Nigel Cornwall Director 01603 604 406 [email protected]
NEW MARKETS 02 In this issue we focus on key market and regulatory development topics in the UK, Australia and the USA. GB moves towards market-wide half hourly settlement In the UK, we look at the business case for the newly-renamed, Community energy in England market-wide half-hourly settlement project proposed by Ofgem, and surges – for now the implications for the energy system and customers. We also look at Power Ledger: Bringing Australian communities into the the state of community energy in the UK on the cusp of major changes market to subsidies, and a new innovative project fronted by SPEN around Pursuing different grid pathways local flexibility. to integration of wind and solar In Australia, as energy prices continue to rise, we look closer at the FUTURE NETWORKS 10 National Energy Market and recent price spikes in Victoria, and the National Energy Guarantee, which is currently under review by the Power networks require new innovation framework: OIES Energy Security Board. We also look at some interesting partnerships SPEN leads GB trials for smart being forged by Power Ledger in Australia in their mission to deliver
platform energy system democratisation. Study explores international lessons for GB system operator Meanwhile, in the USA, we focus on the regulation of retail LOW-CARBON, HEAT & competition, and how various States vary in their approach, based on 13 TRANSPORT excellent new research by Professor Stephen Littlechild. We also take EV sales volume to reach 25mn a look at carbon trading in North America. by 2025
ULEVs – grant, incentive and We also consider how community energy has developed in three infrastructure driven growth northern European countries, expounding how the UK could learn
DEMAND-SIDE 16 from such successes.
Learning from retail competition With the UK government announcing a ban on new conventional – US-style petrol and diesel cars and vans from 2040, we take a closer look at Direction of travel in flexibility the Ultra-Low Emission Vehicles market. Also under examination in the services becomes clear UK is the Green Deal Framework reform, the Universal Smart Energy UK government considers reform of Green Deal Framework Framework and the smart thermostat market, and we dip into all of these. And we assess a recent report on adaptations to rising levels of INTERNATIONAL 22 solar and wind on the electricity system. Gas security of supply – the Finally, we look at a number of other interesting international contrasting cases of UK and Italy developments, including the very different experiences of stress The rise and rise of Australian energy prices events of the UK and Italian gas markets, developments in the Irish
Carbon trading starts between capacity market and the US storage market. Québec, California and Ontario Irish capacity market under fire We finish with an update on European power auctions, including Auctions update Vattenfall’s plan to build Europe’s first subsidy-free offshore wind farm.
No third-party adverts, no sponsorships or advertorials, no paid for interviews – just content, comment and insight.
Nigel Cornwall, Director, [email protected]
Ofgem launched its significant code review (SCR) benefit, there would be bill increases for a subset into half hourly settlement (HHS) in July 2017. It of vulnerable customers. also published its current thinking on the Ofgem acknowledged that the reliability of these objectives for and assessment of the business forecasts is constrained by the limited nature of case for the newly-renamed market-wide half- the ToU trials and other evidence used in the hourly settlement (HHS) project late last year. It analysis. For example, the trials excluded certain set out the range of options that could be used to categories of vulnerable customers, and that deliver the project and the process to be used in research in this area is in its infancy. validate the business case. We take a closer look at the project in this article. Leaving aside the customer take-up rate of TOU tariffs, it would be illuminating to understand how different customer groups are affected by the price As well as supporting Ofgem’s wider objectives by adjustments in current simple fixed and SVT minimising the need for infrastructure investment products. These adjustments are made by and supporting more efficient use of generation suppliers in response to being fully exposed to and network assets, the project aims to incentivise their customers’ usage pattern under half hourly suppliers to encourage customer behaviour that settlement. The current profiling arrangements contributes to a more cost-effective electricity socialise the high costs of supply at peak times system. It will do this by linking suppliers’ costs to across all customers; once this smearing effect is their customers’ actual consumption during the removed, there will be winners and losers. day and by encouraging new supplier business Ofgem’s assessment includes consideration of the models to promote competition. Ofgem’s options for access to half hourly (HH) data, taking objectives also include a specific customer impact into account current arrangements requiring the measure – to minimise undesirable distributional customer to positively consent through an “opt-in” effects on consumers. to suppliers gaining access to this level of The effect on customers is vital in that behavioural consumption granularity. Policy development will change on a large scale is necessary to bring consider three further options, in which either HH about a material improvement in the cost efficiency data is available for settlement purposes only with of the energy system. This behavioural change is a customer opt-out, HH data is available for anticipated in response to pricing signals from settlement only (without an opt-out), or HH data is suppliers’ new time of use (TOU) type tariffs and available for settlement purposes only following similar products including new small-scale anonymisation. Sensitive to customer privacy and generation/storage packages and smart devices. protections on the one-hand, and mindful of Ofgem is right to recognise that some customers facilitating full cost-reflectivity on suppliers and may be less able to access the benefits for lifestyle potentially their customers on the other, the design or financial reasons and could be penalised for of data access policy is a difficult balancing act. their consumption coinciding with periods of high costs of supply. The regulator has yet to decide on the important Ofgem commissioned an assessment by market issue of whether to centralise data Cambridge Economic Policy Associates to analyse collection and aggregation activities. It is seeking the distributional impact of time-of-use (TOU) tariffs to arrive at an evidence-based decision on on different socio-demographic groups and to whether to retain the existing competitive supplier assess the potential for behavioural change agent arrangement, to retain the supplier agent amongst customers. The report concluded, market but with reform or to centralise data admittedly on a sparse evidence base, that in the collection and aggregation. The latter would be a main customers would save money by adopting major change to the structure of the retail market, TOU products, but there are wide variations in dismantling the long-held supplier-hub principle each customer grouping. It indicated that, while a and severely impacting the companies operating slight majority of vulnerable customers would the competitive market in metering services.
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Ofgem states it does not have a preferred option critical points above, in addition to being and that all options will be evaluated. It issued a dependent on progress made with the smart meter request for information last autumn to commence roll-out. Ofgem has sensibly ruled out a big-bang evidence gathering. approach being too risky in favour of a phased approach. Figure 1: Programme governance
There are important lessons here from the recent migration of medium-sized business customers to HHS, under BSC modification P272, which was eventually achieved over a phased period in excess of 12 months. This process endeavoured to synchronise the migration to HHS with customers’ contract renewal date so that customers could exercise choice of suppliers for the new HH contracts. Although there are a small number of customers still to be Source: Ofgem migrated, this approach was successful as it gave customers choice and suppliers time to execute the difficult, Ofgem has proposed a governance model for the error-prone and labour-intensive migration process programme which assigns leadership to settlement (termed change of measurement class under the agent ELEXON for the development of the target BSC). The volumes involved are salutary; less than operating model (TOM) assisted by a Design 200,000 business customers in P272 compared Working Group of experts from a range of with roughly 30,000,000 in the market-wide stakeholders (see Figure 1). The TOM will identify programme. the changes required to the settlement process Consideration of the options for the migration and the supporting arrangements to deliver mechanism is a matter for the more detailed TOM market-wide HHS. Final decisions will be taken by development. In the light of recent experience, Ofgem, supported by a Design Advisory Board such learning ought to lead to a more robust, (DAB) providing strategic advice. Both the DWG systematic process to reduce errors and operating and the DAB are now in place and the work to cost in support of the programme’s business case. develop the main options is progressing. The most The detailed development work will start shortly. promising high-level models will be developed into more detailed designs for evaluation and costing. This is a complex, wide-ranging work Ofgem’s SCR launch statement identified that the programme with potentially strong benefits for decision on whether to implement HHS will be the electricity system and for customers, which taken by the second half of 2019, backed up by a we have vocally supported. The current full business case based on the final version of the profiling system is a dead duck against the TOM. Development of the business case will be background of the government’s Clean achieved in stages, the first of which - the strategic Growth Strategy. Without HHS, the benefits of outline case - was launched in February. This sets smart metering will not be realised as out the rationale for changing settlement and the suppliers are very unlikely to offer ToU tariffs strategic fit with other major change programmes. on any scale. The implementation timescale is not defined at this stage as the regulator recognises further progress Ofgem HHS Ofgem ToUs needs to be made in developing the TOM. This progress needs to include the assessment of the
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Nigel Hargreaves, Pixie Associate, [email protected]
The UK government's Clean Growth Strategy is • Improving wildlife areas, raising the level of directed at encouraging innovation in the energy activity on sustainability, climate change and sector. One way to do this is to boost community renewable energy, and energy, which is under-going something of an upheaval. • Providing local healthcare services.
The latest CEE national survey of 144 organisations It is reasonable that communities, where homes, in England, Wales and Northern Ireland, jobs and an increasing amount of distributed Community Energy State of the Sector, 2017, energy resources (DERs) are situated, have an highlighted the many benefits delivered by CE important role to play in the innovation leading to schemes. It sought to deepen understanding of the decarbonisation. This fact is recognised by the make-up of community organisations in the energy government, who offer the community sector their sector, the activities they undertake, their financing support in the Clean Growth Strategy. and future plans. It also aimed to identify the barriers to their further development. Some key "We understand the need for government statistics from the report are presented in Figure 1. funding that is accessible to private, public Figure 1: Key achievements in CE schemes to 2017 and community sector organisations, with all playing key roles in supporting and harnessing innovation." Clean Growth Strategy
Community Energy England (CEE) first attempted to quantify the role of community energy in their 2015 report, Community Energy: Generating more than Renewable Energy. Their survey of 80 community energy (CE) organisations showed CE was a 'vibrant young sector' responsible for 175 schemes that had delivered 30MW of renewable Source: Community Energy England energy capacity since 2010. In terms of value for It found there has been rapid growth in the CE money from public investment, such as into sector, with over 37 new generation projects renewable energy feed-in-tariffs, this research installed at its peak growth rate in 2016 (see Figure showed CE was a competitive means of delivering 2). However, many of these projects were pre- accredited to receive the Feed-in-Tariff (FiT) at the energy efficiency, CO2 reduction and business investment. CE organisations also offered further level it was before the cuts in 2015. value through community benefit schemes that were achieved on the back of their renewable Despite government policy pronouncements, the energy assets. outlook for public financial support of CE projects These initiatives also supported a range of other in England, Wales and Northern Ireland is very local initiatives, including: challenging. Since 2015, financial incentives behind community energy have either been • Energy advice for people in fuel poverty and severely reduced or removed altogether. These increasing the level of voluntary activity include: • Improvements to community buildings and • Cuts to FiTs which are due to cease altogether lowering the energy costs of host organisations after April 2019 • Providing computers for low-income schools • Removal of pre-accreditation for sub-50kW and educational materials solar projects
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• Ending of the Renewables Obligation, though 'extend the duty cycle' of community owned DERs, only relevant to schemes over 5MW offer arbitrage opportunities and deliver flexibility services to local networks. Diversifying and • Removal of support from Renewable “stacking” the number of revenue streams could Obligation Certificates (ROCs) and the help to secure the future of CE in a subsidy-free Renewable Heat Incentive (RHI) world. • Ineligibility for tax relief under the Seed In the State of the Sector report of 2017, a number Enterprise Investment Scheme (SEIS) and of CE groups also expressed an interest in jointly Enterprise Investment Scheme (EIS), and developing projects with public and private • Cessation of the Urban Community Energy entities. Such collaboration was most commonly Fund (UCEF), an important stream of funding found to involve solar, but there is scope for CE to for early stage urban projects. enter into projects involving distributed heat and even transport fuels such as hydrogen, where Figure 2: CE generation activities and installed capacity there is a positive business case. Context has a large part to play in the type of scheme. However, working with developers and local authorities presents opportunities for CE groups to lower their exposure to risk, while achieving mutual local benefit in terms of income, community asset development, community capacity building and the creation of a devolved and democratic dialogue for further collaboration. But translating this into tangible benefits for local Source: Community Energy England stakeholders remains very difficult. Currently, CEE is assimilating the results of their The resulting 'no-subsidy' world, which new CE 2018 State of the Sector report, which we shall schemes must now contemplate, will force the report on after it has been published this summer. sector to focus upon how it can realise revenue by Given the challenging outlook for CE, it is very offering services in the changing market and the likely we may see attenuation in the number of emerging smarter grid environment. projects being planned and commissioned. If electricity price increases were sustained, new Community energy projects were getting off CE initiatives could find financial viability from the ground but policy changes especially the models such as behind-the-meter arrangements, through self-supply and under long-term Power end of FiTs will bring about an hiatus. If the Purchase Agreements (PPAs). These may involve Westminster government is serious about its the use of private wires, microgrids or sleeving support for community energy, it needs to arrangements. Business models would need to develop a much more coherent framework. find a market for power products to replace the The contrast with what’s going on north of the support from FiTs. But of view of forward power border in Scotland couldn’t be clearer, as we prices is not bullish. will demonstrate in our next issue. We will of course see other opportunities opening up through the use of storage devices that could BEIS GHGs BEIS Clean Growth CEE 2015 CEE 2017
A record number of bids were seen in the e-ROC auction that took place on 27 February, with almost 2,000 bids being made. Last month’s e-POWER auction, which occurred on 28 February, featured eleven sites representing a combined 38MW of power capacity. The sites, which ranged from hydro, biomass, anaerobic digestion and solar PV, were won by five different suppliers. Contract lengths varied from two through to twelve months.
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Nigel Hargreaves, Pixie Associate, [email protected]
Australian start-up Power Ledger is all about the micro-investors. Micro-investments made by democratisation of power from the edge of the prosumers in rooftop PV, for example, or battery electricity system. However, the company has storage systems fall into this category. Enabling recently announced projects involving not only electricity networks as a transactive environment peers at the domestic level, but also large that rewards individuals for their investment and commercial loads from the water industry. individual energy transactions leads to greater democratisation and 'brings power to the people'. Sub 30-minute settlement (5-minute intervals are Founded in May 2016 with the vision of "bringing standard in Australia), would better reflect the power to the people", Power Ledger has had dynamics of high-resolution power usage (e.g. at phenomenal success so far, both in the range of the domestic level). But multi-lateral trading would milestone developments (see Figure 1) and in be impossible to manage under existing bilateral raising finance from an Initial Coin Offering (ICO) in market arrangements. 2017. In 2016, it was recognised by Bloomberg New Energy Finance as a global leader in The answer, according to Power Ledger, is developing blockchain-based energy trading settlement of peer-to-peer and 'neo-retailer' trades technology. through the use of blockchain-based distributed ledgers that build-in digital trust. The outcome is a More recently, it has made it to the final of Richard system that includes more individuals in the Branson's Extreme Tech Challenge (XTC) that distributed energy economy, incentivises 'hunts for people and ideas that can literally connection of further distributed energy resources change the world!' (DER) connection and, by operating over public Figure 1: Milestone achievements networks, mitigates the risk of grid defection to the asset owners. Thus, we see the co-creation of the future energy system play out. The approach of the simplest Power Ledger trading scenario is where surplus energy from rooftop PV, normally spilled to the grid, is sold, or swapped, with users on the same local network. Jemma Green, Power Ledger's co-founder, has compared the model to those of AirBnB and Uber where other kinds of surpluses are traded multi- laterally.
The Power Ledger model was proven in 2016, in Source: Coin Central trials conducted in Perth over the Western Power Network with power meters communicating directly with the blockchain, avoiding several trust Fuelling the Power Ledger journey is a belief issues. (discussed within a Power Ledger White paper) that "there is an inconvenient truth facing the In the following year, the Australian government traditional energy supply industry: at some stage, it awarded a consortium using the Power Ledger will be cheaper and more effective to self-supply platform an A$8mn grant to demonstrate the than to rely on the network to provide low-cost and integration of distributed energy and water reliable and clean energy." systems in the city of Freemantle, Western Australia. The trial is aimed at demonstrating The alternative view, leading to 'co-creation of the interconnected infrastructure critical to future future energy system', is to re-imagine the network smart cities under the government's "Smart Cities as a trading platform open to millions of distributed and Suburbs Program' (see Figure 2).
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The trial will test the Power Ledger platform's of clean energy between peers but add an effectiveness in integration of available DERs, to additional layer of optional functionality for avoid a planned $3mn network reinforcement. stakeholders. This will involve the purchase (at the 'asset germination event' or crowdfunding) of a Figure 2: Freemantle smart city demonstration fraction of the clean energy traded by an asset. Stakeholders who don't own their own assets, will then be able to participate through shared ownership in the revenues generated by the larger capacity DERs involved in the trial. Further demonstration by Power Ledger of democratisation of the energy system is also reflected in their collaborative project started in 2017, with BCPG, the largest independent solar power producer in Thailand. It involves the sharing of power between six to ten rooftop PV-equipped tower blocks (1-2MW capacity) in the first Source: Power Ledger demonstration of autonomous peer-to-peer trading and financial settlement in Asia. A core aim is to bring added energy resilience during adverse Since its successful IPO, Power Ledger is now weather conditions to a diversity of participants, spreading its wings in several countries outside including residents, schools, shopping malls, Australia, including Thailand, the USA and in hospitals and industrial estates. Europe. At the beginning of 2018, a partnership with Helpanswers was announced that could result The global reach of Power Ledger projects has in hundreds of projects utilising over 50MW of now arrived closer to home with a collaboration power and 50MWh of storage. announced in November 2017, involving the Liechtenstein Institute for Strategic Development Helpanswers works with governments and the not- (LISD). The thrust of this initiative is to use the for-profit sector, facilitating the adoption of clean trading platform to offer low-cost, low-carbon energy and smart technologies with clients such as distributed energy trading within micro-grid housing associations, universities, foundations and developments. This marks an interesting inroad to utilities. Their projects are collaboratively designed the highly regulated European energy economy and spread across the USA, but the initial and could become a landmark in the collaboration with Power Ledger will focus on the democratisation of power within communities most fertile renewable energy markets. These are equipped with a micro-grid. in Texas, California, New York, Chicago to Washington and New England. We shall follow the progress of Power Ledger with interest as it gains ground through The collaboration with Power Ledger will initially innovation in the local energy economy and in involve intensive energy users such as water and the parallel world of blockchain applications. wastewater managers, cement, corporate and educational campuses, as well as housing Australian Government BCPG Helpanswers associations. It will aim to open up two-way trading LISD Power Ledger XTC Whitepaper
The International Energy Research Centre (IERC) has launched a new project that aims to accelerate the development of peer-to-peer energy trading in Ireland through the use of blockchain technology. In a statement on 18 March the IERC said the EnerPort project, which is being run in partnership with SFI’s INSIGHT Centre at NUI Galway, will investigate whether blockchain technology can be used as a solution for energy trading and enable users to be rewarded for using less energy. It also aims to assess how the technology can be used to manage small-scale transactions between prosumers. IERC Director Tony Day, said: “Peer-to-peer energy trading is changing the way we think about energy. The possibilities are huge”.
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Stuart Leaver, Analyst, [email protected]
Intelligent solutions are required to adapt to a Figure 1: Global average net capacity additions by type world transitioning rapidly toward high market shares of wind and solar power. A recent report Global net additions 2010-16 by IEEFA shows how nine different markets are taking up the challenge, and it also provides a route map to emerging good practice. A February 2018 Institute for Energy Economics Global net additions 2017-40 and Financial Analysis (IEEFA) study, Power- Industry Transition, Here and Now, sets out nine case studies illustrating different grid and market responses to operating challenges presenting by integrating high levels of solar and wind capacity. Several authors provide national profiles against a common template. Source: World Energy Outlook, 2017 All the jurisdictions covered are among the top 15 in highly organised network investment connecting countries/markets worldwide by wind and solar wind farm regions with cities. The state is able to market share, ranging from 14% to 53% of total manage a record wind penetration of 54.22% electricity generation, compared with a global without degradation. average of 5%. California (15%), meanwhile, supports its own market through the western energy imbalance market, which now extends into several To varying degrees all the case studies provide neighbouring states, including Arizona and examples of initiatives to help ease the integration Nevada. This was launched by California process and assure supply security and grid independent system operator (CAISO) and reliability, and each has been selected to help PacifiCorp in 2014 to balance variability and illustrate broad options already Figure 2: Market share of wind and solar, and all renewables (% of total power proven and available today to system generation in 2016; bubble size = TWh of wind and solar generation operators and regulators. These are proposed in response to the growing net additions of solar and wind resources for energy supply expected globally between 2017 and 2040, estimated by the IEA’s latest World Energy Outlook to be between approximately 84GW to 124GW combined (see Figure 1).
The market share of wind and solar and all renewables of various countries and jurisdictions is shown in Figure 2. Using 2016 data, the chart highlights outliers in renewables market share, and the prevalence of wind and solar in industrialised countries. Sources: IEEFA interpretation of European Network of Transmission System Operators for Electricity; Electricity Reliability Council of Texas; Uruguay Ministry Texas (18% wind and solar of Industry, Energy and Mining; BP Statistical Review of World Energy 2017 penetration) is highlighted as a leader
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reduce curtailment. The arrangement has led to reduced flexibility reserves needed in all balancing areas. Germany (26%) is modifying grid codes for household solar inverters, making them responsive to variations in grid frequency and allowing for appropriate balancing without mass disconnection. In Denmark (at 52.8%, the highest of the countries considered) wind power aggregators have to provide firm power from across their portfolios, meaning better response to balancing, and incentivizing accurate forecasts. Heat storage is used extensively to help avoid generation curtailment. Spain (23.2%) has followed suit, with modelling advances at the national wind power forecaster, Sipreolico, halving day-ahead forecasting errors, leading to better participant scheduling. Balancing generation through use of domestic hydropower and demand-side flexibility is also key stated. It shows that grid operators can assure to providing continuous coverage in a growing security of supply at levels for the two market such as Uruguay (32.2%), which has seen a technologies at least 50% of total generation, more than 30-fold increase in wind generation in through a mix of boosting system flexibility and five years. interconnection and by ensuring strong price Meanwhile, in Ireland (24.4%) real-time balancing signals. Levels of curtailment had fallen noticeably and intraday markets are being developed to in four of the markets considered (Texas, Ireland, improve price signaling in response to increased Germany and Spain), while Denmark, through renewables penetration. thermal balancing had achieved minimal levels of curtailment. Increasingly investment in demand-side management, including battery storage assets, are Countries should select the solutions that work integral to regions that undergo seasonal stress. best for them based on their own individual New flexibility techniques arising from demand- circumstances and avoid radical and costly market side management (DSM) (such as 1,000MW of new redesign. DSM) are being pioneered in South Australia This is an interesting and very readable report (48.4%). on a dry subject. The case studies and The report argues that in future national leadership initiatives they describe illustrate the diversity is required to support further renewable of response to a common and growing integration and to support growth. Policy in India, challenge but using tried and tested specifically the state of Tamil Nadu (14.3%), has mechanisms displayed a forward-thinking approach, with the drive for five-fold national renewable power IEEFA World Energy Outlook growth to 275GW by 2026-27. Initiatives like the Interstate Green Power Corridor have received a This is the last issue of Energy:2030 USD$2bn upgrade as a result to fund renewables, within the trial period. We hope that you allowing for export of surplus renewables enjoyed reading the first three issues. generation to other Indian states. If you would like to subscribe to further issues, please contact Stephen Pointing The report finds that concerns about the impact of [email protected] or call on wind and solar power on grid reliability are over- 01603 959883.
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James Cunningham, Writer, [email protected]
Researchers at the Oxford Institute for Energy The paper explained that the costs and risks of Studies (OIES) have argued that power networks innovation can either be borne by network must adapt to their changing operating companies, consumers, or a combination of the environments. two. It added that, if the regulator were able to observe the efforts made by network companies to The OIES report, Electricity Networks: Technology, innovate, then it would be simple to incentivise Future Role and Economic Incentives for innovation, as it could peg the remuneration level Innovation, was published in December 2017. It to the cost of the efficient level of effort from the explained that the electrification of heat and firm. However, in practice, there is a gap between transport, as is happening across Europe, has the information available to the regulator and that “serious implications for grid infrastructure”. It held by network companies. This makes it harder added that, if this continues without intervention, to encourage innovation because, while the the combined effects could see the peak electricity regulator wants the networks to innovate, it also demand of a developed economy grow by up to has to remunerate them for the risks involved. 1GW/ year after 2030. The OIES found that incentive mechanisms that fail To respond to these higher peaks in demand, to account for the risk profile of innovation electricity networks will need to have more agility, activities shift the attention of network companies control, automation, new regulatory models, and from innovation to normal efficiency gains. A innovative business models, both at the transition to new innovation-based models of transmission and distribution level. regulation therefore is “crucial”. The study noted that in recent years efforts at the The report added that the issue of risk in distribution level have focused on addressing regulating innovation is not confined to just the issues such as renewables intermittency, actual risk of outcome, but also the attitude of congestion and load shifting. However, in the network companies towards risk. It found that a future technological improvements at the “grid company with a greater level of risk tolerance, but edge” will allow the development of markets for a less valuable project, can win innovation distribution resources, service-orientated business competitions against firms that have more valuable models, and end-to-end integrated grid projects but are more risk averse. management. This, the report said, suggested the role of grids is evolving beyond simply supplying To address this issue, the report recommended electricity, and a “new paradigm” will be required the implementation of a two-stage competition to integrate disruptive technologies, identify new process that uses an initial valuation of projects to approaches to meeting customers’ expectations establish an early indication of eligible projects and facilitate “grid edge” transformation. before companies are invited to provide full submissions. It also suggested that the regulator However, it noted there was a potential barrier to could offer smaller funds to projects whose results better integration in that network companies are could then be used as part of larger-scale regulated monopolies. This means they tend not to innovation proposals. This would eliminate the risk undertake innovation projects without the to network companies of losing upfront capital and presence of sufficient incentives. However, allow firms with different tolerances to risk to traditional models of network utilities are designed compete on a level playing field. to incentivise cost efficiency, based on the assumption that managing networks is costly and This is a cogently argued report, and needs to that the role of regulation is to reduce these costs. be scrutinised closely alongside the The OIES said the main challenge of incentivising regulator’s new proposals for the post 2020 innovation is that it is both expensive and risky to network price controls. It is clear that there is a do. Therefore, an innovation-based regulatory balancing act for the regulator to incentivise model would need to account for the uncertainty in innovation while achieving value for money. the outcome of innovation efforts. OIES
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Craig Lowrey, Senior Consultant, [email protected]
The Universal Smart Energy Framework (USEF) is decisions and the efficient allocation and a system within which smart energy devices are deployment of network reinforcement. This connected to an IT platform to enable them to be therefore appears to be more a case of having a remotely controlled. The system – which has system that can adapt to the expected future been trialled in Continental Europe – will see its supply-demand balance rather than necessarily first GB trial commence this year. In this piece, future-proofing the network. we look at the system and its proposed benefits. Figure 1: USEF as applied in the EnergieKoplopers trial Intended to yield standardised products for European energy flexibility markets, the objective of USEF is to demonstrate a local energy market where flexibility can be secured at least cost. The goal is to better enable real-time management of the energy system at the Distribution System Operator (DSO) level – particularly during peak periods – with the participation of prosumers being supported by aggregators. Having been tested in The Netherlands, USEF will now be the subject of a GB trial with Scottish Power Energy Networks (SPEN) seeking to apply this approach, supported by a £5.3mn Network Source: EnergieKoplopers Innovation Competition (NIC) award from Ofgem for its FUSION project. The total funding is close to The Dutch test was seen as a success, although £6mn, with the balance being provided by SPEN. only around two-thirds of the flexibility sought Given that USEF is based upon DSO rather than through the test was actually delivered. This DNO systems, it was proposed by SPEN as a way shortfall was attributed to issues such as an of accelerating learning on more local, active unforeseen change in a household’s electricity system management by building on the consumption, poor forecasting leading to too much experience of The Netherlands. flexibility being sold, or IT problems and appliances that did not function correctly. The Dutch EnergieKoplopers USEF trial ran from 2015-16 and used smart appliances across 203 SPEN’s five-year FUSION project is being households which were automatically controlled undertaken in the East Fife area as a public-private by a smart IT system. The smart energy system sector initiative and in conjunction with academia. predicted supply and demand of electricity and Partners include Fife Council, University of St regulated this using the smart appliances: 45 Andrews, Imperial College London and Origami electric boilers, 49 heat pumps, 95 PV-switches Energy. and 14 fuel cells (of which 9 were virtual). In its NIC submission, SPEN estimated that a The “future problems” aspect relates to the view nationwide roll-out of the USEF system could yield that the growth in renewable generation and the net savings of £236mn to customers and avoided electrification of heat and transport will make it emission reductions of 3.6mtCO2 by 2050. harder to balance the grid. This is because these trends raise the prospect of peak periods The Dutch trial highlighted issues around occurring at different times of the day and demand consumer engagement that will need to be in these periods being higher or lower than has addressed in the FUSION project. These historically been the case. centre around how easy the proposition is to understand and the convenience of any The goal of the project is that, by using decentralised flexibility, it should be easier to offering. manage these peaks, in turn shaping investment Ofgem EnergieKoplopers
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Josephine Lord, Regulatory consultant, [email protected]
A paper by the University of Cambridge Energy The SOs have different ways of managing the best Policy Research Group (EPRG) considers overall actions for customers where trade-offs are international comparators for system operator needed between current and future costs. This can (SO) incentive frameworks. be done through the process of determining how to budget for and fund the services, where The study, Regulating the Electricity System stakeholders are observed to be very involved in Operator: Lessons for Great Britain from around the proposal of new initiatives. For example, ISO the World, issued in December was commissioned New England’s five-stage process is described, by Ofgem to support its development of revised which progresses through a business plan to SO incentives. These are intended to be budgets, followed by both stakeholder and introduced as the SO becomes legally separate regulatory review stages prior to implementation. from National Grid. Ofgem wants the SO to become more proactive and for its evaluation to The authors consider the diversity of ways that move from narrow mechanistic incentives towards stakeholders are involved in enabling a more a broader evaluative incentive approach. efficient operation of the system. These include the New York ISO system, which allocates weights The study looked at Independent SOs (ISOs) and in a voting system under a “shared governance” Regional Transmission Organisations that operate model (see Figure 1). in the USA, Australia, Chile and Peru and which are not-for-profit organisations. Two kinds of costs are Finally, the authors note that high levels of internal seen by these. The first of these is the internal costs of operating the system, which relate mainly Figure 1: Members and voting system in NYISO to staff and systems, while external costs, are incurred by the SO for balancing the system, managing constraints and so forth, and are recharged to market participants. The authors conclude that, for internal costs, the annual budget approval process common in the US looks to have advantages in terms of flexibility to respond to new demands. This approach contrasts with the longer-term RIIO-type incentives in GB which are really designed for capital intensive sectors. Source: EPRG, from NYISO In contrast to GB, they found that US SOs have and external oversight of ISO decision-making are relatively little oversight of their external costs, and associated with “impressive” amounts of publicly leave these to be monitored by wider stakeholders available information on ISO performance. They rather than the regulator. The authors conclude conclude that as decisions around system this may be a weakness of US regulation, but given operation become more complex and subject to the lack of stability in the regulation of external high levels of uncertainty, information monitoring is costs in GB, moving the monitoring of these costs increasingly important. to wider stakeholders might also have some merits The study highlights the importance of compared to the current methodology. In this stakeholder input and provides useful insights regard, and responding to a concern about the lack of incentives to maximise customer (or total) and potential alternative models that can welfare, the US Federal Energy Regulation inform the GB framework as it is revised over Commission some years ago established a the next few years to the start of RIIO-2. common set of 30 metrics related to reliability Ofgem in its latest thinking seems to be taking (short and long term) and system operation note. (operational efficiency). EPRG
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Fereidoon Sioshansi, Menlo Energy Economics
In February The Wall Street Journal published an electricity mix is nearly 100% hydroelectric. This article on the race between automakers to build means that every ICE converted to an EV a cheaper electric car for India and other growing contributes to significant greenhouse gas markets. In it they reported that electric vehicle reductions – which explains the reason for (EV) prices will need to fall $7,000 for consumers subsidising EVs. in these markets to even consider the vehicles. In Other countries have other reasons for pushing this piece we look at some of the leading EV EVs. China, for example, has identified batteries markets that will likely emerge to produce lower- and EVs as one of its strategic future industries. price electric vehicle offerings. China’s domestic brands, including BYD and BAIC, The conventional wisdom is that EVs will get already dwarf production of second place Tesla, cheaper with longer range, while the infrastructure who barely managed to produce 86,700 cars in will expand to make it faster and more convenient 2017. The scale on China’s dominance in the EV to charge at home, at work or on the road. At the market is shown in Figure 1, with the country same time, more governments around the world accounting for 87% of sales in Asia-Pacific in 2017. will introduce incentives to make them more Figure 1: Total sales of electric vehicles by region, 2011-2017 affordable and/or set mandatory targets. A few cities and several countries have already said they intend to ban all internal combustion engines (ICEs) – some as early as 2025-2030. This in turn has prompted major and minor auto companies to introduce new EV offerings or, in the case of Volvo, a total phase out of ICEs as early as 2019, unilaterally and voluntarily. California’s governor, Jerry Brown, has vowed to put 5mn EVs on the roads by 2030, far more than his prior target of 1.5mn by 2025. Few, other than some oil company executives, dismiss EVs. A recent report by the Centre for Solar Energy and Hydrogen Research Baden-Württemberg (ZSW) projects global EV sales to pass 25mn per annum by 2025. That would be quite a feat given that Source: EV-Volumes in the Wall Street Journal 24 Feb 2018 there are currently only 3.2mn EVs globally. Germany, home to powerful brands such as MBZ, Currently the top EV markets are: BMW and VW, is presently not in the top league: BMW and VW are fourth and fifth in global • China - 1,200,000 rankings. • US - 750,000 (roughly half of which is in To reach the 25mn per annum production capacity California) by 2025, Werner Tillmetz of ZSW says, will be “… tantamount to 20 new GW battery factories and • Japan - 200,000, and more than €100bn in investments – all within just a • Norway - 187,000 few years.” Norway is an outlier. A country of roughly 5mn There is a risk we will become blasé among a ranks first with over 6% EV penetration among all sea of global statistics. We need to lift our own passenger cars. Nearly 40% of new passenger game here irrespective of what other markets auto sales in 2017 were EVs. Norway, of course, is are doing, and support for the charging among a few places where EVs make perfect infrastructure will be key. sense since they can be charged from cheap, and plentiful renewable resources. The country’s EEnergy Informer
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Stuart Leaver, Analyst, [email protected]
Since 2009, UK governments of all parties have charge points every 20 miles across 95% of sought to provide a lasting framework in which England’s Strategic Road Network. electric vehicles (EVs), or ‘ultra-low emission Within the last two years further measures to vehicles’ (ULEVs) can grow, with the support demand for ULEVs have been decarbonisation of both private cars and goods implemented, building upon prior schemes across and passenger carrying vehicles viewed as all vehicle sectors: critical to meeting carbon budgets. £4mn to the Plug-in van grant scheme for The latest growth in demand for ULEVs is a result • trucks above 3.5 tonnes, with vehicles eligible of the recent government announcement on the for grants of up to £20,000 each ban of new conventional petrol and diesel cars and vans by 2040. The UK government has sought • £100mn for a Plug-In Car Grant ways to allow for a “smooth transition” to ULEVs. As of March 2017, a total of 108,641 ULEVs had • Creation of a £400mn Charging Infrastructure been registered. Investment Fund The implementation of ULEV incentives has led to • £40mn for 20 local authorities as part of the a surge in the proportion of vehicles registered for Clean Bus Technology Fund to retrofit vehicles the first time being alternative fuel-based. More • £50mn Plug-in Taxi Grant programme. This will recent trends display an increase in the electric give taxi drivers up to £7,500 off the price of a and plug-in hybrid market since 2014, which is a new vehicle 34% year-on-year increase (see Figure 1). • £7.5mn to boost the uptake for electric two- In 2014 installation of rapid charge points at every wheelers, saving customers £1,500 for new motorway service station was pledged, alongside a purchases, and network of over 500 rapid chargers across the country by March 2015. It was also promised that • ULEV owners may receive up to 75% (capped £32mn for charging infrastructure in 2015-20 at £700) off a domestic charge-point. would be available, leading to the present 11,000 Continued funding is also proposed in the October public charging points. 2017 Automated and Electric Vehicles Bill, a Figure 1: Percentage of cars registered, and number commitment for almost every car and van to be a (thousands) of alternative fuel cars registered (first time) zero-emission vehicle by 2050. This has been passed in the Commons and is now being debated in the House of Lords. These extensive efforts by the UK government are aimed at addressing the increasing projected peak demand of ULEVs in the National Grid’s 2046 analysis. This scenario saw the most likely outcome as peak demand from electric vehicles alone growing to around 5GW, approximately an 8% increase on today’s peak demand value. Source: House of Commons Library, February 2018 Rapid growth in the ULEV market is In October 2017, the Department for Business, anticipated, with continued funding supporting Energy and Industrial Strategy published the Clean a substantial surge in demand. Continued Growth Strategy, which stated that the government innovation in incentives and funding are is “spending £1bn to drive the uptake of ULEVs.” The government also allocated £80mn to support required to help meet expectations for vehicle charging infrastructure deployment, alongside stock in the 2040s. But will customers really £15mn from Highways England to ensure rapid behave as the technocrats expect? House of Commons Clean Energy News
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ENERCON brought its first 350kW rapid charging station into service in March 2018 at the Energy, Education and Experience Centre (EEZ) in Aurich-Sandhorst, Lower Saxony, Germany. ENERCON’s E-Charger 600 prototype is the most powerful rapid charging solution for EVs on the market today, and the supplier aims to promote a transition to renewable energy use on the roads. The new design provides a substantial improvement to the charging capabilities for EV technology, taking approximately eight minutes to charge an electric vehicle with energy lasting as much as 400km worth of travel. Expansion of rapid charging offers an opportunity for additional use of energy from wind converters. It represents an integrated energy concept with greenhouse gas mitigation applications well beyond the energy sector alone. ENERCON is therefore creating an “ecosystem” around its core product, the wind energy converter, to go alongside the new rapid charging stations. Future expansion prospects include power-to-gas, battery storage systems and innovative marketing models for wind energy to secure a wider role in energy applications. ENERCON plans to launch the E-Charger 600 on the commercial market in spring 2018, starting with Germany, and then spreading more widely across Europe. ENERCON
Nissan has announced that it has entered into a partnership with E.ON that will cover the development of electric vehicle-to-grid (V2G) services, renewable energy generation, storage projects and grid integration for Nissan electric vehicle (EV) customers. The partnership with E.ON will utilise a V2G infrastructure and Nissan’s bi-directional charging technology, with installation of 2,000 V2G units planned. The project forms part of Nissan’s Intelligent Mobility strategy, under the Intelligent Integration programme. The Intelligent Mobility strategy covers automated and assisted driving, the development of electric vehicles, as well as installation and innovation in EV charging. Nissan
Econic Technologies has opened a new Carbon Capture Utilisation demonstration plant in Runcorn. The company is striving to unlock the potential of waste CO2 to manufacture polyols (which can be used within agricultural feed stock) at lower, more industrially appropriate temperatures and pressures for mass production. This will occur through carbon capture with a new catalyst developed by Econic Technologies. The demonstration plant provides an opportunity for sustainable benefit by reducing reliance on fossil fuels, but also through economical means by enhancing margins. Econic Technologies hopes that by 2027 as much as 30% of all polyol production will use its catalyst technologies, saving 3.5mn tonnes of CO2 per year. Carbon Capture Journal
Gore Street Capital is aiming to raise £100mn from an initial public offering launched late in March. The Gore Street Energy Storage Fund will invest in large-scale batteries and becomes the world’s first energy storage fund. According to Bloomberg, the listing has already got the backing of NEC Corporation’s NEC Energy Solutions and Japanese engineering consultancy, Nippon Koei Co. Two other green fund initiatives were also launched in March. The Greater Manchester Combined Authority will launch a £15mn loan programme in a bid to accelerate the roll-out of emerging clean technologies. Meanwhile, Scottish Power Energy Networks (SPEN) announced the launch of a new £15mn green economy fund aimed at accelerating the low-carbon transition in transport and heating in Scotland. No link
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Cory Varney, Writer, [email protected]
In the United States, 14 states – accounting for a could be bought months or even years ahead, third of the country’s power consumption – have adjusting and refining the purchases over time as embraced retail competition for residential demand forecasts became clearer. The balance of electricity customers. Professor Stephen requirements would then be purchased or sold on Littlechild recently raised these examples to the spot market. This would include the costs of discuss whether there were lessons for our own load-following. These are the costs of buying extra debates about reforming retail markets. if load is higher than expected and of selling surplus power if load is less than expected. One of these states, Texas, has a similar framework to the UK. In contrast, the other 13 have The state of New Jersey pioneered a new a key difference – the network utility in each area approach, referred to as “load-slice auctions”, is obligated to provide a default supply for which involve Fixed Price Full Requirements customers who do not choose a retail supplier. contracts. The bidder would take the demand risk, They must do so at a rate that passes through the and the costs of this and all the utility’s competitive wholesale market price and ensures requirements, would be priced into the bid. no profit margin for the utility. Pennsylvania initially adopted a mixture of both approaches, before moving entirely to load-slice Littlechild published his paper, The Regulation of auctions – with the load-slice approach now Retail Competition in US Residential Electricity generally adopted. Markets in February. It outlined the regulation of retail competition in these states, set out how In the case of most of the mid-Atlantic and New these markets work, how the default service rates England states, the New Jersey model using load- are set and the resultant impact on competition. slice auctions is followed. Some of the New England states, such as Massachusetts, still include a proportion of “block and spot” purchase. Traditionally, electricity had been supplied to US Meanwhile, in Illinois and New York there is a total consumers by vertically integrated utilities. These reliance on the “block and spot” approach. In the utilities owned generation, had exclusive retail case of New York, the implementation is left to the franchises and traded wholesale power through utilities. In Illinois, the purchasing is carried out by bilateral contracts. A shift to something new a new independent state agency. commenced in the late 1970s, with pressure for Littlechild noted that to promote retail competition competition and reform being heaped on the network utilities are required to make a variety of regulated parts of the US economy. services available to competing suppliers. These In the late 1990s, a further transition began. States include metering, billing revenue collection and that opted to restructure and enable competition the purchase of receivables. This ensures there is saw the incumbent utilities required, or at least less scope for competing utilities to differentiate encouraged, to sell their generation stations and themselves and their products than there is in divest generation assets into separately, markets where retailers provide services for independently-owned companies. This was themselves. followed by enabling retail choice, beginning with larger industrial and commercial customers before being extended through to residential ones. In the case of commercial and industrial customers in these 14 states, the proportion of load provided by competing retail suppliers has grown from 55% The way in which states purchase generation for in 2007 to 85% in the last few years. Littlechild said the default supply differs. For example, in one case there has been widespread satisfaction with the utilities would buy this from the wholesale market competitive retail market for these customers. on a “block and spot” basis. This meant buying There is also no pressure to remove the obligation blocks of peak, off-peak or shoulder generation to on utilities to provide default service for the other meet the forecast level of demand. The blocks 15%.
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The number of residential customers with will save money for these customers when competitive suppliers has grown, though this has compared to the default service rate. happened more slowly. In terms of load (MWh), the Littlechild noted that these two states are proportion in the 14 competitive states has grown exceptional regarding intervention in the from over 20% in 2007 to 50% in 2013. In terms of residential retail market. As of yet, no other state customers, the number was 40% in 2013. Littlechild has indicated an intention or a wish to restrict retail noted that the average figures for the 14 states competition in these ways. overstate the extent of engagement by individual residential customers in the 13 states. As Texas has no default supply service, the proportions are Looking ahead, Littlechild asked whether there around 100%, with all eligible customers deemed would be merit in changing the nature of retail to be with a competitive supplier. competition or its regulation in its present guise. He said that for the US states and other countries that have not yet opened their electricity sectors to In some states, municipal aggregation is permitted. generation and retail competition, the approaches This enables representatives in a municipality to taken in the 13 competitive states – as well as that put a question on a local election ballot paper of Texas – provide customer choice. They are also inviting residents to a vote for aggregation. If more conducive to innovation than vertically supported, representatives will negotiate with integrated monopolies, he added. The electricity competitive suppliers for a better price than the sectors in these markets also tend to be more utility default service rate. If they are successful, efficient than in the US regulated monopoly states. they will switch all residential and small commercial customers in the municipality. Littlechild found no suggestion that the 13 Individual customers will have the ability to opt-out, competitive states were keen to switch to a Texas- while some states allow for the municipal council style system, with no obligation on the incumbent to initial the process without the residents. utility to provide default supply. Despite this, he noted that the Texas-style competitive market A variant of this has occurred in Massachusetts hands competitive suppliers a greater role and and California with Community Choice seems better placed to drive innovation and meet Aggregation (CCA). CCA aims to supply the customer preferences. community with greener electricity than the state requires in its Renewable Portfolio Standard (RPS) Conversely, Littlechild said there was no appetite – the basis on which the utility provides the default in Texas to switch to the model of the 13 states and supply service. no feeling it would be an improvement. He suggested that introducing a default supply obligation in other states or overseas jurisdictions In the case of residential customer switching, this may reduce prices to those customers that are less has become established in the 14 competitive engaged in the market, but could have the states. Participation increased in states that had consequence of removing some of the low prices originally been inactive. On average, there has for customers that are more engaged. He found been a switching rate of 20%. that such a provision would reduce the role of competitive suppliers, the extent of customer But the prices offered by competing suppliers have switching, the rate of innovation and adaption to been questioned by some consumer bodies who change. He concluded this would be a “high price have queried if they are generally lower or higher to pay for an uncertain benefit”. than the default supply service rate. Two states have taken action to address these Littlechild provides an excellent overview. He concerns. They have intervened to restrict the highlights that there is much to learn from prices competing suppliers can charge residential these jurisdictions and thoroughly illustrates customers. Connecticut has prohibited tariffs with the different models of retail competition in variable rates over time, rather than insisting on some key regions. The report should be read fixed price products. New York, meanwhile, closely by those in Ofgem considering models requires competing suppliers that wish to serve to address disengagement. low income customers to guarantee their prices University of Cambridge EPRG
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Cory Varney, Writer, [email protected]
The government is currently assessing feedback In response, the UK Green Building Council from a call for evidence into the Green Deal (UKGBC) said it was a “strong advocate” of the Framework, which marked the start of a PAYS mechanism, but hoped that the Green Deal “fundamental review”. It is examining whether itself could be simplified and changed to become there is scope for changing the framework, and an attractive offer to consumers. Similarly, Energy many stakeholders have argued it should. UK said that ways of increasing customer awareness and demand must be considered to The call for evidence was published alongside the help improve the framework. Clean Growth Strategy on 12 October 2017 and ran until 23 November 2017. In it, the government set Several responses touched on the rate of interest out how uptake of the Green Deal had fallen below charged for measures, noting that households in expectations. It was introduced in 2013, and by lower income groups observe lower energy July 2015 the government announced there would savings after installing measures, lowering the be no further public investment in the scheme. return, and that this should be factored into the rate of interest charged. The framework remains in place to service existing Green Deal Plans. In all, some 20,690 measures Regarding incorporating new measures under the were installed between June 2013 and October Green Deal, the Grantham Research Institute (GRI) 2017 (see Figure 1). and Centre for Climate Change Economics and Policy (CCCEP) called for an annual review of Figure 1: Green Deal measures installed in month evidence for the energy-saving potential and cost effectiveness of new technologies. The UKGBC, meanwhile, said: “We should be focusing on where we need to be in 2050 rather than what we can install today.” It said the likes of battery storage and demand response technologies should be included under the Green Deal, extending it beyond simply energy efficiency improvements. There were contrasting thoughts on whether heat networks should be included. The GRI and CCCEP Source: BEIS said they looked to fulfil the criterion of improving efficiency and reducing consumption, but Citizens Two reasons for the poor uptake were highlighted: Advice suggested consumers should not be first, various barriers to making energy efficiency encouraged to move from regulated energy supply improvements not being addressed and, second, to unregulated heat networks. the scheme’s complexity. The call for evidence noted how it could take some time for consumers Elsewhere, Citizens Advice said there is scope for to engage with various scheme participants before the framework to work with the Each Homes securing a Green Deal Plan. The government said Counts review to simplify the consumer protection it believed that the Pay as You Save (PAYS) framework and raise standards. This would help to mechanism could still play a valuable role and rectify the government’s communications on the sought evidence on the potential future role for Green Deal, which had been potentially PAYS and its ability to increase the number of misleading, adding to consumer confusion. energy efficiency improvements. It also requested While there is support for the PAYS views on a range of other factors, including the scope for simplifying the Green Deal Framework, mechanism, these responses show there is changes in wider industry and policy context, and ample scope for changing the framework. technological developments. BEIS Energy UK UKGBC Citizens Advice Grantham Research Institute
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Neil Mearns, Analyst, [email protected]
Here, we compare two reports published a year The fourth annual report on demand-side flexibility and a half apart, to provide a measure of the rate (DSF) published by National Grid’s Power of change but also continuing uncertainty Responsive in February, however, indicated that surrounding flexibility services in Great Britain. the DSF market remained complex due to several different routes to market and uncertainties around Last June, Pöyry Management Consulting and payback times. DSF was found to be increasingly Imperial College London (ICL) published a joint mainstream, due to greater storage participation in report, Roadmap for Flexibility Services to 2030. contracted markets and the realisation of the This explored different possibilities for the future benefits of co-locating storage with other sources provision of flexibility. It remains the baseline for of DSF. Of all balancing services (provided thinking by the Committee on Climate Change, between April 2016 and March 2017) by DSF, the which commissioned the report. The report set out vast majority was for Short Term Operating a roadmap for improving the flexibility of the UK’s Reserve (STOR). electricity system in a way that is consistent with the UK’s carbon budgets. The level of DSF providers participating in Fast Reserve remained low. Power Responsive said this System flexibility was partly due to participants choosing instead to “… the ability to adjust generation or provide frequency response services, which were consumption in the presence of network seen as more suitable for lithium battery storage constraints to maintain a secure system technologies. operation for reliable service to consumers.” Pöyry / ICL Demand-side flexibility (DSF) Encompasses several categories of flexible The results suggested that integrating new response, including DSR, DSR by onsite sources of flexibility, as opposed to conventional generation and energy storage, and distributed thermal generation, could potentially have very generation and storage for export. significant system-wide benefits, with the difference estimated at £3.2bn to £4.7bn/year. Between April 2016 and March 2017, 685MW of Based on modelling analysis, the authors assessed Firm Frequency Response (FFR) was accepted by the required range of additional capacity of National Grid, with tendered volumes far out- different technologies to efficiently meet the 2030 stripping the volume accepted. Power Responsive carbon intensity targets (see Figure 1). The ‘central’ suggested that this was due to recent interest in level of additional capacity is the basis from which battery storage. It was also noted that in January technology deployment over a given period should 2017 the entry threshold for participating in FFR be assessed, with the ‘high’ and ‘low’ figures was reduced from 10MW to 1MW to increase reflecting the range of penetration across four accessibility for smaller participants. This resulted main future scenarios that were modelled. What is in a significant increase in the number of monthly noteworthy is that storage is expected to provide tenders received. around 40% of the market by 2030, with the It is clear from this latest review by National demand-side expected to provide over 20%. Grid that the current DSF market has several Figure 1: Potential levels of flexibility technology capacity (GW) barriers that hinder entry. Efforts are being made to address them. The Pöyry / ICL report is still the baseline report we reference, but it’s timely to have an audit of progress since its publication. CCC Power Responsive Source: Imperial College London
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Tom Andrews, Senior Analyst, New Markets, [email protected]
The US electricity storage market could reach 7GW from wholesale market participation alone. If 50GW over the next decade if costs keep states cooperate, the full 50GW of energy storage declining, according to a report published by the could be unlocked. Brattle Group on 22 February. A week earlier, on Grid operators will have 270 days to set tariffs from 15 February, the Federal Energy Regulatory the date the Order is published, and then a year to Commission (FERC) issued order 841 directing implement. Brattle noted that its predictions regional grid operators to devise new storage required further falls in the cost of storage assets market tariffs. to become economically viable, explaining that its Brattle noted that the energy industry tends to projects relied on an installed cost of $350/kWh. favour electricity storage, and that the technology Questions also remained on how best to operate would become transformative as costs fall further. storage to provide value to the environment, While retail customers look to reduce costs and existing generation plant, and retail customers, control their own energy use, other applications when operating in both wholesale power markets will look to value stack multiple revenues, much as and regulated services markets, as well as on how in the GB market. These revenues will expand from to avoid giving double revenues for providing the the energy arbitrage, ancillary services and same energy. Proper design of incentives will be capacity revenues currently seen to include required in order to ensure that use of storage to flexibility, environmental, transmission, distribution reduce customer charges is in line with its benefits and customer values. While capital cost estimates to the wider system. vary widely, they are projected to decline 5-15% Six states have already begun to incorporate per year until 2020. energy storage into energy regulations: FERC’s order 841, approved by five votes to nil, will California has a goal of 1,325MW by 2020 remove barriers to the participation of energy • storage in energy, capacity and ancillary services • Massachusetts is seeking 200MWh by 2020 markets operated by Regional Transmission Organisations (RTOs) and Independent System • Oregon requires each utility to source 5MW by Operators (ISOs). FERC hopes that this 2020 requirement will widen competition, increasing • New York is still in planning stages, but has market efficiency, and support system resilience. proposed a target of over 1,500MW by 2030, Storage wholesale transactions should be and executed at the locational marginal price, and resource should be dispatched and be able to set • Arizona and Nevada have legislated calls for the wholesale price. Storage must be able to de- regulators to investigate storage. rate its capacity to meet minimum run-time FERC commissioners reportedly expressed requirements. disappointment that they could not issue a similar However, RTOs and ISOs retain flexibility to Order regarding distributed energy resources – establish their own products, set the appropriate the US term for embedded generators – at the minimum run-time requirements, and address same meeting. technical details. Also, Order 841 does not force A technical conference will be held in April to them to change the requirements on existing address issues in this market. products, introduce new products, or exempt storage from performance requirements. State This strong federal support for energy storage initiatives will be needed to reduce barriers to nevertheless allows significant diversity at the entry and avoid over-payment for services that state level. There are a wide range of cannot be delivered at the same time. conflicting cost projections here but achieving However, the Order has been noted as a landmark 5-15% reductions could be transformative. in the development of the US energy storage The Brattle Group FERC market, and Brattle assessed that it could unlock
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Craig Lowrey, [email protected]
A new study has reported that the global market home market, British Gas is the only supplier to for smart thermostat devices is expected to have developed an in-house product range, reach $3.5bn by 2020, driven by growing through Hive. The supplier has sold around deployment of the technology and growing 750,000 devices as of December 2017 and intends consumer awareness of their potential. to focus future strategy around these products. The study by Market Research Future published in As with other elements of energy service March 2018 states that the demand-connected provision, the question remains about potential homes with such systems integrated into them disruptors and the role of technology companies in represent an “immense opportunity for the growth particular. Although companies like Google and of the smart thermostat market”. In this Amazon do not currently offer these types of environment, the Internet of Things (IoT) - the services directly, Amazon’s US operations do offer wireless connectivity of any device with internet smart home “consultations”. Google, meanwhile, access to one another - has a key role to play in already has a presence in the home services the evolution of the energy sector as broadband market through the Nest thermostat. access becomes more widespread and the costs The fact that IoT is already in existence means that of technology decrease. for energy suppliers the issue is about being able In the global market, the study notes that some of to evolve their offerings in such a manner that they the main participants are Nest Labs (US), Emerson are future-proof. Indeed, the analyst firm Gartner Electric (US), Schneider Electric (France), has released estimates that, by 2020, there will be Honeywell International (US), Carrier Corporation over 20bn connected devices globally, offering (US), Tado (Germany), Ingersoll Rand (Ireland), considerable potential in terms of new products Nortek (France), Ecobee (Canada) and Control4 and the experience that customers will expect. Corporation (US). Aided by internet penetration The myriad of devices that could be connected and technological advancements, North America is through IoT highlights a further dynamic for energy leading the smart thermostat market, while the suppliers - cooperation with other companies and Asia-Pacific region is expected to see strong service provision outside the traditional utility growth as cloud capabilities expand. sector. Strategic relationships may be necessary Figure 1: Smart thermostat devices in GB given the pace of innovation.
Category Suppliers The choice of partners will be crucial, the report In-house argues, as new relationships need to be able to British Gas, E.ON and Ovo Energy development add to the understanding of customer behaviour, Strong add value, and lead to the creation of new EDF Energy and SSE partnerships products and services that benefit all parties in the White label customer experience. Scottish Power, EDF Energy and Flow Energy partnerships In the GB market, for example, npower already EDF Energy, npower, E.ON UK, SSE, First Utility, Third-party Octopus Energy, Igloo Energy Co-operative Energy offers Nest technology to its customers at a bundles and Engie discounted rate, while SSE and E.ON are among the suppliers that have partnerships with Tado. Source: Cornwall Insight analysis Perhaps the most common usage of IoT as far In the GB market, although suppliers have pursued different strategies, third-party bundles have as energy is concerned relates to smart dominated (see Figure 1). These bundles offer a meters and apps that allow remote control of low-risk point of entry, whilst also providing value- domestic heating. This approach is easily added products. scalable as technology and customer requirements grow. Smart thermostats have been the first technology to take off through the supplier channel. While all Market Research Future Fortune Gartner the large suppliers are active in the connected
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Josephine Lord, Regulatory consultant, [email protected]
In a paper published in February for the that ultimately the combined import capacity of University of Cambridge Energy Policy Research both pipelines of 115mcm/day could not be Group (CPRG), Dr Chi Kong Chyong explores the guaranteed due to domestic bottlenecks when very different experiences of the UK and Italian combined with lower production from the North gas markets when faced with a recent stress Sea. event. Given this problem, flows from storage were called on, at 83mcm/day on 12 December, where the maximum combined capacity was close to In the week of 11 December 2017, events unfolded 90mcm/day. Next in the “merit order” were flows in the UK that had the potential to cause a crisis in from LNG terminals: 11mcm flowed from Dragon the UK gas system. On the Monday, the Forties and 12mcm from Isle of Grain (see Figure 1). South Pipeline System, which carries around 40% of Hook, which mainly imports from Qatar, did not North Sea oil and gas to the UK, was fully shut respond, as Qatari cargoes were flowing to China, down for a few weeks due to faults in the oil Korea, India and Turkey to meet high seasonal pipeline. On the next day, there was an explosion demand there. at Baumgarten in Austria, a major delivery hub of gas coming from Russia, causing the shutdown of Figure 1: UK gas supply 28 Nov – 12 Dec 2017 (mcm/day) a major pipeline to Italy; it declared a state of emergency. Added to these events was news about problems with the gas supply coming from Norway. The events were set against the background of one of the coldest weeks in the past few years in Britain and continental Europe. Market prices reacted immediately: the within-day gas price in the UK reached around 90p/th during 12 December, 50% above its closing price just a few days before. This signalled the scarcity in the UK gas system, which allowed alternative sources of supply – storage facilities, imports from Europe and LNG – to respond to supply shortfalls. In Source: EPRG particular, flows across the BBL and IUK Dutch and Despite the price hike, the closing wholesale price Belgian gas interconnectors respectively increased on 12 December was 67.5p/th, or just 17% above substantially, such that on 12 December (when the the closing wholesale price of 5 December, and Norwegian Troll gas field outage was at its height) the next day the price stabilised at 61.25p/th. The the combined import flow at 101mcm was the extra costs of the high prices on the day were paid largest flow across these two lines since March by the shippers who were short on the day to 2013, when another acute price spike took place. those who could provide the extra gas needed to However, a further issue the system had to close their short positions. In this case, the contend with was constraints on the system. The international LNG market reacted promptly: the UK’s gas system was built to accommodate flows maiden LNG cargo from Russia’s Yamal LNG from north to south. As the Forties pipeline shut- project, initially heading to Asia, was diverted and down had curtailed North Sea production, the sold on the spot market to a UK-based trading arm transmission system could not accommodate large of Petronas, to be taken to the Grain LNG terminal. volumes coming from the south at Bacton where The within-day price of 90p/th was around 21% the BBL and IUK pipelines land. higher than the landed spot price of the day in By the end of the day National Grid had instructed Japan and Turkey, around 27% higher than in BBL that nominations may not be met. This meant Argentina and Mexico and 30% higher than in
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Turkey. The price was a premium against all NBP Figure 2: Closing day-ahead prices (€/MWh) forward contracts, allowing the Grain LNG terminal to optimise its stocks and attract the spot cargo. The high within-day spot price and the premium against forward contracts pushed up the NBP January 2018 forward contract to 74p/th, slightly below the landed spot price in Asia. However, the Yamal LNG still responded because the UK was closer than north Asia. Had the situation been more drastic or lasted Source: EPRG longer, the forward contract price would have Two reasons are suggested for this: that PSV is not been higher than the Asian spot price and hence a liquid spot or forward market, and/or there was a triggered more LNG diversion towards the UK. Yet clear disconnect between the TTF and PSV market it is only possible to attract spot LNG when the areas, as otherwise there would have been a price near-term forward markets are sufficiently liquid, as spike in the TTF as well on 12 December. it takes time for a spot cargo to arrive – within day However, even if PSV is not liquid, the Italian or day-ahead price spikes are not sufficient, as suppliers who were in a short position could have physical delivery only happens after the price procured spot LNG cargoes using TTF or even spike event. All in all, Chyong concludes, the UK NBP forward market prices, which would have was a very competitive market in the international allowed the premium for LNG spot transactions to context that day, and with at least 25% of LNG be locked in immediately. This would have worked cargoes traded on a short term and flexible basis because PSV and TTF are connected by a long- (1,000 cargoes a year in 2014). distance pipeline, TENP. On that day, however, the However, the author said that it is not just that the import flow to Italy was at only 37% of its technical UK system is resilient to these types of events due capacity at 234.3TWh. As there were no technical to its diversity of gas infrastructure and available faults reported day, the paper posits that the only supply sources. He stressed that the market reason for the huge price differential between PSV design in place also allowed within-day prices to and TTF was either contractual congestion on the react immediately to supply and demand TENP pipeline or that the marginal source of imbalances following Ofgem’s gas security of supply to Italy was not gas from TENP. supply Significant Code Review. In turn, sharp This, Chyong argues, hints at the existence of increases in within-day prices triggered demand- distortions in the Italian gas market (and/or other side response in the form of switching more gas to markets along the TENP route.) Had the Italian coal-based electricity generation. As a result, the market been well integrated with the TTF market price hike on the day was a result of competitive area, there would not have been such a huge price forces determining whether to buy LNG, how differential while the TENP pipeline was much, whether to switch off gas plants, fire up coal significantly under-utilised. Had there been no plants, and again by how much. market imperfections, the price differential The author concludes that the UK, even with a between PSV and TTF would have been much significant reduction in storage capacity, navigated narrower and the spot prices in Italy would have through the “perfect storm” comfortably. been lower than was the case. This clear account and explanation of the The situation in Italy on 12 December was in stark events of December 2017 demonstrates the contrast to the UK. Italy declared a state of robustness, flexibility and integration of the GB emergency after the Baumgarten explosion and arrangements, with the Italian experience PSV, its wholesale market indicator, reached providing a telling counter example. Of course, €75/MWh, more than three times the previous since December, the GB market has day’s price and the price at the liquid Dutch TTF experienced the ‘Beast from the East’, but the market (see Figure 2). At such a premium, all thesis set out in this thorough article would sources of supplies to Italy responded, except for seem to hold up. spot LNG. EPRG
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Ben Cerini, Consultant, [email protected]
In February 2018, the dispatch price for Victorian In addition to challenges from geography and electricity rose to more than A$13,000/MWh and temperature, baseload power is becoming then dropped to A$0/MWh ten minutes later. increasingly unreliable. Approximately 75% of Increasing volatility in prices has triggered Australia’s coal-fired power stations are beyond debate over resilience and reliability issues in the their original design life and account for 63% of wider National Energy Market (NEM). total electricity generation. Coal generators are increasingly failing to respond, especially during high temperature events, such as that which There are a number of market design and happened in February 2017, causing blackouts, geographic issues that make administering and and more recently in mid-December 2017 when operating the NEM in Australia very different from four coal-fired units (400-700MW) tripped offline the GB system. Some of these differences within a week, luckily without any major incident. concerning key market issues between GB and During two of these periods, the recently installed Australia are shown in Figure 1. 100MW battery in South Australia was called upon twice to correct these sudden losses. Figure 1: High-level market comparison So, the NEM is a geographically dispersed system, Market Issues GB Australia with a number of congestion points that relies on Electricity Bi-lateral (~85% Gross Pool increasingly stressed baseload generation. The Market Type OTC) result has been continued price rises and a Market Price £3,000/MWh A$14,000/MWh (dispatch degrading energy system that is failing to deliver Cap price) reliable power during high temperature peak Regional Pricing No Yes demand periods. Carbon Price Yes No 15% (of which 33,000GWh by 2020 or Renewable The price spike seen in Victoria on 7 February 30% from ~23.5% of generation Energy Target 2018 has become more commonplace both in electricity) Victoria and across the NEM in recent years (see 30mins 30mins (from the average Figure 2). Looking back just 12 months to the end Wholesale Spot of 5min dispatch prices – of summer 2017, between 6 February and 6 March Price Intervals as of July 2021 price will settled on 5min intervals) 2017, Victoria saw more than 34 instances of energy prices greater than A$2,000/MWh (for a The NEM is an energy-only market in that it relies 30min settlement period – calculated by averaging on price alone to bring generation and demand the 5min dispatch prices within that period) and back into equilibrium. It covers the longest 123 price events across the NEM between January interconnected power system in the world, – November 2017. stretching 5,000km, and incorporates around 40,000km of transmission lines (compared to The 7 February dispatch price spike over A$13,000 around 8,700km in England and Wales). The NEM (just below the price cap of A$14,000/MWh), which incorporates regional pricing and relies heavily on occurred at 1:40pm was not preceded by any Lack a limited number of interconnectors between of Reserve (LOR) notice. However, a preliminary states resulting in differing wholesale prices within LOR had been issued for later that day from 4:30- each state. 6pm. The resulting wholesale settlement price was A$2,265/MWh at 2pm. This was only the fourth The geographic constraints are exacerbated by highest settlement price for the day. The highest high temperatures over summer. The NEM, unlike price of A$6,846/MWh was recorded at 4pm the GB Market, is a summer peaking system (from during the predicted LOR period. November through February/March). High temperatures in the summer stress generators, the Previously, on 29 January 2018, settlement prices transmission and distribution system, as well as were greater than A$3,000/MWh and large increase demand due to air-conditioning. portions of Victoria experienced blackouts. The
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result of a combination of high temperatures and meet expected future demand. High energy prices record demand stressed the distribution system, in the NEM should, in theory, be a sufficient signal causing portions of it to fail. to the market that more generation capacity is Figure 2: National retail electricity price index, 1989-90 to required and ultimately reward those generators 2013-14 that are able to generate at times of peak demand. However, the AEMO has recently felt it necessary to execute more than 1,000MW of strategic reserve contracts to provide out of market capacity, triggered when forecast demand places the NEM outside security standards. Whether or not the NEM requires a new mechanism to incentivise new capacity, the AER may think twice before implementing a capacity auction similar to that implemented in GB. With the recent GB capacity auctions clearing at record lows and failing to provide sufficient returns to It has become apparent that, while there are incentivise new generation, a more targeted policy instances of supply shortages at times on the NEM may be required to incentivise more flexible assets that help drive up prices, recent events affecting and build grid resilience. pricing and reliability of the NEM were not necessarily a result of a lack of generating capacity. Accordingly, it is likely that price spikes To address the perceived lack of future will continue to occur until market rules are dispatchable NEM capacity, the Federal amended to incentivise reliability and resilience. Government has developed a National Energy Guarantee (NEG). The proposed NEG will require retailers to contract with, or directly invest in, Recent issues with power supply and rising prices dispatchable generation to ensure that “there is a in the NEM have led some to consider that minimum amount of dispatchable energy available Australia is on the brink of an energy ‘crisis’. The to meet consumer and system needs”. The exact supposed energy ‘crisis’ reached a tipping point in volume will be based on forecasted peak loads September 2016 with the State-wide blackout in and the Reliability Standard set by the Australian South Australia. Energy Market Commission. The goal of the NEG is to provide energy security in a technology neutral Since then, the Australian Energy Market Operator manner. However, depending on the final (AEMO) and the government leaders of the States methodology for determining each retailer’s and Territories have been under pressure to ‘dispatchable’ generation requirement, the NEG provide a plan for a more robust electricity system. may end up being an expensive bi-lateral policy But changing market rules and regulation takes that drives up energy bills for consumers without time, and both Federal policy and Australian providing energy security. Energy Regulator (AER) action has been slow. To date, South Australia and Victoria have been the The NEG is currently under review by the Energy most active states in driving the integration of Security Board, which is expected to report on the renewable energy generation as well as demand results of its consultation later in April. reduction projects and policies. But regulators Both Australia and GB use price to clear the have also been investigating instances of rent market. But high prices come at a political seeking behaviour in both New South Wales and Queensland by generators where bidding cost. The NEG is based on a contracting practices appear to target regional dispatch and obligation (or “capacity tickets”), but where network constraints drive up prices. mechanisms such as these have not been in vogue for some time. It creates very different incentives to capacity-based auctions. The NEM’s energy-only market sits in stark Energy White Paper, 2015 Australian Energy contrast to the decision in GB to introduce a Update, 2016 Energy Security Board, 2016 capacity market ensuring sufficient generation to
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Stuart Leaver, Analyst, [email protected]
Results of the greenhouse gas (GHG) emissions the beginning of a new chapter in the global fight auction, held on 21 February, were recently made against climate change…California, Québec, and public. The joint venture by California Air now Ontario, three ‘sub-nationals’ with a Resources Board (CARB) alongside Québec’s population of 61mn and a combined GDP that Ministry of Sustainable Development, makes it the fourth largest economy on the planet, Environment and the Fight against Climate have successfully linked their programs to slash Change, and the Ontario Ministry of the climate-changing gases to meet ambitious climate Environment and Climate Change (MEACC) has goals. This is another example of forward-looking created an expanded carbon trading network. provinces, states and regions taking effective steps today to address the looming danger of Fresh start climate change.” The venture is the first carbon trading settlement Solid foundations collaboration of its type since Ontario’s link to the Québec-California market, and was made effective Recent years have seen surges in the estimated on 1 January 2018. The auction saw 98,215,920 proportion of carbon trading permits for the current year emission units being sold at $18.44 Québec-California market, as shown in Figure 1, CAD ($14.61 USD), and 8,576,000 emission units with Québec substantially surpassing the EU in year 2021 for $18.34 CAD ($14.53 USD). Total proportion of auction permits in 2014. Figures revenue generation for Québec was approximately published by the CARB in the most recent 21 $193mn CAD ($149mn USD), a substantial margin December 2017 report display a significant acting as funding for the Canadian Green Fund. increase in the amount of total vintage transfers, The fund acts to provide investment to accelerate from 40 in 2013 valued at $1,391,090 USD, to 475 the growth of the low-carbon renewable market in 2016 valued at $171,633,652 USD. The rise in and project innovation for the benefit of Québec auction transfers arose due to environmental society, while finances from the auction bolster the legislation and government promotion of the measures outlined within the 2013-20 Climate Emissions Trading Scheme (ETS) since 2013, Change Action Plan. including distribution of free emissions permits to incentivise low-carbon innovation. To date, Québec’s involvement within the carbon market has provided over $2.2bn CAD for the Figure 1: Estimated percentage of total auction permits region. All of this has been used to support projects allowing the low-carbon transition of companies, municipalities, institutions, transport hubs and everyday households to a more sustainable, low-carbon and climate change- resistant world. California takes a similar approach with most of the revenue funding the Greenhouse Gas Reduction Fund. This initiative invests the proceeds into projects that reduce GHG emissions, such as new renewable generation, energy efficiency measures and construction of smart grid schemes. At least 25% of funding is used to benefit disadvantaged communities suffering from issues like fuel poverty Source: International Carbon Action Partnership and providing improved energy infrastructure. The This provides a promising indication of investment additional revenue from permits for utilities is used in future renewables from the increase in funding to assist customers with energy bills. because of auction sales (Figure 2, where RGGI Mary D. Nichols, Chair of the California Air stands for the Regional Greenhouse Gas Initiative, Resources Board, commented: “This auction marks a trading arrangement covering the Northeast and Mid-Atlantic states in the US). These trends are set
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to continue up until 2020, when carbon trading • Up to $20,000 CAD to install ENERGY STAR auction permits begin to level off. certified ground source heat pumps (GSHP) Québec has proposed to reduce GHG emissions • Up to $5,800 CAD reductions on air source by 20% below 1990 levels by 2020, with continued heat pumps (ASHP) that are ENERGY STAR investment to reduce further by 37.5% by 2030, certified or meet requirements for the program and 80-95% by 2050. These are in accordance with the Under2MOU (Memorandum of • Up to $4,500 CAD to repair any existing heat Understanding) of the Subnational Global Climate pump systems Leadership, committing to limit potential global • Up to $5,000 CAD to replace windows that warming to below 2°C. These expectations fall in meet requirements for the program line with recommendations by Intergovernmental Panel on Climate Change (IPCC) for industrialised • Up to $7,200 CAD for insulation as well as a nations to avoid dangerous global effects in the $100 rebate for air sealing, and future. • A $100 CAD smart thermostat rebate through a Figure 2: Total auction revenues 2012-2016 (USD billion) partnership with Save on Energy. The Green Ontario Fund is also planning to launch the GreenON support system, a free phone service that offers impartial advice from energy specialists to educate consumers and help them save money in the long term as well as reducing their carbon emissions from such home upgrades. The possibility of future partners joining this cooperation has been described as “positive” due Source: International Carbon Action Partnership, September 2016 to integrated measures allowing for new engagement. Regulations for a cap-and-trade It is hoped the integration of Ontario into this system for GHG emission allowances states that network will increase the level of low-carbon emitters covered by the third compliance period, innovation. Isabelle Melançon, Québec Minister for including industrial companies related to electricity Sustainable Development, the Environment and sectors alongside fossil fuel distributors, have until the Fight against Climate Change, stated: “The 31 December 2020 to meet environmental arrival of Ontario in the market, which was already obligations. The auction system therefore provides the largest in North America, strengthens its flexible purchasing strategies to easily transition economic and environmental performance… Other goals towards more sustainable practices and low- partners are interested in our carbon market and carbon initiatives. This acts as a buffer for are considering joining.” She added: “The carbon organisations who wish to join, promoting rapid market, coupled with the numerous initiatives that action to join an already powerful cooperative have been implemented locally to reduce group. greenhouse gas emissions, lower the risks and avoid the worst consequences of climate change, Three more GHG emissions auctions in 2018 are to are promising measures for protecting the be held, the next scheduled to take place on 15 environment and the health of our respective May 2018, with an official announcement published economies. This enables us to make concrete 60 days prior, allowing registration of both new progress towards achieving our GHG emission and existing contributors. mitigation goal for a new Québec that is more An interesting project, which shows there is prosperous, inclusive, and green.” life after the EU ETS. It is also noteworthy that Sharing the benefits as revenues rise, all three jurisdictions recycle Ontario has possible sinks for GHG emission the monies into low-carbon investment. The auction revenue, including the Green Ontario UK government has always refused to Fund, which offers the following to households to hypothecate monies in this way. complete any low-carbon renovations to homes: EMT Green Fund Cap and Trade ICAP MOU Green Ontario Fund GreenON
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Tom Andrews, Senior Analyst, New Markets, [email protected]
On 25 January 2018, EirGrid and SONI published similar design: for example, the most recent T-1 GB the final Capacity Remuneration Mechanism CM delivered a provisional result of £6.00/kW. The (CRM) results for the inaugural Irish T-1 auction CRM delivered a higher subsidy due to: for capacity next winter. The scheme replaced the preponderance of older plant on the Irish the Capacity Payment Mechanism (CPM), which • remunerated all generators with a fixed payment, system, which requires a higher price to remain with an auction to deliver more efficient open economic outcomes to Irish consumers. The • the structure of the market, where participants auction cleared at €41.80/kW (£38.10/kW), 42% can never recover more than €500/MWh or lower than the 2018 CPM, saving €216,000 the expected marginal peaking price (in GB, (£191,000) compared to the older mechanism. participants can receive all upside from spikes The CRM seeks to subsidise sufficient generation in the wholesale markets or balancing to meet a security standard, set at the annual loss mechanism), and of load expectation (eight hours). This entailed the • the stiffer penalties in the Irish market: 1.5 times procurement of 9,066MW of de-rated capacity. Of annual revenue, compared with 200% of the 100 plants which bid into the auction, 93 were monthly CM revenue, protecting customers successful, including 247.7MW of new capacity. and suppliers but increasing generator risk. Most of the new capacity, 244.6MW, was in the form of demand-side response, and the remaining The results of the auction did not leave all parties 3.1MW was gas turbines. satisfied. Several major fossil-fuelled plants failed to secure CRM payments, and generators in However, there are serious constraints between Antrim, Cork and Dublin are now facing closure. areas of the Irish network. To account for this, the Belfast power stations Ballylumford unit B and island is divided into three sub-regions: Northern Kilroot, as well as one Huntstown unit in Dublin Ireland, Ireland, and Greater Dublin. If the auction and Aghada and Marina in Cork are under threat of fails to secure sufficient capacity in each sub- closure due to failing to secure agreements. region, higher-priced awards will be made to Viridian, which operates Huntstown, has already generators in the sub-regions. Generators reportedly been refused permission to close the receiving higher subsidy were: Ballylumford in station early by the Commission for the Regulation Northern Ireland, paid £91.37/kW, and Huntstown of Utilities, the Irish Republic’s energy regulator. and North Wall in Greater Dublin, paid €42.171/kW Viridian noted that it had been refused permission and €42.99/kW respectively. to waive the three-year notice period for closing a This first CRM in Ireland cleared at a much higher plant and said that the plant would not be able to price than the GB Capacity Market (CM), despite recover its costs without subsidy. It also suggested Figure 1: Capacity procured in Irish CRM (MW) that it might be forced to close both of its Huntstown plants, despite one securing a contract. Security of supply concerns have also been raised regarding the closure of the Kilroot power station, which operator AES plans for May 2018. The 660MW station has traditionally been seen as crucial to supporting the Northern Irish grid, and commentators suggested that this will leave NI dependent on power generation in the RoI. If existing older plant does close, the CRM has a chance of delivering large-scale new build plant in the future. This was the intent behind the GB CM, but it has not yet delivered.
Source: SEMO EirGrid & SONI
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The Federal Energy Regulatory Commission (FERC), the agency that regulates the transmission and wholesale of electricity and natural gas in the USA, has approved a plan from ISO-New England to reform its capacity market auctions. The aim is to prevent subsidised resources from depressing prices in the capacity market, and to protect unsubsidised plants from being pushed offline. The plan, which was first proposed in April 2017, will see the capacity market auctions split into two parts in a bid to better manage subsidised resources. Although the first round will undergo little change, the second round will see retiring resources that earn capacity supply obligations transfer those obligations to new, subsidised resources that do not have one. The existing resource can then retire and pay the subsidised resource for meeting the obligation. Utility Dive
Customers of American utilities Pacific Gas and Electric (PG&E) and Southern California Edison could save more than $20,000 off the cost of a new BMW i3 electric vehicle. PG&E announced that customers could use a $10,000 discount on the vehicles through to 31 May. Furthermore, customers will have the option of enrolling on BMW’s ChargeNow program, which will offer two years of free charging at participating EVgo stations. The discount will help attract consumers to the new vehicle, while also helping California meet its ambitions goal of having 5mn zero-emission electric vehicles on the road by 2030. The Public Service Electric and Gas Company in New Jersey is also offering a $10,000 discount off new electric BMWs. Meanwhile, Hawaiian utilities have offered a similar discount off the new Nissan Leaf. Utility Dive
The Australian Gas Infrastructure Group (AGIG), Australia’s top gas distribution network operator, has announced plans to mix hydrogen into its supplies in a bid to maximise use of excess renewable generation. Hydrogen produced by a power-to-gas demonstration plant, which will be built in Adelaide, will be injected into the local gas distribution network to provide low-carbon gas to households and businesses. Andrew Staniford, AGIG chief customer officer, explained: “The project is expected to be the first in Australia where renewable electricity is stored and distributed in the gas network as hydrogen, providing an additional market for fluctuating renewable electricity”. Greentech Media
Apple has said that its efforts to create a greener supply chain resulted in “significant progress” in 2017 in its twelfth annual Supplier Responsibility Progress Report, published this month. It said that more of its products had been made using renewable energy, while also reducing overall energy usage and carbon emissions. Furthermore, suppliers working with Apple-implemented energy-efficiency improvements had reduced more than 320,000 annualised metric tons of greenhouse gas emissions in 2017. It said that over three-quarters (77%) of suppliers participated in the programme during 2017. BusinessGreen Next time we will take a look at faster switching programme in GB, the Vandebron community trading scheme in Germany, the emergence of time of use tariffs in Texas and in GB, variable solar FiTs in Victoria, a blockchain update and much, much more. The issue will appear in the final week of April.
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Tom Andrews, Senior Analyst, New Markets, [email protected]
German onshore wind prices spike The French senate rejected the proposed amendments on 15 March. 709MW of German onshore wind was allocated on 20 February, following the first of three annual Reuters auctions. Price drops in 2017 from €57.10/MWh to 500MW of onshore wind to be built in France €38.20/MWh, were not continued, with this most recent auction delivering an average price of On 1 March, 22 projects with total capacity of €47.30/MWh (£42.17/MWh) - 24% higher than the 500MW won at auction in France, achieving an previous auction. average price of €65.40/MWh (£55.92/MWh). Around one-third of winners were community Also, unlike the previous auction, which delivered groups, following changes to rules to provide a 95% community group projects, just 19 of the 83 bonus for community participation. winning bidders were community groups. In part, this reflects the changes to auction rules which Onshore wind prices are higher in France than removed the provision allowing community groups other European countries, despite similar 54-months to complete projects. They are now conditions. This is largely due to the administrative restricted to 30 months for delivery. All bidders process for permitting, which can last up to nine must also now hold pollution permits under the years and forces developers to lock in technology ahead of the auction, rather than obtaining this choices early, depriving them of the ability to afterwards. utilise the latest and most efficient turbines. Turbine height is also often restricted to just 150m. 90MW of pilot turbines were procured outside the Secretary of State Sébastien Lecornu set out a 10- auctions, and this capacity must be removed from point plan in January to cut red-tape on permitting. three subsequent auctions. Therefore, the second annual auction, opened on 7 March, seeks only Further 500MW auctions will be held at six- 670MW. This will also be held under the new rules. monthly intervals, to secure 3GW total capacity Results are expected on 2 May, with bidders to over three years. The next auction closes on 1 have registered by 11 April. June. Bundesnetzagentur Ministère de la Transition écologique et solidaire French government reconsiders offshore wind 10-point plan (in French) subsidies Vattenfall to build Europe’s first subsidy-free French financial daily Les Echoes reported on 9 offshore wind farm March that the French government has introduced Vattenfall is planning to build a 700-750MW legislation to renegotiate or cancel six projects offshore wind farm, which is likely to be the first totalling 3GW of offshore wind capacity, awarded subsidy-free farm to be commissioned in Europe. in 2012-14 for delivery in 2023. The contracts would subsidise generation at around €200/MWh. The Hollandse Kust Zuid offshore wind farm is due to be online in 2022, and there are currentlly French energy regulator CRE has criticised the opportunities for substantial cost reductions for the high cost of the subsidies, more than double the project. cost of more recent auctions. The government therefore wanted to renegotiate prices, with an Of 51 baseload deals since the start of 2018, the option on cancelling the contracts and launch new most recent average transaction has been tenders if no agreement can be reached. €38.75/MWh (£34/MWh). These prices provide a cost reduction of €16.00/MWh per year against the Due to local opposition blocking progress, none of first two Dutch offshore tenders held in 2016, the sites has yet reached a decision to proceed, Borselle III and IV, which had transactions of and France does not yet boast a single offshore €54.50MWh (£48/MWh). This is promising for the wind turbine. Nonetheless, industry group SER said prospect of future subsidy-free generation builds. that renegotiation would be a disastrous signal to investors in French offshore wind. ICIS
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