Week in Energy

Monday 07/08 – The Association of Decentralised Energy finds combined heat and power installations have helped save over £10mn on public sector energy bills. The Confederation of British Industry welcomes the government’s review into energy costs. Research compiled by outsourcing provider Arvato and industry analyst NelsonHall, reveals the number of deals agreed by energy and utilities businesses over the first half of 2017 rose 20% year-on-year.

Tuesday 08/08 – The government announces it is considering implementing measures that see organisations – including energy suppliers, generators and networks – fined if they fail to put in place effective cyber security measures, as part of a consultation on bringing into force the Network and Information Systems Directive. Energy UK CEO Lawrence Slade CEO Lawrence Slade welcomes the move, saying maintaining high levels of security against cyber threats is a top priority for the industry. Academics from Swansea University release findings from a study on a housing development, finding energy consumption could be cut by 60% if homes are designed to generate, store and release their own solar energy.

Wednesday 09/08 – Property management company British Land says it has installed 1,100 solar panels at its Serpentine Green Regional retail centre, making it one of the largest retail rooftop solar projects in the UK. Plaid Cymru MP Hywel Williams calls on the Welsh and UK governments to do more to support community energy schemes.

Thursday 10/08 – BEIS issues statistics revealing the number of Renewables Obligation Certificates issued to accredited generators increased by 15% in March 2017 from March 2016, rising from 7,303,927 to 8,405,388. The Scottish government announces it will provide £4.4mn to fund energy efficiency projects in homes, businesses, public buildings and community projects across Scotland.

Friday 11/08 – The Mayor of London Sadiq Khan launches a solar action plan which seeks to more than double the city’s solar generation capacity by 2030.

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Policy 1 | Government launches review into the cost of energy

The government has declared its ambition for the UK to have the lowest energy costs in Europe for both households and businesses, as it launched an independent review.

BEIS announced on Sunday, 6 August that Professor Dieter Helm would lead the review, tasked with finding ways to keep energy prices as low as possible for homes and businesses. It will report back at the end of October 2017. Helm is an economist specialising in utilities, infrastructure, regulation and the environment.

The report’s overall objective is to find how carbon objectives and security of supply can be met in the power sector at minimum cost and without imposing further costs on the government. The UK was the first country to set a long-term, legally binding target for emission reduction and must reduce emissions by at least 80% by 2050, with rolling five-year carbon budgets providing interim targets.

When exploring how meet these targets in the most cost-effective way, the review will also look at the changing aspects of the UK’s energy system, from the rapid closure of coal, to the intermittency of some renewables, and the scope for demand management and new storage technologies as it considers how best to meet the overall objective of security of supply. It will also consider the implications of the changing demand for power, including from industry, heat and transport.

Alongside this, the review will examine the full supply chain of electricity generation, transmission, distribution and supply. It will consider the opportunities to reduce costs in each part. The smart meter rollout and work already underway to transition to a smarter energy system will be taken into account.

Further elements the review will also explore include setting out a long-term road map for the power sector. This will consider how technological change in the wider economy, as well as the energy sector, may transform it. It will look at how energy policy can best facilitate and encourage such developments, while remaining in tune with the objectives of decarbonisation and security of supply. The government added that the review will consider the key factors affecting energy bills, such as energy and carbon pricing and regulation of the networks, but will not propose tax changes.

Commenting on the review, Dieter Helm said the cost of energy mattered “especially now” to households and companies with the “huge investment requirements” to meet the decarbonisation and security challenges coming in the next decade and beyond.

Neil Carberry, CBI Managing Director for People and Infrastructure, commented: “Competitive energy prices are an important part of a meaningful industrial strategy. The CBI looks forward to working with the review to ensure any recommendations support continued business investment and innovation in a secure, flexible and low-carbon energy supply, together with efforts to improve energy efficiency.”

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Policy 2 | Ofgem maps out strategy for smarter energy system

Energy regulator Ofgem has unveiled its strategy for regulating the future energy system, recognising that reform is essential as part of its future plans.

The strategy, published on Friday, 4 August, aims to ensure a regulatory framework that drives innovation, supports the transformation to a low-carbon energy system and delivers the sustainable, resilient, and affordable services that all consumers need. The document is led by five key principles, such as aligning the interests of the system operators and network companies with those of consumers, promoting competition, and providing a predictable regulatory regime that supports efficient investment and allocates risk efficiently.

Ofgem also announced that financial incentives will change so they align more with consumer interests.

Speaking on the changes, Ofgem Senior Partner, Energy Systems, Andrew Wright said: “If we don’t adapt the arrangements, they could hold back further progress to a decarbonised electricity system that meets peoples’ needs, either because the cost will be higher than necessary or because opportunities to deploy new technologies and business models are frustrated.”

Priority areas for reform include providing the right incentives for system users. Ofgem said that this would encourage new innovative businesses to manage local congestion and avoid expensive network upgrades. With regards to providing the right incentives for networks, Ofgem said it would consider ways of handling the greater degree of uncertainty networks face.

Ofgem pledged that the strategy, alongside its priorities for reform, will demonstrate a clear direction of travel of regulatory arrangements and market rules as the transition to a decarbonised energy system continues to progress.

The regulator is also looking at the right incentives for electricity system operation, with National Grid’s responsibility for electricity transmission system operation set to be moved. Ofgem confirmed that National Grid Electricity Transmission (NGET) should form a legally separate electricity system operator (ESO).

It made the announcement on Thursday, 3 August, detailing how the role and the form of the ESO must adapt to keep pace with a changing system. It followed a consultation document which had stressed the need to mitigate any actual or perceived conflicts between National Grid’s role as ESO and other roles, such as ownership of the transmission network in England and Wales.

The plans will see the ESO separately licenced, also seeing price controls split, a new governance board, and separate employees and offices. The new company is expected to be operational by 1 April 2019.

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Policy 3 | Public concern over energy security falls

The latest wave of BEIS’s Public Attitudes Tracker has found a substantial decrease in concerns over the UK’s future energy security.

Wave 22, published on Thursday, 3 August, found that around a third (34%) of respondents were concerned about power cuts becoming more prevalent in future. By contrast, almost half (47%) expressed concerns on this in the previous survey.

Broad support for renewable energy remained, with 77% backing the use of renewables, consistent with the 75%-80% band that has occurred throughout all previous waves. Just 4% of respondents opposed renewables.

Support for fracking continued to fall, falling from 21% at wave 18 to 16% at wave 22, with destruction or loss of natural environment (68%) the main reason.

The tracker found concern at steep rises in energy prices in future also fell. This declined from three quarters (73%) in wave 21 to 64% in the latest survey. Worry over paying for energy bills hit their lowest level since the tracker began. It was found just 20% of respondents were either very or fairly worried when it came to paying for power.

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Policy 4 | Scotland to invest in cost reduction for offshore wind

Paul Wheelhouse, Scottish government Minister for Business, Innovation and Energy, has announced an additional £1.5mn of funding for the Offshore Wind Accelerator (OWA).

In a statement issued on Wednesday, 2 August, the Scottish government said that the investment would allow the continuation of funding for projects to explore potential opportunities that offshore wind can offer Scotland, which will ultimately lead to a reduction in costs.

The investment will also be used to fund a range of projects designed to facilitate and encourage international collaboration and knowledge sharing between offshore wind developers. This, the government said, will help to tackle some industry wide problems, and stimulate innovation in the sector.

Wheelhouse said: “The Scottish government’s decision to invest a further £1.5mn into the OWA is a ringing endorsement of the great potential of this programme to help Scotland utilise the full potential of offshore wind, and to ensure that we make it as affordable as possible […] The potential benefits of offshore wind energy in Scotland are enormous, which is why the Scottish Government is committed to its development. By continuing to invest in it, not only are we stimulating economic change for the better, but we’re also helping to reduce greenhouse gas emissions in Scotland and helping to fight the impacts of climate change.”

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Industry 1 | Industry experts say energy sector must be flexible to meet future challenges

A report by former senior energy industry and political leaders, published on Thursday, 3 August, has argued that the UK energy system is in “flux” and that it is changing more quickly, and more fundamentally, than at any point since the industrial revolution.

The research by the Forum for the Future initiative featured contributions from, among others, former Secretary for State for Energy and Climate Change Ed Davey; former Minister of State for Energy Charles Hendry; and former SSE CEO Ian Marchant. It set out what these industry experts see as the drivers behind the energy transition, how the system is changing, and what these changes mean for the large utilities that currently dominate the industry.

The report highlighted three “landscape-level” drivers of change: The rapidly improving economics of renewable power, supported by the growing prospect of cost-effective energy storage and the emergence of electric vehicles; the digital revolution; and energy policy. There are also a number of emerging and unpredictable small-scale drivers, such as blockchain-based trading, that have the potential to be highly disruptive. The report said that while it is impossible to know exactly how the industry will change, major innovations and events will mean the change will be rapid. Therefore, “to survive and thrive” the Forum said large utilities will need to be “nimble and flexible in the future.”

The report went on to highlight the ways in which the system is changing, with decentralisation identified as the first aspect. This, the report said, reflects the clear trend towards more distributed power generation.

The second aspect was democratisation. The group explained that the rise of decentralised power has gone hand-in-hand with a democratisation of the energy system. Not only are individuals and communities across Britain increasingly setting up and co-owning energy assets, but new business models are emerging that are looking to scale up community involvement in energy.

The third was digitisation. The group argued that the line between energy producer and consumer has become increasingly blurred by the emergence of digital tools that enable much greater control of energy use by consumers. The report argued that the growth in data connectivity and increasingly powerful algorithms promises to transform our relationship with energy, and by extension the companies that supply it.

The final aspect was decarbonisation. The group said that the emphasis on decarbonisation, alongside affordability and energy security, has always fluctuated, but that the UK’s longstanding commitment to decarbonisation helped to lay the groundwork for “an unstoppable transition.” With these transitions in mind the report argued that in order to survive in the evolving energy system established player “will need to take the emerging opportunities to the heart of their business, rather than just the fringes, and be flexible enough to adapt to continuing change across the energy system.”

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Industry 2 | Project explores potential for introducing hydrogen to the gas grid

Cadent has published a research paper on a proposal to introduce hydrogen into the gas network around Liverpool and Manchester.

The study, published on Wednesday, 9 August, explained how hydrogen could be used instead of natural gas (methane) to power industry in the region. Any excess hydrogen could then be blended with natural gas to heat homes and businesses across the two cities, without the need to change appliances such as boilers.

The region is home to 11% of Britain’s existing industrial gas users, as well as 4mn domestic consumers of gas. It also has nearby offshore gas fields in Liverpool Bay that are nearing the end of their operational lives, and which Cadent says could be the perfect location to store the carbon dioxide created during the production of hydrogen.

Cadent said that the potential cost of the project, estimated to be around £600mn, would be lower, and hold less development risk, if funded as an allowable expenditure within Ofgem’s network revenue price control mechanism (RIIO), along with government input to underwrite certain carbon capture storage risks and costs.

The paper said that a final investment decision for the project could come before the end of the next parliament (in 2022). It also explained that the project would support the objectives of the government’s upcoming “Clean Growth Plan” and industrial Strategy White Paper.

David Parkin, Director of Safety and Network Strategy at Cadent, said: “While this is a study on paper, it’s a very real project. It has potential to transform the future of energy in the UK and be a long-term solution to decarbonising heat. We’ve published our conceptual study in full today and now begin a process to engage with and take on the views of key stakeholders and potential partners”

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Industry 3 | Study finds high-rise buildings are more energy intensive than low-rise

A study by University College London (UCL) has found that high-rise buildings are more energy intensive than low-rise buildings. The study suggested that energy could be saved by encouraging the development of low-rise buildings rather than skyscrapers.

In commercial buildings it was found that buildings on 20 stories or higher (high-rise) used 135% more energy than those with six stories or fewer (low-rise). High-rise buildings were also found to have a 40% higher fossil fuel consumption, and double the carbon emissions of low-rise buildings.

While no definitive reason for this increase was found, the study suggested that it could be related to physical effects relating to the height of the buildings. For example, an increase in wind speeds and a lowering of average temperature with height. Buildings that rise above their surroundings are also not overshadowed, and experience greater solar gains.

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