Week in Energy

Monday 29/05

The EU publishes a draft position paper on the Brexit financial settlement, in which it reveals the UK should cease being a member of the European Investment Bank – of which it was the largest recipient of EIB energy lending in the last five years.

Tuesday 30/05

The SNP commits to standing up for Scotland’s renewables industry in its general election manifesto, hailing renewable energy as a “Scottish success story”. Business group the Institute of Directors calls on the next government to prioritise lower energy bills and ensuring security of supply. Trade association Energy UK says improving energy efficiency is fundamental to meeting carbon reduction targets, but stresses market-based measures should be used over binding obligations.

Wednesday 31/05

Industry group Scottish Renewables calls on the Scottish government to set out in detail how it intends to meet the “ambitious” targets in the draft Energy Strategy. Oil & Gas UK urges the UK government to support the North Sea oil and gas sector in its industry blueprint, Vision 2035. A study by the World Green Building Council finds the global building industry must prepare for a “seismic shift” towards low-carbon if global climate targets are ever to be achieved.

Thursday 01/06

President Donald Trump confirms that the US will withdraw from the Paris Climate Agreement. The International Energy Agency (IEA) argues that while the momentum behind renewables is very high, market design and structural changes to power systems will be essential to ensure adequate returns for investment.

Friday 02/06

Shadow Business and Energy Secretary, Rebecca Long-Bailey, reiterates Labour’s ambition to ensure 60% of the UK’s energy comes from low-carbon or renewable sources by 2030 when speaking about the party’s industrial strategy at a campaign event in York.

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Policy 1 | Business group sets out proposed energy market reforms


Major business group the Institute of Directors (IoD) has called on the next government to reassess its approach to energy policy.

In its report, Future-proofing Energy, released on Tuesday, 30 May, the IoD highlighted how attempts to design energy policy to deliver the “trilemma” of clean, affordable and secure energy had delivered “very mixed” results.

The report said that businesses have a different hierarchy of priorities. Energy is “the one absolutely indispensable input” to their everyday activity. Their priority is the security and reliability of supply. The second is cost, and third that it is clean energy.

The report cited earlier research that showed that two-thirds of IoD members were concerned that the lights might one day switch off. On the other hand, directors felt energy policy had been more successful in increasing the use of renewable sources (59%) and reducing carbon emissions (45%).

The group set out a range of proposals intended to achieve a rebalancing of policy.  One of these was to increase the use of auctions for renewables tariffs. Explaining its reasoning, the IoD said that with prices for renewables falling, locking in fixed subsidies for years to come through feed-in-tariffs is very expensive and moving to auctions will help adjust to this new reality.

The report said the IoD would like auctions that encourage the deployment of longer-life technologies – noting how current renewable technologies have a relatively short lifespan. It called for the next government to give all renewable technologies a contributory role by awarding these contracts through longer-term rolling and reverse auctions.

The report particularly criticised the smart meter rollout, saying it was behind schedule, over-budget and “wedded” to out of date technology. It warned the costs were likely to be pushed up and only added to energy bills. Because of this, the IoD called for the next government to pause and review the programme to assess where savings could potentially be made.

The IoD said it sees a need for smart meters, but “much cheaper solutions” offering automated meter reading and faster switching need to be included. Dan Lewis, Senior Infrastructure Adviser at the Institute of Directors, commented: “The whole programme must be reviewed urgently following the election.”

The IoD also called on the next government to develop shale resources. It explained although there has been welcome progress in low-carbon technology, oil and gas will still have to do the “heavy lifting” for the British economy in the short and medium-terms.

Energy imports are seen as not ‘bad’ in and of themselves, but they are not cost-free and should serve as a useful motivator to do more with our existing hydrocarbon resources. Rather than rely on imports, the IoD called on the next government to make the most of potentially significant shale resources.

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Policy 2 | Networks need more innovation from businesses


Although energy networks are adopting innovations from small and medium-sized enterprises (SMEs), these need to be progressed faster if both networks and businesses are to benefit, according to new research.

The report, #CollectiveFuture Insights: Helping SMEs to Access the Energy Industry, was published by the Energy Innovation Centre (EIC) and the Energy Systems Catapult on Wednesday, 24 May. Over 150 SMEs came forward to share their experiences of engaging with some of the UK’s gas and electricity distribution networks in the research.

The research found eight in 10 (80%) SMEs had engaged with at least one distributed network operator or gas distribution network. SMEs in the electricity sector were revealed to have the highest level of engagement (88%), while those in the renewables sector were found to have the lowest levels of traction with networks (75%).

The research said SMEs are able to offer a “wealth of expertise” to the industry across multiple sectors. The analysis noted the SMEs engaging across multiple sectors were found to be the most successful, providing infrastructure support. This initial engagement can often developed into collaboration, the research found. According to the report, over three quarters (76%) of SMEs who engaged with networks were successful in winning work with them. However, just over half of SMEs (57%) reported some level of adoption of innovations by the networks. The report explained that between that initial engagement and adoption, there is a 49% drop.

The report explained adoption is likely to involve closer or more long-term involvement between SMEs and networks. It was said the smallest SMEs have the lowest rates of adoption following a project with the networks, while adoption of innovations at scale can be challenging for SMEs. Furthermore, the analysis highlighted how funding for network innovation is crucial for SMEs engaging with the sector. Yet, it was found just over three in 10 (32%) of SMEs received some sort of innovation funding.

The report set out a series of different objectives to be reached to improve adoption. These included connecting SME innovators with the right people, such as individual experts within each network operator, to provide innovators clarity around issues faced by the industry and to improve the pace of engagement and technology adoption among others.

The study is the first step in an action plan to create stronger relationships between third party SMEs with innovative ideas and technologies, and the energy networks that benefit from them. Suggestions in the action plan included hosting targeted SME events, educating SMEs on energy industry engagement and creating conversations between networks and innovative SMEs. Another point in the action plan was to address systemic issues with both regulators and networks. This would involve working with stakeholders and partners to address regulatory and systemic barriers to supporting SMEs to be successful in the energy industry. Philip New, Chief Executive at the Energy Systems Catapult said: “Innovation is fundamental to energy system transformation. Leveraging the potential of innovative SMEs is vital if we’re to access the full capacity of UK talent and drive productivity improvements.”

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Policy 3 | SNP commit to backing renewables


The SNP has committed to “champion low cost renewable energy” for Scotland in its election manifesto, published on Tuesday 30 May.

Criticising the reductions made to renewables support schemes, such as the feed-in tariff, the SNP said it would provide “long term certainty” for low cost green energy schemes.

The party said it will press the Westminster government to include onshore wind in the industrial strategy, while demanding increased focus on offshore wind, tidal energy and wave power. These technologies can “support thousands more jobs and further economic growth”, it argued. The SNP outlined its support for energy storage, aiming to set a regulatory framework that would support investment in pumped hydro and batteries. This, it claimed, would allow Scotland to “maximise” the benefits” of its existing resources.

The party also set out how it wanted Scotland to become a leader in the development of carbon capture and storage (CCS), noting the country’s oil and gas sector is “uniquely well placed” to develop CCS on an industrial scale.

The party further highlighted how Scotland’s oil and gas industry in the North Sea is “vital” to the economy and jobs. The party said it will demand fresh support for the oil and gas sector, and an industrial strategy that works for Scotland.

On Brexit, the party reported that the Oil and Gas Institute at Robert Gordon University in Aberdeen has estimated that leaving the EU is likely to cost the North Sea oil and gas supply chain £200mn/ year in tariffs and export taxes, yet a leaked UK government document states that oil and gas will be a low priority in Brexit negotiations. The SNP called for the sector to be a priority in the negotiations.

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Policy 4 | Emissions cuts win backing from MEPs


MEPs in the European Parliament have backed a new wave of national carbon cuts in line with the Paris Climate Agreement.

The new initiative will break down the EU-wide 30% carbon reduction target by 2030 to binding national targets, with an assumed start date of 2018. It will also assess different carbon-intensive sectors not covered by existing emissions legislation, including farming, transport, construction and waste management.

Countries in Western Europe with intensive industry, such as France and the UK, have targets of 37%, in contrast to Latvia and Romania which have targets of 6% and 2% respectively. The MEPs also set a new target for 2050 to reduce the EU’s carbon emissions by 80% compared to 2005 levels to ensure a long-term commitment beyond 2030.

Although countries are not bound to take action until 2020, the initiative will include an “early action reserve” which would reward early moves to reduce emissions with target flexibility later in the course of the scheme. This would benefit countries with fewer resources to invest in emission reduction who could withdraw additional funding to get projects off the ground.

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Industry 1 | Solar generation sets new record


The amount of electricity produced by solar photovoltaic (PV) output in Great Britain hit a new record, producing 8.7GW at around midday on Friday, 26 May.

This was 0.22GW higher than the previous record set earlier in the month, and fulfilled 24.3% of national electricity demand at the time. This meant that solar PV was the second highest contributor to electricity production, behind gas, and represented a larger output than coal and nuclear combined.

Chief Executive of the Solar Trade Association, Paul Barwell. said the solar generation record “sends a very positive message to the UK that solar has a strong place in the decarbonisation of the UK energy sector.”

In the week of 26 May, the high solar output across the period pulled wholesale power prices down, on both the day-ahead and within-day markets. Most noticeably, the day-ahead baseload power contract fell to its lowest level in nearly eight months at £37.5/MWh.

Because solar electricity flows directly into the local distribution systems, there was a reduction in volumes required from larger power stations on the national transmission system. This squeeze on demand for power from larger generators caused the day-ahead peak power contract price to fall to its lowest point since 19 September 2016.

As of April 2017, the UK solar PV generation capacity, based on 913,669 installations ranging from small household arrays to large solar farms, had reached over 12GW. This gives solar the potential to provide power to 3.8mn homes in ideal conditions and represents a 7% increase on the same time last year. When looking at the range of site sizes, 47% of total installed capacity is made up of large scale commercial installations greater than 5MW and 21% is composed of small scale domestic installations between 0 to 4kW.

The output of solar PV and other renewable technologies is growing to significant volumes, making the actions of balancing the system and ensuring security of supply more complicated.

System operator National Grid has acknowledged that its ability to forecast patterns in generation is becoming increasingly important.  Duncan Burt, Head of National Grid Transmission, commented: “We now have significant volumes of renewable energy on the system and as this trend continues, our ability to forecast these patterns is becoming more and more important. We have an expert team of forecasters who monitor a range of data, to forecast just how much electricity will be needed over a set period. It really is the beginning of a new era, which we are prepared for and excited to play our part”.

Earlier this year National Grid saw the first ever occurrence of mid-afternoon transmission system demand falling to below that of the night before, another occurrence attributed to rising levels of solar generation. National Grid’s recent Summer Outlook also predicted that generators such as nuclear faced being turned down this summer to make way for the increasing quantities of renewables.

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Industry 2 | Major change to gas settlement system comes into force


The nationwide upgrade of the Xoserve gas settlement system was cleared for live launch on 1 June.

This follows a period of rigorous testing that has been undertaken in the last few months. The project steering group acknowledged that a small number of tasks would need to be completed both before and after the go-live to ensure the transition is successful but that all reasonable precautions had been taken to mitigate the risk of failure. Energy regulator Ofgem approved the go-live on 17 May, arguing that to delay the launch further would increase costs without reducing the risk of complications. In the eventuality that there are significant problems with the launch, the regulator has contingencies in place to support meter readings and industrial invoicing.

The system upgrade was necessary to ensure that the system would be able to handle the increased volume of data created by the roll-out of smart meters across homes and businesses in the UK. It offers the additional benefit of enabling faster and smoother account switching by centralising independent systems into one place. It also makes it simpler for suppliers and gas transporters to share information and complete transactions, particularly for smaller independent transporters operating in rural areas.

The switch over resulted in some delays for customers switching supplier, with estimates of around three additional days being required to complete the process. A number of energy suppliers warned customers of this potential risk ahead of time, through website notices and posts on social media. The switching process should fully return to normal by 6 June.

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Industry 3 | Oil producers maintain production cuts to support prices


The Organization of the Petroleum Exporting Countries (OPEC) met in Vienna on 25 May to review the oil market outlook for the remainder of 2017.

In line with the previous meeting in November, the organisation voted to extend its production cuts for the nine-month period from 1 July. The cartel took this action with the intention to ensure “a stable and balanced oil market, with prices at levels that are suitable for both producers and consumers.” This represents a global reduction of 1.2mn barrels per day (equivalent to 2% of output) and has been unusually successful to date with a member compliance rate of 96%.

To some in the industry, the production cuts were not as large as desired or expected and the price of oil fell 4.5% in response to the announcement. Market analysts have questioned whether the extension will be enough to counter-act the downward pressures on oil prices from competition from US shale gas and falling production costs for smaller petroleum exporters across the globe.

Oil prices are important for Great Britain because many gas contracts across Europe are linked to the price of oil. So, if oil prices fall then so do gas prices. And as Britain is dependent on international gas imports, and gas-fired power stations make up the largest proportion of our electricity mix, lower oil prices ultimately result in lower power prices.

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