Week in Energy

Monday 04/09 – The European Parliament’s committee on industry, research and energy confirms MEPs have called for renewable energy targets to be more ambitious than the proposal originally put forward by the commission.

Tuesday 05/09 – BEIS launches a consultation on proposed changes to the non-domestic Renewable Heat Incentive (RHI) scheme. Research by DNV GL finds oil and gas will still account for 44% of world energy supply in 2050, down from 53% today, with gas expected to become the largest single source of energy from 2034. Oil and Gas UK’s Economic Report 2017 shows that nearly $6bn worth of mergers and acquisitions have taken place in the UK oil and gas sector in the first half of 2017.

Wednesday 06/09 – The Lords EU energy and environment sub-committee hears from academics and industry figures that the impact on interconnectors of Brexit could affect energy security. The Scottish government makes £60mn available to accelerate innovation in new technologies, including low-carbon and digital projects by 2020. The Institute of Chartered Engineers recommends that the north fully develop its specialisations in renewables and new energy technologies.

Thursday 07/09 – A survey by The Energyst finds nearly eight in 10 businesses (78%) that participate in Demand-Side Response (DSR) are satisfied, while 77% not already providing DSR would be interested in doing so – if it did not affect their core business. Research by the University of Leeds finds that the UK’s 50 largest cities could collectively save £7bn a year by adopting “simple measures” to reduce their energy use. The Green Investment Group announces its first investment since its takeover by Maquarie – £38mn to be used for the construction of the 70MW Ferrybridge Multifuel 2 project.

Friday 08/09 – A report by RenewableUK finds that UK companies are securing almost half (48%) of the money spent on offshore windfarms being built in the UK.

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Policy 1 | Government proposes new non-domestic RHI changes

The government has issued a new consultation, seeking views on a range of proposed changes to the non-domestic Renewable Heat Incentive (RHI) scheme.

The non-domestic RHI was introduced to bridge the gap between the cost of renewable heating systems and conventional alternatives. The government said it was keen to make sure the scheme continues playing its part in meeting decarbonisation targets and the UK’s renewable energy goals, while continuing to be good value for money.

It released its consultation on 5 September, following a commitment it set out in a response to a 2016 consultation. In this, the government said it would undertake further detailed work on eligible heat uses and consult on subsidy limits for very large installations. The new consultation sets proposals out on both of these issues.

On eligible heat uses, the consultation asked for views on matters including whether to limit the proportion of heat a non-domestic installation can provide to a single domestic building. It also asked whether applicants should be made to provide additional evidence to Ofgem to show their proposed heat use displaces a carbon-based heating source and is to meet an economically justifiable heating requirement.

For very large plant, the government proposed an annual limit on the amount of heat/biomethane for which an individual accreditation can receive RHI payments. This limit, it said, would be a production limit of 250GWh/ year for all eligible technologies. Should an installation have a heat production above the limit, it could still accredit to the non-domestic RHI but would only receive payments up to the demand limit.

The consultation also set out proposals on eligibility rules where multiple installations are accredited under the RHI at a single site. It proposed that for new applications to the scheme, tariffs are worked out on the basis of the total capacity for each technology at a single site.

As an example, it suggested if three medium biogas plant are installed at a single site, each with a capacity of 250kWth, these plant would be considered a single installation of 750kWth. Ofgem would therefore accredit the plant as a large biogas installation. This approach would ensure continued value for money and robust budget management of the scheme.

The document also asked questions on a number of cross-cutting issues. These included environmental permitting, replacement plant and restricting the use of estimated metering data.

The deadline for the views on all proposals set out was 31 October, except for eligible heat uses where responses are requested by 3 October.

The government said this is as it may make policy amendments on this issue ahead of its response to the proposals raised elsewhere within the consultation.

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Policy 2 | DCC opt-out removed for non-domestic smart meters

The government has confirmed that it will remove the Data Communications Company (DCC) opt-out and extend the mandatory use of the DCC’s services to the non-domestic sector.

To end estimated billing and enable greater control of energy usage the government has mandated that all homes and small businesses will be offered a smart meter by the end of 2020. The DCC was established to manage the data and communications network to connect smart meters to the business systems of energy suppliers, network operators and other authorised service users of the network.

First introduced in 2011, the DCC opt-out policy allowed energy suppliers to use communications services other than those provided by the DCC for any next generation (known as SMETS2) smart meters they install at non-domestic sites. The reasoning behind this was that a competitive market had already been established for communications services in the non-domestic advanced metering market.

However, on 31 August, responding to a consultation from April 2016 on the policy, the government concluded this was “no longer appropriate”. BEIS had come to the decision following analysis of the 15 consultation responses it had received, as well as further stakeholder engagement.

It noted that particularly evidence had supported the position that smaller non-domestic consumers were unlikely to benefit from the full range of smart metering services, should the opt-out be retained. As well as this, the government said there was no evidence of an alternative provider coming forward to deliver an equivalent service to the DCC.

It added that some non-domestic suppliers yet to take steps to become a DCC users were increasingly calling for clarification of their obligations in respect of becoming a DCC user, and would welcome certainty on this matter. The decision now means that SMETS2 meters in the non-domestic sector will be operated via the DCC.

Alongside the response, the government also published requests views on two further non-domestic proposals. The government explained that these would ensure the requirements on suppliers better reflect the diverse nature of the non-domestic sector.

Firstly, the government proposed to change the supply licence conditions to allow suppliers to larger non-domestic consumers a clear choice between “advanced meters” that do not show real time usage and the more advanced SMETS2 meters. Secondly, the government is also consulting on the case for exempting some non-domestic only suppliers from being required to become DCC users. The purpose of this, the government explained, is to exempt non-domestic only suppliers that supply predominantly large business consumers.

As a consequence of this, supply is only a limited number of non-domestic premises covered by the smart metering mandate. Views on the new consultation are invited by Thursday, 19 October.

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Policy 3 | Scottish government backs low-carbon future with new funding

The Scottish government has pledged to send a “clear signal” that Scotland is the place to be for innovation in digital and low-carbon technology in its Programme for Government, published on Tuesday, 5 September.

The programme set out proposals ranging from ultra-low emission vehicles (ULEVs) to a more ambitious Climate Change Bill, explaining that the successful economies of the future will be both “resource efficient and low carbon, and they will harness the power of technology”.

With regards to ULEVs, the Scottish government said it would promote the use of them while phasing out the need for new petrol and diesel cars and vans by 2032 – eight years earlier than the rest of the UK. To underline this commitment, the Scottish government said it would outline plans to expand the charging network. It will also accelerate the procurement of ULEVs in the public and private sectors, increase awareness and uptake of ULEVs by private motorists and extend the Green Bus Fund.

Another commitment was a plan to establish an £60mn Innovation Fund to deliver wider low-carbon energy infrastructure solutions across Scotland. These include electricity battery storage, electric vehicle charging and sustainable heating systems.

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Policy 4 | Lords analyse impacts of Brexit on energy security

The Lords EU energy and environment sub-committee questioned academics and industry figures on Wednesday, 6 September on what Brexit could mean for energy security.

On the possible implications and advantages of Brexit on energy security, Malcolm Keay, a Senior Research Fellow at the Oxford Institute of Energy Studies, said there was an immediate possible threat with gas, as the UK currently imports 50% of its supplies.

When asked whether leaving the EU would have an impact on consumer energy prices, Georgina Wright, Europe Programme Coordinator at Chatham House, said it would depend on the efficiency of energy trade. She highlighted that the UK’s current decarbonisation plan includes tripling imports from interconnection. This could increase prices if tariffs were added on. Joseph Dutton, Policy Adviser, E3G noted that increasing interconnection could help to lower wholesale prices by enabling greater production of renewable electricity.

When questioned on how dependent UK energy security was on interconnection with the EU, Keay said gas has a lot of flexibility in terms of being able to bring in alternative supplies. He added that he didn’t think it would be impossible to build new interconnectors, but there was currently a lot of uncertainty over what the future rules would be. Dutton agreed, saying it was restricting investment in future infrastructure.

Ian Graves, Director of European Business Development at National Grid, concluded that the issue of uncertainty around future interconnection was the key point to be taken away from the session.

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Industry 1 | DNV GL finds gas will become largest global energy source

DNV GL’s latest Energy Transition Outlook (ETO) has predicted that oil and gas will remain crucial components of the world’s energy future, but renewables’ share of generation will continue to grow.

The forecast, issued on Tuesday, 5 September, predicted that global energy demand will plateau in 2030, before steadily declining over the next two decades due to step changes in energy efficiency. Fossil fuels are expected to account for 52% of the global energy mix in 2050, down from the current level of 81%. It is anticipated demand for oil will peak in 2022, largely driven by expectations that of a surge in prominence of light electric vehicles, accounting for 50% of new car sales globally by 2035.

Gas is set to become the largest single source of energy towards 2050, and is expected to be the last of the fossil fuels to experience peak demand. DNV GL predicts will occur in 2035. The ETO model tips gas to continue to play a key role, alongside renewables, in helping to meet future, lower-carbon, energy requirements. DNV GL expects large oil companies will therefore increase the share of gas in their reserves as they decarbonise their business portfolios.

While demand for hydrocarbons is expected to peak over the next two decades, DNV GL said that significant investment will be needed to add new oil and gas production capacity and operate existing assets safely and sustainability. It added that the results of the ETO model reinforces the need to maintain strict cost efficiency, in order to achieve the margins necessary for future capital and operational expenditure.

Total electricity consumption is predicted to increase by 140% by 2050, becoming the largest energy carrier, followed by gas. By 2050, 85% of global electricity production in 2050 comes from renewable sources. Solar PV is expected to provide around a third of the world’s electricity by 2050, followed by (in descending order) onshore wind, hydropower and offshore wind.

Despite renewables accounting for a growing share of electricity generation, the analysis predicts that the Paris Agreement target of limiting global warming by 2 degrees will be missed. DNV GL expects the carbon budget for this target, the amount of CO2 that can be emitted without triggering dangerous climate change, will be passed by 2041. This would suggest global warming of 2.5 degrees above pre-industrial levels.

DNV GL added that there is no single solution to achieve a low-carbon world and suggested four actions that must be taken. These are greater and earlier adoption of renewables, greater and earlier electrification of heat and transport, greater improvements in energy efficiency and changing personal behaviour.

Ditlev Engel, CEO at DNV GL – Energy, said: “Until 2050 the electricity share of energy demand will grow from 18% to 40% yet this transformation is not happening fast enough. Speeding up the acceleration of electrifying sectors like heat and transport will be one vital measure to put the brakes on global warming.”

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Industry 2 | Government pledges support for oil and gas industry

Junior Energy Minister Richard Harrington has told leaders in the oil and gas industry that they have the “full support” of the UK government in maximising the economic opportunity in the North Sea.

Over the past 50 years, the oil and gas industry has extracted over 43bn barrels and current production, and currently meets over 50% of UK gas demand and around 65% of UK oil demand. In an announcement on Wednesday, 30 August, the government said there is a further 10-20bn barrels of oil estimated to be recovered by 2035. This would equate to an estimated £140bn additional gross revenue from production, and an additional £150bn turnover from exports if the industry is able to make the most of maximising recovery.

Harrington said: “These are challenging but exciting times with new opportunities in North Sea oil and gas. We are working with the sector to build on the £2.3bn worth of UK government support through our modern Industrial Strategy. I want to make it clear that the industry has full support of the UK government, and that we are continuing to create the right environment through a stable and supportive package to allow business, enterprise and jobs to flourish.”

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Industry 3 | Low-carbon generation hits record high

Statistics from BEIS have shown that the low-carbon (renewables and nuclear) share of electricity generated by Major Power Producers (MPPs) increased 7.2 percentage points between April and June 2017, up to the record high of 50%. This was largely due to increased nuclear and renewable generation.

Primary energy consumption in the UK fell by 3.9% over the three-month period, however on a temperature adjusted basis consumption fell by 2.4%. Overall electricity generation by MPPs was down by 3.4%, with coal and gas down 66% and 8.6% respectively. Gas provided 47.6% of electricity generation by MPPs, followed by nuclear at 26.9%, renewables at 23.1% and coal at 2.4%

When all sources of generation are considered low-carbon generation’s share of generation increased from 44.4% in Q1 16 to 45.6% in Q1 2017. Renewables’ generation alone rose from 25.6% to 26.6% over the same period. Overall there were substantial year-on-year shifts in the fuel mix over the period. Coal’s share of generation fell from 15.9% to 11.3%, while gas’ share rose from 37% to 39.9%.

Electricity generation increased marginally in Q1 2017, rising 1% from 92.3TWh the year before to 93.2TWh. However, a 3.1TWh fall in net imports over the same period meant total electricity supplied fell 2.2% to 96.1TWh. The UK remained a net importer with 3% of electricity supplied from net imports in the first quarter of 2017. However, net imports were down 52% from Q1 16 due to damage to the 2GW France – UK interconnector.

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