Week in Energy

Monday 26/06 – The Energy Institute’s Annual Barometer 2017 finds a majority of its members expect moderate energy price rises in the year ahead. Lord Adonis, Chairman of the National Infrastructure Commission, calls on the government to ensure Brexit and the hung parliament do not delay key energy projects critical to the UK’s competitiveness and productivity. The Conservative Party and the Democratic Unionist Party confirm they have agreed a confidence and supply deal.

Tuesday 27/06 – Minister of State Claire Perry confirms in Parliament that the government intends to publish the Clean Growth Plan after the summer recess, with plans to make it “more ambitious”. The government also confirms the departmental responsibilities of Perry, and new junior BEIS minister Richard Harrington. Analysis by the Nuclear Industry Association finds the UK’s nuclear new build programme has the potential to almost double the number of jobs across the civil nuclear sector.

Wednesday 28/06 – The status quo of the UK energy market is “almost certainly untenable” after Brexit, finds a new report released by law firm Herbert Smith Freehills, Global Counsel and the Boston Consulting Group. The same report suggests Brexit is a chance for the UK to rethink long-term energy policy. SSE is ranked second in Citizens Advice’s league table for handling business energy complaints in Q1 2017.

Thursday 29/06 – The Committee on Climate Change finds that while significant progress has been made in reducing UK greenhouse gas emissions, progress is stalling and the low-carbon transition could be derailed by lack of government action. New official figures reveal renewable electricity generation set a new record in Q1 2017. The Institute for Government finds there is currently no national strategy for infrastructure investment, meaning it is “extremely difficult” to choose which projects to back.

Friday 30/06 – The Energy Technologies Institute estimates that bioenergy can reduce the cost of meeting the UK’s 2050 carbon targets by more than 1% of GDP

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Policy 1 | Energy industry predicts moderate price rises in coming year

The Energy Institute (EI) Annual Barometer 2017 has revealed that its members expect moderate price rises across crude oil, transport fuel, retail gas, and retail electricity markets.

The barometer is a comprehensive survey of UK energy professionals and is intended to inform the energy debate, policymakers, the industry and the public. A clear majority of members (72%) expect UK retail electricity prices to rise in 2017, with respondents from the energy demand, management and utilisation sector more likely to predict a price rise than those from other sectors.

The growth of low-carbon generation and more general network investments are seen to play a bigger role in these price increases than they did in last year’s survey The EI said this reinforced the message from respondents that security of supply and developing low-carbon energy are two of the three most important challenges for the energy system in 2017.

Respondents said political uncertainty was the biggest challenge to the industry.  It was also cited as a reason many areas of the energy system were judged to be too risky for investors. Professor Jim Skea, President of the EI, commented: “Political uncertainty also may jeopardise the progress of the UK’s transition to a low-carbon economy. Electricity has been decarbonised substantially, but there is a growing need for action in decarbonising heat and transport.”

A majority of members didn’t think the fifth carbon budget’s goal of limiting annual emissions to an average 57% below 1990 levels by 2032 will be met.

While seven in 10 members think there will be an emissions reduction of at least 53% by 2032, only two in 10 felt the 57% fifth carbon budget target will be hit with the policies currently in place. Slightly more were positive about the effects of UK energy policy (four in 10), but over half felt it had either no effect or a negative effect. According to EI members, energy policy had affected support for new nuclear, support of demand-side response and enabling technologies, improving energy efficiency and support for renewable deployment most positively.

To reach emissions targets and transition to a low-carbon economy at least cost, respondents said supporting energy efficiency should continue to be a priority. This was followed by renewable energy and nuclear power.

On heat EI members expect a moderate rather than complete transformation of the UK’s heat mix through to 2030. While gas is expected to remain the dominant heat source, its share is predicted to decrease by a noticeable extent (from 70% in 2015, to 55%).

The survey also for the first time considered the impacts of Brexit. The EI found broad support for keeping current EU energy and climate change legislation in place when the UK leaves the European Union. Members did not expect Brexit negotiations to have a significant impact on energy prices in 2017.

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Policy 2 | Research sets out potential Brexit energy impacts

The trade association for the European electricity industry, Eurelectric, has produced its initial view of the various consequences of Brexit, released on Thursday, 22 June.

Eurelectric warned Brexit negotiations on energy trading may well not be finalised within the two-year period mandated by Article 50. Eurelectric said it would particularly welcome transitional arrangements to prevent any cliff edges that could arise with regards to electricity trading. Harmonised rules ensure that existing and new electricity connections to third country markets can be optimised and do not lead to distortions that have adverse effects on wholesale electricity prices or security of supply in EU’s Internal Energy Market (IEM).

The analysis concluded that the UK will need to consider a non-domestic dispute resolution and a broader governance framework, should it continue to participate in the Internal Energy Market (IEM) without the control of the European Court of Justice and without automatically applying EU legislation. Potential solutions to this included that the European Free Trade Association (EFTA) Court and the EFTA Surveillance Authority could fill any jurisdictional gap that was left by Brexit.

Eurelectric said the UK’s continued engagement in the EU legislative process and its commitment to implement all legislation agreed while it remains a member state was welcome. It added doing so constructively will only strengthen the possibility that the UK maintains a strong as possible energy relationship with the EU in future.

One issue the report focused on was that that should the UK leave the EU carbon emissions trading scheme (ETS), there would be a direct impact on the EU ETS carbon price.

The EU ETS is a cornerstone of the EU's policy to combat climate change, limiting emissions from more than 11,000 heavy energy-using installations such as power stations and industrial plants. It works on the “cap and trade” principle – a cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall.

Eurelectric said the UK leaving the scheme could lead to around 8-9% of demand “disappearing overnight”. The supply of allowances in the EU ETS would have to be adjusted to cover for this. However, with no precedent on how this could be done, it could reopen political discussions regarding the EU’s 2030 climate and energy targets, which had been agreed in October 2014. Eurelectric added that preferably, the UK would remain in the EU ETS for at least the next trading phase – which is the end of 2030. If it were to leave, then to achieve free and fair trading of electricity, Eurelectric said a linked UK ETS of similar ambition and rules would be necessary.

Overall, the paper found that if there is a breakdown in the energy relationship between the UK and the EU the biggest impact will be felt on UK itself and neighbouring countries. It also added that the electricity sector should not get lost in the upcoming negotiations between the UK and should continue to pursue its other priorities in tandem.

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Policy 3 | Clean Growth Plan to be published after summer recess

Minister of State Claire Perry confirmed during the first BEIS oral questions of the Parliament on Tuesday, 27 June that the government intends to publish the Clean Growth Plan after the summer recess that runs until September.

Perry explained she wished for the plan to be “as ambitious, robust and clear a blueprint as it can be”. Therefore, the government was taking time to ensure the draft could be extended as this would see it become “more ambitious”.

The Clean Growth Plan will aim to set out how the UK will stimulate economic growth while reducing carbon emissions. It was scheduled to be published in late 2016 but has faced a series of delays, something Labour’s Shadow Energy Minister Alan Whitehead highlighted in response. Perry assured this did not reflect a lack of government commitment to the Climate Change Act, drawing on how the UK has been the first country in the world to set binding carbon targets.

The subject of energy security was also raised in the session, with Labour MP Gareth Snell  expressing concern that the Rough gas storage facility closure could have an impact on gas supplies for the ceramics industry in his Stoke constituency. Junior BEIS minister Richard Harrington responded that the UK has a “very diverse range of sources” of gas and analysis conducted by the National Grid and others confirms that the closure of Rough will not cause a problem with security.

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Policy 4 | Government welcomes first oil from major new North Sea field

Production has commenced at the Kraken oilfield following a £2bn investment by EnQuest, with the support of the UK government.

Business and Energy Secretary Greg Clark welcomed the first delivery of oil from the site, saying: “This has been made possible through significant UK government support worth £2.3bn over two years to encourage investments of this type in the North Sea, supporting thousands of highly-skilled jobs.”

The site is one of the largest new drilling operations in the North Sea, situated 125km off the east coast of Shetland. It is expected to contain 128mn barrels of oil, equivalent to 3% of the UK’s remaining oil reserves. It is predicted to provide 3% of total UK oil and gas production once it hits peak operation in 2019.

New investment in the North Sea is helping to support hundreds of thousands of jobs around the UK, with production in the Kraken Area expected to support more than 1,000 jobs across its 20-year lifespan. Scottish Secretary, David Mundell said: “This is fantastic news and will help ensure skilled, secure jobs in the vital North Sea oil and gas industry, which is very much still open for business.”

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Industry 1 | Large companies “can do more” to cut emissions

Technology company Philips Lighting has analysed recent data from the CRC Energy Efficiency Scheme and found that large organisations in the UK can do much more to reduce their carbon dioxide emissions.

The CRC Scheme investigates the carbon emission reporting of large public and private sector companies in the UK that use more than 6,000MWh of electricity per year. The combined CO₂ emissions for the organisations covered by the scheme estimated to represent around 10% of all CO₂ emissions in the UK. CRC operates in phases. Phase 1 ran from April 2010 until the end of March 2014. We are now in phase 2 that runs from 1 April 2014 to 31 March 2019. In each compliance year, an organisation that has registered for CRC must:  collate information about its energy supplies, submit a report about its energy supplies and buy and surrender allowances equal to the CO2 emissions it generated.

The carbon emission failings identified in the latest round of data fell into three broad categories: disclosure, employee engagement and overall emissions volumes.

When looking at disclosure rates, the survey found that despite mandatory requirements to report on targets, only 32% confirmed that they disclose carbon emission reduction targets in their annual reports, and only 29% said that they report on the progress made against these targets. Furthermore, over half of those questioned declined to answer whether they report on, or track progress against, carbon reduction targets.

In terms of employee engagement, less than half (45%) of the organisations answered that they have tried to actively engage with employees in order to reduce carbon emissions in the workplace.

Philips Lighting estimated that the overall emissions for the organisations covered by the CRC Scheme was the equivalent of that produced from the annual electricity usage of 6mn homes. Private sector companies averaged 22,929 metric tonnes of CO₂ emissions for the 2015-16 financial year. Public bodies averaged 13% less than private counterparts, emitting 19,839 tonnes of CO₂ across the same time-frame.

Philips Lighting also highlighted the potential for organisations to save energy through efficient lighting systems and improved energy management solutions.  Referring to its own InterAct Office smart lighting solution, Philips Lighting stated that energy savings of up to 70% can be achieved by combining LED lighting with smart management solutions.

Head of Sustainability, Environment, Health and Safety at Philips Lighting, Nicola Kimm, commented: “The CRC scheme was designed to reduce the emissions of those organizations with the largest carbon footprints in the UK, but our analysis suggests that the country’s largest public and private sector bodies still have a long way to go.”

The government is analysing feedback on a consultation on reforming the business energy efficiency tax landscape which took place in 2015 and could see the CRC abolished and folded into another scheme, though no decision has yet been made.

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Industry 2 | Sainsbury’s to go 100% LED

Sainsbury’s has announced its commitment to become the first supermarket chain in the UK to adopt LED lighting across all of its stores by 2020.

The retailer predicts that this could reduce its annual lighting energy consumption by 58%, while reducing its greenhouse gas emissions by a further 3.4%. This move will form an important part of Sainsbury’s sustainability goals to reduce its impact on the environment and help it meet its 2020 carbon emission reduction targets. According to the company’s annual report for 2017, substantial progress has already been made with a 11.6% fall in electricity usage since 2005, despite an increase in store space of 54.2%.

The contract will be fulfilled by Current, an energy management service owned by General Electric. It will be providing a full end-to-end service from design to supply and installation. Some financing will also come from its sister company, GE Capital Industrial Finance. The upgrade will see 250,000 new fixtures installed across more than 450 stores.

Paul Crewe, Head of Sustainability, Energy, Engineering and Environment at Sainsbury’s, said: “At Sainsbury’s we’re committed to lowering the carbon emissions of our stores, so we’re proud to be the first supermarket to switch our large stores entirely to LED lighting.”

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Industry 3 | Investors back strong ambition for new EU energy efficiency rules

Members of the Institutional Investors Group on Climate Change (IIGCC) have written to Energy Ministers across the EU, asking them to commit to an ambitious framework for long-term decarbonisation in line with the goals of the Paris Agreement.

The investors represent €18tn in funds across nine European countries and range from pension funds to global asset management companies. The group is concerned that the current disagreement on whether to revise down the EU-wide targets on energy efficiency will result in reduced investor confidence. IIGCC members are calling for the EU directive to include a base-line of four key requirements:

  • A long-term decarbonisation objective included in the Clean Energy Package legislation, aligned with the Paris Agreement and containing an investment strategy
  • A binding EU energy efficiency improvement target of at least 30% - to send a clear and positive signal to investors, financial institutions and companies
  • The extension of annual energy savings obligations beyond 2020 and a recommendation to increase targets above the current level of 1.5%
  • Throughout the package, green and energy efficiency investment must be properly measured and based on actual, rather than designed, energy performance

CEO of the IIGCC, Stephanie Pfeifer argued that “a robust regulatory framework for energy efficiency is essential to give investors the confidence necessary to ensure they direct many trillions of capital towards the low carbon transition across the EU.”

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