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Regulatory Report - April 2021

By Nick Palmer - Cornwall Insight | Posted May 10, 2021

Generation
The government confirmed that it will be enshrining a new target into law to cut emissions by 78% (based on 1990 levels) by 2035.
A new report from research consultancy Public First has argued that the government should move the costs of energy policy from being borne within electricity bills onto government expenditure.

Delivery
Ofgem confirmed its approach to introducing half hourly settlement on a market-wide basis. 

The Competition and Markets Authority (CMA) issued decisions on 1 April to grant permissions to appeal to all the nine network companies that sought to appeal Ofgem’s final determination on the RIIO-2 price controls, and on all the grounds on which the appeals were made.

National Grid Electricity System Operator (ESO) launched its distribution system operation (DSO) consultation, putting forward its approach to supporting the DSO transition.

Usage
Small businesses want to play a key role in the UK’s journey to net zero, but do not know where to turn when it comes to cutting carbon emissions, according to a new report from a coalition of top business groups, energy networks and expert bodies.

Green Alliance published its Net zero policy tracker: April 2021 update on 20 April, highlighting that the UK is “off track” to meet is current commitments but there is still time to act.

Also covered in this Regulatory Report: 

 


Generation

Government sets new emissions reduction target for 2035

The government confirmed that it will be enshrining a new target into law to cut emissions by 78% (based on 1990 levels) by 2035.

Announced on 20 April, the target is in line with the recommendation from the independent Climate Change Committee (CCC) for the Sixth Carbon Budget (covering the period 2033-37) and will take into account emissions from international shipping and aviation (IAS), in line with CCC recommendations. The new target will become enshrined in law by the end of June 2021.

The UK has a series of carbon budgets up to 2050 that it has a statutory obligation to meet. The UK has met the First and Second and is on track to meet the Third, but it is currently off track on the Fourth and Fifth. 

The government, in the more detailed notes included at the bottom of the press release, stressed that while it has accepted the recommendations on the budget level and the inclusion of IAS, this does not mean it is accepting all the specific policy recommendations of the CCC’s Sixth Carbon Budget advice. 

Chair Lord Deben said: “The UK’s Sixth Carbon Budget is the product of the most comprehensive examination ever undertaken of the path to a fully decarbonised economy. I am delighted that the government has accepted my Committee’s recommendations in full.”

The CBI said: “As COP26 hosts, the government is leading by example by setting this stretching target. Business stands ready to deliver with the latest low carbon technologies and innovations that are driving emissions down every year.  […] The target emphasises the importance of the 2020s as a decade of delivery on our climate ambitions, and urgent action is needed now to make this a reality.”

 

Report: move energy policy costs to government spending

A new report from research consultancy Public First has argued that the government should move the costs of energy policy from being heavily on electricity bills onto government expenditure.

Options for Energy Bill Reform, published on 29 April, models four scenarios for rebalancing the costs of gas and electricity consumption in the UK, to see how the government could increase uptake of heat pumps to meet its 2028 target of 600,000 a year:

  1. Reversing the disincentive on electrified heating.
  2. Maintaining affordability of heating for average households across the country.
  3. Not substantially increasing costs for the fuel poor.
  4. Not putting an undue burden on government expenditure.


Public First’s view is that scenario 2, which moves the policy costs onto government expenditure and then introduces a carbon tax, is the best balance in terms of incentivising heat decarbonisation. It says this would see “proper” pricing emissions on gas, with the fuel poor and average consumers not being penalised and would limit the impact on the Treasury. 

Public First concludes that, regardless of the approach taken by the government, it is essential that the government shields the poorest from substantive rises on their energy bills.

 

SNP manifesto focuses on Energy Strategy and hydrogen

The SNP published its manifesto ahead of the Holyrood election taking place on 6 May, confirming its commitment to achieving net zero by 2045 and setting out policies such as promising to publish a refreshed Energy Strategy.
In the manifesto, published on 15 April, the SNP promises  if elected to:

  • Aim for Scotland to generate 50% of its overall energy consumption from renewable sources.
  • Deliver a hydrogen economy by setting a target to have renewable and low carbon hydrogen production capacity of at least 5GW by 2030. It will also support the Levenmouth demonstration project to deliver a 100% hydrogen heat network, supplying 300 domestic properties with green hydrogen heating.
  • Deliver its Energy Transition Scotland programme to ensure that Scottish industry plays a leading role in the development and deployment of new, low carbon technologies, like marine renewables, hydrogen and CCUS.
  • Support Carbon Neutral Islands would include pilots for some islands to run on 100% renewable energy, to create circular economies tackling and processing waste and exploring more sustainable transport options. It will work with at least three islands over the next Parliament to enable them to become fully carbon neutral by 2040.


 

Treasury “cannot explain” how it will manage falling revenues from fossil fuels

The Commons Public Accounts Committee (PAC) published a new report on 28 April, concluding that the Treasury has “limited understanding of the environmental impact” of taxes and it “cannot explain” how it will manage the declining revenues from consumption of fossil fuels.

PAC highlights the ongoing Treasury Net Zero Review, the final report of which is due out this year, urging the Treasury to provide a “clear vision on the role of tax in reducing carbon emissions and help the UK to provide global leadership” ahead of the COP26 climate conference taking place in Glasgow this November.

Tax revenues from consumption of fossil fuels were worth £37bn in 2019-20. PAC identifies the government’s decision to end the sale of new petrol and diesel vehicles by 2030 as a potentially significant reduction in revenue from fuel duty. Fuel duty raised around £28bn in 2019-20. PAC recommends that by the next budget, the Treasury should set out a timetable for how it will consult on options for replacing declining revenues from fossil fuels including fuel duty.

 

One in five MPs fear losing votes if green policies not pursued

A new survey of MPs by survey firm Savanta ComRes has found that one in five (21%) fear losing votes to the Green Party if more green policies are not pursued. The results, published on 27 April, show that 56% of MPs are unconcerned about losing votes to the Greens. 

Additionally, half (46%) of MPs believe that green policies are now more important to voters than they were in the last election, while one in three (32%) MPs disagree. MPs of London constituencies are the biggest believers that green policies are more important for voters than at the last election (71%). Among Midlands MPs, only one in ten (8%) believe green policies are now more important to voters.

 


 

Delivery

Ofgem confirms plans for MHHS in 4.5 years

On 20 April, Ofgem confirmed its approach to introducing half hourly settlement on a market-wide basis. Implementation is expected to be completed by October 2025, and the reforms are expected to deliver up to £4.5bn in net consumer benefits by 2045, Ofgem said.

Electricity settlement is the process whereby volumes of energy generated and consumed are allocated to generators and suppliers in the market. The vast majority of domestic and small non-domestic customers currently have their half hourly (HH) consumption estimated for settlement purposes using one of four load profiles that are applied to meter readings. 

However, the smart meter rollout means that it is increasingly possible to obtain actual HH readings. Ofgem’s Market-wide Half Hourly Settlement (MHHS) Significant Code Review, launched in July 2017, aims to mandate the use of half hourly data for settlement.

Domestic smart meter customers would be able to opt-out of their HH data being used for settlement, but suppliers would have to process data at a daily granularity for these customers. Microbusinesses would not be able to opt out.

 

CMA grants permission to appeal on all RIIO-2 applications

The Competition and Markets Authority (CMA) issued decisions on 1 April to grant permissions to appeal to all the nine network companies that sought to appeal Ofgem’s final determination on the RIIO-2 price controls, and on all the grounds on which the appeals were made. The RIIO-2 price controls determine the level of return energy network companies can make.

Appeals were raised by the three electricity transmission owners and National Grid Gas as gas transmission owner, as well as the six gas distribution networks. The price controls for these networks went into effect on 1 April; the only price control decision that was not appealed on any grounds was that for National Grid Electricity System Operator. The deadline for a determination of the appeals is 30 September.

 

National Grid ESO consults on DSO transition

National Grid Electricity System Operator (ESO) launched its distribution system operation (DSO) consultation, putting forward its approach to supporting the DSO transition. Published on 19 April, the consultation sets out National Grid ESO’s vision for 2025 and the 10 coordinating functions between itself and DSOs across three areas.

‘Development coordinating functions’ concerns the longer-term needs of the system including the potential for flexibility services. In 2025, the ESO sees the level of coordination increasing to manage an increasingly decentralised grid. ‘Markets coordination’ concerns the procurement of services for grid needs. In 2025, the ESO believes that local DSO markets for voltage control, thermal constraint management and system restoration will be established in all DNO regions across GB. New initiatives in areas such as network charging may also have begun.

‘Operations coordination’ concerns the real-time operational cooperation between ESO and DSO control rooms. By 2025, the ESO believes that Distributed Energy Resource could become a larger proportion of the energy mix both for the balancing of energy and also for the provision of other system services. There will likely be a greater need for operational co-ordination between ESO and DSO.

 


 

Usage

Report: SMEs lack advice on how to transition to net zero

Small businesses want to play a key role in the UK’s journey to net zero, but do not know where to turn when it comes to cutting carbon emissions, according to a new report from a coalition of top business groups, energy networks and expert bodies.

Commissioned by a new coalition, the Zero Carbon Business Partnership and published on 14 April, Small businesses advice on net zero: discovery phase finds that SMEs, despite caring about cutting carbon, are unsure where to start. The findings were made as part of a series of workshops, interviews (with 42 businesses) and surveys (with 254 businesses), as well as reviews of literature and analysis of online search trends. The study highlighted several key needs for SMEs:

  • Clear information. The language of net zero is not well understood by SMEs, the study found. They are getting environmental messaging from multiple sources and angles and are unclear about what policy changes will affect their businesses. 
  • Staying in business. Remaining financially viable is generally the strongest lever in the net zero conversation with SMEs, the study found.
  • Financial and digital literacy support. The research showed that those making faster progress towards net zero, and experiencing business benefits as a result, all had better financial skills and digital literacy. 
  • Trust. SMEs generally view trade bodies and business groups as trusted sources of information, but existing support frameworks are seen as complex. 
  • Peer-to-peer relationships. Enabling peer-to-peer support structures, particularly at local and regional levels, will enhance trust, capacity and confidence to act.
  • Meeting the challenge of COVID-19. The initial focus of any services must be on “penetrating the overwhelming noise to offer uncomplicated, rapidly understandable guidance”.
  • A joined-up narrative. The study found that SMEs sometimes need a joined-up narrative to cut through confusing language around net zero.

 

Green Alliance: more funding required for net zero transition

Green Alliance published its Net zero policy tracker: April 2021 update on 20 April, highlighting that the UK is “off track” to meet is current commitments but there is still time to act. A further £22.4bn is needed every year on top of what has already been committed by 2024, the think tank says. 

This £22.4bn Green Alliance says, should include:

  • An extra £8.7bn a year on low carbon transport, including accelerating the transition away from the most polluting vehicles through a scrappage scheme linked to mobility credits, and on upgrading and improving walking, cycling and public transport infrastructure.
  • £2.3bn a year to make buildings efficient and kickstarting the roll-out of electric heat pump systems.
  • £400mn a year to establish a resource efficiency programme for industry.

 

Green Alliance also urges the government to legislate to phase out unabated natural gas for power by 2035, alongside new ambitious targets for increasing renewable capacity. It has praised the way coal has been removed from the power system, but points to gas as the main source of carbon emissions now.

 

Treasury urged to cut VAT on green products and energy efficiency 

A group of green technology companies have urged for the government to scrap VAT on green products. Published on 9 April, the letter stated that while it has been “encouraging” to see investment in green infrastructure projects, “disappointment remains” around the “lack of policies” to help the public play a part in reaching net zero. 

Citing reduced consumer engagement, particularly following the closure of the Green Homes Grant, alongside COP26, the letter called for the UK to also extend VAT exemption to EVs and associated charging technology, heat pumps, energy storage devices including heat batteries, solar panels, low-carbon boilers, as well as insulation and other energy efficiency fittings. 

The letter was signed by over 30 organisations, including ecotricity, Social Energy, Connected Kerb and Chief Executive of Citizens Advice, Alistair Cromwell.

 

Deben: energy efficiency policy should learn from the vaccine rollout

Climate Change Committee Chair Lord Deben has said the government should learn from the success of the UK’s vaccine rollout in its implementation of energy efficiency rollouts. Lord Deben was speaking to MPs on the Parliamentary Renewable and Sustainable Energy Group (PRASEG) during a session on the government’s net zero progress on 14 April. 

He spoke about the Green Homes Grant, highlighting relative success of the Local Authority Delivery (LAD) element of the scheme compared to the voucher element of the scheme, the latter of which was administered by an external consultancy and is now closed to new applicants. 

On business energy efficiency, Lord Deben said the government is not doing enough: “We need tougher rules about construction standards and a much clearer reporting regime, which the new TCFD proposals will help with. This needs to be extended down to smaller businesses. People need to know the facts about their own business’ energy use.”

 

Industry bodies urge government to link UK ETS to EU ETS ahead of COP26

Over 40 industry bodies have written to the government and the EU, urging the two to link their Emissions Trading Schemes (ETS) together ahead of COP26. The ETS puts a cap on the carbon emitted by business and creates a market and price for carbon allowances.

In the letters, published on 14 April, industry said it welcomes the commitment to serious consideration which the UK and EU have given to linking their respective carbon pricing systems in the Trade and Cooperation Agreement, and believes linkage negotiations should begin “as soon as possible”. It said linkage will benefit both parties because:

  • Of liquidity, price discovery, and the ability to attract abatement from across Europe rather than just the UK. 
  • It would create a “level playing field” in terms of carbon pricing, avoiding competitive distortions, and lead to aligned cost implications for industry across the UK and the European Economic Area.
  • It would reaffirm the UK and the EU as climate leaders ahead of COP26 and show that the UK remains a strong advocate for international carbon markets.

 

Signatories of the letters include Energy UK, the CBI, British Chamber of Commerce, the Renewable Energy Association, RenewableUK and more.
 

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