BEIS Issues Its Final Notice for the Forthcoming Second Cfd Auction

Tom C risp Editor 01603 604421 t.crisp@cornwall -insight.com

Monday 13/03 – BEIS issues its Final Notice for the forthcoming ENERGY PERSPECTIVE 02 second CfD auction, confirming the timetable and the administered Ofgem takes aim for Targeted strike prices. Ofgem opens a consultation on its proposals for a

Charging Review Targeted Charging Review of electricity networks. The Association for Decentralised Energy launches a new task force to deliver a subsidy- POLICY 04 free heat network market with strong protections for consumers. SSE “Time is up” for Big Six, says announces that it will increase its standard electricity prices by 14.9%. Clark CCC finds energy efficiency Tuesday 14/03 – Business and Energy Secretary Greg Clark labels gains offsetting green policies recent price rises by the Big Six as unacceptable. Cornwall research BEIS sets terms of second CfD auction finds the costs facing household electricity suppliers fell in February. Contingency balancing Google’s DeepMind confirms it is in talks with National Grid over the measures went unused, think possibility of using artificial intelligence to help balance the supply and tank finds demand of energy in Britain. Eurostat figures reveal that, among the Suppliers told to help vulnerable customers during smart roll-out EU member states, the UK is one of the furthest away from its 2020 Parliamentary Update – Week 11 target for deploying renewables. 2017 Wednesday 15/03 – BEIS research shows a reduction in the UK’s REGULATION 13 projected shortfall for the Fourth Carbon Budget. Co-op Energy sets

Interim SO incentives signal out plans to expand its support for community energy in the UK. The Ofgem thinking International Energy Agency reports that the implementation of TERRE solution takes shape OPEC’s agreement to cut oil production has had a solid start, driven by over-delivery by Saudi Arabia. INDUSTRY STRUCTURE 17 Thursday 16/03 – The Commons holds a debate on the Big Six’s World Economic Forum explores future trends in electricity recent energy price rises. The Committee on Climate Change projects that the cost to households of low-carbon policies will nearly double NUTWOOD 19 by 2030. Centrica Chief Executive Iain Conn warns that the imposition Weighing up the landscape for of a cap on retail energy prices would almost certainly remove choice energy investors – Peter from the market. Atherton Friday 17/03 – Prime Minister Theresa May tells the Conservative MARKETS 20 Spring Forum that switching alone will not address the issues in the energy market and that government change proposals will be set out shortly. The Scottish government grants planning consent to a floating wind demonstration project.

Last week Ofgem The main focus of the TCR is on the means of revealed its proposals recovering residual network charges that ensure for further work on network companies can recover allowed revenue network charging once other charges are collected. A key part of through a Targeted these other charges are the “forward looking” Charging Review (TCR). charges that are set to reflect individual network users’ impact on network costs, including current This Energy perspective and future investment and reinforcement. These tries to explain what this are usually referred to in GB as locational charges. might involve, and why Josephine Lord Regulatory Consultant the review, while Ofgem rightly considers these forward looking 01603604400 unavoidable, needs very charges are part of a broader question about how [email protected] careful management. best to incentivise efficient use of the entire electricity system, taking account of whole system Bolt from the blue costs and benefits. These important charge The general thrust of this work was reviewed in elements are though not to be ignored, but will be July last year, when Ofgem expressed concern considered separately as part of its joint work with over rapidly growing residual demand charges in BEIS on a smart, flexible energy system and its transmission tariffs, and how these were inflating own strategic forward-focus review of market and the so-called triad benefit. It acknowledged there regulatory arrangements. were wider issues it needed to address, and The regulator acknowledges the TCR changes will highlighted the need for further work on recovery need to be coordinated with wider changes that of sunk and fixed costs – including their allocation emerge from these work-streams. to storage and behind-the-meter generation – and of some other elements of embedded benefits. Target practice Ofgem in its 13 March consultation now proposes a Though called residual charges, the scale of these TCR, though the term “targeted” is a misnomer. Its costs belies the name, as they currently represent review will probably involve a significant code around 80% of the £2.6bn transmission charges review (SCR) proposed given the need to address and getting on for a third of the £5.2bn distribution sunk cost recovery across different codes, and it network charges. So there is about £4bn of cost also envisages supporting review streams. allocation at issue under the TCR alone. Ofgem has invited responses by 5 May and has At the heart of Ofgem’s position is that residual said it will make a decision on whether to launch charges are intended for revenue recovery and are an SCR in the summer. not meant to incentivise specific actions by network users. To the extent that users do Moving target respond to them (such as for the Triad residual Within the scope of the TCR, Ofgem is proposing demand charge), there could be additional costs to conduct an SCR on the residual element of for the system or/and incidental benefits. transmission network use of system (TNUoS) Ofgem proposes to adopt three objectives to charges and the residual distribution use of system underpin the TCR. As any method of residual (DUoS) charges. It is this focus on the residual that charging is likely to incentivise users to reduce seems to be reason for calling the review targeted. their exposure to these charges to some extent, But subject to taking views in response to the completely non-distortive recovery is not possible. consultation, the SCR might include balancing The first objective is therefore to reduce services use of system (BSUoS) charging, the distortions, not eliminate them. generation residual of TNUoS and other issues. In Fairness is the second objective: one of the issues addition, Ofgem has also identified changes to with residual charges is that they are a zero-sum network charges for electricity storage which it game: smaller charges for one group of network wants taken forward by the industry through users means larger ones for other groups. The normal governance, but not within the SCR. distributional impacts on different groups of Playing fast and loose network users, and the justifications for these, will therefore be critical to any decisions on changes.

approaches taken in selected jurisdictions that have also tried to tackle the issue. From this survey, Ofgem observes that fixed costs do not vary with energy use, and this has been found to be an appropriate basis for allocating residual charges. It also notes that charges with greater focus on capacity may be fairer. It has therefore brought forward five high-level options for restructuring residual charges, on which it seeks views:  Option A: a charge linked to net (kWh) consumption – similar to the current charge Accordingly Ofgem notes that it may also need to without the time-of-use element consider the case for transitional arrangements where the changes for individual network users  Option B: a fixed price charge – based on would be large and sudden. profile class or another measure, which can reduce potential distortions by separating The third test is proportionality. This recognises residual and usage cost recovery the uncertainty about the future evolution of the energy system and the value of a stable and  Option C: fixed charges set by connected predictable regulatory framework. In this context a capacity – there is flexibility in the design of a practical approach clearly makes sense. capacity charge, perhaps based on fuse size Brace yourself  Option D: gross kWh consumption – whether generation is behind the meter or has its own Ofgem identifies potential distortions that exist in connection would not affect the charge the current arrangements in respect of behind-the- meter generation, private wires and home storage.  Option E: a hybrid approach – for example, low It believes that decisions to install behind-the- usage domestic consumers pay on net meter generation may be distorted by the current consumption, others pay based on capacity. transmission demand charging arrangements (which base “triad” charges on the demand at There are though already three ongoing CUSC three winter half hours and therefore provide an proposals in workgroups that seek changes to incentive to generate at these times). residual charging (CMPs271, 274 and 276, two of these also including other charging elements). The residual charging arrangements also affect Under the rules for SCRs, these can continue their what kind of generation is installed: if charged on a assessment, but there is the possibility that Ofgem peak measure like the triad, then higher marginal could decide to subsume them into the SCR. cost generators such as diesel are worth turning on to capture these times. Alternatively, if residual Keep it under your hat charges were charged on total net consumption, Also potentially within the proposed scope of the lower marginal cost intermittent generators would SCR are the further benefits that embedded pay lower residual charges. generators receive beyond the transmission Ofgem is also concerned that it is not in customers’ demand residual. A key element is BSUoS interests for residual cost avoidance to drive generation payments, which embedded private wire development, particularly given that generation does not pay and is currently around the common costs of the network do not decrease. £2/MWh. Indeed current arrangements can also Such schemes are also still able to call on the result in an embedded benefit which equates to a wider network when they need it. payment rather than a cost of around £4-17/kW depending on load factor. Field tips Ofgem says it is considering, through its future- High levels of historical investment but changing focused and flexibility work, whether there is a use of the network are issues being faced by need to consider wider changes to how BSUoS is electricity network operators everywhere. So, set. But, as any changes may take some time, it alongside the consultation, Ofgem published a asks whether it should take forward a review now. study by consultants CEPA and TNEI that examines

Figure 1: Proposed approach to TCR Where does this leave National Grid’s efforts to conduct a comprehensive review of transmission charging? Very limited progress has been made here over the last year or more, in part because the big picture is so complex and interlinked and the work has not managed to gain focus. Ofgem is proposing to set up a new group — the Charging Coordination Group — to manage the interaction of the TCR with National Grid’s review and with other reviews already underway of distribution charging methodologies (see chart). The role of this Ofgem-led group — whose structure and precise purpose are to be confirmed Source: Ofgem — would be to prioritise reforms and to assess the merits of any proposed changes before in-depth Straight as an arrow development work is taken forward. The one element of its review that is not proposed Parting shot to be in the SCR is the changes needed to network charging of electricity storage where the current In a round-about way, we now have the root-and- arrangements clearly operate to the disadvantage branch review of network charges that we believe of storage operators. This is evidently seen as a has been necessary for some time. No one wants “quick win” in the TCR process, not requiring any unnecessary uncertainty, and reviews introduce great degree of further development. new risks especially while they are on-going. But transmission charging has been in need of an Storage operators are liable to pay both demand overhaul for well over a decade, and Project and generation residual charges, and transmission- Transmit did not address recognised defects that connected storage also pays BSUoS as both have been compounded by European regulation demand and generation. Ofgem proposes to treat and the growth of offshore generation. storage in a similar manner to generation for the purposes of residual charges. It thinks storage Distribution charging was, of course, turned on its should be liable to pay only the locational demand head in 201-0-12, but the rapid growth in and generation charges, plus the generation distributed resources since needs to be residual charge and one set of BSUoS charges. assimilated. Further the different approach to sunk cost recovery manifest by transmission and Ofgem wants these changes to be taken forward distribution networks are no longer sustainable. by industry through the code governance. But it notes as a back-stop widening the SCR scope to The forward looking (or locational) aspect of include this work if progress fails to materialise. charges is also up for review albeit through the different route of the follow up to the flexibility call All of a quiver for evidence. And Ofgem is seeking fast-track Ofgem is proposing to employ an SCR but only as changes to deal with storage, so in one form or part of a wider process. An SCR allows it a route to another, we are about to embark on an holistic consider the range of cross code issues. However, review. The art of it will be making sure the moving one of the issues with SCRs in the past is the time parts are kept turning in the same direction and that they take to deliver change. the outcomes consistent, but crucially that the distributional impacts are properly managed Acknowledging that the SCR could take at least 18 through a suitable transitional pathway. months, with implementation after that, Ofgem is open to considering which elements could An obvious question, given the evident thought progress early through relevant parties raising that has gone into this process, is why Ofgem is modifications ahead of the SCR concluding. It will rushing ahead with its minded-to decision on also take into account any views that, if any CMP264 and 265. It is set to implement a worst specific aspect of residual charges is having a case outcome that will frighten investors ahead of serious detrimental effect and should be changed other likely changes that in part are designed to more urgently, it will reconsider how to proceed. reassure them.

Andrew Mower, Editor, [email protected]

The government has said that recent energy more innovation and ultimately lead to lower bills price increases by five of the Big Six are for millions of people.” unacceptable and that further interventions retail Labour’s Shadow Energy Minister Alan Whitehead market could be necessary. said that the party would introduce a “firm cap on Speaking during BEIS oral questions in the energy price rises and rip-off tariffs”. But he Commons on 14 March, Business and Energy explained that there was “more to the present Secretary Greg Clark said that, while the aim of dysfunction of the energy market than just the government policy was to have “vigorous question of sticky customers”, and that any action competition” in markets “that takes care of itself”, on tariffs should herald the beginning of a full-scale the energy market had not delivered this. But the review of how the market functions. government was determined to ensure that Speaking at the end of the Commons debate, customers were treated fairly. Energy Minister Jesse Norman confirmed that the Clark said: “It has been reported by Ofgem that government would “shortly” set out proposals there is no reason to increase prices. We have aimed at ensuring consumers received a better committed to a Green Paper on consumer markets, deal in the energy market. He said that the recent which will be published very shortly. The time is up price increases would be “hitting customers hard for these companies.” in the pocket when they are already paying more than necessary”. Along with the publication of a The comments came a couple of days ahead of a green paper that will examine markets that are not Commons debate on energy prices, led by working fairly for consumers, the government will Conservative backbencher John Penrose. He has issue a response to the CMA’s energy market advocated the introduction of a relative price cap investigation “sooner rather than later”. in the energy market that would prevent companies from charging standard tariff (or SVT) But, in a research note, issued on 17 March, customers a price that is more than 6% above their analysts at Barclays said that a relative price cap most competitive advertised rate. On 16 March, he would be “ineffectual”, and would be most likely to announced that the proposal had received the result in the Big Six increasing the price of their support of three energy suppliers: OVO Energy, fixed offerings. It said that the government was Utility Warehouse, and Octopus Energy. “very likely” to introduce more regulations on standard tariffs, but that any cap would more likely Penrose said loyal customers were being resemble the one set to be introduced for “systematically ripped off” by the big energy prepayment meter customers. companies. “Most industries don’t exploit their best customers like this, by quietly switching them The note said the uncertainty about future onto expensive default tariffs when their existing regulation and thus domestic retail margins deal comes to an end”, he said. “Loyalty should be reduced the incentive for large suppliers to price rewarded, not exploited.” tariffs aggressively to defend market share. They would focus on near-term profitability instead. OVO CEO Stephen Fitzpatrick said that, almost 20 years after privatisation, it was clear that the We continue to see the issues differently to energy market was failing the customers that it BEIS and Ofgem, and believe price increases should serve. All efforts to date – from the inquiry have been inevitable. Despite the backdrop of by the Competition and Markets Authority (CMA) to the most competitive retail market we have Ofgem’s “relentless tinkering” – had failed to ever had it looks like more intervention is on protect consumers and address the lack of the way, possibly in the form of some kind of consistency on pricing. price cap. We will set out our views on this Fitzpatrick said that a relative price cap would be a approach, its impact on competition, and “step in the right direction” towards fair pricing in possible alternatives in an Insight Paper that the long term. He added: “Creating a link between we aim to release later this month.” SVTs and the cheapest tariffs in the market will help everyone benefit from competition, drive Parliament

Tom Crisp, Editor, [email protected]

The costs of supporting low-carbon policies have The majority (85%) of this saving is available from been more than offset by energy efficiency replacing appliances, lights and boilers at the end savings and this trend is set to continue, new of their lives with the latest equivalent models. research from the Committee on Climate Change The CCC also considered fuel poverty finding that, (CCC) has revealed. if insulation and low-carbon heat installations Published on 16 March, Energy Prices and Bills – required to meet the carbon budgets can be Impacts of Meeting Carbon Budgets, is the successfully targeted at the fuel poor, then around committee’s fourth assessment of the price three-quarters of those currently affected can be impacts of hitting the UK’s binding climate targets. lifted out of fuel poverty by 2030. However, it did warn that meeting the government’s current goal The research showed that typical dual fuel of improving fuel poor homes to efficiency band C households paid £115 less in real terms for their by 2030 would require roughly doubling the energy in 2016 than in 2008, when the Climate funding currently provided under the Energy Change Act was passed. An annual bill now Company Obligation. includes slightly over £100 to support the low- carbon transition. However, this is more than On the non-domestic side, in 2016, energy costs counterbalanced by the £290/ year average saving made up an average of 0.9% of operating costs for achieved by households through energy efficiency firms in the commercial sector, 2.0% for gains. Gas and electricity use were cut by 23% and manufacturing and 3.8% for the fifth of 17% respectively over the period, largely through manufacturing defined as energy-intensive. The upgrading of appliances to more efficient costs associated with low-carbon policies made up alternatives (see Figure 1). 0.2%, 0.4% and 0.7% of operating costs in the respective sectors, without accounting for any Figure 1: Annual energy bills, low-carbon costs and energy benefits resulting from energy efficiency policies. savings (2004-2030) The costs associated with low-carbon policies are expected to rise to about 0.5% of operating costs for the commercial sector, 1.0% for manufacturing and 1.6% for energy-intensive sectors by 2030. The CCC recommended that cost compensation and exemptions should remain so long as there are differences in low-carbon policy costs between the UK and international competitors. The government should ensure businesses can plan on the basis that this will be the case, while keeping Source: CCC the precise coverage, level and conditionality of the compensation and exemptions under review. Looking to the future, meeting the Fifth Carbon Budget, including sourcing 75% of UK generation The many opportunities of the low-carbon from low-carbon sources by 2030, will add around economy were also highlighted – the UK is seen a further £85-120 to an average annual bill (£95 In as particularly well-placed to take advantage of the CCC’s central estimate). Added to the impact growing global markets for low emission vehicles; on current bills, this implies that low-carbon low-carbon finance, insurance and consulting; low- policies will add £190-225 in total to the average carbon electricity; smart grids and energy efficient annual bill in 2030 (£200 in the central estimate). products. Households could more than offset this bill impact The CCC has delivered a report that shatters from energy efficiency improvements between many of the illusions used to criticise low- 2016 and 2030, which would save around £150 on carbon energy policy. There is a lot in this average if prices remain at current levels. report that will be of interest to stakeholders in Predicted rising wholesale prices are expected to the sector. add over £200/ year to bills, increasing the potential saving from energy efficiency. CCC

Tom Crisp, Editor, [email protected]

The department released a tranche of strike price for the technology (with or without documents on 13 March confirming the details of combined heat and power) was not published the second contracts for difference (CfD) auction, alongside those for all other eligible technologies which is set to begin next month. in November 2016. As previously announced, projects, to be delivered Taking into account the evidence provided in 2021-22 or 2022-23 will compete for a total of through the call for evidence, the government £290mn in support (in 2011-12 prices). decided to set the administrative strike price at £140/MWh for both delivery years. The assumed The commencement date of the round has been load factor for geothermal in the department’s confirmed as 3 April, with the application closing modelling is 91.2%. date set at 21 April. The end date of the round is 11 September. As there has been no deployment of deep geothermal power projects in the UK, BEIS does The allocation round is restricted to eligible not expect there to have been any reductions in generators or eligible generating stations of the generation costs for this technology. It does following technologies: though accept that costs may fall over time, once  Offshore wind deployment commences,  Advanced Conversion Technologies (with or Ministers decided previously not to extend the without CHP) wave and tidal stream minima for this allocation round as this was not judged to offer best value for  Anaerobic Digestion (with or without CHP) money. Similarly, the department does not intend (>sMW) to offer a minima for geothermal in this round.  Dedicated biomass with CHP A separate government response relating to  Wave fuelled technologies will be published in due course.  Tidal stream It has been anticipated for some time now that  Geothermal (with or without CHP). offshore wind will be the big winner of the BEIS further confirmed the administered strike auction, and these documents ultimately do prices for the technologies competing in the round little to change this. Sight of future auction (see Figure 1). dates and budgets, as well as a revival of the idea of subsidy free CfDs, are needed to drive Figure 1: Administrative Strike Prices (in 2012 prices) other renewables forwards. Cornwall is in the final stages of preparing our insight paper on the second CfD Allocation Round. This paper will give renewables developers and industry analysts our informed view of the competitive dynamics that will influence the auction result. It also sets out our expectations for the clearing prices and successful technologies. The paper will be released this week. To register

your interest, please contact Jonathan Davison Source: BEIS at [email protected] or call 01603 957086. The department also issued on 13 March its response to the call for evidence on geothermal BEIS – budget notice BEIS - geothermal participating in the CfD auction. An administrative

Tom Crisp, Editor, [email protected]

The Energy and Climate Intelligence Unit (ECIU) that the lights stay on, and how soon it can be has criticised the Supplemental Balancing retired. Reserve (SBR) scheme as unnecessary The report also addressed calls from some insurance, having cost bill payers £180mn over stakeholders such as the Centre for Policy Studies the three years of its operation without being and the British Infrastructure Group for a higher used once. capacity margin to be targeted. It found that the In its first year of operation in 2014-15, the SBR capital expenditure needed to boost the current supported 1.5GW of capacity, holding three power margin to 10% using nuclear new-build could cost plants outside of the wholesale market at a cost of as much as £12.4bn, while demand-side response £23.5mn. By the winter of 2016-17 the SBR had could deliver the necessary 2.34GW of capacity for expanded to 3.5GW, at a cost of £122mn. as little as £426k (see Figure 1).

Despite this cost, the SBR was not utilised at any Figure 1: Expenditure needed to increase de-rated point in the three years of its operation. During last capacity margin to 10% winter there was just one occasion where the system margin dipped below 1.6GW, and even then the system was “more than able to cope” without non-market mechanisms. As well as the upfront costs of the scheme, the ECIU found that the existence of SBR “almost certainly” affected wholesale power prices. By holding back power stations from bidding into the wholesale market, the SBR scheme resulted in tighter available margins. This therefore led to Source: ECIU higher wholesale prices as older and more expensive to run power stations were fired up In conclusion, the report says that, rather than instead of those in the reserve. During winter 2016- expending time, money and effort on arguments of 17, the highest day-ahead price was £102.70/MWh, the past, the energy sector should look forward to around double that of a typical winter day, while the opportunities presented by a smart, flexible hourly contracts spiked at close to £800/MWh. If power system, where a significant capacity margin SBR units had been able to participate in looks “even less sensible”. Once a tipping point of wholesale markets, price spikes seen over this the deployment of storage is reached, thermal winter would have been “considerably lessened”. generation will be rendered largely obsolete, while More broadly, during the four winter months, the in the medium term a small number of peaking de-rated margin averaged more than 4.2GW, with plants will be able to provide much of the an average Loss of Load Probability of just 0.3%. necessary back-up for renewables. As a result, on average, significant capacity was James Heappey MP, who sits on ECIU’s Advisory not being used. Board, commented: “On the surface, we did not Looking forward to next winter, the ECIU found need the SBR. And while it is valid to argue it was a that the capacity market should put the “final nail in prudent investment during a period of disruptive the coffin for blackout fears in the UK”. However, energy system change, we should also ask while the capacity market does address security of whether ministers of the time were spooked by supply fears, the ECIU noted concerns that the claims of an imminent loss of power.” policy was contradictory; it offered payments that This is an interesting report. Reading between prolonged the lifetimes of power stations that other policies were aiming to drive offline (such as the lines, it appears to be making the case for coal plants). Ultimately the capacity market would more demand-side focus in policy, and is thus be judged by how efficiently it can stimulate new seeking to highlight asymmetrical incentives power stations to replace the UK’s ageing available to generators. generation fleet, how cost-effectively it can ensure ECIU

Cory Varney, Writer, [email protected]

Energy suppliers must improve their strategies based on the property, though all had installers to for helping vulnerable customers during the identify vulnerability and tailored their approach. smart meter roll-out, Citizens Advice has said. Tailored advice was given as an example of good practice, as was providing literature to the The organisation published its report Smart consumer on the day that signposted to other Support on 9 March. It said that, while all suppliers sources of information. The report explained that were tailoring their advice, communications and in- this allowed the industry to effectively anticipate home displays (IHD) to the specific needs of and deal with situations where vulnerabilities were vulnerable customers, the extent of this support not identified before the installation. diverged sharply. Following installation, 85% of the market provided Vulnerable customers are defined as being those a post-installation letter or e-mail, though only more likely to suffer distress and confusion during three suppliers offered one-to-one contact. No the installation process, and being less able to suppliers were monitoring consumption for any take advantage of information provided by the cost-saving response, while just 40% of the market smart meter. intended to monitor consumption for signs of Citizens Advice said only three suppliers had inability to pay. Good practice would include developed their own definition of vulnerability, follow-up communication, checking smart meter though all were proactively identifying vulnerability functionality, looking for ongoing signs of at the start and other stages of the roll-out process. vulnerability, and preparing customers for the Examples of good practice in this are included prospect of increasing bills after a smart meter engaging with charities and other organisations to installation. develop insights into different forms of Citizens Advice said its research had shown the vulnerability. level of support was not provided “consistently” The report said that 90% of the market had a across the industry, and hoped that the data and specific targeting strategy for vulnerable good practice provided would help suppliers consumers, while 100% of the market was offering, improve their strategies. It said that more work was or planned to offered, an IHD with accessibility required to provide customers with the assurance features. A good approach would, it said, be that they would receive the support they needed engaging with customers early and applying their and offered a series of recommendations. understanding of specific needs to their smart The government was advised to establish industry- meter offer. It further recommended building wide standards on follow-up support for vulnerable relationships with local authorities, housing customers, as well as monitoring support for associations, Smart Energy GB and Registered vulnerable customers during the roll-out. Social Landlords to allow suppliers to identify specific types of vulnerability and engage Further recommendations were for the industry to appropriately. collectively develop techniques for the use of smart data to identify households in need of extra Just over a quarter (26%) of the market was found support, for the industry to review communication to be offering extra flexible booking for vulnerable to ensure that it does not put pressure on consumers, based on their needs, at the pre- consumers to have a smart meter, and for all installation stage. But only one supplier had suppliers to guarantee that no vulnerable appointed a single staff member to guide a consumer will be left without means to cook or vulnerable consumer through the process. Good heat their home, should a gas appliance be practice was seen as including the production of condemned. easy to understand videos, offering consumers a dedicated point of contact, and a series of warm This informative report lists the areas of up communications in different formats to prepare concern when dealing with vulnerable consumers. customers and highlights practical ways to With regards to installation, only two suppliers had overcome them. trained installers to offer energy efficiency advice Citizens Advice

Tom Crisp, Editor, [email protected]

The Commons debated recent energy price rises Asked how the government was supporting the oil on 16 March (see p.5). and gas industry, Energy Minister Jesse Norman highlighted the establishment of the Oil and Gas The business, energy and industrial strategy Authority and the £2.3bn package of support committee launched on 16 March an inquiry into provided to the sector. the role of electric vehicles in the transition to a low-carbon economy and as part of the During Business Questions on 16 March, Leader of government's Industrial Strategy. In this short the House David Lidington announced that there inquiry, the committee will examine barrier to the would be a general debate in the House of market's development and the support it needs to Commons on 21 March on Fuel Poverty. progress. It will also consider how the government This follows an adjournment debate on 14 March can optimise electric vehicles as part of a strong on Fuel Poverty. Paul Scully (Conservative, Sutton Industrial Strategy. and Cheam), detailed how the numbers affected The committee will also evaluate issues with the by fuel poverty had reduced over the past decade charging infrastructure as well as purchase costs overall, but slowly, by around 1%. Scully also noted and incentives to increase the sales of electric the concerns raised by the Committee on Fuel vehicle. The closing date for submissions is 13 Poverty, which expressed serious doubts in April. September 2016 as to whether the 2020 and 2025 fuel poverty energy efficiency milestones could be The committee also confirmed that the next achieved. session of its inquiry into Leaving the EU: negotiation priorities for energy and climate Jesse Norman responded that the government change policy inquiry will take place on 21 March. fully recognised the importance of the issue, but The session will focus on access to the European acknowledged that there was more work to be Union's Internal Energy Market (IEM) and the future done. He said: “One important area will be to energy relationship between the UK and EU post- improve targeting on the households most in Brexit. need—a topic my hon. Friend rightly raised. The Digital Economy Bill, which is going through Witnesses for the session will include senior Parliament, will be important in that regard, as it representatives of the Institution of Engineering will make available better data on householders and Technology, Renewable Energy Association and properties.” and Chatham House, the Royal Institute of International Affairs. Norman also answered a Written Question on 14 March on the impact on electricity prices of Brexit. BEIS ministers faced oral questions from MPs in He said that “the UK’s future relationship with EU the Commons on 14 March. Asked for an update electricity markets following its exit from the EU on the small modular reactor competition, climate will be determined by negotiations between the change and industry minister Nick Hurd answered UK and the EU. The future of the EU Internal that the department was “reviewing our plans in Electricity Market will be determined by relation to our energy innovation portfolio.” He negotiations on the Commission’s proposals for added that “the nuclear industry is a very important market design. In both these negotiations the part of those plans, and I hope we will have government remains committed to getting the best something to say very shortly”. deal for consumers.” Asked by SNP energy spokesperson Callum The House of Commons Library released a briefing McCaig if by supporting Hinkley and cutting on The Current Energy Market Reforms in Great renewables the government was “stacking the Britain on 15 March. The paper looked at some of deck”, Hurd answered that the key to successful the recent changes in the energy market, and in energy policy and energy security was diversity of particular interventions by the CMA and Ofgem. supply. Links underlined above

The London Assembly has, in the wake of recent energy retail price increases, passed a motion calling for London Mayor Sadiq Khan to establish a fully licensed not-for-profit energy company to give Londoners an “alternative to the big six”. Passed on 8 March, the motion condemned recent energy price rises and expressed concern that fuel poverty was now one of the most significant challenges facing London, with over 348,000 homes classified as fuel poor. The Assembly called on the Mayor to seek a meeting with representatives of the Big Six energy companies and lobby them to bear down on price hikes. It also urged Khan to speed up the establishment of a Greater London Authority energy company, to offer an alternative to London residents. Green Party assembly member Caroline Russell, who proposed the motion, commented: “The Mayor promised to set up a fully licensed not-for-profit energy company. Londoners need an environmentally sound and trusted local energy supplier as an alternative to the big six and their sky-high prices. Energy for Londoners is a real opportunity to invest in local community energy schemes to provide clean energy for London’s schools, businesses and hospitals. The Mayor has a £67.9mn reserve fund he could use to get this energy company going, I hope once he has finished his feasibility study he will provide detailed plans and a dedicated budget for it.” London Assembly

The government has published analysis by Ricardo-AEA into the impact on carbon emissions of the ways of sourcing woody biomass from North America to produce electricity in the UK. It shows that some high carbon scenarios may already be happening, but that their scale is uncertain. Released on 8 March, the independent study evaluates the likelihood that the highest carbon scenarios in DECC’s Bioenergy Emissions and Counterfactual (BEAC) model are occurring, or could occur in the future. Of 38 “high carbon” scenarios examined, it suggests that less than half (15) are currently occurring. It suggests that 18 out of 38 may or may not be occurring. But the report was definitive that assertions, from the environmental NGO community, that wood pellet production and use leads to reduction in forest cover, increased carbon emissions, or changes forest management and harvest decisions are unfounded. A Drax spokesperson reported by Power Engineering International said: “This report backs up what we have said for a number of years about biomass – sustainably sourced wood used for bioenergy is having a big impact on cutting carbon emissions. Sustainable biomass is a cost effective, flexible renewable energy source which is helping to get coal off the system in the UK.” BEIS

The government has granted planning permission for a grid-scale hydropower energy storage facility in North Wales. The project, which will be based at Snowdonia Pumped Hydros (SPH) site in Glyn Rhonwy, will see two abandoned slate quarries turned into water reservoirs. Construction could now begin as soon as 2018 on the project, which is expected to have an operational lifetime of more than 125 years. Speaking on 8 March, SPH Managing Director Dave Holmes said: “We see the granting of permission for our Glyn Rhonwy scheme as highly significant, signally a real change that will enable the UK to meet carbon reduction targets, while keeping electricity supply secure and prices for consumers under control.” The Welsh developer claimed that Glyn Rhonwy could deliver around 32mn MWh over its expected lifetime. Initially, the project was proposed and approved with a capacity of 49.9MW, before SPH opted to install higher output turbines which increased the capacity to 99.9MW. Planning Inspectorate

The Association for Decentralised Energy (ADE) has launched a new task force that will seek to deliver a “subsidy-free heat network market with strong protections for consumers”. The task force will provide recommendations on how the industry and the government can work together towards delivering an enduring market framework in which heat networks can compete for investment with other utilities, and forego the need for further subsidy by 2021. A report, which will be published by the task force, is set to examine the most effective ways to increase investor certainty for heat network investments. The task force will also consider how to build on the existing Heat Trust customer protection scheme. ADE Director Tim Rotheray said: “The proposals that the task force are to develop will be an essential blueprint for enabling cost-effective investment and assuring robust consumer protection for UK heat networks.” He said it was key to get the investment framework right, enabling “effective customer protection” and “increased investment certainty.” Energy minister Jesse Norman welcomed the news, stating that the task force would play an important role as the sector, which is already helping with decarbonisation efforts, expands. ADE

Environmental group Friends of the Earth (FoE) has reiterated its call for the government to introduce a scrappage scheme for “the dirtiest diesel cars”. A survey commissioned by the group revealed that approaching half (45%) of Britain’s car-owning adults would be likely to change their cars to less-polluting models if they were the recipients of government- backed financial assistance. FoE had called on Chancellor Philip Hammond to reform Vehicle Excise Duty and Company Car Taxation in his Spring Budget, stating that this would incentivise the switch from diesel vehicles to cleaner alternatives. It also backed the introduction of a scrappage scheme, paid for by an initial £800 charge for people buying new diesel vehicles. No such action was forthcoming. In light of this, the group called for “much stronger and quicker” government action to meet EU legal limits on air pollution. This would include the phase out of diesel vehicles by 2025 as part of a 21st Century Clean Air Act, and expanding London’s Ultra-Low Emissions Zone for all vehicles across the whole capital. Friends of the Earth

Tom Andrews, Regulatory Analyst, [email protected]

On 1 March Ofgem published its final proposals first two will set the mechanism from April 2018; for electricity system operator (SO) incentives for the latter is the interim mechanism for the period the interim period 1 April 2017 to 31 March 2018. April 2017 to March 2018. Alongside the proposals, a statutory consultation Ofgem is proposing for 2017-18 to amend the SO has been opened, which seeks views on the licence to provide greater clarity on its proposals before 29 March. expectations relating to the procurement and use 65% of consumer electricity bills is made up of the of balancing services, and improve the incentive costs of producing, transporting and trading models. The BSIS will be limited to ±£10mn—down electricity. The SO, which sits at the centre of this from the current ±£30mn limit—and arrangements network, can have significant impacts on the for Black Start will be removed from BSIS, being evolution of the system and future costs. National replaced with an efficiency check at the end of the Grid Electricity Transmission (NGET), as the SO, year. To encourage more accurate forecasting, acts as a customer interface for transmission- ±£4mn will be available for wind-generation connected users—generations, distribution forecasts and the day-ahead, two-day ahead and network operators and large users—and is week-ahead demand forecasts. Finally, output responsible for balancing the system moment-to- based incentives on cooperation between the SO moment, using the Balancing Mechanism and and TO will be rewarded at ±£1mn. This will associated services. incentivise schemes where the SO funds TO works in order to minimise total costs and disruption to In recent years, the SO has gained roles in consumers, resulting in greater overall benefits. delivering Electricity Market Reform and a more active role in the Integrated Transmission Planning Improvements to the SO’s forecasting models, and Regulation project. These roles have the which have been performing less well recently potential to cause conflicts of interest between than historically, have also been mandated. NGET’s SO and transmission owner (TO) roles. It is However, due to the one-year nature of the interim planned to add a further role, to support scheme, there are no incentives related to competition for onshore transmission assets in the transparency and the system operation innovation coming year. These moves have led to moves to roll-out incentive has been removed. separate NGET’s SO and TO roles, and the Although Ofgem has emphasised that the interim regulator is hoping to achieve full legal separation scheme is not to set a precedent for future years, by April 2019. these proposals will reflect its thinking on SO Going forwards, Ofgem sees four key roles for the management and incentives, “especially given its SO. It will act as system balancer, driving greater proposed iterative approach to establishing the efficiency; facilitate competitive markets by new SO role@. Although licence changes will take supporting competition and innovation; facilitate a 56 days to come into force, the interim incentive whole system view, ensuring that individual issues mechanism will be applicable from 1 April. are looked at as part of the larger picture rather Ofgem will publish further proposals on long-term than in isolation; and support competition in changes in April and a statutory consultation in networks, identifying the right projects for early 2018, before implementation in April 2018. tendering and developing projects before the tender is run. As we have said previously when Ofgem In order to drive this behaviour, it is making consulted on its proposals, the arrangements alterations to the Balancing System Incentive for the interim year are sensible. Scheme (BSIS). Ofgem is currently running three The lateness of the decision is, though, not consultations: (i) Future Arrangements for the helpful for suppliers keen to estimate their Electricity System Operator: its Role and Structure; likely exposure to balancing costs. Let’s hope (ii) Future Arrangements for the Electricity System Operator: the Regulatory and Incentives the timetable for next year holds. Framework; and (iii) Final Proposals for Electricity Ofgem System Operator Incentives from April 2017. The

Josephine Lord, Regulatory Consultant, [email protected] The arrangements for procuring reserve are set imbalance prices and the overall system position to change with the implementation of the (the Net Imbalance Volume) should include all the European electricity balancing guidelines (EBGL). physical actions taken on the GB system, by GB BSPs or interconnectors, but that only those taken The Trans-European Replacement Reserves to meet a GB need should be treated as priced. (TERRE) project is seeking to implement the requirements of the EBGL through creating a new The solution devised by the workgroup seeks to product and processes for replacement reserve allow direct participation by customers and (RR) within the BSC. Elexon recently held a aggregators. They can currently only participate in consultation on a modification proposal, P344, the BM through Additional Supplier BM Units which sets out how it is proposed to operate. registered by the supplier. TERRE is an advance implementation project, In order to facilitate this participation and to ensure being developed by a group of European a level playing field with other BSPs, the proposal Transmission System Operators (TSOs), including suggests new arrangements may be introduced for National Grid. It aims to harmonise despatch of RR registration of “Virtual BM Units” and for the across six TSO areas: Great Britain; France, imbalance positions of suppliers to be adjusted for Switzerland; Spain; Portugal; and Italy. Greece and actions taken by their customers as a result of Ireland are current observers. The EB GL is despatch. Virtual BM Units may also be able to expected to come into force this year. The TERRE participate in the BM if they wish. go-live date is currently scheduled for Q3/Q4 2018, Elexon notes National Grid has not confirmed that and the intention is that the GB market will be it is able to open up the BM to current non-BM available to participate from this date. providers at this stage, and the P344 solution may Providing offers for RR will be a voluntary process, be changed before the second round of industry as currently for Bids and Offers into the Balancing consultation if this is not the case. Mechanism. The RR product will consist of 15 P344 proposes that all GB RR acceptances would minute blocks of upward and/or downward energy be settled under the BSC, including those from volumes, similar to current GB products such as non-BM participants. Such parties would be Bid-Offers and Short Term Operating Reserve required to sign up to the BSC. However, as they submissions. There are 12 criteria that RR products will not be participating in core BSC processes to must meet, including a minimum quantity of 1 MW the same extent as suppliers or generators, this and a minimum delivery period of 15 minutes or needs to be reflected in the obligations placed multiples thereof, and a maximum delivery period upon them. of 60 minutes. It proposes the term “Virtual Lead Party” for this National Grid will issue MW profiles to balancing new BSC participation capacity. The supplier service providers (BSPs) despatched by TERRE. would retain responsibility for imbalance These take account of declared plant dynamics settlement and metering. and BSPs will be required to follow instructed profiles, as for normal Bid-Offer Acceptances. In The workgroup is due to report to the BSC Panel in order to allow National Grid to issue these, the BSP July. must provide a MW profile they intend to follow in This is an important development stream that the absence of any instructions issued by National Grid. Demand Side Response (DSR) will be could have wide-ranging implications for GB measured against physical notifications provided. market operations. The wider participation in the Balancing Mechanism, both for RR Acceptances are financially firm, so the BSP will aggregators and customers and also non-GB always be paid (or pay) for an RR Acceptance. parties through interconnectors, raises many TERRE will settle every 15 minutes with a clearing price, rather than pay-as-bid, and this is one price important issues, and it will be interesting to for all TERRE TSOs. see how the working group addresses these. The arrangements would impact the imbalance Elexon price. P344 proposes that the calculation of

The regulator is planning to remove the criterion that only households in the 25% most deprived areas of the country may benefit from the Fuel Poor Network Extension Scheme (FPNES). Ofgem proposed the change on 10 March as a result of changes to the Energy Company Obligation (ECO2). The Carbon Saving Community Obligation aspect of ECO2 had been limited to households “within the 25% most deprived areas, as measured by the government’s Index of Multiple Deprivation”. It is being removed from ECO2 as it was not considered effective at targeting fuel poor homes. ECO2 is being reformed to better target low-income households; this has triggered the consequential change to the FPNES to maintain alignment between them. The FPNES provides funding to support fuel-poor households without mains gas in connecting to the network, since gas is normally the most cost-effective fuel for heating. If the proposed change is made it will have two eligibility criteria rather than three: that the household be in fuel poverty and that it is eligible for the Affordable Warmth aspect of ECO2. These criteria are not being directly changed, but the regulator noted that because the Affordable Warmth obligation is also having its criteria amended there is still an impact. Views are welcomed until 24 March, with changes to be effective from 1 April in order to coincide with those to ECO2. Ofgem

Ofgem’s Supplier Cost Index (SCI) for January showed a 15% increase year-on-year, primarily driven by the rise in forecast wholesale energy costs for the next 12 months. The new SCI, published on 9 March, replaces the monthly Supply Market Indicator and compares costs to a base year. Setting January 2014 as the benchmark of 100, this gave indices of 91.2 for dual fuel, 106.5 for electricity and 75.9 for gas. Overall, costs dropped slightly following a steep rise in the period up to December 2016, which had led to a peak in the electricity index. The spike in electricity costs over winter stemmed from tighter forecast capacity margins in generation, higher wholesale prices in the French market, and higher commodity prices. Additional upward pressure was exerted by a variety of sources. There was an increase in the charges to suppliers for the expected costs of the Renewables Obligation and contracts for difference, and the Government Electricity Rebate of £12 has also ended. However, the expected costs of the Energy Company Obligation (ECO2) have fallen. The SCI is expected to further rise this year due to the exemption of energy- intensive industries from the costs of renewables support programmes from April, and the start of capacity market payments from October. Additionally, as the SCI is based on a given consumption value, it will not reflect falls in consumption due to improved energy efficiency, such as through ECO2. Noting the hedging strategies used by large suppliers should insulate their customers from these fluctuations, the regulator said that it expected the costs of supplying a dual fuel customer to only slightly be up year-on year and still “significantly” lower than two years ago. Alongside this, Ofgem also published the methodology it used to calculate the SCI. The base period used will be advanced by one year each May when updated financial statements for five of the Big Six are available, so it will move from 2014 to 2015 this May. Ofgem - SCI Ofgem - Methodology

Ofgem published on 24 February a direction and consultation proposing to amend the gas transmission licence to treat certain services as excluded services, from 1 April. Ofgem notes the example of “must reads” - a service wherein a gas transporter reads a meter, because a gas shipper has failed to do so for a period of two years - which is currently treated as a user pays agency service, charged directly to the gas shipper and excluded from the RIIO price controls, to ensure that users are not double charged for these services.

Under the new arrangements for the funding of Xoserve from 1 April, the “user pays” principle establishes that all users will pay for the services that they receive. The proposed licence change would change the categorisation of services like must-reads to excluded service, which will remove them from the price control entirely. Ofgem is seeking comments on whether its proposal delivers the intended result, and suggestions of any further services which should be treated as excluded, before 24 March. Ofgem

Ofgem announced on 1 March that it has selected a shortlist of six preferred bidders for the offshore transmission connections for the Dudgeon, Rampion and Race Banks windfarms. These sites are being tendered for under phase one of the fifth round of the Offshore Transmission Owners (OFTO) regime, which seeks to deliver costs savings by opening tenders for the connections directly to the market. The largest so far, round five, will connect 2.3GW of capacity, with an estimated value of £2bn. Round five is being split into two phases, with phase one consisting of 1.3GW of capacity, with an estimated £1.3bn value. Successful bidders will build and operate the offshore transmission connections, receiving guaranteed revenue for 20 years. The shortlisted bidders for Dudgeon and Rampion are Balfour Beatty Investments, Equitix, Diamond Transmission Partners, Mari Energy Transmission and Transmission Capital Partners. Race Bank preferred bidders are Balfour Beatty Investments, Equitix, Diamond Transmission Partners, Transmission Capital Partners and Triton Transmission. On 13 March, Ofgem also opened tenders for phase two of the fifth round of OFTO. Phase two will see the connection of the Galloper and Walney Extension projects, with a combined capacity of 940MW and estimated value of £830mn. Ofgem estimates that so far, the OFTO regime has saved customers £200-400mn in round one, with further savings of £428-749mn expected for rounds two and three. Ofgem Phase 1 Ofgem Phase 2

Ofgem has announced its decision that there will be no requirement for Centrica to provide the sale of a minimum amount of obliged storage capacity at the Rough facility over the 2017-18 period. The decision follows the continued operational problems with injection to the facility since June 2016, While some withdrawal was possible over the past winter, Centrica remains unable to inject fresh reserves into the site until testing is complete, which it hopes to manage before winter 2017. Rough has a capacity of 3.31bn cubic metres, approximately 70% of the UK’s gas storage capacity. Centrica Storage, which operates the site, is required to sell a certain amount of capacity to other users, due to the partial monopoly on gas storage it holds. This consists of the Minimum Rough Capacity (MRC) and Additional Space (AS). Centrica applied on 28 February for both MRC and AS to be reduced to zero for the 2017-18 year, and Ofgem approved this application on 10 March. Centrica is working to return the facility to full operation. Ofgem states that if capacity is made available during the year, it will require Centrica to make this available to the market as incremental capacity or further additional space, in a transparent manner and in accordance with the Rough Undertakings and other relevant legislation. Ofgem noted that this announcement applied to the 2017-18 year only, and that in future years capacity will be made available once again. Ofgem Last week’s Chart of the Week took a look at the steps that are being taken by Ireland to boost its energy security.

Lee Drummee, Analyst, [email protected]

On 10 March, the World Economic Forum gave an important resource to help balance demand on the insight into the future of the electricity sector, in system. It is estimated that the global demand-side its The Future of Electricity: New Technologies response market will be 68.8GW by 2018 allowing Transforming the Grid Edge report. capacity to be time-shifted more effectively. The report highlighted three key trends that could The third and final trend highlighted by the report “produce game-changing disruptions.” They were: is digitalisation. Smart meters, automation systems, electrification, decentralisation and digitalisation. remote network control and other technologies allow for real-time operation of the network and The key technologies identified within connected resources. Data from smart devices will electrification included electric vehicles and heat be critical to facilitate customer engagement and pumps, Electric vehicle technology had evolved to improve customer experience, the report quickly over the past five years, and if it continued argues. Having access to more information and then charging these vehicles could present new enabling automated operations has the potential challenges but open up new opportunities. to help customers manage their demand and have For example, the report said that, if all of greater control over their energy costs. California’s electric vehicles by 2020 were The report concludes that the system faces a great charged during peak hours, the peak load could risk of value destruction if it fails to capture the increase by as much as 13%. This would require benefits of distributed energy resources, which significant investment in peak generation could result in stranded network assets and resources. To combat the increase in consumption, eventually customer defection from the grid. This the charging of electric vehicles would have to be risk, it argues, represents a compelling reason to done at optimal times–that is, at night when identify and take the most effective action to demand is low or during times when renewables accelerate the transition. “The Forum believes this are highly productive resulting in a high supply of transformation is inevitable and that status quo is electricity. Additionally, vehicle to grid technology not an option”, it notes. could provide a form of demand-side response by releasing energy stored in the batteries back into The report recommends: the grid during peak demand.  Redesigning the regulatory paradigm, The decentralisation of the grid looks to utilise changing the rules of the game, advancing and technologies such as distributed generation, reforming regulation to enable new roles for demand-side response, distributed storage and distribution network operators and innovation more energy efficient devices. The main source of distributed generation is rooftop solar PV, and this  Deploy enabling infrastructure, ensuring timely has reduced demand during sunny hours. In 2015 deployment of the infrastructure to enable new the global installed capacity of PV technologies business models reached 260GWp (gigawatt-peak), and it is  Redefine customer experience, incorporating expected to surpass 700GWp by 2020. In addition “the new reality of a digital, customer- to rooftop panels, other PV technologies are empowered, interactive electricity system” becoming available; for example rooftop solar tiles and building integrated PV.  Embrace new business models, pursuing new revenue sources from innovative distributed But, distributed generation can lead to too much generation and smarter processes. electricity entering the grid and result in negative pricing. This occurred over 7,700 times in This is a very readable report that shows the California in 2015. To prevent this from happening transformative impact of technologies in the and to reduce the amount of electricity wasted, past and the striking rates at which they have distributed storage will become more important. achieved roll-out. It suggests that we are now Currently most storage is “in front of the meter”; at a tipping point in the electricity sector that however, it is estimated that by 2020 behind the could usher in a “fourth industrial revolution”. meter storage will account for almost half of annual deployment. Demand-side response is also an World Economic Forum

The latest electricity switching statistics from Energy UK, published on 8 March, showed a 20% month-on- month increase in switching in February, with 419,599 supplier changes in total. This is the highest figure for February in the past three years. After reaching a low of 8% in November, the net proportion of switches to small and medium suppliers stood at 27% in February. This is down two percentage points from January, but up in real terms by around 10,000 switches to a net gain of over 110,000 customers overall. Switching overall increased by 0.9% on February 2016. Compared to the previous month, switching between large suppliers rose by seven percentage points to 34%, whilst switching from small and medium to large suppliers remained steady at 11%. Transfers from large to small and medium suppliers, and between small and medium suppliers, both reduced slightly to 38% and 17% respectively. Energy UK Chief Executive Lawrence Slade said: “These ever-increasing switching numbers, alongside twice the number of existing customers making a tariff change with their existing supplier, demonstrates that competition is working for more and more consumers.” Energy UK

SSE has followed four of the Big Six in announcing a rise in standard electricity prices. The 14.9% increase will take effect on 28 April. The company’s statement on 13 March said that gas prices would be held at their current level, meaning that dual fuel bills would increase by 6.9% on average to £1,142/year. The supplier said the decision to implement its first rise in three and a half years was caused by the higher costs of delivering “vital government programmes”, including the smart meter roll-out, Renewables obligation, feed in tariffs and contracts for difference. Around 2.8mn customers will be affected. Four other large suppliers – EDF Energy, npower, E.ON UK and Scottish Power – have announced increases to their standard tariffs, although British Gas recently extended its price freeze until August. SSE outlined its strategy to mitigate the effects for vulnerable consumers. It will establish a £5mn fund, providing targeted financial assistance to those who use electric heating or are more dependent on electricity usage. Managing Director of Retail Will Morris said the company “deeply regrets” having to raise electricity prices, but added that “without an increase we would have been supplying electricity to domestic customers at a loss.” He also highlighted the firm’s attempts to limit price increases, including cutting its own costs, freezing prices over the winter and holding gas prices. SSE

Tony Cocker is to retire as CEO of E.ON UK and will be replaced by Michael Lewis on April 10. Cocker has worked for E.ON for over 20 years and has been the company's UK CEO since September 2011. Lewis has been CEO of E.ON Climate & Renewables since 2015. He joined E.ON in the UK in 1993 and played an “instrumental role” in expanding E.ON's renewables business. Karsten Wildberger, E.ON board member, said: “I'm delighted that Michael Lewis will be leading our business and team in the United Kingdom. His wealth of experience will help to continue to accelerate our company's transformation there.” Michael Lewis said: “I am delighted to be appointed to lead E.ON UK and I look forward to joining what I already know to be an excellent team. It is a fascinating time to take on this challenge and a real privilege to follow Tony, who has ensured E.ON UK is leading the change needed to ensure we live up to our purpose of improving peoples' lives.” E.ON UK

Speaking at the Major Energy Users Council processes in the Contract for Difference and Energy & Water Summit and Training Forum on 1 Capacity Market schemes, even the auctions are March, Cornwall Associate Peter Atherton seen by some as “not overly transparent”. discussed the investment outlook for the energy Atherton then gave his view on whether Brexit industry. Alison Forbes reports. would impact investor sentiment in the energy Atherton told the event that government sector. Although he said there has until now been intervention in the GB energy market meant that little impact, future trading arrangements with not a single megawatt of power could now be built Europe will be important. The government is without its economics being underpinned by the expecting a large increase in electricity state. interconnection and this will, according to Atherton, be one of the key segments to watch as From an investor perspective, he outlined three negotiations take place. key themes impacting the landscape: government intervention, Brexit and the search for yield. Atherton also noted that over the past decade traditional utilities have “underperformed”. In the On the political front, Atherton did not foresee a last seven years, the industry has written off “material change” unless the Climate Change Act around £95bn of asset value - the majority of 2008 was repealed or amended. But he which has come from the generation fleet. Utilities questioned whether the rigidity of the proposed have “basically overspent” on assets, and pathway, and the intermediate targets it sets, was government interventions have driven down the the best option for decarbonisation. While he did value of their existing asset base. As a result, we not suggest that the general route of travel should have seen significant changes in business necessarily change, in Atherton's view the "hard strategies and investment increasingly coming targets” mandated by the Act are “counter- through from non-traditional utilities. For investors productive" and have led to "poor policy “it's all about yield”. “A government-backed decisions”. The need to decarbonise, and to do so contract of some description would not only be within a fixed timetable, means the government is secure but would give you 4%-6% yield. This requiring the industry to do things that are makes a very attractive proposition for investors”, “fundamentally not economic”. he said. According to Atherton, the importance of the In terms of technologies, Atherton questioned wholesale price in setting the end-user price and whether we are “moving back to a pre-Second the remuneration to power generators is declining World War model” of distributed generation to take each year, because more of the system is being advantage of locality to demand. “If that is the case locked up under government contracts. In practice we are going to be looking at a profound change this means that nobody will build a single in the power system over the next 20-30 years.” megawatt unless they have a government contract. He noted that the Carrington gas-fired power Concluding, Atherton said that, in terms of station will "go down in history" as the last power investment, the traditional utilities sector is still station in the UK, of any type or size, that was struggling but networks remain attractive. approved by a board of directors based on its commercial terms. From an investor perspective, this means that the “fundamental thing you now have to be interested in” is not where future commodity prices are likely to be but “can I get the right contract from the government”. This has had “interesting implications” for the type of projects you bring forward and how we manage investment decisions. “It's become less commercial and much more about your ability to get in front of the right people in Whitehall”, he said. While the government has tried to “move away from deals in darkened rooms” by implementing auction

All gas contracts experienced decreases last week, with lower gas demand due to higher temperatures. Day-ahead gas lost 2.8% week-on-week to 41.1p/th, amid an oversupplied system on Friday with comfortable LNG supplies. Lower spot gas prices can be expected as we move into spring, with lower demand driven by higher temperatures and increased solar output reducing the need for gas- fired power generation. The month-ahead contract slipped 2.2% to 41.5p/th. Seasonal contracts all decreased last week. Summer 17 gas fell 1.2% to 40.7p/th. Winter 17 gas lost 1.5% to 46.7p/th.

All near-term baseload power contracts decreased last week, owing to lower gas prices and reduced power demand owing to milder temperatures. Week-on-week day-ahead baseload power fell 3.2% to £41.8/MWh. The contract was £2.3/MWh under its peak counterpart. The month-ahead baseload contract (April) lost 2.2% to £42.4/MWh. The contract is now 8.5% under its level a month ago (£46.3/MWh), but 32.1% above the same time last year (£32.1/MWh). The contract was £2.2/MWh below its peak counterpart. The majority of seasonal baseload power contracts experienced losses last week. Summer 17 power decreased 1.3% to £41.3/MWh, 4.8% below its level last month (£43.4/MWh). Winter 17 power went down 0.3% to £46.0/MWh.

On average, Brent crude oil prices slipped 4.7% to $51.8/bl, with concerns over rising US crude production and a potential increase in US shale output. On Tuesday 14 March, Brent crude oil dropped to $50.8/bl, a three-month low, after an OPEC report showed an increase in both Saudi Arabian and US crude production in February. API 2 coal prices went up 0.3% to average $65.2/t. Prices were 1.5% below its value this time last month ($66.2/t), but 59.8% higher than its level a year ago ($40.8/t). EU ETS carbon prices lost 2.5% last week to average €5.2/t.