Regulatory Report - September 2021

Generation

Secretary of State Kwasi Kwarteng made a statement to Parliament, which prompted considerable engagement from ministers and Ofgem on the security of energy supplies and rising costs for consumers.

HM Treasury announced that the UK’s first Green Gilt had raised £10bn for green projects which it says help create jobs and drive net zero progress.

 

Delivery

The Scottish Affairs Committee published a report outlining concerns that renewable energy in Scotland is unfairly disadvantaged by grid connection charges.

Ofgem has outlined the regulation, governance, and administration arrangements for the RIIO-2 Strategic Innovation Fund (SIF) ahead of round one of the fund’s operation.

Energy Networks Association (ENA) announced that over 17,000 green jobs could be created in Britain’s industrial heartlands by planned hydrogen innovation projects.

 

Usage

Draft legislation for the Green Gas Support Scheme was laid before Parliament.

The CMA has published its Green Claims Code to help businesses comply with consumer law and has warned that companies must ensure their environmental claims comply by New Year.

Also covered in this Regulatory Report:

 


 

Generation

Government and regulator seek to calm consumer fears

Secretary of State Kwasi Kwarteng made a statement to Parliament on 20 September, which prompted considerable engagement from ministers and Ofgem on the security of energy supplies and rising costs for consumers. The Secretary of State made his statement after meetings with Ofgem and energy companies.

Kwarteng wanted to “make two points extremely clear”, adding that: “Firstly … protecting consumers is our no.1, our primary focus – and will shape our entire approach to this important issue. Secondly, … while the UK – like other countries in Europe – has been affected by global prices, Britain benefits from having a diverse range of gas supply sources. We have sufficient capacity and more than sufficient capacity to meet demand, and we do not expect supply emergencies to occur this winter”.

The Secretary of State argued that the “UK gas system has delivered securely to date and is expected to continue to function effectively, with a diverse range of supply sources and sufficient delivery capacity to more than meet demand. The National Grid Electricity System Operator has the tools within itself to operate the electricity system reliably, to balance that system and we remain confident that electricity security can be maintained under a very wide range of scenarios”.

On the exits of suppliers from the market Kwarteng commented that: ”It is not unusual for smaller energy suppliers to exit the market – particularly, I may add, when wholesale global prices are rising … the current global situation may see more suppliers than usual exiting the market, but this is not something that should be cause for alarm or panic”. The Secretary of State set out “three further principles, which are guiding my and the government’s approach” to the current situation:

  • “Firstly, the government will not be bailing out failed companies. There will be no rewards for failure or mismanagement. The taxpayer should not be expected to prop-up companies who have poor business models and are not resilient to fluctuations in price.
  • Secondly, customers, especially and most particularly vulnerable customers, must be protected from price spikes.
  • And thirdly, Mr. Speaker, we must ensure that the energy market does not pay the price for the poor practices of a minority of companies, and that the market still maintains the competition that is a feature of today’s current system. We must not see a return to, I quote, the “cosy oligopoly” of years past, where a few large suppliers simply dictated to customers conditions and pricing.”

 

£10bn raised for green projects by UK’s first Green Gilt

On 21 September, HM Treasury announced that the UK’s first Green Gilt had raised £10bn for green projects which it says will help create jobs and drive net zero progress. HM Treasury states that this is the largest inaugural green issuance by any sovereign and will be followed by a second issuance later this year. Green Gilts will raise a minimum of £15bn in this financial year for green government projects. The UK’s inaugural Green Gilt is a 12-year bond, maturing on 31 July 2033.

HM Treasury says money from the Green Gilt will be used to finance expenditures in energy efficiency, clean transportation, living and natural resources, pollution control and prevention, renewable energy, and climate change adaption. Later this year, the first standalone retail Green Savings Bond in the world – issued by NS&I – will follow the Green Gilt, according to HM Treasury.

 

CfD AR4 to get £265mn of backing

On 13 September, BEIS announced that the Contracts for Difference (CfD) will be backed by an additional £265mn in funding. £200mn of this will be used to support offshore wind projects, while £55mn will be made available to support emerging renewable technologies – with £24mn of this ringfenced for floating offshore.

The funds will be made available during the fourth allocation round (AR4) of the scheme, in which CfD contracts are assigned through a competitive auction process. The fourth round is notable as established technologies, including onshore wind and solar, will also be able to bid for the first time since 2015. BEIS says final levels of support and capacity “could be higher and will be announced ahead of the round opening in December”.

Key points:

  • Pot 1: Established technologies (includes onshore wind, solar and hydropower) – £10mn pot budget, cap of 5GW on total capacity and maximum capacity limits of 3.5GW imposed on both onshore wind and solar PV.
  • Pot 2: Less-established technologies (includes floating offshore wind, tidal stream, geothermal and wave) – £55mn pot budget, no capacity cap imposed, £24mn ringfenced support for floating offshore wind projects.
  • Pot 3: Offshore wind – £200mn pot budget and no capacity cap.


 

105mn Rocs presented to Ofgem for 2020-21 RO

On 10 September, after publishing in August the total UK obligation of ~119.1mn Renewables Obligation Certificates (Rocs), Ofgem announced that suppliers have presented approximately 105.3mn Rocs towards the 2020-21 Renewables Obligation (RO).

Suppliers who did not meet their entire obligation through presenting Rocs are required to meet the approximate 13.8mn shortfall in Rocs through buy-out payments, which were due by 31 August, and late payments, the deadline for which is 31 October. The buy-out price for 2020-21 is £50.05, meaning that the equivalent shortfall of obligations to be met through buy-out payments and late payments is ~£692mn. Ofgem will confirm the amount of buy-out payments that have been made in October, after it has withdrawn its administrative costs.

 

Members of government call for regulation of fossil finance

A letter containing the signatures of over 50 MPs and peers from across Britain’s main political parties has been sent to the Bank of England governor, Andrew Bailey, encouraging him to align UK finance with the government’s climate goals. Published on 16 September, the letter requests that the Bank of England uses the new green mandate given to it by the Treasury to help move billions of pounds of finance away from fossil fuel investments and towards green, job-creating alternatives.

The letter encourages the Bank of England to unleash green investment by supporting a green Build Back Better recovery using the policy tools at its disposal. It should also collaborate with the Treasury to explore partnering with the new UK Infrastructure Bank. It should also look to regulate private finance to ensure it supports, rather than obstructs, the government’s climate and levelling up goals. They should also introduce measures that ensure that the high risk of fossil fuel lending is reflected in regulation.

The letter will remain open for parliamentarians to sign-on until October, at which point it will be delivered to the Bank of England.

 



Delivery

Calls for reform to Scottish transmission charges

On 17 September the Scottish Affairs Committee published a report outlining concerns that renewable energy in Scotland is unfairly disadvantaged by grid connection charges. The Committee have called for a review of grid arrangements in Scotland and their impact on meeting the net zero target by 2045.

The report highlights that Scotland has the potential to contribute to a significant proportion of renewable generation within the UK, with the electricity grid playing a critical role in enabling this energy to reach consumers. However, under current arrangements, locational transmission charges weigh more heavily on developers in Scotland, which face significantly higher charges than other areas of the UK. This is ultimately acting as a barrier to renewables development in a region where natural resources are abundant.

The report subsequently calls for transmission charges and grid investment to be equally shared across the UK to help strengthen the Scottish renewables sector and its contribution to the UK renewable energy mix. The report makes a series of recommendations looking at the suitability of the grid in Scotland to meet net zero targets, as well as improvements to the prioritisation of renewables for financial support - specifically targeting the representation of tidal energy in the Contracts for Difference Scheme.

 

Strategic Innovation Fund open for bids

Ofgem has outlined the regulation, governance, and administration arrangements for the RIIO-2 Strategic Innovation Fund (SIF) ahead of round one of the fund’s operation.

On 25 August, Ofgem published its decision on the SIF Governance Document outlining the regulation, governance, and administration of the SIF following a consultation. This details, among other aspects, that the eligibility criteria for projects will include participation from a range of stakeholders, requirements to support learning and collaboration, certain application requirements and requirements for project delivery. The SIF process looks to mitigate the risk associated with the innovation process through the default approach that innovation will be funded in three Project Phases.

The SIF looks to support network innovation under the RIIO-2 price control to contribute to net zero and deliver net benefits to energy consumers. It will coordinate at least £450mn in network innovation funding with other public sector funding initiatives. This will ensure greater flexibility and strategic alignment in innovation funding, eliminating unnecessary duplication and funding gaps. Ofgem has identified four strategic challenges for round one: whole system integration; data and digitalisation; heat and zero-emissions transport. Applications under the fund opened on 31 August.

 

Hydrogen projects could create 17,000 green jobs

Energy Networks Association (ENA) announced on 14 September that over 17,000 green jobs could be created in Britain’s industrial heartlands by planned hydrogen innovation projects.

ENA states that there is £4.4bn of proposed investment for developing hydrogen gas grids to decrease carbon emissions from the six Industrial Clusters in GB. 8,000 job roles are expected to be created in supply chain partners and 9,000 in network companies.

 



Usage

Green Gas Support Scheme to begin on 30 November

Draft legislation for the Green Gas Support Scheme was laid before Parliament on 9 September. The legislation will put in place the arrangements for the scheme, which aims to support the production of biomethane by anaerobic digestion for injection into the gas grid. Tariffs for producers will be funded by gas suppliers through the Green Gas Levy.

The regulations commit to launching the scheme on 30 November. From 1 April 2022 suppliers will need to make quarterly levy payments backdated to the start of the scheme. The draft legislation confirms intended requirements for the first Green Gas Levy rates to be published by BEIS ahead of the November launch date. BEIS’s impact assessment suggests that the initial levy will be around £1.40 per gas meter point.

Ofgem will be required to publish an administrative scheme schedule for the first scheme year by 1 February 2022, which will confirm dates for suppliers to be notified of their quarterly levy payments. The notices, to be provided by Ofgem, will include the payment due from the supplier, as well as the date by which, and details on how, payments must be made. Ofgem will also notify suppliers of the credit cover requirements for each quarter, with suppliers able to provide a letter of credit in respect of all or part of their credit cover requirement.

Once the draft legislation has been considered by the Joint Committee on Statutory Instruments, it will be subject to debate by a Delegated Legislation Committee before final approval by the Commons.

 

CMA publishes Greens Claims Code

The CMA has published its Green Claims Code to help businesses comply with consumer law and has warned that companies must ensure their environmental claims comply by New Year. Released on 20 September, the Green Claims Code – part of a wider CMA awareness campaign launched the same day ahead of COP26 – focuses on six principles based on existing consumer law.

Firms making green claims “must consider the full life cycle of the product” and “must not omit or hide important information”. The CMA will carry out a full review of both on and offline misleading green claims – following an initial bedding-in period – at the start of 2022. The CMA says it will prioritise which sectors to review in the coming months based on where consumers are most concerned. Areas highlighted that could fall under this include textiles and fashion, travel and transport, and fast-moving consumer goods (food and beverages, beauty products and cleaning products).

The CMA may also act ahead of formal review where there is clear evidence of consumer law breaches. The CMA says businesses should check their green claims against the Code and seek legal advice if unsure whether their claims comply with the law.

Andrea Coscelli, Chief Executive of the CMA, said: “More people than ever are considering the environmental impact of a product before parting with their hard-earned money. We’re concerned that too many businesses are falsely taking credit for being green, while genuinely eco-friendly firms don’t get the recognition they deserve. The Green Claims Code has been written for all businesses – from fashion giants and supermarket chains to local shops. Any business that fails to comply with the law risks damaging its reputation with customers and could face action from the CMA.”

 

High consumer satisfaction with switching in Q221

Ofgem published its quarterly Consumer Perceptions of the Energy Market Report on 9 September for Q221. The survey has been conducted by Accent Research on behalf of Ofgem and Citizens Advice since 2018 and is used to monitor domestic customers’ perceptions about the quality of service in the energy market. The fieldwork for Q221 was undertaken in May 2021.

In its report, the regulator highlighted the continued high satisfaction with the switching experience, with 85% of customers happy with the process overall. However, despite this, the majority (60%) said they were not considering switching, with fewer considering switching (20% in Q221) than in Q121 (23%). Overall customer satisfaction with their energy supplier was 73%, in line with Q121, although this is lower than much of 2020 with satisfaction at 77% in Q220 - the highest level ever recorded by the survey.

 

Which?: Consumers need more support to switch to sustainable heating

On 17 September, Which? stated that the government will need to do more to support consumers switching to more sustainable home heating systems. Which? states that a survey of 3,619 people showed 43% of consumers were unaware of a need to move to low-carbon heating, 40% were unaware of plans to ban new gas boilers by the mid-2030s, and 39% were currently uncomfortable with transitioning to low-carbon heating systems.

Additionally, 86% of respondents identified at least one reason putting them off low-carbon heating systems, with costs the most common. Moreover, 28% of consumers were put off due to not knowing where to start, 25% were unaware of available options and 84% stated that financial support in the form of subsidies and grants would be helpful. 6% of consumers have installed low carbon heating systems so far. A similar proportion of consumers also said they would support lower or zero tax on energy-efficient appliances (79%) and refurbishment/renovations (76%).

 

Average new car CO2 emissions fell by 11.8% in 2020 from 2019

On 16 September, the Society for Motor Manufacturers and Traders (SMMT) stated that its 22nd edition sustainability report has revealed impacts of the pandemic on automotive sector sustainable development. The report states there has been an 11.8% decrease in average new car carbon emissions in 2020 and that there was an 112g/km decrease in cars’ average CO2 emissions compared to 2019. Additionally, it highlights a 90% increase in the number of plug-in hybrid electric vehicle models offered along with the UK battery electric vehicle market share of 6.6% in 2020 (up from 1.6% in 2019).

The position of climate change in mainstream politics and public consciousness, nationally and internationally has, “for too long (climate policy has) been the preserve of environmental NGOs, climate diplomats and energy specialists”. The Institute argues that mainstream politicians now have the job of placing delivery of net zero at the forefront of politics.

 

Zurich: UK industry to miss net zero targets without urgent action

A report commissioned by insurance company Zurich UK and carried out by the University of the West of England has found it is likely many UK industry sectors will miss 2050 net zero targets unless the government takes significant further steps. Published on 23 September, the report examines the 17 key UK industry sectors, outlining the scale of their respective net zero challenges and the steps that could help reduce CO2 emissions.

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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