Regulatory Report - November 2021

 

Generation

Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget and Spending Review (SR) – detailing further confirmation of £3.9bn to decarbonise buildings, including £1.8bn to support low-income households to make the transition to net zero, and the establishment of a new £1.4bn Global Britain Investment Fund.

BEIS announced that it will introduce The Nuclear Energy (Financing) Bill to approve the Regulated Asset Base (RAB) model as an option to fund future nuclear projects.

 

Delivery

Ofgem issued five consultations proposing changes to the Default Tariff Cap in response to recent increases in gas and electricity prices putting severe strain on energy markets.

The regulator also published its final decisions on its approach to the administration of both the Green Gas Support Scheme (GGSS), which aims to support increased deployment of ‘green gas’ plants and entry of green gas into the gas grid, and the associated Green Gas Levy (GGL).

A Smart Energy Code modification that aims to reduce the risk that customers go off supply during a Supplier of Last Resort (SoLR) event was implemented, introducing provisions to allow the transfer of Market Participant Identifiers (MPIDs) to the new supplier to be delayed.

 

Usage

The Zero Emission Vehicles Transition Council published its 2022 action plan, detailing how it will collaborate to accelerate the transition to zero emission vehicles.

Climate Transparency has highlighted that greenhouse gas (GHG) emissions are rising again in a report that reviews the G20 climate action and their transition to net zero – finding that after GHG emissions declined by 6% in 2020 across the G20 they are now expected to rebound by 4%.

 

Also covered in this Regulatory Report:

 



Generation

Autumn Budget includes further £4bn for net zero

Chancellor of the Exchequer, Rishi Sunak, delivered his Autumn Budget and Spending Review (SR) on 27 October. There was further confirmation of £3.9bn to decarbonise buildings, including £1.8bn to support low-income households to make the transition to net zero. Also cited was the establishment of a new £1.4bn Global Britain Investment Fund, designed to support investment in the UK’s life sciences, offshore wind, and automotive manufacturing sectors. The fund is set to include £817mn for the electrification of UK vehicles and their supply chains, to support investment in zero emission vehicle manufacturing, gigafactories, the electric vehicle supply chain, and up to £230mn for the offshore wind sector.

The government said that it will increase public investment in UK R&D to £20bn by 2024-25 and will also support private R&D investment by increasing funding for core Innovate UK programmes. It noted new investment incentives in England totalling almost £750mn, including tax relief for eligible green investments and a new ‘business rates improvement relief’. This will include the introduction from 1 April 2023 until 31 March 2035 of targeted business rate exemptions for eligible plant and machinery used in onsite renewable energy generation and storage, and a 100% relief for eligible heat networks.

The Budget and SR included additional funding to support the government’s commitment to end the sale of new petrol and diesel cars and vans in 2030 and all new diesel vehicles by 2040. This will see an additional £620mn for public charging in residential areas and targeted plug-in vehicle grants, building on the £1.9bn committed at SR20, and an increase in capital support to £817mn over the SR21 period for the electrification of UK vehicles and their supply chains. The Budget confirmed £1bn for Carbon Capture, Usage and Storage (CCUS), selecting Hynet and East Coast as the first CCUS clusters and £240mn for the Net Zero Hydrogen Fund.

 

RAB model to finance future nuclear projects

On 26 October, BEIS announced that it will introduce The Nuclear Energy (Financing) Bill to approve the Regulated Asset Base (RAB) model as an option to fund future nuclear projects. The RAB model is a “tried and tested method”, typically used in the UK, to finance large scale infrastructure assets in the water and energy sectors.

Having consulted on the use of RAB financing for nuclear during 2019, the government has positioned it as a credible model for large-scale nuclear projects. The announcement to introduce enabling legislation follows the publication of the government’s Net Zero Strategy that sets out £120mn towards the development of nuclear projects through the Future Nuclear Enabling Fund. It also confirmed that the Budget and Spending Review will provide up to £1.7bn of new direct government funding to enable a final investment decision in a large-scale nuclear project this Parliament, with negotiations over the Sizewell C project ongoing.

Owing to its ability to provide continuous, low carbon electricity, BEIS envisages nuclear as having an important role in reducing the UK’s dependency on fossil fuels and exposure to volatile global gas prices. Furthermore, the lower cost of financing nuclear power is expected to lead to savings for consumers of between £30bn and £80bn per project. According to BEIS, this implies a saving of more than £10 per year for an average domestic dual fuel bill throughout the ~60 years operational life of a nuclear power station, as opposed to funding though a Contracts for Difference (CfD).

 

CCC: UK’s Net Zero Strategy is comprehensive, but further steps needed

The Climate Change Committee (CCC) published an independent assessment of the UK’s Net Zero Strategy on 26 October. The key issues that need resolving include the lack of details on delivery mechanisms in the agricultural sector. What is more, the assessment states that although government ambitions go beyond the CCC’s for reduction of emissions from buildings, policies for buildings are less developed compared to other sectors.

In particular, urgent action is needed with regards to the consultations on standards and market mechanisms for driving low-carbon heat uptake and development plans for energy efficiency in owner-occupied homes. Another issue noted by the CCC is less emphasis within the strategy – compared to its own scenarios – on consumer behaviour change. The CCC also considers policies to reverse or reduce traffic growth are underdeveloped and that the government does not address the roles of diets and limiting aviation demand growth in lowering emissions. The CCC says these options must be explored further.

 

Government commits £210mn to develop small modular reactors

On 9 November, BEIS announced it would provide funding of £210mn for Rolls-Royce to support development of the design for one of the world’s first small modular reactors (SMRs). Matched by private sector funding of over £250mn, the investment is expected to move phase 2 of the Low-Cost Nuclear project forward to further develop SMR design and take it through the regulatory processes to assess suitability of potential deployment in the UK.

The announcement added that SMRs due to their modular nature have reduced construction time and cost. Rolls Royce SMR estimate that each small modular reactor could be capable of powering 1mn homes.

Business and Energy Secretary Kwasi Kwarteng said: “This is a once in a lifetime opportunity for the UK to deploy more low carbon energy than ever before and ensure greater energy independence. Small modular reactors offer exciting opportunities to cut costs and build more quickly, ensuring we can bring clean electricity to people’s homes and cut our already-dwindling use of volatile fossil fuels even further.”

 

New CfD pot for tidal and amendments made to CfD T&Cs

Announced as part of the final budget on 24 November, the UK government will ensure that £20mn per year will be ringfenced for Tidal Stream projects as part of the fourth allocation round of the Contracts for Difference (CfD) Scheme due to open next month. BEIS has also published its response to a consultation for further changes to the CfD ahead of allocation round 4. A range of definitions were updated to reflect Brexit and align with the UK subsidy control regime. The changes align the contract terms with the UK subsidy control regime announced in June 2021 and the government’s international obligations on subsidies, including the UK-EU Trade and Cooperation Agreement. The contract has been amended to allow generators who are awarded contracts in AR4 up to 20 business days (formerly 10) to fulfil their Initial Conditions Precedent following contract signature, reflecting the larger number of applicants expected to participate in the upcoming allocation round.

The changes also follow the recent industry review of BSUoS charges, where Ofgem agreed with a taskforce decision to remove BSUoS charges from generators and suggested April 2023 as an appropriate point to do this. The regulator's final decision is expected late 2021 or early 2022.

 



Delivery

Ofgem consults on price cap methodology amendments

Ofgem issued five consultations on 19 November proposing changes to the Default Tariff Cap (DTC) in response to recent increases in gas and electricity prices putting severe strain on energy markets. Ofgem considers that the existing DTC methodology is unlikely to account for the additional costs and uncertainties facing suppliers. When the DTC was implemented in 2018, Ofgem outlined that in instances of significant and unanticipated changes in the costs associated with supplying energy to DTC consumers it would look into amending the methodology.

Ofgem five consultations have proposals to amend the DTC to ensure it reflects the costs, risks and uncertainties facing supply companies. The regulator is consulting on the potential impact of increased wholesale volatility on the DTC. Its minded to position is to implement an upward revision of the wholesale additional risk allowance from April 2022. Ofgem considers that in making its decision it may have regard to, among other things: any material and systematic changes in the costs facing suppliers that are not accounted for in the current methodology, as informed by detailed evidence; any surplus against the current 1% wholesale risk allowance that has accumulated over previous DTC periods; and the likelihood that revising the wholesale risk allowance may offset some of the costs that may currently be faced. The regulator notes that it could make adjustments to the headroom, or EBIT allowances, or introduce a bespoke adjustment, but is currently not minded-to do this.

 

Ofgem’s administrative approach to GGSS and GGL

On 9 November, Ofgem published its final decisions on its approach to the administration of both the Green Gas Support Scheme (GGSS), which aims to support increased deployment of ‘green gas’ plants and entry of green gas into the gas grid, and the associated Green Gas Levy (GGL). The GGSS, opening for applications on 30 November 2021, is designed to provide financial support for anaerobic digestion biomethane plants based on the volumes of green gas that they inject into the gas grid. The GGL forms the funding mechanism for this scheme and will apply to all licenced gas suppliers except those who supply at least 95% green gas, initially on a per meter point basis. The initial levy is now expected to be around £2.50 a year, with roughly 53 sites expected to be deployed. The first GGL payments will be collected from suppliers in Q1 of 2022-23 and quarterly from then on. Ofgem confirmed the list of evidence that suppliers who are likely to supply 95% or more green gas in the next scheme year will need to certify their eligibility for exemption.

 

Smart Energy Code change for SoLR process approved

A Smart Energy Code modification that aims to reduce the risk that customers go off supply during a Supplier of Last Resort (SoLR) event was implemented on 17 November. MP185 Additional Controls to Support the SoLR Process introduces provisions to allow the transfer of Market Participant Identifiers (MPIDs) to the new supplier to be delayed, enabling a Shared Resource Provider to continue communicating with affected smart meters. Previously, where a Supplier of Last Resort was appointed the DCC would immediately transfer the MPIDs to the new supplier, meaning that any service requests sent by a Shared Resource Provider on behalf of the exiting supplier was rejected. This effectively meant that communication with smart meters was not possible, and the new supplier was not able to communicate given the Change of Supplier process takes time to complete.

 



Usage

ZEVTC sets priority areas to support the transition to ZEVs

On 10 November, the Zero Emission Vehicles Transition Council (ZEVTC) published its 2022 action plan, detailing how it will collaborate to accelerate the transition to zero emission vehicles (ZEVs). ZEVTC detailed the importance of ensuring the transition to ZEVs is just and sustainable, highlighting the need for skilled workers for new jobs in the transport and energy sectors. Additionally, the council agrees that its shared aim is “to make zero emission vehicles the new normal by making them accessible, affordable, and sustainable in all regions by 2030”.

ZEVTC says it will work together on several high priority areas in 2022 to support the transition to ZEVs by overcoming shared challenges, with charging infrastructure noted as the first challenge. The ZEVTC will set out its vision for global charging infrastructure for light and heavy-duty vehicles – working closely with the private sector – and will launch a taskforce of automotive manufacturers, chargepoint operators and network companies to consider actions required to facilitate deployment. It also states it will discuss how to ensure electricity grids are prepared to support increased demand for electric vehicle (EV) charging and explore how increased EV uptake can support balancing grids with greater levels of green power.

 

Greenhouse gas emissions to rise 4%, Climate Transparency

Climate Transparency has highlighted that greenhouse gas (GHG) emissions are rising again in a report published on 14 October. The report reviews the G20 climate action and their transition to net zero. The report states that after GHG emissions declined by 6% in 2020 across the G20 they are now expected to rebound by 4% with Argentina, China, India, and Indonesia projected to exceed their 2019 emissions levels. The report highlights that countries are expected to submit a Nationally Determined Contribution (NDC). By September 2021, 13 G20 members (including France, Germany, and Italy under the EU’s NDC) had provided updates with six setting more ambitious 2030 targets. Assessment of the current targets would still lead to warming of 2.4°C by the end of the century according to the report. The main highlights from the report were:

  • The G20’s share of renewables increased from 9% in 2019 to 10% in 2020 in Total Primary Energy Supply (TPES), and this trend is projected to continue, rising to 12% in 2021.
  • Between 2015 and 2020, the share of renewables in the G20’s power mix increased by 20%, reaching 28.6% of the G20’s power generation in 2020 and is projected to reach 29.5% in 2021.
  • From 2015 to 2020, the carbon intensity of the energy sector has decreased by 4% across the G20.
  • Coal consumption is projected to rise by almost 5% in 2021, with this growth driven by China (accounting for 61% of the growth), the USA (18%) and India (17%).
  • The USA (4.9tCO2/capita) and Australia (4.1tCO2/capita) have the highest building emissions per capita in the G20 (average is 1.4tCO2/capita), reflecting the high share of fossil fuels, especially natural gas, and oil, used for heat generation.
  • Between 1999 and 2018 there have been nearly 500,000 fatalities and close to USD 3.5trn of economic costs due to climate impacts worldwide, with China, India, Japan, Germany, and the USA being hit particularly hard in 2018.
  • Across the G20, the current average market share of electric vehicles (EVs) in new car sales remains low at 3.2% (excluding the EU), with Germany, France, and the UK having the highest shares of EVs.

 

National Grid launches free tools to tell customers cleanest time to plug in

On 28 October, National Grid launched an app for mobile devices and a voice assistant skill across Google Assistant and Amazon Alexa which it says will help consumers use cleaner electricity. National Grid states the new free-to-use tools tell customers the cleanest time to plug in and provide a full breakdown of the energy sources powering electricity in their region.

National Grid has also released figures showing how many tonnes of carbon can be saved if 1mn consumers plugged in the most common household items when their electricity was cleanest. John Pettigrew, CEO of National Grid, says: “Climate change is the biggest challenge of our time. At a moment when world leaders, businesses and campaigners are in the UK for COP26, we are proud to show just how much greener, cleaner energy is powering Glasgow. Overall Great Britain’s energy system is becoming greener - in the last seven years we have cut carbon emissions from the electricity system by 66 per cent with clean energy like wind, solar and nuclear accounting for an average of 55 per cent of Britain’s electricity mix. By arming consumers with the facts about when their electricity is cleanest, we can show how every small action makes a difference to our planet.”

 

Survey finds consumers aged 16-24 more likely to purchase an EV

Ofgem published the results from its Consumer survey 2021 - Young energy consumers (aged 16-24) on 5 November. One of the key findings of the report was that 16-24 year old energy consumers are more likely to be worried about climate change and are more actively engaged in their day to day energy use. In addition, 42% of 16-24 year olds said they have at least one of the following in their home - an electric vehicle (EV), Solar PV, smart appliances / heating controls or a heat pump, compared to 24% of those aged 25+. The report also found that 16-24 year old energy consumers were more to have EV in their household – 9% had a fully EV, compared to 2% of those aged 25+. They also have more intention of purchasing an EV (33%) compared to those of 25+ (24%).

 

New buildings to have EV charge points installed

On 22 November the Department for Transport published a consultation response to its proposals to mandate electric vehicle (EV) charging infrastructure in new homes, new non-residential buildings and, in some cases, when buildings are renovated. Subject to exemptions, it confirms that a charge point must be installed at every new dwelling which has associated parking within the site boundary. While most respondents agreed that charge point requirements should apply to all new dwellings, some view that homeowners – and not developers – should be able to decide which charge point they would like to be installed. For example, those carrying out the works may install the cheapest available charge point rather than the most appropriate.

 

Supplier exits lead to lowest switching starts on record

ElectraLink published its October switching stats on 16 November with the data showing the lowest levels of started switches in a month since its records began in 2012.

The high number of supplier exits meant that only 232,000 switches started in October, 67% lower than last year. ElectraLink adds that it believes next month will be the lowest month ever for completed switches. Looking at completed switches this was 435,000, 31% less than October 2020 and the lowest October since 2015. Historically October has been one of the highest months for switching due to annual contract cycles. As was the case in September switching away from the larger suppliers has slowed with large legacy suppliers gaining more voluntary switching customers than they lost for the first time in nearly a decade.

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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