Week in Energy
Over the weekend, it is confirmed that Greg Clark will continue as Business and Energy Secretary. Claire Perry MP joins the BEIS department, while Nick Hurd MP leaves his role as Climate Change Minister for the Home Office. Mayor of London, Sadiq Khan, launches a £1.6mn Clean Tech Incubator to help 100 London-based small businesses deliver low-carbon, clean-tech projects to help tackle the causes and effects of climate change.
National Grid releases a consultation to give clarity on the types of balancing services required to maintain secure and affordable electricity supplies, as the transformation of the UK power system continues. The Carbon Trust launches a new collaborative group which seeks to solve key issues currently preventing a more effective transition to a low-cost, low-carbon energy system. Speaking at the National Infrastructure Forum, CBI Director-General Carolyn Fairbairn says companies and communities are seizing the opportunity of green energy, and calls on the government to take steps to unlock a "golden age" of infrastructure development.
It is announced that Richard Harrington MP has been appointed as Parliamentary Under Secretary of State at BEIS, while Jesse Norman MP is reassigned to the Department for Transport. The Open Networks Project, led by the Energy Networks Association (ENA), sets out a definition of the role of a Distribution System Operator – clarifying how local power networks will change as the UK’s smart energy grid becomes a reality.
Leader of the House of Commons, Andrea Leadsom, confirms that the Queen’s Speech will take place on Wednesday, 21 June. National Grid predicts an increased surplus electricity margin in its Winter Review and Consultation for 2017-18. The EMR Delivery Body releases its timeline for operation of the 2017-18 capacity market, with the 10-week prequalification submissions window to open on 24 July.
A new project from the Energy Technologies Institute seeks to provide greater understanding of the cost drivers in new nuclear power plants.
The GMB union urges the next government to develop new nuclear and gas capacity, while questioning the reliability of solar power. Data released by the Society of Motor Manufacturers and Traders confirms low emission vehicle sales made up a new record market share in May.
Back to top
Policy 1 | Energy industry calls for certainty following election
The general election on Thursday, 8 June resulted in a hung parliament, with the Conservatives negotiating a deal with the Democratic Unionist Party (DUP) to give them the working majority they need to form a government.
The DUP’s energy priorities include supporting efforts to better control energy bills. The DUP also called for continued progress on interconnection and new generation capacity in its manifesto as it outlined how to ensure a secure and sustainable energy supply for Northern Ireland. It remains unclear if these priorities will translate into policy following any deal being made.
The election has been followed by a ministerial reshuffle, with some changes made to the energy minister line-up. Greg Clark will continue as Business and Energy Secretary, though Nick Hurd has left his role as Climate Change Minister. Hurd had worked on the Clean Growth Plan, ratification of the Paris Agreement, reform of the EU’s carbon market and the Industrial Strategy during his time in the role. Hurd is to be replaced by Claire Perry. Perry is on record as backing ambitious targets for the government’s Fifth Carbon Budget, as well as the Paris Agreement. In a blog in 2016, Perry wrote: "It is only fair to expect bill-payers to support low-carbon power as long as costs are controlled."
The energy industry has stated it stands "ready to deliver" following the election, according to trade association Energy UK. Following the formation of the new government, Chief Executive of the trade body, Lawrence Slade said it was an "exciting time" as "we lead the transition to a digital, decarbonised and dynamic future". Slade said Energy UK and its members were looking forward to working with the new government to ensure the energy market "works for all" and delivering on climate change commitments.
The renewables industry called for some certainty following delays to key policies and publications. The Renewable Energy Association (REA) outlined a consensus between the main parties on meeting carbon budgets, the need for jobs and cheaper bills. Chief Executive of the REA, Nina Skorupska said: "The renewable and clean tech industry has been waiting for nearly a year for the release of the Clean Growth Plan and it's now critical for us that we have a clear commitment and direction, no matter what shade of government."
RenewableUK, meanwhile, called for the new government to put renewables at the heart of energy policy. The trade association said the British public is supportive of clean energy and called for the government and opposition parties to work together to support renewable energy. RenewableUK Chief Executive Hugh McNeal said: "To maintain our world-beating offshore, onshore and wave and tidal sectors, we urge government to ensure a stable policy framework." Both the nuclear industry and the oil and gas industry echoed calls for certainty. The latter said it would look to set up an early meeting with the new government to make the case for support for the North Sea.
What legislation the new government intends to pass will be contained in the Queen’s Speech, currently scheduled for Wednesday, 21 June.
Back to top
Policy 2 | National Grid launch consultation on future energy needs
Electricity system operator National Grid launched on Tuesday, 13 June a new consultation on how it plans to meet the demands of the changing energy system.
The aim of the consultation is to provide clarity on the types of balancing services that are needed to maintain secure and affordable electricity supplies. The system operator said it is committed to creating balancing services that are simple, transparent and deliver value to the end consumer. This was the result of talking to stakeholders, with a regular theme of feedback being that markets were too complex and not transparent enough.
Among the proposals in the document, National Grid called for a new frequency response product to replace the existing Enhanced Frequency Response (EFR) and Fast Frequency Response (FFR) products. Frequency response is an automatic change or generation or demand to counter changes in system frequency. Customers participating in frequency response are paid to adjust their energy assets accordingly.
The consultation said the new product would be designed and implemented by March 2018. It said it should ensure access to the faster-acting response required. National Grid said transparency should also be increased of how this is valued against the existing response products. Inertia, which determines how quickly frequency will change when there is an imbalance between generation and demand, will have its value assessed as part of the new product as well, the document said.
National Grid also outlined an ambition for a new reserve product in 2018-19. Reserve relates to the need to ensure imbalances on the system caused by forecasting errors or unexpected losses are managed. The system operator said any new product must ensure sufficient flexibility is available close to real time, that market access is available for both balancing mechanism (BM) and non-balancing mechanism providers, and it is compatible with pan-European reserve services.
The consultation said a market that values reactive power transparently must be created by the end of 2018-19, while a restoration strategy for black starts will be published in the summer. Black start is the emergency service used to restore the system, should it shut down either partially or completely. Other feedback received by the system operator had been that balancing services were not accessible to all potential providers; balancing services are not future-proof and investors need to know plans to be able to make informed decisions of their own.
Cathy McClay, Head of Commercial, Electricity at National Grid said the consultation was the beginning of an "on-going conversation" with the electricity industry. McClay said: "We are working with industry to deliver the right solutions at the right time; improving transparency of our needs and developing solutions to maximise the use of all available assets."
The consultation will run until Tuesday, 18 July. The responses would then inform National Grid’s recommendations for a balancing services product strategy, to be published at the end of September.
Back to top
Policy 3 | Businesses taking green energy opportunities: CBI
Major business group the CBI has outlined how businesses are "seizing" opportunities presented by green energy.
CBI Director-General, Carolyn Fairbairn was speaking on Tuesday, 13 June at the National Infrastructure Forum. Fairbairn called for a pro-enterprise partnership between government and business to unlock a "golden age" of infrastructure development. Fairbairn spoke of the key steps the government must take to unleash the new age, including significant investments in clean energy and green transport.
Fairbairn said: "Today, technologies like solar and wind mean companies and communities are generating, storing and sharing power - seizing the opportunity of green energy. Looking to the future, government needs to give business certainty by saying as soon as possible what the investment framework will be beyond 2020."
Fairbairn accepted that political and regulatory risks can be concerns. Fairbairn said: "Just as we’re asking business to invest huge sums, policies like price caps on energy, which are vague on detail but big on headlines, will create uncertainty, knock confidence, and risk deterring investment."
Fairbairn also said business and government need to have an "honest conversation" with consumers about why energy bills are rising. This also should cover how they can be managed long-term. Fairbairn added government must work with business to "fill the blanks" on policy details and provide the certainty investors are looking for.
Back to top
Policy 4 | Energy regulator reports impact on businesses of energy policy
On Friday, 9 June, the energy regulator Ofgem reported on the economic impact on business of the regulatory provisions that it introduced during the course of the 2015-17 government.
The government must set a target for the economic impact on business of relevant regulatory provisions made during Parliament, with it targeting a £10bn saving to businesses, and voluntary or community bodies, for the 2015 Parliament. The Business Impact Target (BIT) scores revealed that the Capacity Market Rules had a total negative impact of £2mn on businesses.
Meanwhile, the Guaranteed Standards and Overall Standards of Performance reforms had a negative impact of £0.5mn. These relate to specified standards that required energy suppliers must meet when having certain interactions with customers. Many measures had a BIT score of zero, such as treatment of white label providers in the domestic retail market and the smart meter roll-out.
Elsewhere, there were several measures, including elements of the energy efficiency policy ECO2t, which refers to a government energy efficiency scheme the country, had not yet had their costs validated.
Back to top
Industry 1 | Qatar crisis and US shale gas success put spotlight on supply security
The dispute between major liquefied natural gas (LNG) exporter, Qatar, and its neighbours has raised questions on the possible impact on gas prices and the vulnerability of the UK relying on gas imports to provide over 50% of demand. This has led fracking supporters to suggest that it is time to begin exploiting the UK’s domestic shale gas reserves.
Saudi Arabia, the UAE, Bahrain and Egypt have severed diplomatic ties and transport links with Qatar over its reputed connections with extremist groups in the region. The restrictions have meant that Qatari ships can no longer anchor or refuel at their usual port in the UAE, leading to concerns that shipments will be delayed by congestion at Qatari ports or by additional travel time. It is also possible for Egypt to levy higher fees on Qatari ships using the Suez Canal.
Despite initial concerns, there has been no change in the spot price for LNG, with academics and industry experts predicting that there will be no impact on Qatari exports outside of the Arab region, and only minimal changes to gas trading in the area. A key metric being watched is the flow of Qatari gas through the Dolphin pipeline to the UAE, which has thus far been unaffected.
Although prices are expected to remain stable, unless the dispute escalates further, it has still sparked concern in the UK over the security of the gas supply given the country’s high import reliance. Nearly a third of UK gas imports come from Qatar, with the majority of the remainder coming from Norway and other European states.
This adds risk to the security of supply as geopolitical factors have the potential to hold sway over the quantity and price of gas supplied. Furthermore, the UK is only able to store around 4.74bn cubic meters of gas, a figure which has been substantially reduced to 1.44bcm with the Rough storage facility going offline until at least Spring 2018.
With imports expected to grow over the coming decades, supporters of the shale gas industry have argued it is time for the UK to protect itself against future import issues by exploiting domestic gas reserves.
Ken Cronin, Chief Executive of the newly-launched United Kingdom Onshore Operators Group said: "It’s important for us to insulate […] by 2030-35 we are going to be importing 70%-80% of our gas, and the majority of that is going to come from the LNG market if we haven’t started the shale gas industry."
This growing pressure to allow the widespread use of shale fracking in the UK has been further bolstered by the US’s recent success in exploiting its own shale gas reserves. The US LNG: a benchmark for the future report, by energy analysts Platts, predicts that the US will become the third largest LNG producer by 2020 behind Qatar and Australia.
However, the practise has continued to be strongly opposed by environmental campaigners such as Friends of the Earth and Greenpeace.
Back to top
Industry 2 | Renewables supply over half of UK power
Another renewables record was set at lunchtime on Wednesday, 7 June as generation from solar PV, wind, biomass and hydro produced a record 50.7% of UK power demand.
National Grid confirmed that, at 1pm, 18.7GW of the UK’s 36.9GW electricity demand was coming from renewables. Furthermore, the peak power record from renewable generation was broken on the same day, producing a combined total of 19.3GW of electricity.
The day saw multiple energy records being broken, with low-carbon generation, comprised of wind, solar and nuclear, for the first time producing more electricity than gas and coal combined, equating to 72.1% of UK demand.
Due to exceptionally high output from wind farms across the UK, whereby wind was producing 40% of electricity demand between midnight and 4.30am, the day-ahead price for electricity went negative in the UK for the first time. National Grid used its "demand turn-up" scheme to pay eligible businesses to use the excess supply rather than pay energy suppliers to stop generating.
Commenting on the record-breaking day, Energy UK CEO Lawrence Slade said: "energy companies are embracing the opportunity to deliver the affordable, secure and clean energy that consumers demand. We now need a stable policy framework that continues to encourage investment and an Industrial Strategy that promotes low-carbon growth."
Back to top
Industry 3 | Carlsberg announces new sustainability targets
Carlsberg has announced a new sustainability programme entitled "Together Towards ZERO," which sets out ambitious carbon reduction targets, including a commitment to achieve zero carbon emissions from its breweries by 2030.
This will be realised through the adoption of 100% renewable electricity at its sites by 2022, as well as work with partners to reduce carbon emissions across the whole supply chain. The company has also committed to water usage targets to help combat water scarcity. This will see the group reduce brewery water usage 25% by 2022, building to a 50% reduction by 2030.
CEO of the Carlsberg Group, Cees’t Hart, said: "I'm certain that in achieving our targets we'll create efficiency improvements, risk reduction and a more resilient business that exists in harmony with local communities and the environment."
The targets have been created in conjunction with the Carbon Trust with the aim to contribute to limiting global temperature rises to 1.5ºC.
Carbon Trust Chief Executive, Tom Delay, said: "Carlsberg’s ambitions go above and beyond the levels of carbon reduction that science tells us are necessary to keep global warming below 2 degrees Celsius."