Week in Energy

Monday 14/08 – The Contract for Difference round two sealed bidding window opens. A report by the Sustainable Finance Programme finds that of the 49GW of coal plants commissioned in the EU between 2005 and 2008, 77% (37.8GW) of projects were cancelled. The Scottish government’s Community and Renewable Energy Scheme announces a new £500,000 funding pot to help SMEs, farmers and land managers in rural communities develop proposals for sustainable energy schemes.

Tuesday 15/08 – RSPB Scotland applies directly to the Supreme Court for permission to appeal against a recent decision reinstating planning consent to four offshore windfarms around the Firth of Forth. The Competition and Markets Authority considers proposals to overcome competition concerns regarding Wood Group’s purchase of Amec Foster Wheeler.

Wednesday 16/08 – IPPR North warns a hard Brexit would create substantial risks to the northern energy industry. The Energy and Utilities Alliance calls for a parliamentary inquiry into the closure of the Rough gas storage site and clarity on the future of gas storage. Scottish Green MSPs challenge other parties in Holyrood to include a target of zero emissions by 2040 in the upcoming Climate Bill.

Thursday 17/08 – The CBI calls for a future fit energy policy framework in its five-point infrastructure plan for the new government. Professor John Underhill, Chief Scientist at Heriot-Watt University, indicates that fracking may produce less oil and gas than expected due to the UK’s geology.

Friday 18/08 – The UK government confirms the £2.3bn sale of the Green Investment Bank to Macquarie Group has been completed. In reaction, the Aldersgate Group says the government must develop a new finance strategy to deliver private sector investment in new technologies and business models that the UK will need to meet environmental commitments. The Contract for Difference round two sealed bidding window closes.

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Policy 1 | Khan plans to decarbonise London’s business sector

London is set to implement its first ever “solar action plan” and push forward with non-domestic energy efficiency measures as part of proposals set out in Mayor Sadiq Khan’s draft Environment Strategy.

The plan was launched on Friday, 11 August, with Khan stating an ambition of making the capital one of the greenest cities on the planet. Khan aims for London to be a zero-carbon city by 2050 with energy efficient buildings, clean transport and energy. Setting the context of London’s energy challenge, the plan highlighted that the energy used for heating and powering workplaces in the capital is responsible for over 40% of London’s emissions. Three quarters come from private businesses, with the remainder from public buildings. Moreover, 94% of all the energy London uses is imported from outside the capital.

Part of the solution is the solar action plan, which strives to ensure that London’s solar capacity more than doubles by 2050. To achieve this, the plan detailed a series of actions to realise the ambition through the flagship Energy for Londoners programme. The Mayor’s new programme sets out to help both Londoners and businesses to generate more renewable energy, while making energy bills fairer and the capital’s buildings more efficient.

Public sector organisations and providers of social housing will also be encouraged to retrofit solar energy technologies on buildings through the use of technical assistance programmes. Khan wants non-domestic buildings to be at the forefront of this solar shift. In the case of solar PV for non-domestic buildings, although the benefits are similar to those of domestic systems, they tend to be larger installations. This delivers the advantage of generating larger amounts of electricity and being better able to match onsite generation with onsite demand.

The Mayor will investigate how barriers to solar PV deployment in the commercial sector can be overcome as part of a review to reduce emissions from London’s small and large businesses. For larger commercial landlords, Khan will consider working with networks and organisations of businesses to increase the installation of solar energy technologies as part of refurbishment projects. The plan also calls for further central government action. It is estimated that the Mayor’s programmes will deliver an extra 100MW of installed solar generation in London by 2030. However, to meet the zero-carbon city target, 10 times more solar energy generation is estimated to be needed. This would around 1GW by 2030.

The report also detailed the energy efficiency challenge facing London. Currently, 37% of non-residential buildings given an Energy Performance Certificate since 2009 have energy ratings of E, F or G. This means they are wasting energy and money. This year, over £3.1bn will be spent on heating and powering London’s workplaces. The Mayor will support the public sector to retrofit its buildings with carbon and energy reduction measures through an improved Energy for Londoners programme building on the current RE:FIT programme. Launched in spring 2016, this phase of the programme will run until August 2019. The programme will support London’s public-sector building managers to reduce energy demand and carbon emissions, improve air quality, and deliver large guaranteed energy savings for the public sector.

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Policy 2 | Think tank warns of Brexit energy impacts on industry

A hard Brexit scenario would significantly impact the energy sector in the north of England, threatening UK decarbonisation and energy security, according to a new report released by think tank IPPR North.

Published on Wednesday, 16 August, The Impact of Brexit on Energy in the North outlined how the UK’s long-term industrial strategy could theoretically receive greater support outside the structures of state aid rules. However, this would require a “truly revolutionary effort”, involving government intervention or extensive devolution of authority. The report said that if the outcome was anything other than this, then the risks of withdrawing from EU legislation should be considered too great.

The north generates almost half (48%) of the UK’s renewable power, along with 41% of its wind power and 40% of UK installed nuclear capacity. This makes the retention of mechanisms and legislation supporting the energy sector particularly pressing for stakeholders in the region. The UK has indicated it will try to preserve and maintain future input into the Internal Energy Market (IEM) regulations. However, through a hard Brexit approach, the report said energy sourced from the continent could become complicated by different sets of regulation. In an extreme situation, it could have to be replaced by sourcing energy inputs from elsewhere. At present, the UK imports 10% of energy from its European partners.

The north was found to have a much higher carbon intensity than the national average, with more energy intensive industry according to IPPR analysis, making future involvement in the EU Emissions Trading Scheme (EU ETS) influential. To hit UK climate targets and interim carbon budgets, the EU ETS is regarded as key in driving energy intensive industries towards the goal. The uncertainty of whether the UK is to continue to participate could have “serious consequences” for the decarbonisation efforts of energy intensive industries across the UK and especially in the north, the report said.

Another risk is that leaving Euratom will mean the UK must devise a complicated new framework of regulations and international agreements. These include nuclear fusion research and international cooperative agreements, which risk slowing progress.

The report also found the north to be heavily dependent on the European Regional Development Fund (ERDF). It noted how of the £168mn received by England as a whole for projects as a whole, the north was currently receiving over £75mn of these funds – the largest proportion in the UK (45%). Therefore, this issue of funding was considered an issue too as the UK government favours investment in London and the south east, leaving uncertainty over what the future may hold. Furthermore, the report also considered the negative impact funding could have on collaboration with other European research institutions. It explained it was uncertain whether or not UK research institutions would be able to bid jointly with European ones, post-Brexit.

The report concluded that the risks of total withdrawal from all EU arrangements appear “very high indeed”.

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Policy 3 | Second CfD round moves towards auction

The Contract for Difference (CfD) round two sealed bidding window opened on Monday, 14 August, running until Friday, 18 August.

The CfD scheme sees renewables developers bid for a contract, with the government making up the difference between the wholesale price and the developer’s “strike price” for energy from their project.

Announced in April, the latest auction has of £290mn available for less-established “pot 2” clean energy technologies. These include offshore wind, geothermal, wave and tidal stream projects. The Electricity Market Reform (EMR) Delivery Body confirmed on Friday, 11 August that letters had been issued to all qualifying applicants confirming the start and finish date of the sealed bid window.

The EMR Delivery Body will now run an independent audited auction. It is expected the results will then be sent to applicants on 11 September, as set out in scenario 1 of the Low Carbon Contracts Company (LCCC) implementation plan.

Guidance was also issued to support Qualifying Applicants through the sealed bid process. This ranged from how to create sealed bids to withdrawing applications entirely.

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Policy 4 | Funding announced for energy efficiency projects across Scotland

Minister for Business, Innovation and Energy Paul Wheelhouse announced on Thursday, 10 August that the Scottish government has provided £4.4mn for energy efficiency projects.

The funding will be used by 15 local authorities to improve energy efficiency in homes, businesses, public buildings and community projects. The £4.4mn is part of the Scotland Energy Efficiency Programme (SEEP) and it is hoped that it will deliver innovative ways to reduce emissions and tackle fuel poverty. SEEP is a coordinated programme to improve the energy efficiency of homes and buildings in the commercial, public and industrial sectors with phase 2 is set to commence in 2018.

It is hoped that the funding will help to unlock a larger package of over £12mn covering a range of projects across Scotland. These pilots will then ultimately help to inform the deployment of the overarching SEEP programme, which is expected to facilitate the investment of up to £10bn in heat and energy efficiency by 2030.

Wheelhouse said: “The SEEP Pilot programme is testing new approaches to improving energy efficiency and new ways of working in the public sector. A number of these projects will have a material impact on people’s lives, ensuring they have warm homes, businesses and community centres, while others will help develop essential strategies to support the effective deployment of investment to meet our ambitions to expand renewable heat and address fuel poverty.”

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Industry 1 | Europe's offshore wind growth must triple to hit Paris goals: Ecofys

Consultants Ecofys have warned that to comply with the Paris Agreement goal of limiting temperature increase to 1.5 degrees, Europe will need a CO2-neutral electricity supply by 2045. A target that can only be met if the current offshore wind installation rate were to triple, the analysts said.

The research, published on Thursday, 10 August, determined the total available onshore generation capacity through several scenario studies and identified how much of the Paris-compatible electricity generation capacity can be met on land. It was found that in the countries analysed – France, Belgium, the Netherlands, Luxemburg, Germany, Denmark, Sweden, Norway, Ireland and the UK – onshore generation resources (wind, solar, bio, hydro and nuclear) could provide up to 55% of the required capacity. This leaves 45% to be covered by offshore sources, which equates into an offshore wind target of approximately 230GW. Of this 180GW could be generated in the North Sea, with the remaining 50GW coming from other areas, like the Baltic and Irish Seas and the Atlantic.

At present, there is 13GW of installed capacity and to realise the required target the offshore wind installation rate will need to more than triple from the current 3GW/ year to approximately 10GW/ year in 2030. Ecofys found that such a growth rate cannot be realised through individual efforts alone, but instead through a new level of collaboration, coordination and interconnectivity between the North Sea countries.  

It was found that long-term planning will also be necessary to secure the stability of this new infrastructure. Ecofys point out that with higher shares of renewable energy the stability of the grid will be heavily dependent on an increase in flexibility options. It argued that a crucial enabler of a flexible power system is a well-developed network with increased levels of interconnectivity. The analysis found that currently Great Britain and Ireland have a need for import capacity of around 30GW, while continental north western Europe has a deficit of 25GW. To facilitate the growth in offshore wind 50GW-80GW of overall interconnection capacity will be needed.

Ecofys also predicted that the transition to a decarbonised electricity supply will mark the end of dependence on conventional reserves. This will result in a significantly reduced dispatchable capacity and will require a steep increase in flexibility options. With the phaseout of fossil-fuelled electricity generation, the dispatchable generation capacity drops from 64% in the current energy mix to approximately 25% in 2045. The transition towards new, cost-effective flexibility sources, such as storage, demand response, power-to-gas/heat and ancillary services from renewables is already underway. However, the use of these new flexibility services will become essential in the 2045 scenario to ensure a constant, instantaneous supply/demand balance.

Ecofys concluded that developing a long-term spatial planning strategy and a robust 2045 roadmap for flexibility options will be two of the key steps to meeting the Paris goals. Joint strategic planning will secure operational security during and beyond the energy transition.

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Industry 2 | Research finds surge in outsourcing in energy and utilities sector

Research by Arvato has found that energy and utilities companies rapidly increased outsourcing activity in the first half of 2017.

In total £268mn worth of outsourcing contracts were signed by energy and utility firms in H1 2017, an increase in value of 10% on the year before. Improving the customer experience was cited as the reason behind £164mn worth of the deals. The research, published on Thursday, 3 August, found that the total number of contracts signed by the industry rose by 20% year-on-year, with no agreements at all procured to improve customer experience in the first half of 2016. Deals agreed by energy and utility companies accounted for 15% of the overall UK outsourcing market between January and June 2016.

Debra Maxwell, CEO of CRM Solutions UK and Ireland at Arvato, said: “More businesses are recognising the importance of improving the customer experience as price differences become increasingly marginal and consumers are more liable to switch supplier. The research findings show that companies across the sector are reaching out to external partners to help deliver a more seamless customer journey by integrating digital and traditional contact channels – a crucial element in cultivating customer loyalty and maximising revenue.”

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Industry 3 | Over £38mn of Salix funding used to install CHP in the UK public sector

Over £38mn of Salix interest-free loans have been used for the installation of combined heat and power (CHP).

The funding has been used to provide high efficiency heat and power generation to UK public sector buildings, which is expected to generate annual savings of over £10mn on energy bills. In a statement on Monday, 7 August the Association for Decentralised Energy (ADE) said that 2016 saw a record number of Salix funded CHP projects completed, with a total of £14mn of funding raised throughout the public sector.

The ADE explained that CHP can generate heat and power across one or more buildings and can reduce energy use by up to 30%. Funding for CHP has been particularly well received for projects in hospital and higher education estates, as their year-round electrical and heating base load allows for CHP running hours that can maximise the return on investment.

In 2014 the University of Liverpool completed the largest CHP project supported by Salix funding, installing two 2MW CHP engines at a cost of £6.1mn. Peter Birch, Engineering Services Manager at the University of Liverpool, said: “Our CHP engines have delivered fantastic financial and carbon savings for the university. Without the support and funding from Salix Finance we would have been unable to implement such a large-scale project.”

In addition to projects already completed, Salix has committed a further £7.7mn of funding to CHP projects in hospitals and universities, which are now in the process of being implemented.

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