rules
Faced with an urgent gas shortage, an EU country will be able to trigger cross-border assistance from its neighbours under new cooperation rules approved by the European Parliament.
The new regulations, presented on Tuesday, 12 September, will establish four “risk groups” of member states. These groups will take part in “risk associated cooperation”, undertaking joint risk assessments and joint preventative and emergency measures. Sufficient gas supply for households, district heating and essential social services, including hospitals, will take priority, with gas potentially diverted away from non-domestic users. A member state can activate the mechanism and call on other member states to help tackle a “severe crisis”. There are three levels of crisis: early warning, alert and emergency. The European Commission will have the right to request access to any gas supply contracts considered important for security of supply. It can also ask for the details of other commercial agreements relevant to set up the gas supply contract. This could include gas infrastructure contracts.
Jerzy Buzek MEP commented: “Member states are committing to help each other if gas supplies to citizens are disrupted. The new Regulation will strengthen regional cooperation in emergency planning and crisis prevention, and make gas contracts more transparent.”
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Policy 4 | Government looks to control cost to energy users of biomass conversions
The government launched a consultation on Friday, 15 September looking at limiting the support for biomass conversion and co-firing units under its Renewables Obligation (RO) scheme.
The RO is one of the main support mechanisms for large-scale renewable electricity projects in the UK, first coming into effect in 2002 in England and Wales. The RO closed to all new generating capacity on 31 March 2017, though there are some grace periods that allow extra deployment under certain circumstances. ROCs are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate. Operators can trade ROCs with other parties. ROCs are ultimately used by energy suppliers to demonstrate that they have met a set obligation.
BEIS said that current evidence suggested technical changes to some combustion units could lead to significant unforecast deployment of biomass conversion and co-firing under the RO. Two options to address this are proposed. The first is rebanding the level of support at 0.1 ROC/MWh for all projects – a 90% cut for biomass conversion. The other option being considered would involve an annual cap of 105,000 ROCs for each station covering generation from all its units not guaranteed a level of support, known as “grand-fathering”.
Without action the government warned that extra costs to energy bills could range from £110mn to £195mn. At a high estimate this could add £85,100 to the electricity bill of an energy intensive industrial user from 2018-19 if no action is taken. Responses are invited by 26 October.
Industry 1 | Survey reveals businesses prepared to provide DSR services
A survey by The Energyst has found that of businesses not currently providing demand-side response (DSR), three-quarters (77%) would be interested in doing so provided that it did not affect their core business.
The Shifting the Balance of Power 2017 report, published on Thursday, 7 September, found that nearly eight in 10 (78%) businesses currently providing DSR services were satisfied. Those that were left unsatisfied were almost entirely large organisations with significant energy consumption, including large industrial users and a university. The majority said that while they could provide significantly more DSR without affecting operations, the importance of DSR to their business was noticeably lower than the survey average for DSR participants.
The majority of those participating in DSR were found to mostly be large companies, with higher consumption (at least 10GWh per year) and peak demand. The main motivations for providing DSR were generating income from assets (79%) and avoiding peak network charges (56%). Other drivers included supporting Corporate Social Responsibility objectives (26%) and improving asset maintenance (23%).
Two-thirds (66%) of survey respondents were not participating in DSR, and two-thirds of these businesses found to be SMEs. Most (95%) spent less than £1mn on energy per year and the majority (68%) had a peak demand below 100kW. While the majority of non-DSR providers were interested in doing so if it didn’t impact their day to day operations, the report suggested that the fact that these are smaller businesses, with low peak consumption, could mean their flexibility is below the viable threshold for current commercial service providers.
The report also looked at barriers to businesses providing DSR services, with the most common reasons being equipment or processes not being suitable (32%), the return on investment not being attractive enough (31%), not being aware of the possible opportunities (24%) and concerns about disruption and impact on business performance (24%). Other barriers include not understanding enough about the market and different options to make a decision (18%) and a lack of trust in a third party having control over the businesses’ assets (13%).
The Energyst also found a clear interest amongst businesses for battery storage. More than half (54%) of survey participants said they were considering investing in battery storage. One in ten (10%) said they had already invested in battery storage, with all but one of these (a local council) being either utilities or involved in energy services and/or technology provision. Of the 54% considering storage, approximately 40% were SMEs and 60% were large firms, however the majority (80%) were in the industrial and commercial sector.
When asked how they planned to monetise their battery assets the most common reasons given were avoiding peak charge avoidance or load shifting (58%) and through the provision of grid services, such as Enhanced Frequency Response and Fixed Frequency Response. Nearly half (49%) said through providing DSR and 43% said through participation in the capacity market energy security scheme.
Industry 2 | WWF Scotland finds wind power up a third on previous years
Analysis of WeatherEnergy data by WWF Scotland has found that during August, Scottish wind power output rose over a third on the same period last year.
The analysis, published on Friday, 8 September, found that wind turbines in Scotland provided 846,942MWh of electricity to the grid, equating to powering nine out of 10 of all Scottish households’ electricity demand.
This was up a third on the 629,603MWh of wind generation recorded in August 2016. Wind generated enough output to potentially supply 100% or more of Scottish homes on nine days during August, and powered nearly 5mn homes across the UK on one day alone.
Scotland’s total electricity consumption for August was 1,776,118MWh, meaning wind power generated the equivalent of nearly half (48%) of Scotland’s entire electricity needs for the month.
WWF Scotland’s acting Head of Policy, Gina Hanrahan, said: “Month after month renewables are continuing to play a vital role in cutting carbon emissions and powering the Scottish economy. We’ve made huge strides forward on electricity and now we need to do the same in heating, building efficiency and transport.”
Industry 3 | BT sets ambitious 2030 emissions target
BT is aiming to reduce its carbon emissions by 87% by 2030, as it seeks to put itself on a path to help limit global warming to 1.5°C by the end of the century.
The new target has been set after BT achieved its 2008 goal of an 80% reduction in emissions by 2020 four years early. In order to meet its new goal, BT said it will look towards innovative ways to reduce its dependency on fossil fuels. These include the adoption of low-carbon vehicles in its fleet and reducing the carbon intensity of buildings.
Across its wider energy programme, BT said it has already made “significant strides” in reducing its end-to-end carbon footprint. This has helped it deliver a total of £221mn of energy savings since 2009-10. BT is also on track to achieve its commitment of purchasing 100% renewable electricity for its operations by 2020, where markets allow – having sourced 82% renewable last year.
BT Chief Sustainability Officer, Niall Dunne, said: “The role that technology can play in creating a more resource efficient world is both profound and exciting. The benefits of leading climate action extend to our customers, suppliers and people. Our commitment to this 1.5°C target will help create partnerships and coalitions that continue the unstoppable momentum enabled by the Paris agreement.”