BEIS Issues Its Final Notice for the Forthcoming Second Cfd Auction
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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 finds the costs facing household electricity suppliers fell in February. auction 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. 2 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.