Week in Energy
Monday 24/07 – BEIS and Ofgem unveil their plan to promote a smart and flexible energy future. Business and Energy Secretary Greg Clark also announces the launch of a £45mn Battery Institute competition, which aims to establish a centre for battery research to make the technology more accessible and affordable. Ofgem launches a programme to extend half hourly electricity settlement to homes and small businesses. BEIS opens a consultation on proposals to make a range of technical changes to the Capacity Market, including looking at energy storage de-rating. The Aldersgate Group argues that the government should mandate the Net Zero Carbon Buildings standard for all new build non-domestic buildings by 2030.
Tuesday 25/07 – A consultation on the review of the Secure and Promote requirements – designed to promote liquidity in the electricity wholesale market – is launched by Ofgem. The Carbon Trust confirms it will be running the government’s £9.2mn Industrial Energy Efficiency Accelerator to lower energy costs and improve the global competitiveness of British industry.
Wednesday 26/07 – The government announces that sales of new petrol and diesel cars and vans will be banned by 2040. A survey by consultancy Engine shows that the utilities industry has done more than any other sector to improve the customer experience. Ofgem data shows that the number of accreditations made under the non-domestic Renewable Heat Incentive dropped in 2016-17.
Thursday 27/07 – BEIS publishes its Digest of UK Energy Statistics, confirming a steep fall in coal generation in 2016 – more than halving year on year from 76TWh to 31TWh. Research finds that the global smart grid market will be worth $50.65bn by 2022, more than double the current value of $20.83bn.
Friday 28/07 – It is confirmed that energy service firm Amec Foster Wheeler will lead a UK Government funded nuclear power research programme after winning a £2.9mn contract.
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Policy 1 | BEIS and Ofgem plan to remove barriers for smart energy technology
The department and the regulator published their joint plan, Upgrading Our Energy System: Smart Systems and Flexibility Plan on Monday, 24 July to enable a smart, flexible future energy system.
The plan outlined a wide range of actions that will be taken to improve access to energy markets for new technologies and business models and to remove barriers to smart technologies, such as storage and demand-side response (DSR). BEIS forecast that successful implementation of the plan could secure savings of between £17bn and £40bn for consumers by 2050.
The majority of the document focussed on enabling energy storage as an active market participant. Specific policies include plans for the government to introduce a definition for storage into the Electricity Act 1989 when Parliamentary time allows. The government will also be undertaking a review of the planning process for storage developments, ultimately with the aim of simplifying it.
Further clarification will be given over the rules for co-locating storage with renewable generation and the terms of interaction with renewable support policies such as the Contracts for Difference and Renewables Obligation schemes will also be determined. Over the summer, Ofgem will begin consulting on a storage version of the generation licence including terms which will exclude storage from end-user levies. BEIS confirmed that Distribution Network Operators will not be permitted to operate storage systems.
In regard to encouraging DSR – where organisations agree to turn down their energy demand in return for a payment – the plan will ensure that government works with industry to develop standards for smart appliances and electric vehicle charging to ensure interoperability and avoid proprietary standards. Work to encourage DSR incudes continuation of work to engage with National Grid’s Power Responsive workstream to encourage large non-domestic consumers to participate in DSR, with the aim of total participation reaching between 30-50% of balancing capacity by 2030, and ensuring that consumer protection from the risks of participation by developing a Code of Practice for Independent DSR aggregators.
Actions to improve access to energy markets for new technologies and business models include the government simplifying the metering requirement for participating in DSR, enabling asset reallocation by DSR providers, and allowing Capacity Market and ancillary service revenues to be stacked. The government will also reform network charging and market arrangements, for example by introducing a mechanism to price constraints more dynamically. This would provide transparent and clear signals related to the incremental costs of benefits of connecting to the grids in various locations.
Overall these actions are designed to minimise costs to consumers and improve access to smart markets for smart businesses. Many of the measures covered in the plan are closely linked to already existing workstreams.
Also on Monday, 24 July, BEIS issued a consultation looking to make technical amendments to its Capacity Market energy security policy.
One of the major changes under consideration is amending generating technology classes and the de-rating methodology related to storage Capacity Market Units. The 2016 T-4 (four year ahead) Capacity Market auction saw agreements awarded to battery storage for the first time – about 500MW in total. Battery storage technologies can be designed to generate for different durations to provide various power and energy services, though many of the current generation of batteries are designed to deliver power for around 30 minutes. BEIS considers that this may change in the future as business models develop and barriers to storage are removed, but at present there is a "realistic prospect that short duration batteries could displace significant amounts of capacity that are able to generate for longer durations."
To this end, BEIS propose amending the storage technology class and taking duration into account when setting the de-rating factors for storage CMUs that will not be able to provide capacity for the full duration of probable stress events – ultimately meaning these batteries will earn less money from the Capacity Market.
Another key element of the consultation considered how delivery assurance can best be provided for unproven DSR awarded agreements in the four-year-ahead (T-4) auctions. This is to provide the government with the ability to replace any failing capacity through the one-year-ahead (T-1) auctions. For example, one option BEIS is seeking feedback on is the possibility of bringing forward the deadlines relating to the metering and testing requirements for unproven DSR awarded agreements. Any changes of this sort to the metering and testing deadlines would not affect existing Capacity Market agreements.
Responses are invited by Monday 8 September.
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Policy 2 | Ofgem looks to reform electricity settlement
Ofgem launched its "significant code review" (SCR) on electricity settlement reform on Monday, 24 July. The review will assess the case for making half hourly settlement (HHS) mandatory for smaller non-domestic and domestic consumers.
The electricity settlement process places incentives on energy suppliers to buy energy to meet their customers’ demand in each half hour of the day. At present, large non-domestic customers and profile classes 5-8 are settled half-hourly on actual meter data. However, most smaller consumers do not have meters capable of recording half-hourly actual consumption data. Instead, they are settled using profiles which estimate their usage in each half hour. The roll-out of smart and advanced meters that can record half-hourly consumption and be remotely read therefore presents an opportunity to improve the accuracy and timeliness of the settlement process.
Enabling HHS is expected to promote innovation and competition in the energy market and provide consumers with the opportunity to save money on their energy bills by encouraging the take up of smart tariffs; creating the right environment for more demand-side response; improving suppliers’ forecasts of demand and hence strengthening competition, reducing costs and make the settlement process more efficient.
The regulator will lead an end-to-end SCR process that will conclude with an implementation decision around the end of 2019, pushing back the proposed timeline considerably. Initially, the regulator was intending to make a final decision on the ways and means to implement mandatory HHS in the first half of 2018, with system and code changes in place at the same time. Ofgem is seeking views on its initial proposals, and is also requesting applications for membership of the design working group (DWG), with responses welcome until 1 September.
There are some concerns that disengaged or vulnerable energy consumers will suffer higher prices as they may remain unaware or unable to change their behaviours. By postponing the implementation of mandatory HHS, Ofgem will ensure that smart meters will have been rolled-out to a greater proportion of the population so that implementation has more of an immediate impact. Suppliers and central systems are also given longer to develop and implement system changes. Ofgem’s additional research also found that under current conditions, only 8% of consumers would be willing to take up time-of-use tariffs.
Though Ofgem will retain the final decision-making powers for the workstream, advice will be provided by the Design Advisory Board and the Ofgem TOM Board. The final decisions will be made by the Ofgem Senior Responsible Owner.
Consumer group Citizens Advice stated in an earlier response to HHS that it agreed with the use of the SCR process to drive the change process, saying it "cannot see any alternative way of achieving this type of holistic reform." It argued that an SCR should only go ahead once the work is thoroughly scoped and planned. Its statement concluded: "However, this will be arguably the broadest SCR yet, and other SCRs have suffered from delay. We would like to see critical milestones set out so that in the event of delay the critical wins can be prioritised."
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Policy 3 | Government commits to delivering low-cost, reliable, and clean energy system
In its Annual Report and Accounts for 2016-17, BEIS outlined the work underway to ensure a reliable, low-cost, clean energy system.
The department’s expenditure totalled £13.8bn, of which £3.2bn was assigned to the Nuclear Decommissioning Authority and £545mn was allocated to the Renewable Heat Incentive. In terms of security of supply, the government said it has improved the loss of load expectation (LOLE) with it falling to 0.5 hours in 2016-17 compared to 1.1 hours in 2015-16. The report also noted if the largest piece of gas infrastructure failed, 127% of demand could still be met even in a severely cold winter.
The report listed £28mn worth of new projects under the Energy Innovation Programme which support innovation in the sector. The projects include a new Offshore Wind Innovation Hub; a competition to develop cost reduction options for large-scale energy storage; and a nuclear innovation programme to support innovation in the sector.
Key external risks identified by the department included continuity of energy supply and climate change – while the level of security of supply risk has not changed, there is a greater risk from climate change as the possibility of weakened commitment to the Paris agreement could threaten success.
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Policy 4 | Industry groups urge government to raise ambition on zero-carbon economy
Leading companies and investors from across the UK sent a joint letter to the Prime Minister on 21 July, urging the government to raise its climate change ambitions and begin working towards a zero-carbon economy. Signatories including The Prince of Wales’s Corporate Leaders Group, the UK Green Building Council and techUK are calling for further measures to be put in place to ensure the UK meets its commitments under the Paris Climate Agreement.
The letter referred to recent statements by the Committee on Climate Change which found that, while emissions in the UK have fallen by 42% on 1990 levels, GDP has grown by over 65%, showing that acting on climate change is not damaging to the economy. The letter also touched on the financial benefits from transitioning to a zero-carbon economy, stating that the zero-carbon market was worth $5.5tn in 2012 and is growing at over 3% annually.
Given the environmental and economic benefits from transitioning to a low-carbon economy, the signatories argued that the government should look to include a clear set of policies in the Industrial Strategy and the Clean Growth Plan, which would give businesses confidence to invest in low-carbon processes and technology.
Julian David, techUK’s CEO commented: "Creating a world-leading sustainable economy, based on innovative technology, will not only benefit society but drive productivity and support growth across the UK."
Industry 1 | Academics explore heat decarbonisation options
Researchers from the Sustainable Gas Institute at Imperial College London, have surveyed the options for a greener gas grid in the third instalment of their white-paper series, published on Thursday, 20 July.
A Greener Gas Grid: What are the Options? found that the transition to low-carbon gas needs strong policy measures to ensure that the lowest possible carbon intensity is achieved.
Gas networks are used in many countries to deliver natural gas to industrial, commercial and domestic consumers, driving energy-intensive processes such as heating and cooking. While the report expects to see some transition towards electrification, through the increased uptake of heat-pump technology, it argues that there are "significant technical, economic and consumer barriers to electrifying heat" which mean gas will continue to play an important role going forward.
Given that the high energy-intensity of heat production is associated with high greenhouse gas emissions, a transition to using more ‘green gas’ solutions may have an essential role to play in helping governments to meet their climate change commitments. The decarbonisation of gas can happen in several different ways, including the replacement of natural gas with bio-methane, using blends of methane and hydrogen and a transition to 100% hydrogen supply. In addition to the reduction in greenhouse gas emissions, the cheaper storage and greater flexibility, when compared to electricity, are listed as the primary benefits in opting for a low-carbon gas supply.
Each option comes with its own advantages and disadvantages. For example, while biomethane will work best with existing infrastructure and offers lower emissions, its production requires land that may be needed for food production and other uses. Alternatively, hydrogen fuel is significantly cleaner than natural gas, but the electrolysis process to harvest the fuel is expensive. Different production channels for hydrogen fuel, including using steam methane reformers powered by natural gas, limits its emissions savings potential. Ultimately the most appropriate option will depend on the country’s existing distribution assets and changing demand profiles.
For governments looking to facilitate the transition to greener gas networks, the report suggested three key areas of action. Firstly, a strong policy framework would ensure that the lowest possible carbon intensity is achieved. The report also recommended that policymakers invest in increasing the evidence base for hydrogen safety on a national scale, as this represents "an important first step" in evaluating the most appropriate choice. Finally, it was argued that increased consumer awareness and engagement is required, as some scenarios would see consumers unable to continue using natural gas grid whilst it was still available to consumers elsewhere.
The report suggested the next step in such research requires the quantification of the economic costs and benefits of different gas decarbonisation options to create a comprehensive business case for the widespread uptake of greener gas.
Industry 2 | Carbon Trust to lead the Industrial Energy Efficiency Accelerator programme
The Carbon Trust has confirmed that it will be running the government’s new Industrial Energy Efficiency Accelerator (IEEA) programme to lower energy costs and improve the global competitiveness of British industry. The Trust’s press release of 25 July stated that it will be designing and leading the four-year initiative with support from engineering firm Jacobs and infrastructure specialist AMEC Foster Wheeler.
The IEEA will be running an open application process until January 2018 before it allocates its £9.2mn funding package. The package will seek to provide incubation support to near-commercial solutions, financing between 15 and 30 pilot projects. Furthermore, the initiative expects to generate an additional £11mn from private sector investment to support the pilot projects.
The programme is targeting energy efficiency in the industrial sector. The sector uses 17% of the UK’s end energy use and can experience energy efficiency losses of 40% through inefficient equipment and heat loss. This gives great scope for new strategies to improve energy efficiency, reduce costs and cut carbon emissions. Claire Perry, Minister of State for Climate Change and Industry, commented that: "This latest programme is a great example of how reducing emissions and growing our economy go hand-in-hand."
Industry 3 | Scotland sets new renewable energy record
In the first half of 2017 Scotland generated enough renewable energy to meet its national demand on six separate days, according to new WeatherEnergy data by WWF Scotland. Reported by The Independent on Monday, 24 July, the data showed that in June, renewable energy sources in Scotland generated enough electricity to supply 118% of Scottish households.
The analysis found that Scottish wind farms were integral to achieving this record renewable output, having provided 6,634,585MWh of electricity to the grid since the start of the year. This is enough to power more than three million homes and is 24% higher than the generation output of wind from the same period in 2015. Sam Gardner, Acting Director of WWF Scotland, said: "Scotland is continuing to break records on renewable electricity, attracting investment, creating jobs and tackling climate change. If we want to reap the same rewards in the transport and heating sectors, we need the Scottish government to put in place strong policies on energy efficiency and transport in the forthcoming Climate Change Bill."
The Climate Change Bill is under consultation until 22 September and includes proposals to amend parts of the Climate Change (Scotland) Act 2009 which relate to emission reduction targets and associated reporting requirements. The Scottish Government intends to increase its carbon emission reduction target, from 80% below 1990 levels by 2050, to a world-leading 90%. It also wants to make a provision for a net-zero greenhouse gas emissions target and improve the transparency of carbon reduction reporting.