The government published key documents relating to the Contracts for Difference Allocation Round 5.
The Department for Levelling Up, Housing and Communities that it will consult on proposed changes to national planning policy on onshore wind development to examine how local communities can get involved.
Ofgem published a statutory consultation on proposals to strengthen the financial resilience of suppliers.
Ofgem published the Final Determinations for the next electricity distribution price control, RIIO-ED2, which will cover the 2023-2028 period, following consideration of stakeholder feedback on its Draft Determinations in June 2022.
Ofgem issued a consultation on its Draft Determinations for the Electricity System Operator’s second business plan to commence in April 2023.
BEIS published a consultation seeking views on proposals for an Energy Company Obligation Plus (ECO+) scheme.
The All-Party Parliamentary Group (APPG) on Environmental, Social and Governance (ESG) has published a report, calling for a UK Green Taxonomy.
Also covered in this Regulatory Report:
Offshore wind to compete in Pot 1 in CfD AR5.
On 14 December, the government published key documents relating to the Contracts for Difference (CfD) Allocation Round 5 (AR5), including the AR5 Core Parameters; Draft Allocation Framework; Administrative Strike Price Methodology Note; and a Consultation on the future of the CfD.
According to the AR5 Core Parameters, AR5 will move from three auction pots, as in AR4, to two auction pots. The separate Pot 3 that previously was solely for Offshore Wind has been removed for AR5, with Offshore Wind now being included in Pot 1, competing alongside other established technologies. Additionally, Remote Island Wind will now compete in Pot 1, having previously competed in Pot 2.
Also included in the AR5 publications were the technology-specific Administered Strike Prices (ASP)— the maximum strike price that a project of a particular technology can achieve. Compared to AR4, these remain unchanged for Landfill Gas, Solar PV and Onshore Wind. The ASP for Anaerobic Digestion has increased, while all other ASPs have decreased for AR5, most markedly Remote Island Wind, down £9/MWh, Geothermal, down £14/MWh and Wave, down £13/MWh. Despite rising financing and manufacturing costs, the ASP for Offshore Wind has also lowered for AR5.
Additionally, the government has published a consultation on the future of the CfD for AR6 and beyond. Within this, BEIS acknowledges that “wider and longer-term changes to the market are out of scope of this consultation but are being considered by government holistically as part of the Review of Electricity Market Arrangements”. The consultation closes on 7 February 2023.
The government confirmed that final budgets and further auction details will be published in the Budget Notice in March 2023.
Consultation opened on local support for onshore wind
The Department for Levelling Up, Housing and Communities announced on 6 December its plans to consult on proposed changes to national planning policy on onshore wind development to examine how local communities can get involved.
The announcement stated that this will be a technical consultation to “explore how local authorities demonstrate local support and respond to views of their communities when considering onshore wind development in England”. It added that decisions will continue to be made at the local level given that local representation would understand the area.
Proposals in the consultation would see planning permission for projects be dependent on the demonstration of local support. It stated that local authorities would also have to demonstrate their support for certain areas as being suitable for onshore wind, moving away from requirements for sites to be designated in local plans. It said that the consultation will also seek views on developing local partnerships for supportive communities, allowing those that build new onshore wind infrastructure to benefit from doing so, such as through lower energy bills.
On 22 December, a consultation on Levelling-up and Regeneration Bill: reforms to national planning policy was opened, including proposed changes to planning policy for onshore wind to deliver a more localist approach. Responses are requested by 2 March 2023.
On 13 December, BEIS published its UK Hydrogen Strategy update to the market: December 2022, which summarises government hydrogen policy developments and schemes since the last market update in July 2022.
The UK Hydrogen Strategy issued in August 2021 committed to producing 5GW of low-carbon hydrogen by 2030. Since its publication, however, capacity ambitions have doubled to 10GW following the publication of British Energy Security Strategy in April earlier this year. This goal is to be supported through the launch of the £240mn Net Zero Hydrogen Fund (NZHF), the £60mn Low Carbon Hydrogen Supply 2 competition for developing innovative hydrogen supply solutions, and the design of a UK Low Carbon Hydrogen Standard.
Policy areas covered in the update include: hydrogen production, hydrogen networks and storage, use of hydrogen, creating a market, hydrogen sector development and international leadership in hydrogen.
Alongside this, it set out a proposal for the final design of the hydrogen production business model.
On 14 December, the government issued its response to a consultation in respect of revenue regulations relating to the implementation of the nuclear regulated asset base (RAB) model revenue stream.
Notable points raised by the government include that it considers it appropriate to proceed with the proposal set out in the consultation to replicate the CfD ESO (Contracts for Difference (Electricity Supplier Obligations) Regulations 2014) subject to any specific drafting differences needed to tailor them to the nuclear RAB revenue model.
The government expects that revenue regulations will include robust credit enhancement features (as replicated from the CfD ESO regulations) to help protect the revenue collection counterparty from supplier default so that it can meet its payment obligations.
On 29 November, Business and Energy Secretary Grant Shapps announced further measures to “help secure Britain’s energy independence”, including confirmation that the government will proceed with Sizewell C nuclear power station, following the intentions set out in the Autumn Statement.
The announcement stated that the £700mn stake in Sizewell C is set to provide clean electricity for 6mn UK homes and comes alongside the government’s continued commitment to develop a pipeline of new nuclear projects, beyond Sizewell C, with this long-term plan to be driven forward by the Energy Bill. The government will become a 50% shareholder in Sizewell C alongside EDF.
Shapps added that this comes as the UK sets a new ambition to reduce energy demand by 15% by 2030 – backed by a new £1bn Energy Company Obligation Plus (ECO+) scheme and expansion to the government’s public awareness campaign backed by £18mn of funding – all of which aim to help households reduce energy usage and energy bills.
On the same day, BEIS published an updated contract for Hinkley Point C nuclear power station to reflect the outcome of its negotiations with China General Nuclear on the Sizewell C nuclear project.
Package of reforms proposed for supplier financial resilience
On 25 November, Ofgem published a statutory consultation on proposals to strengthen the financial resilience of suppliers. This builds upon what was proposed in a previous policy consultation in June 2022 and has produced a package of reforms that includes introducing a market-wide minimal capital requirement for domestic suppliers, set to be £110-220 per domestic customer of net assets by end of March 2025 as a short-term target; enhancing the Financial Responsibility Principle (Standard Licence Condition 4B in the supply licence) to embed the capital requirements for suppliers; and the ringfencing of Renewables Obligation (RO) receipts.
The proposals are intended to balance the need for resilience and sustainable competition in the market and also to reduce risks of RO mutualisation. The regulator has however decided not to move forward with proposals to ringfence customer credit balances.
Responses were requested by 3 January 2023, with a decision expected to be published in February 2023.
Ofgem publishes RIIO-ED2 Final Determinations
On 30 November, Ofgem published the Final Determinations for the next electricity distribution price control, RIIO-ED2, which will cover the 2023-2028 period, following consideration of stakeholder feedback on its Draft Determinations published in June 2022.
The determinations set out a £22.2bn package of investment in the local distribution networks to help achieve net zero targets at the least cost to consumers. The extensive document details several decisions including preparations to deliver net zero targets, a new framework of outputs and incentives for Distribution System Operation (DSO), and a package of financial and reputational incentives that aim to drive changes across the areas that matter most to consumers.
RIIO-ED2 will start on 1 April 2023, with a statutory consultation on licence modifications, including the Price Control Financial Instruments, published on 14 December.
Draft Determinations published for ESO’s RIIO-2 BP2
On 30 November, Ofgem issued a consultation on its Draft Determinations for the Electricity System Operator’s (ESO’s) second business plan (BP2) to commence in April 2023.
The Draft Determinations come following the publication of the ESO’s RIIO-2 Business Plan 2023-2025 on 31 August, which outlines the ESO’s goals for its BP2 period. They build on the Final Determinations for the whole five-year RIIO-2 period published by Ofgem in December 2020, noting that there have been several changes since in the wider energy policy space which have required the ESO to take on increasing roles in offshore coordination, early competition, and enhanced network planning which need to be incorporated into the BP2 period.
Ofgem is also consulting on detailed changes to the ESO Roles Guidance and ESO Reporting and Incentives (ESORI) Arrangements Guidance document alongside the Draft Determinations.
Responses are requested by 17 January 2023 for all consultations, with Ofgem due to publish its Final Determinations by March 2023.
ECO+ scheme consultation announced by BEIS
On 28 November, BEIS published a consultation seeking views on proposals for an Energy Company Obligation Plus (ECO+) scheme to deliver energy efficiency measures in homes across GB from 2023-2026.
The ECO+ scheme would be in addition to the existing ECO4 scheme and aims to deliver rapid installation of affordable energy efficiency measures to a wider pool of households, with two eligible groups proposed. This includes low-income households, mirroring eligibility under ECO4, and a second general group of households in Council Tax bands A-D in England, A-E in Scotland, and A-C in Wales, with an Energy Performance Certificate (EPC) of D or below.
BEIS is proposing to align the design of the ECO+ scheme as close as possible to ECO4, to facilitate its fast delivery and cost effectiveness. It also plans to implement the scheme through introducing new regulations that will place obligations on larger energy suppliers to deliver £57,120,000 in notational annual bill savings by 31 March 2026, to be divided across the three years of the scheme. While it is intended that the new ECO+ regulations will be laid in spring, ahead of the scheme starting in April, BEIS said that it would like to enable voluntary early delivery of the scheme prior to the regulations coming into force, as this will help in meeting the aims of the scheme to encourage rapid deployment of energy efficiency measures.
To complement ECO4, rather than delivering multiple energy efficiency measures, ECO+ will largely deliver single, low-cost insulation measures to ensure that the maximum number of households can receive support through the scheme as quickly as possible. Both the general and low-income groups would be eligible for a single insulation measure from a list of eligible measures. However, only the low-income group would also be eligible for heating controls (room thermostat and boiler programmer and thermostatic radiator valves) as a secondary measure.
The ECO+ scheme is estimated to have a value of £1bn over the three years, with the cost of delivering the scheme from April 2023 included in the Energy Price Guarantee (EPG), along with other environmental and social policy schemes.
Following this, on 6 December, BEIS uploaded an impact assessment covering the consultation stage on its proposals for the ECO+ scheme. The consultation closed on 23 December 2022.
APPG ESG calls for UK-specific Green Taxonomy
On 1 December, the All-Party Parliamentary Group (APPG) on Environmental, Social, and Governance (ESG) published its The UK Green Taxonomy report.
The report calls for a credible, science-based UK Taxonomy, claiming the EU has failed to present its Green Taxonomy as a rigid scientific resource to assist investment in genuinely green assets, leading to political deliberation across EU capitals. The report acknowledges much of the work done by the EU Taxonomy, but stresses that the EU market does not compare like-for-like with the UK.
It sets out a number of recommendations to avoid these shortfalls in developing the UK’s Green Taxonomy. This includes that it must be launched as soon as possible to avoid losing second-mover advantage and the chance to claim leadership status in the global net zero transition; that the Taxonomy must be credible, usable, and interoperable; and that the Treasury must begin consultation imminently, initially planned for earlier in 2022.
BEIS published a consultation on 13 December seeking views on its proposals to improve domestic gas boiler standards and efficiency and mandate that all newly-installed gas boilers are hydrogen-ready by 2026. Views are also sought on the potential role of hybrid gas boiler-electric heat pumps in heat decarbonisation in the 2020s and 2030s. It states: “These proposals aim to reduce domestic gas consumption, thereby lowering consumer bills and carbon emissions, improving our energy security, and preparing for the transition to low-carbon heating”. Responses are requested by 21 March 2023.
On the same day, BEIS published the outcome of its December 2021 consultation on possible options to enable or require hydrogen-ready industrial boiler equipment.
On 2 December, the IEA issued a press release stating that energy efficiency actions have accelerated globally in 2022 as governments and consumers have increasingly turned to efficiency measures as part of their responses to fuel supply disruptions and record-high energy prices. It notes that this is a potential turning point in government ambition on energy following several years of slow progress.
Preliminary data indicates that in 2022 the global economy used energy 2% more efficiently than it did in 2021, a rate of improvement almost four times that of the past two years, and almost double the rate of the past five years. The data found cost savings of $680bn in IEA countries in 2022 compared to 2020.
On 5 December, SMMT published details of new car registrations for November 2022, showing growth of 23.5%. Plug-ins accounted for 27.7% of new registrations, with battery electric vehicles (BEVs) taking their largest monthly share of the new car market in 2022, up 35.2% in new registrations for November.
Hybrid electric vehicles (HEVs) rose by 66.9% to 11.2% of the market, largely driven by fleet operators looking for flexibility and emissions reductions. SMMT has also called for urgent government action to deliver charging infrastructure and support electric vehicle (EV) uptake to deliver UK’s net zero targets.
On 13 December, Energy Systems Catapult published a new study, demonstrating how reforming the British electricity market so that wholesale prices reflect local supply and demand conditions, could be the foundation of a net zero system.
The report, International Learnings on Investment Support for Clean Electricity, also claims that this could facilitate large-scale investment in renewable generation. The report analyses evidence from markets across the US and in New Zealand where Locational Marginal Pricing (LMP) is commonplace, and European markets that use zonal pricing mechanisms. The main findings of the report were: LMP is not an obstacle to large-scale investment in renewable generation; the impact of LMP can be enhanced when combined with complimentary policies to create a “demand pull” for clean energy investments; and the British electricity market could benefit from a different technology mix that would emerge under LMP markets.