Regulatory Report - March 2022

Generation

The Public Accounts Committee published its report Achieving Net zero: follow up where the report took evidence from the BEIS, and HM Treasury on the government’s strategy to achieve net zero by 2050 and how this transition to a green economy will be funded.

The Chancellor Rishi Sunak delivered the Spring Statement 2022 providing an outline of the government’s fiscal plans.

 

Delivery

Ofgem published guidance on the treatment of wholesale prices observed for price cap period nine (October 2022 - March 2023).

Ofgem CEO Jonathan Brearley delivered a speech at the Future of Utilities Smart Energy event, covering the regulator’s responses to energy market impacts of the Russian invasion of Ukraine.

Ofgem published decisions and next steps with regards to launching a Significant Code Review (SCR) for Distribution Use of System (DUoS) charges.

 

Usage

The Climate Change Committee (CCC) published an independent assessment of the UK’s Heat and Buildings Strategy. It asserts that plans laid out in the strategy are not yet comprehensive or complete, and that significant delivery risks remain.

BEIS published a statistical release on Household Energy Efficiency – GB with data to December 2021 – stating that around 3.6mn energy efficiencies were installed in 2.5mn properties through government support schemes to the end of 2021

Also covered in this Regulatory Report:

 


Generation

“No clear plan for how net zero transition will be funded”

The Public Accounts Committee published its report Achieving Net zero: follow up on 2 March. The report took evidence from the BEIS, and HM Treasury, on the government’s strategy to achieve net zero by 2050 and how this transition to a green economy will be funded.

Comments from the report stated that there was “no clear plan for how the transition to net zero will be funded” or “how it will replace income from taxes such as fuel duty”, and “no reliable estimate of what the process of implementing the net zero policy is actually likely to cost British consumers, households, businesses or government itself”. In addition, Dame Meg Hillier MP chair of the Public Accounts Committee, said: “Government is relying heavily on rapidly changing consumer behaviours and technological innovations to drive down the costs of green options, but it is not clear how it will support and encourage consumers to purchase greener products or incentivise businesses and drive change”.

The report outlined a set of recommendations about how things can be improved. These included that the Department and HM Treasury should also set out how it will ensure Parliament can scrutinise the implementation of its net zero policies. This could take the form of annual reports that include the updated costs to 2050 and the amount spent in that year in the public sector to achieve net zero as well as the impact on consumers, households, businesses and local and central government across all sectors and departments and what the expected CO2 reductions will be. In addition, the department should monitor how quickly technology costs are falling and the levels of private investment it is attracting and set clear triggers for interventions such as new policies and regulations for when things go off course.

 

Chancellor delivers Spring Statement

On 23 March, the Chancellor Rishi Sunak delivered the Spring Statement 2022 providing an outline of the government’s fiscal plans.

To address the current cost-of-living crisis, the statement highlights the package of support announced prior to the statement in February including the £9.1bn Energy Bills Rebate, designed to provide all domestic electricity customers with an upfront discount on their bills worth £200 – to then be recovered from bills in instalments from 2023.

New commitments included in the statement are plans to remove VAT (previously 5%) on domestic energy saving measures, such as insulation, solar panels, and heat pumps, to help households manage rising energy costs. VAT is also to be removed from wind and water turbines with the technologies to be added to the list of energy saving measures. In both instances, the changes will come into effect from April 2022.

Regarding businesses, the government states it will bring green reliefs for business rates a year forward to April 2022 covering targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible low-carbon heat networks with their own rates bill. The statement also includes plans to double the Household Support Fund to £1bn from April and cut the duty on petrol and diesel by 5p per litre for 12 months.

There were concerns that the Spring Statement has not gone far enough to address the ongoing and upcoming impacts of the cost-of-living crisis, with both the Scottish and Welsh Governments reiterating that more vulnerable households will need increased support.

 

Report urges UK to act quickly to develop its CCUS supply chain

On 1 March, the Carbon Capture & Storage Association (CCSA) announced a new report published by the Nuclear AMRC as part of the High Value Manufacturing Catapult, on behalf of the Carbon Capture, Utilisation and Storage (CCUS) Council’s Supply Chain Working Group. The report says there is significant opportunity to increase UK manufactured content in the CCUS sector and that the UK needs to act quickly. It recommends a Fit For CCUS (F4CCUS) programme to “strategically develop existing manufacturing businesses to match to CCUS sector requirements”.

The report also recommends key actions, including: develop an inventory and schedule of key components for a pipeline of carbon capture projects, launch a new supplier development programme based on the Fit For Nuclear model, execute a CCUS-wide supply chain analysis programme, and decide on the scope of the exercise to support CCUS enabled plant.

Energy and Climate Change Minister Greg Hands said: “I welcome this report which outlines the opportunities presented by CCUS technologies for supply chain companies, creating economic growth and export potential, while helping achieve the UK’s commitment to net zero.”

 

Ofgem grants £15mn to National Grid for 13 projects to help reach net zero

National Grid Electricity Transmission and National Grid Gas Transmission have been granted £1.5mn from Ofgem’s Strategic Innovation Fund (SIF) for 13 projects to accelerate progress towards net zero. Announced on 1 March, National Grid Gas Transmission has been granted £1.1mn funding for 10 projects advancing work investigating the use of hydrogen in the national gas system.

Additionally, National Grid Electricity Transmission has been awarded £400,000 for three projects to help develop a net zero electricity network including replacing greenhouse gas SF6 with a low carbon alternative and using satellite data analytics future proof against climate change impacts.

Antony Green, National Grid Gas Transmission’s Hydrogen Director said, “The scale of the net zero challenge is significant. As a team in Gas Transmission, we really embraced the SIF process and submitted a number of well-rounded project proposals that are central to overcoming this challenge.” Green added: “I’m delighted that we have received funding for 10 projects. These will all help demonstrate how we will transition from the National Transmission System of today to the gas network of the future.”

 

UK to phase out imports of Russian oil in response to Ukraine invasion

On 8 March, BEIS announced that the UK will phase out imports of Russian oil in response to the invasion of Ukraine. The phasing out of imports will not be immediate to allow time to adjust supply chains, supporting industry and consumers. The government will work with companies through a new taskforce on oil to support them to make use of this period in finding alternative supplies. The UK is working closely with the US, the EU, and other partners to end the dependence on Russian hydrocarbons. Russian imports account for 8% of total UK oil demand and Russian natural gas, makes up less than 4% of UK gas supply.

Prime Minister Boris Johnson said: “In another economic blow to the Putin regime following their illegal invasion of Ukraine, the UK will move away from dependence on Russian oil throughout this year, building on our severe package of international economic sanctions. Working with industry, we are confident that this can be achieved over the course of the year, providing enough time for companies to adjust and ensuring consumers are protected.”

 


Delivery

Plans to extend Winter 22 price cap observation period

On 15 March, Ofgem published guidance on the treatment of wholesale prices observed for price cap period nine (October 2022 - March 2023).

Ofgem’s consultation on medium term changes to the Default Tariff Cap closed on 4 March, with the possibility of reducing the implementation period for changes to the cap level from October 2022 among the options considered. While a decision on a new cap mechanism is still pending, Ofgem said that it now has sufficient certainty to delay the price observation window, in line with its policy objectives of shortening the period between price observation and delivery in order to reduce the volume risk faced by suppliers. It has therefore confirmed that it has decided to proceed with its contingency decision to extend the cap period nine observation window to 31 August, ending one month later than under the existing arrangements. Ofgem stated that it was providing guidance for just the Winter 22 six-month cap period at this point.

 

Brearley calls for reduced exposure to international volatility

On 8 March, Ofgem CEO Jonathan Brearley delivered a speech at the Future of Utilities Smart Energy event, covering the regulator’s responses to energy market impacts of the Russian invasion of Ukraine. Brearley said that the invasion underlines the need to move away from fossil fuels, and that it has made GB’s existing exposure to extreme volatility and extreme prices even more stark.

It was noted that the situation was unlike anything that had been seen in energy sector in the post-war era and that it represented a second more serious phase of the energy crisis. Ofgem considers that, in the face of increased economic and geopolitical volatility, it is not in the interest of GB consumers to be exposed to international gas markets, and that the energy transition is therefore a transition away from both fossil fuels and volatile prices. Brearley said that although developing gas domestically would support energy security, it would not significantly change prices due to the global nature of markets.

 

Dedicated DUoS SCR launched

On 25 February, Ofgem published decisions and next steps with regards to launching a Significant Code Review (SCR) for Distribution Use of System (DUoS) charges. Ofgem’s decision to launch a dedicated SCR for DUoS charges follows the regulator’s proposals to descope DUoS charges from the Access and Forward-Looking Charges SCR (Access SCR). The regulator considers that this separation will allow the Access SCR to conclude in 2023 with a single direction, while providing a way to progress the ‘wide ranging review’ of DUoS. Ofgem maintains that the overall objective for a review of DUoS charges remains the same as originally outlined in the Access SCR: ensuring electricity networks are used efficiently and flexibly reflecting users’ needs; and allowing consumers to benefit from new technologies and services while avoiding unnecessary costs on energy bills in general. The DUoS SCR will directly mirror the scope of the DUoS review set out in the original Access SCR, covering a review of charging methodologies for Extra-High Voltage (EHV), High Voltage and Low Voltage users; the balance between usage-based and capacity-based charges, as well as charges that could vary by time-of-use; improvements to signals about how network costs and benefits vary by location; and improved predictability of charges for EHV users. Ofgem is cognisant in its decision that significant work has already been undertaken on areas within the scope of the review and states that it intends to build on this body of work and, where required, update its analysis to reflect the changing market and policy context.

 


Usage

CCC publishes assessment of Heat and Buildings Strategy

On 9 March, the Climate Change Committee (CCC) published an independent assessment of the UK’s Heat and Buildings Strategy. It asserts that plans laid out in the strategy are not yet comprehensive or complete, and that significant delivery risks remain.

The report from the CCC states that the Heat and Building Strategy sets out the new policy direction, but consultations need to move things forward and then the final design of the policy needs to be completed. This then needs to be followed by effective implementation.

The report highlights five priorities; to fill policy gaps including on home energy efficiency and funding to decarbonise public sector buildings; to build on initial proposals for critical enablers such as skills, information, finance and governance; to strengthen the coordination of the UK strategy with devolved and local plans; to take major strategic decisions, particularly addressing the relative costs of electricity and gas; and to move forward rapidly with the large number of planned consultations and policy papers over the next year, ensuring promising proposals become concrete and timely policy.

The report also highlights several areas which the CCC says should be the mains focus for next steps. This included that around a third of the emissions reductions required in 2035 do not yet have a clear policy plan and/or have significant funding gaps, or it is unclear how the government plans to deliver its targeted ambition.

In addition, funding for public sector buildings decarbonisation up until 2025 currently only covers around a third of what is needed to achieve the government’s goal of reducing public sector building emissions by 75% from 2017 to 2037.

The report added that the government has announced consultations which it has yet to initiate, including on owner-occupier energy efficiency, hydrogen-ready boilers and boiler phase-outs for buildings on the gas grid. Plans to rebalance levies between gas and electricity will need to reflect the present circumstances but must make progress to enable the desired shift away from gas in the longer term.

 

BEIS publishes household energy efficiency statistics

On 24 March, BEIS published a statistical release on Household Energy Efficiency – GB with data to December 2021 – stating that around 3.6mn energy efficiencies were installed in 2.5mn properties through government support schemes to the end of 2021. The schemes included were Energy Company Obligation (ECO), the Green Deal (GD), Green Homes Grant Vouchers (GHGV) and Local Authority Delivery (LAD).

460,300 measures were installed through these schemes during 2021 – up 42% on 2020. BEIS says 398,200 measures were delivered through the ECO in 2021 – up 23% on 2020. At the end of 2021, 14.5mn properties had cavity wall insulation (70% of properties with a cavity wall), 16.8mn had loft insulation (66% of properties with a loft), and 794,000 had solid wall insulation (9% of properties with solid walls).

Measure installed through ECO accounted for 87% of all measure installed in 2021. This was the highest number of measured delivered through ECO3 since it started in October 2018. The data also stated that to the end of 2021, provisional estimated lifetime energy savings of measures installed through ECO, Cashback, GDHIF and GD Plans was up to 221,800GWh.

 

Nuclear Finance bill in the House of Lords

On the 24 March members of the Lords began examining the Nuclear Energy (Financing) Bill – which will provide finances for new nuclear power stations by introducing a regulated asset base (RAB). Members put forward amendments to the bill to be discussed, including extending provisions of the bill to nuclear fusion electricity generation, and requiring a geological disposal facility to be operational before a company can be designated as a RAB. Amendments put forward also include ensuring information is available on the impact the RAB will have on consumer bills, requiring nuclear companies to be either not-for-profit, a cooperative, a Community Interest Company, or wholly owned by UK public authorities to qualify, and establishing a state-owned entity to take over the delivery or operation of a nuclear project if a nuclear company fails and cannot be saved or has its assets transferred.

 

Prime Minister meets with nuclear industry leaders

The Prime Minister Boris Johnson hosted a roundtable at Downing Street on 21 March with leaders from the nuclear industry to discuss how to improve domestic energy security and accelerate nuclear projects in the UK. The Prime Minister’s Office states that the PM outlined his vision for nuclear to be a major part of the UK’s future energy system – setting out the government’s commitment to supporting the industry to develop a pipeline of future cost-effective nuclear projects. Industry representatives were given a chance to set out their technologies and projects in development and discuss the benefits of scaling up investment and removing barriers facing development. The roundtable also reflected on the need to build skills supply chains to support the nuclear industry.

 

CMA secures binding commitments from Gridserve on EV charging

The Competition and Markets Authority (CMA) – following the launch of its investigation in July 2021 – has secured legally binding commitments from charge point operator Gridserve. Announced on 8 March, Gridserve – which owns the Electric Highway – has agreed not to enforce exclusive rights in contracts with Extra, MOTO or Roadchef, after November 2026 – which currently cover around two-thirds of UK motorway service areas – and not to enforce exclusive rights at any Extra, MOTO or Roadchef sites that are granted funding under the UK government’s Rapid Charging Fund (RCF). It says without the commitments Gridserve would have retained exclusivity at most motorway service areas and wide uptake of the RCF would have not been possible. CMA also published an open letter following its investigation to remind the sector of its obligations to comply with competition law relating to electric vehicle (EV) charging arrangements.

 

CBI calls for measures to improve home energy efficiency

Ahead of the government’s annual Spring Statement, CBI has called on the Chancellor Rishi Sunak to act in order to help the UK see improved growth. In a release issued on 1 March, CBI listed a range of polices to improve productivity:

  • A permanent investment deduction, boosting business investment by £40bn a year by 2026 and offsetting the impact of corporation tax rise.
  • Tackle high energy prices by improving home energy efficiency through new grants for decarbonised heating systems, improving energy security and establishing new markets to get green growth going.
  • Creating an Office for Future Regulation by building on the success of the Solvency II announcement. Reform regulation to attract investment and become world-leading in online safety and the industries of the future.

Posted by Nick Palmer - Cornwall Insight

Nick Palmer is Editor of Cornwall Insight’s weekly news publication, Energy Spectrum, and a contributor to Energy: Net zero, Cornwall Insight’s monthly update on how businesses are adapting to net zero energy markets.

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