Week in Energy
Monday 21/08 – The Go Ultra Low campaign announces over 100 companies have now signed up, pledging to ensure electric vehicles make up at least 5% of their vehicle fleet by 2020. The GMB union calls for renewables to be funded through general taxation in future. The Welsh government says increasing renewable energy and resource efficiency is one of three “national priorities” for the management of the country’s natural resources.
Tuesday 22/08 – The Times reports the European Investment Bank has effectively imposed a moratorium on new long-term loans to the UK following Brexit – the energy sector had been the largest recipient of EIB funding. A report by GTM Research finds global solar capacity is set to surpass nuclear for the first time.
Wednesday 23/08 – The latest Government Expenditure and Revenue Scotland (GERS) statistics from the Scottish government reveal revenue from North Sea oil and gas was £84mn in 2016-17, up from £80mn in 2015-16. The Scottish government is advised by the Barclay review to allow companies who invest in solar a year-long grace period before higher business rates come into effect. Academics at Stanford University produce roadmaps showing how 139 countries – including the UK – could meet 100% of demand in all energy sectors from wind, hydro and solar sources.
Thursday 24/08 – The Offshore Renewable Catapult announces that its Fife facility will receive £920,000 of funding to advance offshore wind research in Scotland. Highways England announces it has replaced 1,618 streetlights with LED lighting units that are 53% more efficient on a motorway in Yorkshire, cutting over 700 tonnes of carbon a year.
Friday 25/08 – A report co-authored by a range of groups, including the Green Alliance, calls for a target to improve the energy efficiency standards of all existing domestic and commercial properties to EPC C by 2035.
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Policy 1 | Government’s GIB sale met with mixed reaction
On Friday, 18 August, the government confirmed that the £2.3bn sale of the Green Investment Bank (GIB) had been completed.
The bank was set up five years ago to fund renewable and low-carbon projects, often acting as a catalyst for private sector investment. The GIB has invested about £800mn per year so far. Climate Change and Industry Minister Claire Perry said: “Now that it’s in the private sector, it [GIB] will be able to operate on an international level to tackle the global challenge of climate change. It is also perfectly placed to help us finance green incentives for our Clean Growth Plan and realise the commitments set out in the Paris Agreement.”
The announcement concludes a privatisation process that was first set in motion in June 2015. The government came out with initial plans to part-privatise the bank, before the process began officially the following March. It wasn’t until late last year that Australian investment bank Macquarie was reportedly chosen as the government’s preferred bidder, with this then confirmed in April 2017 – before the deal’s eventual completion.
New owners Macquarie has committed to the GIB’s target of leading £3bn investment in green energy projects over the next three years. Going forward the new company is to be known as the Green Investment Group (GIG).
Reaction to the deal has been mixed, with Liberal Democrat Leader Vince Cable, responsible for launching the bank in the first place, labelling it “environmentally irresponsible”. Cable added: “At a time when business confidence is falling and the Conservatives are giving mixed signals on their commitment to the environment, this is the worst time to undermine investment in the green economy.”
By contrast, James Court of the Renewable Energy Association (REA) felt the focus on early-stage projects could deliver substantial benefits for technologies where the investment community remains hesitant. Edward Northam, Head of the GIG, had said under Macquarie’s stewardship the company will look to support “newer and emerging technologies”. Court added that if backed, the REA felt there are more technologies with a “huge future”.
Low-carbon business organisation the Aldersgate Group called for a new green finance strategy to be formulated following the sale. Executive Director, Nick Molho said the group called on the GIG to honour their commitment to supporting investment in renewable energy infrastructure. Molho said the GIG was “ideally placed” to lead private sector investment going forwards.
However, following the sale and the fact that the UK’s access to funds from the European Investment Bank could be more restricted in the context of Brexit, Molho called for a “clear finance strategy in the near future” from government. Molho said: “This strategy should aim to crowd in private sector investment in the new technologies and business models the UK will need to deliver on its environmental commitments and build a thriving low carbon economy.”
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Policy 2 | Energy networks consult on creating new markets
The Energy Network’s Association (ENA) has launched a consultation, seeking views on how to create a smart electricity grid that enables new markets and opportunities for distributed energy technologies.
The consultation, published on Thursday, 17 August, is being run through the ENA’s Open Networks Project. It will assess opportunities for technologies including battery storage and solar panels, alongside services such as electric vehicle to grid demand response.
The Open Networks Project seeks to lay the foundations of a smart energy grid in the UK, by transforming the way the transmission and distribution networks interact on a “whole system” basis.
Specifically, the paper sets out five considerations that must be addressed to ensure distributed energy resources (DER) can provide services in a way that improve network coordination and reduce system costs.
The first of these was what models should be used to allow DER to offer multiple services to multiple entities? This is accompanied by a number of criteria to assess the models, such as whether it promotes competition in the provision of services and whether it allows procurement from DER by multiple parties.
The paper also looked it how Distribution System Operators (DSOs) and the System Operator (SO) can ensure sufficient visibility and controllability of DER output for management transmission and distribution network constraints.
Other considerations including how it can be ensured that various routes to market for DER can coexist and compete in a coordinated way, how DER curtailment for transmission constraints should be treated from a commercial perspective, and how might distribution congestion management activities develop alongside the transition from a Distribution Network Operator (DNO) to a DSO.
Responses are requested by 29 September. These will then feed into the development of frameworks to coordinate the transmission and distribution needs, as well as the development of DSO services.
It will also inform the System Operator’s review of its balancing services products through the System Needs and Product Strategy. This includes potential synergies between SO and DSO products.
CEO of the ENA, David Smith, said: “The smart grid transition has the potential to create a whole new range of market opportunities for new technology and service providers, many of whom will be participating in the UK market place for the first time. Our energy networks increasingly need to access the latest technologies and services in order to ensure continued reliable and cost-effective electricity supply as part of a decarbonised system.”
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Policy 3 | CBI calls for government to set out a future fit energy policy framework
The CBI has called for a “future fit” energy policy framework in its five-point infrastructure plan for the new government.
Commenting on Thursday, 17 August, the major business group’s Head of Energy and Infrastructure, Michelle Hubert, said the case for investment in the low-carbon economy had already been won. The challenge now, according to Hubert, is to “get on with the job.”
Hubert added: “But whether or not Britain has a clean, smart, efficient energy system in 2030 depends on choices taken today, so decisions to give investors certainty beyond 2020 now means there are huge, and exciting, opportunities for businesses and households in the future.”
Other recommendations included a long-term strategy for digital communications, and road and rail improvements to better connect the UK.
Hubert said if existing plans aren’t progressed, “it’s clear we could put a major dent in the competitiveness of British business – and the UK itself.” Hubert stressed this was something that must be avoided, especially during this period of uncertainty as the UK leaves the EU.
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Policy 4 | North Sea oil and gas revenues recover
The latest Government Expenditure and Revenue Scotland (GERS) figures, released on Wednesday, 23 August, have shown a recovery in North Sea revenues.
In 2016-17 revenues from the North Sea stood at £84mn, up from -£80mn the year before. While this is an increase, it is still significantly less than the £6.02bn of revenue that the North Sea generated in 2012-13.
During 2016-17 the oil price averaged $48.5, a slight increase from the previous year’s average of $47.3 but markedly lower than its level in 2013-14 ($107.6). The report pointed out that as most North Sea operators sell their oil in dollars, the decline in the sterling-dollar exchange rate, which was on average 12% lower in 2016-17 than in 2015-16 will have provided a boost to the sterling value of their production.
North Sea production remained broadly stable compared to the previous year, with gas production up 2%, while crude oil and natural gas liquid production fell by 0.6%. This followed increases in production in 2015-16. The GERS figures also showed that in 2016 total expenditure on the UK Continental Shelf continued to fall, reducing by a further 19% compared to 2015. This was largely due to lower investment, which fell by 26%, however there were also falls in operating costs and exploration expenditure. In contrast, there was an increase in decommissioning expenditure, which rose by 34% to £1.2bn. This was still short of the 2014 peak of £1.7bn.
Industry 1 | I+C demand rises in the north of Scotland
Scottish and Southern Electricity Networks (SSEN) research has revealed that average industrial and commercial (I+C) electricity consumption in the north of Scotland has increased by 13.5% between 2005 and 2015. This increase, from 62,530kWh to 70,969kWh, goes against the trend of falling I+C electricity demand seen in the GB average.
Three of the eleven local authorities in the area saw a reduction in consumption (Aberdeen City, Angus and Dundee City). The remaining authorities all saw an increase in their electricity consumption, with the highest occurrences in Aberdeenshire (30.8%), the Highlands (30.5%) and the Orkney Islands (110.9%). SSEN said that initial engagement suggests that most of this increase is due to growing production in the Scottish food and drink sector, but added that further investigation is needed to fully understand the reasons behind this at a local level.
The increase in I+C gas demand in the region was 16%, significantly larger than the increase in the GB average (4.7%). Nearly two thirds (63%) of local authorities in the area saw an increase in gas consumption, with significant increases seen in Moray (76.5%), Angus (51.1%) and the Highlands (43.7%). Due to the nature of the industry located in the north of Scotland the report argued it may be less likely that there will be a shift from gas to electricity as the main heating fuel, but other alternatives are a possibility. Further investigation will now be carried out to determine the drivers for increased gas consumption and the viability of alternative solutions.
SSEN found that fossil fuels play a relatively small role in the electricity mix in the north of Scotland, with gas representing just 9% of generation capacity in 2015. Since 2005 the capacity of connected generation in the area has more than doubled, from around 2000MW to 4,623MW. Over this time onshore wind has emerged as the dominant technology, with 2,406MW of capacity added. Hydro represented 220MW of the additional capacity and solar accounted for 22MW. The remaining 60MW of new capacity came from other technologies such as tidal, biogas and CHP. The report highlighted that in comparison to the rest of GB where solar capacity has increased significantly, the north of Scotland has only seen a small increase in solar generation capacity. Overall 90% of the added generation capacity came from low-carbon, intermittent generation sources.
The report highlighted that the high volume of embedded generation on the local distribution network has changed the traditional view of a grid supply point being either import or export. Instead it is now common to have reverse power flows as generation and demand fluctuate at different times of the day.
Following the analysis SSEN identified a number of areas on which it plans to undertake further analysis. The first of these was considering the scale and location of new generation that could seek access to the network after 2020. The second was increasing collaboration between the transmission owner (Scottish Hydro Electric Transmission) and the network owner (Scottish Hydro Electric Power Distribution) to understand the current and future balance between generation and demand on the distribution network. The next was considering reasons for the increased I+C electricity and gas consumption and to assess whether this is set to continue. The final area was identifying the impact of variations in electricity demand on areas where relatively low or high demand currently exists.
Industry 2 | Go Ultra Low campaign pases '100 companies' milestone
The Go Ultra Low campaign announced on Thursday, 17 August, that it had passed the milestone of 100 registered companies after organisations including Oxford City Council, Santander UK, Swansea University and Gatwick Airport all signed up.
Companies that sign up to the campaign pledge to ensure electric vehicles (EVs) will make up at least 5% of their vehicle fleets by 2020, however a number of companies have plans to exceed this target. In its announcement Go Ultra Low said that the new members of the campaign highlight the diverse mix of organisations embracing EV technology. It added that the UK corporate sector is already leading the way in 2017 EV registration growth.
Poppy Welch, Head of Go Ultra Low, said: “The UK government wants every new car and van in Britain to be ultra-low emission by 2040, and the corporate sector has a huge role to play in achieving this goal. Forward-thinking organisations are well on the road to emission-free and low-cost motoring, taking significant numbers of EVs onto their fleets, learning where they are fit for purpose.”
Industry 3 | EUA calls for clarity on the future of gas storage
The Energy and Utilities Alliance (EUA) has written to Business, Energy and Industrial Strategy Committee Chair Rachel Reeves to support requests for a parliamentary inquiry into the closure of the Rough storage site and calling for clarity regarding the future of gas storage.
The letter followed the announcement in late June by Rough’s operator Centrica’s that it would be permanently closing the natural gas storage site, which makes up 70% of GB gas storage. The letter was sent on behalf of the EUA member the Gas Storage Operators Group in support of the British Ceramic Confederation’s request for an inquiry looking into the impact of Rough closing and any wider gas storage issues to be conducted.
Mike Foster, CEO of the EUA, said: “The closure of Britain’s largest storage site for natural gas gets rid of a vital supply buffer which allowed us to reduce reliance on gas imports. This almost certainly means greater volatility for gas prices this winter. […] Suitable gas storage solutions are vital to ensuring energy security, providing a certainty of delivery despite the vagaries of the global gas market and helping to facilitate the efficient operation of the UK energy market.”
The closure is having an effect on wholesale prices. Last week all near-term gas contracts increased and on Friday, 18 August the month-ahead contract rose to 43.98p/th, the highest price on consultancy Cornwall Insight’s records for the contract. These higher prices were generally supported by concerns over the reliability of supply with extensions to Norwegian outages, sparse LNG imports and the storage issues.