In This Issue We Focus on Key Market and Regulatory Development Topics in the UK, Australia and the USA
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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. 2 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.