Tom Crisp Editor 01603 542130 [email protected]

ENERGY PERSPECTIVE 02 Monday 15/10 – The government’s Green GB Week launches, SSE-npower faces double celebrating 10 years of the Climate Change Act 2008. The challenge of integration and government publishes a request to the Committee on Climate Change regulation – Robert Buckley seeking advice on the best way to meet a net zero emissions goal. POLICY 05 BEIS also publishes its response to the Committee on Climate Change 2018 Progress Report to Parliament confirming it will launch a Green GB Week sees spate of consultation ahead of the fourth Contracts for Difference allocation low-carbon initiatives Government responds to CCC’s round in 2021 to further “refine” renewables policy. Usio Energy, which 2018 progress report has around 7,000 domestic customers, ceases trading, with Ofgem EU energy law would no longer starting the supplier of last resort process. apply in a no deal Brexit: BEIS Industry calls for Budget to Tuesday 16/10 – At Energy UK’s annual conference, Energy and Clean address consumer costs Growth Minister Claire Perry launches an energy data taskforce. The Parliamentary update – Week 42 BEIS Heat Network Investment Project Main Scheme is launched. 30 2018 of the UK’s largest companies commit to fresh action to address REGULATION 11 climate change, including HSBC pledging a £250mn investment in Ofgem’s State of the Market solar parks and windfarms and Amazon deploying up to 20MW of 2018 report: improving but could large-scale rooftop solar. The government and Ofgem publish a do better progress report on the Smart Systems and Flexibility Plan, with about More detail on Retail Energy half the actions completed so far. ScottishPower’s pumped storage, Code revealed hydro and gas-fired generation is acquired by Drax in a deal worth INDUSTRY STRUCTURE 15 £702mn. Drax acquire 2.6GW portfolio Wednesday 17/10 – BEIS announces it will publish a Green Finance from Scottish Power Strategy in the spring. Three of the UK’s largest generators write to the City reacts well to Drax deal –

Peter Atherton Chancellor to urge him to maintain a strong and stable carbon price in Green Investment Group shifts the upcoming Budget. Cornwall Insight holds an event discussing the focus post-privatisation gap between current deployment levels of renewables and what must NUTWOOD 20 be delivered to meet decarbonisation goals.

PPM tariff cap is causing Thursday 18/10 – Research from the University of East Anglia and the suppliers to cluster around it – UK Energy Research Centre finds that low-income households are Professor Stephen Littlechild spending over 15% of their income on energy bills, whereas high- MARKETS 22 income households are spending less than 7%. Foresight Solar Fund raises £58mn through a share placement to fund the purchase of a portfolio of operational photovoltaic assets in the UK with an installed capacity of over 80MW. Friday 19/10 – The BEIS Committee calls for the government’s 2040 target for the end of petrol and diesel car sales to be brought forward to 2032. The National Audit Office calls on the government to increase transparency of the Household Energy Efficiency programme.

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The Competition and after the decision they would be “watching closely Markets Authority (CMA) to make sure that hard-pressed households don’t recently gave its consent, face even more expensive energy bills this winter without conditions, to the as a result of this decision”. proposed merger between Labour’s reaction centred on the potential impact SSE’s domestic supply on employment. Shadow BEIS Secretary Rebecca business and the entire Long Bailey said: “Labour is […] concerned that the supply business of npower. merger should not lead to job losses at either It found that the deal “may Robert Buckley company. Providing high levels of customer not be expected to result in Head of Retail and service and supplying secure, green energy Relationship Development a substantial lessening of requires investment in skills – not prioritising 01603 542133 competition in the supply r.buckley@cornwall- shareholder dividends.” insight.com of electricity to domestic customers in GB and the Meanwhile the City has appeared comfortable that supply of gas to domestic customers in GB”. the merged company can cut costs and enjoy systems and other synergy benefits. Indeed the In this Energy Perspective we consider some of merger will see the formation of the second- the challenges the new company will face. These biggest domestic energy supplier (see Figure 1). Its include threats from CMA’s other interventions into senior leadership is taking shape, with designate the industry arising from the 2016 sector appointments made on 27 July for positions investigation, and of course the significant including CCO, COO and Business to Business broadening of price caps with the default price Director Designate, with Martin Read confirmed as cap. Chairman Designate in September. Its two Romeo and Juliet shareholders are clear in the priorities they have for it now that neither are reporting them as part of The long-awaited, or feared, consolidation of the their continuing businesses. Big Six into the “Famous” Five has so far failed to trigger much reaction, and what there has been On the deal being cleared, Chief Operating Office has not really focussed on competition effects. Retail of innogy Martin Herrmann spoke of “a further step in setting up this new company which Any concerns about reduced competition and will combine the best of what both retail detriment to disengaged customers in response to businesses have to offer and build a better the decision were expressed by a few smaller company for customers”. suppliers and intermediaries, characterised as having their own agendas to push. Which? stated Similarly. Chief Executive of SSE Alistair Phillips- Davies said: “We’ve always believed that the Figure 1: Domestic energy market shares Q417 and Q318 creation of a new, independent energy and services retailer has potential to deliver real benefits for customers and the market as a whole.” Sapphire and Steel Combining the two domestic supply businesses on to one npower-led IT system is seen as one of the major benefits of the transaction. Ahead of the deal SSE pulled the plug on its own IT project writing off over £300mn in the process, although npower’s travails in introducing the new system have led to customer service problems and action from the regulator. In 2015 npower was compelled to pay £26mn over billing issues affecting over 500,000 customers between September 2013 and December 2014. The success with which that system is embedded will be one, if not the key driver, of the long-term Source: Cornwall Insight health of the new company. And it will have to be

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undertaken speedily without any consumer highest cost to serve, but the lowest proportion of detriment. customers on fixed deals. As Figure 1 shows, even in the 11-month lifetime of The City thinks the new company has a lot to go the merger proposal, there has been attrition in the for in synergies. Bank of America recently combined domestic customer base of npower and highlighted its view that the new number two SSE (some 7%). The pressure will be on domestic energy retailer could target operating management to make progress quickly. If costs savings of “possibly over £300mn”. “We synergies either fail to come through or mean reiterate our view that there is an excellent tough decisions to cut staff, a political and media strategic fit, and that potential for synergies could backlash will also have to be navigated that could be significant […], yet the businesses are ripple through into further customer losses. homogenous and operational overlap is likely to be substantial,” the analyst added. Little and Large If it were to succeed and hold customer numbers The new entity also faces a struggle in getting steady, we estimate that the merged company costs to levels that will allow it to compete with the would bring its costs down to £75 or so per dual disruptors. Even if the systems integration fuel account, in line with the figures recorded by progresses in line with expectation, costs have EDF Energy and Scottish Power. This is positive been steadily rising for all the Big Six, according to but not, of course, as low as some entrant rivals the segmental accounts. claim they can deliver. Average indirect costs have risen across the group from £75 to £95 per dual fuel account since Figure 2: Supplier indirect costs (£) and customers (%) on active fixed 2011. Much of that increase has occurred since tariffs 2014 when attrition to the small and medium suppliers began to accelerate, indicating that scale has some bearing on costs to serve. However, the average for all six companies does not tell the whole story. The companies have performed to a range of costs. In 2017, EDF Energy’s and Scottish Power’s costs were under £80/ customer, with British Gas and E.ON UK near £95. Of the two merging companies, npower’s cost was the highest of all six at £115, while SSE weighed in a £91. But, given that two of the three smallest of the Big Six have the lowest indirect costs, this position suggests that there is more going on than sheer numbers. Source: Cornwall Insight EDF Energy and Scottish Power have also done Shaggy and Scooby the most of the Big Six to shift their SVT customers Significant challenges will continue to persist given away from default tariffs with 49% and 54% of their the new regulatory preference to intervene. Most non-price capped customers having actively immediately there are the main engagement chosen fixed tariffs. If they are online led, these remedies from the CMA’s 2016 report. In the first tariffs should have a lower cost to serve. Again, few pages of its merger report, the CMA highlights this point only gets us so far as npower has the two of these measures—Ofgem’s disengaged joint highest share of their non-price capped customer database and the “prompt-to-engage” customers on actively chosen fixed tariffs, but the letters from suppliers. highest indirect costs. Work on these remedies has been proceeding. As Figure 2 shows, the merger will bring together Ofgem told the CMA it had undertaken four trials npower with a high cost to serve and a high on the database and prompts to disengaged proportion of customers on fixed price deals with customers since 2016. They “had yielded an SSE that has a low proportion of customers on increase in switching rates from a baseline control fixed price deals and an average cost to serve. group” but “these were ‘not dramatic’ effects”. The This will create a combined entity facing real CMA itself commented that the final form of the competitive challenges, still marginal with the database remedy is yet to be determined, meaning

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that its likely level of effectiveness cannot yet be Figure 3: Large supplier default tariffs at 30 September 2018 gauged with any certainty.” In parallel of course Ofgem has also taken forward its collective switch work. This has taken the form of a trial in February 2018 of 50,000 Scottish Power customers on a standard variable tariff for at least three years. In total 22% decided to switch, saving customers a combined £3.3mn. In August a wider trial involving the large suppliers was kicked off. But a dispute has arisen between npower and the regulator. The company objected to its participation, culminating in the regulator Source: Cornwall Insight issuing a licence enforcement order. Just days before the CMA issued its final report on the Analysis from Bernstein, released on 6 September, merger, the regulator subsequently had to seek a found that the headline cap level of £1,136 (for a court injunction to force the company’s dual fuel direct debit customer with standard compliance. The company was to have alerted consumption) compares to current average SVT reportedly 100,000 of its customers by 20 prices of £1,213 (weighted average of Big Six SVTs) September with “Collective Switch / Open Market and represents a “headline” saving of ~£75/ dual Letters”, but it failed to do so by then. Media fuel customer. Expected moves from energy reports suggest it has now done so following a retailers to counter the cap are to pursue a High Court injunction (see p.13), although it combination of migrating as many customers as obviously continues to harbour reservations. possible off default tariffs as well as pursuing cost mitigation measures. The CMA has made no qualitative comment on the database and prompting remedies in its SSE- Hinge and Bracket npower report. By waving through the merger, The SSE-npower merger has the potential to does it mean that the concerns that prompted the create a significant new retail energy competitor. It remedies in the first place have dissipated? Will is a bold move that signals the end of the the momentum behind them now slip? traditional supplier model. We doubt it, so continuing regulatory intervention The scale of the task in creating that competitor remains very much on the cards notwithstanding should not be underestimated. Amidst the need to the imposition of the default tariff from the end of set new business structures, cultures and this year. And, of course, there is the spectre of engagement with customers comes the need to more radical action in the event of an early implement a huge IT project in one of its two core election and a Labour government. businesses. Its investors expect significant cost Peacock and Gamble savings: but political stakeholders may well be riled if those savings are achieved through Finally, there is of course the challenges facing the significant job cuts. new merged company and the retail sector from the implementation of the government’s default At the same time, the new supply business is also price cap. This will extend the current safeguard having to manage new regulatory interventions on tariff (covering pre-payment meters and Warm an unprecedented scale aimed at systematically Home Discount customers) from 5mn to 16mn injecting churn in to its customers (less than 20% to over 60% of meters). customer base and effectively forcing As we see from Figure 3, npower and SSE both sit engagement in a market- comfortably above the proposed level of the cap place with tight price caps with their current SVT offerings, the second and applied to the majority of fifth highest prices respectively. Speaking at customers. So securing Energy UK’s annual conference on 16 October, regulatory consent to its Ofgem Chief Executive Dermot Nolan reaffirmed merger is just the start of that a final decision on the price cap would be a daunting journey that delivered early in November. But, the proposed the merged company is level looks likely to be confirmed (or thereabouts) now embarking upon. by applying Ofgem’s methodology today.

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Tom Lawson, [email protected]

The government ran its first annual Green Great policy was “demonstrably incompatible” with a net Britain & Northern Ireland Week (Green GB zero emissions goal. Emphasising her point, Long Week) from 15-19 October to celebrate climate Bailey highlighted: UK action and promote clean growth. It the Environmental Audit Committee describing coincided with some landmark announcements. • investment in renewable energy as The week was launched to celebrate 10 years of experiencing a “dramatic and worrying the Climate Change Act 2008 and was designed collapse”— falling 56% in 2017 to “highlight the opportunities clean growth offers the UK and raise understanding of how business • changes in planning laws since 2015 leading to and the public can contribute to tackling climate a 95% drop in new solar deployment and 94% change”. More than 100 events were held across decline in new onshore wind, and the country during the week on themes including • a 53% fall in energy efficiency investment UK leadership on climate action, the role of future between 2012 and 2015. technologies and green finance. Long Bailey also criticised the government’s Proceedings began at a launch event at Imperial fracking drive and its recent decision to cut the College London with a high-profile speech by electric vehicle plug-in grant by £1,000. Perry Energy and Clean growth Minister Claire Perry. defended the government by saying that spending The event coincided with the launch of the IPCC should not be confused with results and Special Report on Global Warming of 1.5C and highlighted falling renewables costs. therefore much of the focus was around climate change. Perry highlighted progress made by the In terms of funding announcements during the UK on decarbonisation – predominantly in the week, the focus was on driving business invitation. power sector – such as the country’s first coal-free BEIS launched a Clean Growth Fund with up to days in over a hundred years and opening the £20m of government investment alongside at least world's largest offshore wind farm. However, she £20m of private investment to help early stage stressed that further progress was needed and businesses bridge the gap between R&D and said: “Now is the time for action. We are facing an commercialisation. enormous challenge.” On 17 October, BEIS also announced its intention Also on 15 October, Perry opened a Commons to issue a Green Finance Strategy in the spring debate in which she said that “no country other (more on this next week). than the UK has done more to prove that action on The government also announced a £60mn fund for climate change and economic growth can go hand ideas to reduce climate risks and an £11mn Power in hand.” She said that the UK had cut emissions Forward Challenge from the UK and Canadian per unit of economic growth by an average of 3.7% governments for businesses to develop smart a year, compared to a G7 average of 2.2%. On energy systems. success in the power sector, she said that since 2010 the UK had invested £52bn in renewables The private sector also made funding pledges to and that more than half of the country’s electricity coincide with the week, with around 30 firms comes from low-carbon sources. Perry described committing hundreds of millions of pounds to low- climate action as “one of our greatest carbon projects. HSBC pledged £250mn for solar opportunities” and said the low-carbon sector is parks and wind farms, Amazon announced that it expected to grow four times faster than the rest of has signed a deal to power its UK buildings with the economy to 2030 at 11%/ year. 100% renewable energy and EDF Energy committed to electrifying its vehicle fleet by 2030. Perry also announced that the government was investigating what it can do to achieve a net zero- The week allowed a look back at a carbon emissions after making a request to the momentous decade. Going forward further Committee on Climate Change to advise on setting progress will be more self-reliant and private such a target on the same day. sector driven. Shadow Energy Minister Rebecca Long Bailey BEIS – green finance Parliament responded to Perry by claiming that government

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Nick Palmer, [email protected]

The government has published its response levels coming into effect on 1 January, as well as a dated 15 October to the Committee on Climate target to reduce avoidable waste to zero by 2050. Change’s (CCC’s) tenth annual report to But the government conceded that successes in Parliament, released in June (ES624). It power and waste were not shared, saying it will highlighted power as a sector in which major now focus “on replicating the progress on power progress has been made, while agreeing that this and waste across the economy”. Transport now performance has not been replicated in sectors represents the largest emitting sector, accounting such as transport. The response took the for 27% of all UK emissions. Cars, vans and HGVs opportunity to provide an update on progress were found to make up 87% of these emissions under the Clean Growth Strategy issued a year and the government admitted that this was an area ago. where it “must step up the pace of progress”. In The response coincided with the tenth anniversary response to the CCC recommendation to deliver a of the Climate Change Act 2008, highlighting the “high uptake of electric vehicles to around 60% of 40% reduction in carbon emissions since 1990. new car and van sales by 2030”, the government The UK’s emissions intensity ratio, the amount of said that the transition would be “industry and emissions produced by each unit of GDP was 237 consumer led, supported […] by the measures set tonnes per £1mn of GDP in 2017, falling on average out in our strategy”. 5.4% each year since 2015, the report found. In an update to outstanding actions, it was In the power sector, where emissions reductions confirmed that a deployment pathway for carbon have been the most substantial, BEIS highlighted capture and storage was due by the end of 2018, a various actions taken since last year’s annual consultation on energy efficiency in non-domestic report and response. Carbon emissions in 2017 buildings by spring 2019 and an updated fuel were down 11% on 2016 levels, 58% on 2008 levels poverty strategy by the end of 2019. and 65% on 1990 levels, citing the phasing out of The government also responded to the CCC’s coal and the development of gas and renewable recommendation to bring the UK’s aviation energy infrastructure. emissions down to “around 2005” levels by 2050 The government emphasised the sustained by saying that it had not reached a final view on increase in renewable generation. It also the appropriate level of aviation emissions in highlighted developments such as the beginning 2050. The government added that it would publish of construction of Phase 1 of the Hornsea Wind its Aviation Strategy in “the first half of 2019”. Farm in the North Sea in January, which will be the Chris Stark, CEO of the CCC, welcomed the largest wind farm in the world when finished, as response from the government but described the well as Statoil’s (now Equinor’s) Hywind floating government’s Road to Zero Strategy as a “missed wind farm demonstration project in October 2017. opportunity” to clean up transport. The UK has also taken a leading role in offshore wind, with 7.8GW of operational capacity But Chairman of the CCC Lord Deben was much deployed, which will rise to 10GW by 2020. More more critical saying that the government’s broadly, low-carbon electricity’s share of progress was “just not good enough”, going on to generation increased from 46% in Q1 2017 to 48% discuss the possibility of the government being in Q1 2018, with renewables’ share of electricity taken to court over its lack of progress. generation now just over 30%. Until the Chancellor announces the level of The response notes progress with implementation the carbon price support in the Autumn of “our ambitious Smart Systems and Flexibility Budget, we do not have a full picture of what Plan, which formed the basis of a separate update the government will do to further reduce and which we will cover more fully next issue. emissions across all sectors. Once we have The waste sector was also a high performer in that we will provide a fuller critique on the terms of emissions reductions, having decreased current climate change policy baseline. emissions by 53% between 2007 and 2016. The government showcased the measure taken to BEIS reduce HFC refrigeration gases by 37% on 2014

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Tom Lawson, [email protected]

On 12 October, a further tranche of guidance interconnectors to Europe currently being planned notes was published on the impact of a possible (see Figure 1) and the 1GW NEMO link to Belgium no deal Brexit. This round included notes on the set to go live in January 2019. impact on gas and electricity trading, and on Additionally, BEIS said that it was committed to climate change requirements. maintaining the Integrated Single Electricity Market DExEU’s fourth round of technical guidance notes (I-SEM) in the island of Ireland but that there was a followed earlier batches in August and September. risk that the Northern Ireland market could They aim to ensure that plans are in place in the become separated from that of the Republic. “unlikely” event that no deal is reached between Therefore, either the government or the Utility the UK and the EU on Brexit. Previous batches Regulator for Northern Ireland would have to act to have been criticised by the energy industry for a “ensure adequate generation capacity is in place”. lack of information on key topics such as energy On climate change requirements, BEIS vowed that trading arrangements, the EU Emissions Trading the UK would uphold national and international System (EU ETS) and the relationship with the emissions reduction commitments. However, it Internal Energy Market. also said that the UK would be excluded from the The latest release included separate notes from EU ETS in the event of no deal and that existing BEIS on trading gas and electricity, as well as one carbon pricing commitments would initially be met on climate change requirements, which also via the tax system. It would also maintain the same covered the EU ETS. monitoring, reporting and verification arrangements to ensure as much continuity as The department confirmed that EU energy law will possible and maintain transparency on emissions. no longer apply and that the UK would immediately lose access to EU agencies, The government said that it had no intention of authorities, regulators, and legislation as of the end altering any current regulations but stressed that of March 2019. It added that the UK’s electricity alternative arrangements would need to be put in markets will be decoupled from the Internal Energy place swiftly. The documents also advised any Market if a no Brexit deal is reached. businesses operating in energy or carbon trading to undertake contingency planning and research BEIS also said that cross-border interconnector how their operations could be impacted. flows will no longer fall under EU legislation, but it added that the government and Ofgem were In response, Energy UK said the notices “further working on alternative trading arrangements and demonstrate just how important it is to achieve a access rules that would need to be put in place. Withdrawal Agreement” and called for a deal with The UK currently has 4GW of interconnector a transition period that allows for the current capacity with EU countries, with 11 new trading relationship to continue. It welcomed the plans regarding existing carbon pricing Figure 1. UK-Europe interconnector plans commitments but added that a deal that allowed the UK to remain part of the EU ETS until the end of 2020 was the “best solution” for decarbonisation. RenewableUK said a no deal would mean “uncertainty for industry and higher costs for consumers”. The key issues in energy have finally been covered in DExEU’s guidance notices serving to highlight the importance of a deal if major disruption is to be avoided. Taken as a whole, it evidences the immense work that will be required to rationalise and de-risk a no deal Brexit. Source: BEIS/Ofgem DExEU

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Nick Palmer, [email protected]

Ahead of the Budget, set to be released on 29 and supporting least-cost low-carbon generation October, several industry bodies, companies and via the introduction of a revenue-stabilising trade associations have put forward Contract for Difference to allow onshore wind and recommendations for where Chancellor Philip solar a route to market. Hammond should focus spending. Slade warned against putting the costs of green In a letter from Energy UK addressed to the policies on all customers, regardless of whether Chancellor, CEO Lawrence Slade recommended a they are in fuel poverty, and highlighted that 80% number of proposals aimed at decarbonising the of the cost of an average energy bill is outside of economy and creating an energy sector “where suppliers’ control. innovation and competition keeps costs down and improves services for consumers”. Figure 1: EU carbon historical and forecast prices in € per metric tonne of CO2 To reduce customer bills by £60 and decrease the overall cost of energy efficiency products, Energy UK recommended a zero-rate VAT on energy bills and energy efficiency products when the UK leaves the EU. In addition, the trade association proposed a centrally-funded National Energy Efficiency Programme to improve the quality of housing stock in order to reduce bills and support vulnerable customers who frequently spend large amounts on living in draughty homes. Some of Energy UK’s recommendations Source: Bloomberg New Energy Finance concerning ongoing uncertainty related to Brexit The Confederation of British Industry (CBI) also negotiations and the UK’s future relationship with submitted a series of budget recommendations. In the EU. The government recently revealed that the a statement published 16 October, the group UK would exit the EU Emissions Trading Scheme argued for a change to the business rates system (ETS) in a no deal scenario (see p.5). Energy UK for 2019-20 that will support key sectors and better argued for this Budget to provide policy clarity on incentivise investment in digital, new technologies, the future of carbon pricing, including the UK’s and energy efficiency. future participation in the ETS. The Federation of Small Businesses shared similar The letter asked for clarification on the level of sentiments, calling for changes to help small Carbon Price Floor rates until at least 2021-22 – businesses grow by reducing pressures related to Figure 1 shows the historical and predicted price of fuel and utilities. carbon to 2030. Questions regarding the future Industry group UK Steel also made a submission UK’s carbon pricing have become increasingly on behalf of the sector to the Treasury focusing prevalent in light of the IPCC’s report on 1.5°C, with heavily on energy costs. They proposed reducing think tank Policy Exchange recently the remaining burden of renewables costs of recommending a steadily rising economy-wide around £12mn to £5-6mn, in line with French and carbon tax post-Brexit. German competitors, plus an energy efficiency The call for clarity on carbon pricing from the fund of £60-80mn that would provide 30-45% of Budget was echoed by many of the UK’s largest the funding for the energy efficiency projects power generators. SSE joined with Drax and identified by the sector. Ørsted to say that strengthening the Total Carbon It is clear that the most significant issue for the Price remains the most cost-effective route to meet sector in this Budget will be what happens our international and domestic climate ambition. going forward to the carbon price floor, with Energy UK made a range of other the issue very much in flux given recommendations related to clean energy, considerations over Brexit and whether the UK including encouraging the development of electric remains in the EU ETS. vehicle (EV) charging infrastructure across the UK Energy UK SSE UK Steel

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Tom Crisp, [email protected]

As part of its Industrial Strategy: Sector Deals and back to the House soon.” On why the existing Productivity inquiry, the BEIS Committee held an carbon budgets were put out of scope of the 1.5C evidence session on 17 October looking at the review by the Committee on Climate Change, potential for a sector-deal for the off-shore wind Perry added: “the Committee on Climate Change industry and government support for the industry told us last time we discussed the challenge of more generally. Benj Sykes, Vice President at zero carbon that it was not technically feasible Ørsted, said: “We are confident that we are ready now. It would be pointless to ask for its advice to agree a deal and launch it.” Renewable UK’s again when we already have some of the most Emma Pinchbeck added that the Contracts for ambitious carbon reduction plans in the world up Difference (CfD) scheme has been “remarkably to 2032”. successful”, and warned that “Conversations are The Companies (Directors’ Report) and Limited going on about the future of the CfD and the Liability Partnerships (Energy and Carbon Report) capacity market: we should be cautious before Regulations 2018 were considered in Grand jettisoning it”. Committee in the Lords on 17 October. The The committee also published its Electric Vehicles: regulations mean that from April 2019, many large Driving the Transition Report on 19 October, unquoted companies will have to report on energy concluding that the ban on sales of new petrol and and carbon for the first time. BEIS Minister Lord diesel cars should be brought forward to 2032 (to Henley said a number of refinements, such as the be covered in full next week). introduction of a minimum energy use threshold for the full disclosures and allowing unquoted The Business, Energy and Industrial Strategy companies and LLPs to state where they have not Committee confirmed on 17 October that it will disclosed the information required on the grounds hold an evidence session on Gas Storage. Set to that it would not be practical. Asked if the Energy be held on 31 October, it will consider the Savings Opportunity Scheme would continue post- government’s approach to diversity of supply, and Brexit, Lord Henley said: “these regulations have what action the government is taking to ensure the no impact on the separate ESOS regulations. supply system is robust and secure. Businesses required to comply with ESOS should BEIS Ministers faced Oral Questions in the already be gearing up for the next compliance Commons on 16 October. James Heappey deadline in December next year.” (Conservative, Wells) asked whether membership The House of Commons Library published a of the internal energy market was necessarily briefing on 18 October on Home Energy and conditional on our membership of the wider single Lifestyle Management Systems and the Green market. Business and Energy Secretary Greg Clark Deal, ahead of a Westminster Hall debate on the replied “we have a mutual interest in the same topic on 23 October. The library also interconnection between the UK and the continent, published an updated briefing on Smart Meters. and it is strongly in the interests of consumers in this country and on the continent that the ability to An Early Day Motion was tabled on 17 October by trade over those interconnectors should continue.” Caroline Lucas (Green, Brighton Pavilion) on the value for money of nuclear power. The motion Asked by Anna Turley (Labour, Redcar) if the notes the high price of nuclear power, analysis government would review the 100MW limit on the showing the cost-competitiveness of a renewable amount of electricity that can be supplied by power system and therefore calls on the private wire, Energy and Clean Growth Minister government to “publish and present to Parliament Claire Perry said: “We are aware of the issues. We the strategic case, including a full Value for Money will continue to review this”. On the closure of the Assessment, for new nuclear at least six months Feed-in Tariff scheme, Perry said that £5bn had before further public money, financial guarantees been added to consumer bills, “on supporting or power contracts are agreed or pledged to the some often very uneconomic projects”, she added: nuclear new-build programme.” “solar has an important role to play in the system. We have just finished the call for evidence and are Links underlined above considering the responses, and I hope to come

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Energy and Clean Growth Minister Claire Perry announced on Tuesday 16 October the launch of an Energy Data Taskforce, to be co-ordinated by the Energy Systems Catapult and chaired by former conservative MP Laura Sandys. The aim of the taskforce is to produce a report that identifies how to move from the current data landscape to one where competition and innovation are enabled by more open, richer data. The report will include a list of the key datasets held by industry, Ofgem and government, proposals for data architecture and proposals for the roles different parties could take in governing the data system. Perry said: ““In an age where data is transforming every area of our lives, from driving to dating, it’s only appropriate that we take a long hard look at what data means for energy customers, and how it can be used more effectively to lower energy bills.” The Taskforce will report its recommendations within six months, but it will also be releasing interim proposals to ensure that it gathers input and expertise from the sector throughout this period. Energy Systems Catapult

Trade group Eurelectric has pressed both the UK and the EU to come to an agreement over Brexit, warning that a no deal scenario would cause rising power prices, security of supply issues and disruption to global energy trades. In an open letter to Prime Minister Theresa May and EU Chief Negotiator Michel Barnier published on 16 October, Eurelectric CEO Kristian Ruby said that, unless a deal was achieved, there could be serious ramifications for energy supply in Ireland, due to the Integrated Single Electricity Market relying on friction- free trade between Ireland and Northern Ireland and to Ireland importing 42% of its gas from the UK. Additionally, inefficient gas and electricity trading resulting from a no deal could add up to £500mn to the UK’s costs every year. Eurelectric also warned that a no deal could endanger investments such as interconnectors and North Sea development because, the letter said: “These projects need to attract various sources of finance and will not move forward without deep levels of ongoing cooperation”. Eurelectric

Those in Scotland who rely on electric heating are “almost twice as likely” to be in fuel poverty as the rest of the population of Scotland as a whole, according to new analysis by Citizens Advice Scotland (CAS). The study, published on 11 October, found that electric heating users faced a range of challenges to achieving affordable warmth. It showed that in 2016, roughly 26.5% of Scottish households were in fuel poverty, but considering only those on electric heating, the figure rose to 51%. One of the challenges that electric heating users faced was the high cost compared to gas heating – electric was found to cost three times as much as gas. Other issues included a complex and confusing tariff market, barriers to switching and systems frequently operating inefficiently and a lack of knowledge of how to use their heating system efficiently. Some users received conflicting messages about their heating systems from different organisations such as energy suppliers, installers, governments, the regulator and support agencies. CAS reported that electric heating was more common in Scotland, compared with the rest of the UK, with 282,000 households – 11% of the population of Scotland – relying on it as their main source of heating in 2016. This, the report said, is because gas is not available to certain parts of Scotland. The Competition and Markets Authority (CMA) carried out an investigation into electric heating and identified it as an area for concern, where competition was diminished. CAS Last week’s Cornwall Insight blogs included a summary of our event, Evaluating drivers of low-carbon investment in a subsidy free world, and our Chart of the Week outlines audience reaction on selected themes.

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Steven Britton, [email protected]

Opportunities for customers to save money in Services Registers, with 6mn in electricity (up 36%) the retail market are growing thanks to an and 4.8mn in gas (up 30%). increasing number of suppliers, but many However, privately rented homes are still much customers are failing to capitalise on this, more likely to be fuel poor in England (19%) than Ofgem’s latest State of the Energy Market report the average for all English households of 11%. The shows. trend is different in Scotland, where social renters Published on 11 October, the annual report reviews are more likely to be in fuel poverty than private all aspects of the electricity and gas markets. It renters. However, Ofgem suggested that this may was first introduced last year following the be due to the different definition of fuel poverty in recommendation of the Competition and Markets Scotland. Switching among pre-payment Authority. The headline findings for 2018 was that customers has also slowed under Ofgem’s tariff of falling market concentration in the domestic cap, but there is still room for saving as the sector: the number of licensed suppliers increased cheapest tariff is £105 below the cap level. from 60 to 73 (64 of them being dual fuel), and Additionally, product choice has increased (34 there are also 24 white label providers. A record tariffs versus 29 prior to the cap’s implementation). 25% of all customers are now with small and Ofgem recognised that, while the non-domestic medium-sized suppliers and annual profits for the market has higher levels of engagement and Big Six fell by 10% with their declining market switching, the fact remains that a quarter of share. microbusinesses (24% in gas and 27% in electricity) The average Big Six dual fuel bill has fallen to are on poor-value default or deemed contracts. £1,117, down £52 (4.7%) in real terms (see Figure 1). The report also looks at activity within wholesale Ofgem highlighted how the average saving from markets, security of supply and decarbonisation moving from a Big Six standard variable tariff to the within the wider industry. It noted how energy was cheapest on the market had increased to £320, up responsible for 61% of all the UK’s carbon emission from £300. Switching rates increased slightly, from reductions from 2010 to 2017, but this meant 18% of all electricity and gas meters in 2016-17 to consumers carried a cost of £315 for each ton of 19% for gas and 18.4% for electricity last year, and CO2 saved through renewables subsidies. the proportion of consumers on default tariffs fell slightly from 57% to 54%. However, it is still the Energy consumption per household has continued case that about three fifths of the market have not its long-term downward trend: -5.5% for gas and switched more than once (61% this year, which -3.3% for electricity, having fallen 17% across both represents an increase from last year’s 58%). combined in 15 years. Ofgem expressed confidence that the GB energy Figure 1: Domestic retail energy prices (real terms): 2010 to 2017 system was resilient, with enough capacity to meet demand. It recognised the use of the Gas Deficit Warning in March (the first use of a gas warning since 2010), but it said the market had responded through increasing supply. On the electricity side, 2017 was the first full year of the Capacity Market’s operation. Ofgem said the policy had so far been effective in stimulating Source: Ofgem investment as daily margins between demand and supply over winter were higher than in 2016-17. The situation for vulnerable consumers and those who struggle to pay has also been mixed. Energy This State of the Market Report is an important now makes up a lower proportion of the total point of reference, and this second issue is expenditure of low-income households at 8.4% very upbeat. But Ofgem is clearly intent on compared to 10% last year. There were only 17 further boosting engagement. disconnections, a fall from 210 in 2016, and 8,300 10 years ago. Suppliers have also performed well Ofgem in attracting more customers to their Priority

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Steven Britton, [email protected]

Ofgem has provided further clarity on the new provisions of the Master Registration Agreement Retail Energy Code (REC) and associated licence and Supply Point Administration Agreement. It will obligations for parties in its statutory also include the relevant provisions from other consultation on the governance arrangements to codes that concern energy retail, and Ofgem is support the Switching Programme. currently considering two models for how prescriptive interoperability requirements should Issued on 16 October, this update follows Ofgem’s be. The first would have a high focus on consumer initial policy consultation from June (see ES621). outcomes and low prescription, specifying the The regulator is generally proceeding with its minimum and desired performance of parties in the consulted-on position, but has made a few resolution of customer issues, while the second changes, provided an updated view of timescales would be more prescriptive, with clear rules on and seeks additional views on what should be what suppliers need to do. included in future versions of the REC. The drafting of v3.0 is also to be completed by the Version (v) 1.0 of the REC, which will provide the end of March next year. Ofgem has indicated that transitional arrangements needed to deliver the go-live of this may actually coincide with that of Switching Programme, will come into effect in early v2.0; in other words, a leap straight from v1.0 to 2019 along with licence obligations for suppliers, v3.0 as the operational form of the REC. The distribution networks and the Data potential impacts of these versions of the REC on Communications Company (DCC) to accede to it. licensees will be assessed in a consultation once However, go-live will now not be until June, July or they are drafted. August 2021, with a final decision to be taken in Q1 of 2021-22, having previously been planned for the Relating to its use of its SCR powers, the regulator end of 2020. Go-live will be when v2.0 of the REC has proposed that, aside from new licence will come into effect, which will contain the full conditions for acceding to the REC, there should provision for the operation of the new also be a generic obligation on all licensees to co- arrangements. These will ultimately see domestic operate with any directions from Ofgem that give customers able to be transfer to a new supplier by effect to the conclusions of an SCR. This includes midnight on the next working day after requesting meeting milestones, participation in testing, and the switch. the cleansing and provision of data. In light of feedback during the previous consultation, the REC v1.0 will be designated by Ofgem, but it will regulator has tightened the obligation to only then use its Significant Code Review (SCR) powers apply when Ofgem has consulted the direction and to make the changes that will turn it into version given formal notice. It would come into effect in 2.0. This will be the first time the regulator has April 2019 alongside the other obligations. used its powers to run an end-to-end process to develop code modifications itself. The drafting of The DCC will have a significant role within the v2.0 will be completed by the end of March 2019 Switching Programme, under both the design, and then left dormant, with Ofgem continuing to build and test phase, and initial operation. It will use its SCR powers to keep the text up to date in recover its costs using existing arrangements the face of industry developments in the (monthly charges on DCC users) until go-live, intervening two years. though will have to prepare a business case as part of an ex post price control. Allowed margin It included as much of the drafting for v2.0 in the will be a maximum of 12%, and there will be an consultation as was available, including complete incentive framework covering five milestones. schedules relating to the gas and electricity enquiry services, Switch Meter Reading Views are welcomed until 16 November. Exceptions, and the Debt Assignment Protocol. Further work is required regarding how access to The timescales for go-live appear to have data items that are not owned by parties to the already slipped by at least six months since REC should be governed, such as gas settlement the last consultation in June, but that will not data items. come as a surprise to many involved in this complex programme Ofgem already has a view on REC v3.0, which is the iteration of the code that will amalgamate the Ofgem

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First Utility has been appointed as the supplier of last resort for around 7,000 domestic customers of Usio Energy on 18 October, after the small supplier ceased trading three days earlier. First Utility currently has approximately 800,000 accounts. This is the fifth Supplier of Last Resort process this year so far. Ofgem said that First Utility had offered a competitive tariff, and that the all outstanding credit balances would be honoured, including money owed to former customers. The cost of protecting credit balances will partly be met by First Utility, with the rest spread across all domestic suppliers through an industry levy. Any credit on accounts will be able to be used to offset future energy use, or it can be refunded. The regulator said that customers who owed money or are in debit to Usio will not owe money to First Utility, but they will instead be contacted by Usio’s administrators who will arrange repayment plans. Customers will not be charged exit fees if they decide to leave First Utility or attempt to switch before their new accounts are fully set up. However, Ofgem warned that switches may be delayed or not proceed at all if customers do not wait until the initial transfer to First Utility is complete. Mary Starks, Ofgem’s Executive Director for Consumers and Markets, said: “If you are a Usio Energy customer there is no need to worry as we will make sure your energy supplies are secure and your credit balance is protected.” Usio Energy Founder and Chief Executive Vincent Tuk commented that the company was threatened with “a substantial damages claim” by one of its service providers before it ceased trading, which prevented the supplier from accepting further funding from its investors.

Ofgem

The regulator issued the findings of its 2018 Consumer Engagement Survey on 11 October. The survey was summarised in a report produced on behalf of Ofgem by GfK, and it found that levels of consumer engagement in the energy market have been maintained at a similar level to 2017. 41% of consumers were found to have switched supplier, changed tariff, or compared tariffs over a period of 12 months. 7% of all consumers, or a third of switchers, in 2018 were first-time switchers. The report said that it was encouraging to note that some sub-groups typically under-represented among switchers were more prevalent among the first-time switchers, including 16-24 year olds, those in rented accommodation, and those in the working class or non-working classifications. The report also identified that the main perceived risks to switching were costs going up and not saving as much as excepted, with double billing and being cut off also cited as reasons. The strongest motivator for making a switch was saving money, with reasons for not switching including satisfaction with current supplier and feelings that switching would be too much hassle. The report also identified that 54% of those who engaged with the market found out about deals through a price comparison website, compared with 12% who phoned a supplier. 46% of those who switched did so through a third-party intermediary, a drop from 54% in 2017. Ofgem npower has been ordered by the High Court to allow 100,000 of its customers to participate in a collective switch, Ofgem announced on 9 October. The regulator had issued a provisional order requiring npower’s cooperation but it had to go to the courts to place a legal obligation on npower to comply. Ofgem had issued a direction on 31 August requiring npower to allow disengaged customers to participate in the autumn collective switch trial. Suppliers are obliged to participate in trials to improve engagement under standard condition 32A of the supply licences. However, npower refused to send the necessary communications to its customers, leading Ofgem to issue the provisional order. Further to this, on 4 October

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the High Court heard Ofgem’s application for an injunction to legally compel npower to comply with the provisional order. The injunction was granted the next day. npower has since issued the letters. However, it also said that it would be applying for a fuller hearing to address the issues further. Ofgem

Ofgem has confirmed the timing of the sixth round of the offshore transmission owner (OFTO) tender regime, with tenders due to open at the end of the month for the ownership of the transmission links for three offshore windfarms. The tenders for this round comprise a total generation capacity of around 2.5GW and include Ørsted’s 1.2GW Hornsea 1, located approximately 120km east of Humber Estuary in East Yorkshire. Additional tenders are for the 714MW East Anglia One windfarm owned by Scottish Power Renewables, and the 588MW Beatrice project jointly owned by SSE Renewables (40%), Copenhagen Infrastructure Partners (35%) and SDIC Power (25%). East Anglia One is located approximately 48km off the coast of Suffolk, while Beatrice is located approximately 13.5km off the Caithness coastline in Northern Scotland. In its announcement, Ofgem confirmed the value of the assets tendered as £2bn, noting that the first three OFTO tender rounds saved £700mn in total. Since the launch of the regime in 2009, Ofgem stated that winning bidders have so far invested £3bn in links connecting 4.6GW of offshore wind farms. Executive Director for Systems and Networks at Ofgem Jonathan Brearley said, “Tendering ownership of links to offshore wind farms has already proven to be a successful way of connecting cleaner electricity generation to the networks at a lower cost for consumers.” On 9 October, the regulator held an information event on the current round where project developers were able to highlight the investment opportunity presented by each qualified project. Ofgem Ofgem – Slides

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Joe Camish, [email protected]

On 16 October, Drax Group announced that it forecasted gross profits of £155-175mn – of which had agreed with Iberdrola to acquire Scottish two-thirds will stem from sources such as; Power’s portfolio of pumped storage, hydro, and renewable obligation certificates (ROCs), and gas-fired generation. The acquisition, subject to system support services in addition to the capacity Drax shareholder approval, is set to cost payments. Pumped storage and hydro revenue £702mn. streams are expected to represent a significant proportion of the earnings. Bank of America Merrill Commenting on the 2.6GW purchase, Chief Lynch estimates that the gas-fired assets will Executive Officer of Drax Group Will Gardiner said: contribute around a third of the ~£100m profit in “[…] the demand for flexible, secure energy the early years. sources is set to grow. We believe there is a compelling logic in our move to add further flexible Alongside its strong financial investment case, the sources of power to our offering, accelerating our announcement also spoke of the “compelling strategic vision to deliver a lower-carbon, lower- strategic rationale” behind the deal. This noted: cost energy future for the UK”. • the growing system support opportunity for the Figure 1: Acquired asset portfolio UK energy system

Asset type Asset Capacity • significant expansion of Drax’s flexible, low- carbon and renewable generation model Pumped storage Cruachan 440MW • diversified generation capacity (multi- hydro site/technology), and • opportunities in trading and operations. Galloway & Run-of-river hydro 126MW Lanark In Iberdrola’s statement concerning the sale, it spoke of how the deal means that Scottish Power Damhead will become the first major UK energy company to CCGT 805MW Creek generate electricity solely from renewable sources. The group's Chairman Ignacio Galán reaffirmed the Rye House 715MW company’s commitment to the UK, before pointing out that this is a part of the “standard rotation of Shoreham 420MW the company’s assets”. The divestment in traditional forms of generation is part of a €3bn Blackburn asset rotation plan that the company announced in 60MW Mill its Strategic Perspectives for 2018-2022, back in February. Biomass-from- Daldowie 50kt The deal is expected to be completed on 31 waste December 2018, subject to Drax shareholder approval and clearance by the UK Competition and Source: Drax Group Markets Authority (CMA). The deal includes assets such as Cruachan Power The deal brings Drax’s generation portfolio to Station, which accounts for more than 35% of the over 6.5GW, with further gas peaking projects UK’s pumped storage capacity. The assortment of in development and plans for a CCGT plant assets also hold contracted capacity payments and battery storage at its North Yorkshire site. from 2019 out to 2022, totalling £166mn (CCGT £127mn, pumped storage £35mn, run-of-river Scottish Power retains 2.7GW of wind power £4mn). capacity operating or under construction in the In its statement, Drax projects that the portfolio will UK. generate earnings before interest, tax, Drax Group Iberdrola depreciation and amortisation (EBITDA) in the range of £90-110mn. The EBITDA comes after

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On 16 October Drax announced the purchase of The £90-£110mn forecast for 2019 comes from four a diverse portfolio of generation assets from elements: Iberdrola/ ScottishPower. • £42mn from secured capacity contracts Drax’s share price has reacted very well to the proposal rising from around 360p before the • £8mn from the removal of grid access issues. announcement to over 410p – a 15% rise. Indeed, • £9mn from lower corporate costs, and Drax’s shareholders have enjoyed an excellent 2018 so far. After hitting a low in early February of • additional but unspecified benefits from 228p, Drax’s share price has now risen 80%. integrating the assets into Drax’s portfolio. The portfolio of assets that Drax is acquiring totals This suggests a perspective purchase cost of 7.8x 2566MW, of which 556MW is hydro with the rest EBITDA at the lower end of this forecast and 6.4x being gas-fired CCGT’s. Drax has been seeking to at the high end. This range seems pretty high for expand and diversify its UK generation portfolio for generation assets in today’s market, but it can some time. When Drax acquired Opus Energy in probably be explained by the long-lived hydro 2017, it obtained a number of OCGT projects. Drax assets. has argued that flexible gas generation would Another factor in the ripe purchase cost is the fact complement its existing coal and biomass output that the bulk of the revenue from the portfolio and also provide a valuable hedge to their growing comes from non-wholesale market activities. energy supply business. Drax believes that the Indeed, Drax stated that around two thirds of the growth of renewables on the system will create a forecast EBITDA will come from a combination of premium market for dispatchable generation, capacity payments, ROCs and ancillary service especially if that generation is itself low-carbon. contracts. Interestingly Drax disclosed that in 2017 The purchase of the ScottishPower portfolio both the portfolio had delivered EBITDA of only £36mn. advances and enhances Drax’s strategy. The The share reaction indicates shareholders are enhancement comes from the two hydro stations it positive. But as with all transactions, there are will acquire. These assets will give Drax a clearly some risks. Drax has no experience of substantial quantity of dispatchable zero-carbon acquiring such a large portfolio of assets, nor does generation, which Drax believes will greatly it have experience of operating CCGTs and hydro complement its existing assets and establish them power stations. Therefore, it needs to make sure as the leading player in the system support market. that its technical, contractual, and engineering due Indeed, at its briefing to City analysts Drax stated diligence is of the highest order. Whilst Drax has that the majority of the purchase price it was little history of such acquisitions, it does have paying was in fact for the two hydro assets. This is Board members who are experienced, most partly due to the anticipated longevity of the notably its Chairman, Phil Cox, who was CFO and different assets and partly due to their perceived CEO of International Power for many years. strategic value. Drax anticipates that the CCGTs it Drax is evolving into a very interesting company. is acquiring are likely to be closed within a decade At a time when most of the large energy utility or so, whereas the hydro is more long-lived. companies are shedding assets and businesses to Drax has secured a one year £720mn loan facility become more focused and specialized, Drax is to fund the acquisition – which should be going in the opposite direction. Drax is set to completed by year end subject to shareholder and become a diverse technology generator, and with regulatory approvals. It stated that the one-year its wood pelleting operations and the Haven / loan facility has a coupon below the current group Opus supply business, it is also becoming more average borrowing cost. vertically integrated. Drax did not give any details on how the long-term For investors it is great that companies are funding would be achieved, but it did state that by pursuing divergent strategies. Having to choose the end of 2019 it expected net debt/ EBITDA to which strategy is going to be the most successful be no more than 2x, which it believes is is what makes a fund manager’s life interesting. compatible with its current credit rating. Cornwall Insight Associate Peter Atherton is a well-known equity analyst.

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Jess Scragg, [email protected]

The Green Investment Group (GIG) published its developed, commercialised and financed first progress report on 4 October, detailing its Canadian Banks, a 200MW onshore wind farm in activities since it formed in August 2017. The Texas. report revealed that over the course 2017-18 the The company continued to use partnerships to fuel company has received over £1.6bn of private its global expansion by supporting 3.9GW worth of investment. Macquarie’s development of renewable projects in GIG is a global investor, which was established Asia. This includes Taiwan’s first utility-scale following the acquisition of the UK Green offshore wind project, and a 60MW solar project in Investment Bank by a Macquarie-led consortium. It India in partnership with UK Climate Investments. specialises in green infrastructure investment, Additionally, through a partnership with GE Energy project delivery, portfolio management and related Financial Services, GIG has expanded into the services. European market, acquiring the 650MW The company reported that over 2017-18 its Markbydgen ETT onshore wind farm under investments contributed to the generation of development in northern Sweden. 85,000GWh of renewable energy (see Figure 1). It Alongside this international development, GIG has focused on extending its reach into new continued to invest in projects in the UK and technologies and realising new green energy Ireland, with waste-to-energy plants launched in infrastructure. both Ferrybridge, Yorkshire, and Dublin. Figure 1: The green impact of GIG over 2017-18 The Dublin plant, in partnership with waste-to- energy global expert Covanta, has the potential to divert 580 kilotonnes of waste from Dublin landfill annually. GIG will focus on the financing, while Covanta will work on the technical and engineering elements. The GIG plans to continue to be “highly active” in the UK market. This will be maintained through a portfolio of development opportunities and new funding products to help commercial energy users realise the benefits of energy efficiency, battery Source: GIG storage and renewable generation. GIG’s investment approach has undergone changes since its privatization, driven by six key Global Head of GIG Mark Dooley commented: trends. For example, it has moved to an earlier “We’ve expanded our global footprint, developed stage of project lifecycles, as investors become innovative investment solutions and continued to more willing to invest at the construction stage. support the technologies which will remain a The company has also invested beyond subsidies driving force behind the global energy transition and formed several new partnerships. The other […] Our first Progress Report demonstrates our three key trends are investment in new commitment to reporting on our activities as we technologies, market transformation, and pursue our mission and bring our exciting pipeline geographical expansion. of projects to reality.” GIG’s diversification into global markets for the first It was long expected that the GIG’s focus time included its North America launch in June, would shift abroad post-privatisation, and it which aimed to build on the Macquarie’s has made a vigorous start with a more globally experience in the North American energy and diverse strategy. However, it is still infrastructure market. successfully playing a key role in leveraging The launch also saw a partnership formed with private capital in its home market. Candela renewables, which will target the creation of over 1GW in new solar projects, and GIG has GIG

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A potential new round of offshore wind leasing has been announced by The Crown Estate for projects totalling up to 6GW. The Crown Estate announced on 18 October that it will invite developers to identify their preferred sites for Round 4 within broad regions of seabed. This announcement follows market feedback from a previous round of engagement in July. A further market session will take place on 26 November to allow engagement with statutory stakeholders. Jonny Boston, Senior Development Manager at The Crown Estate, said: “As we progress our proposed tender design, we’ll continue to work closely with the market and stakeholders to ensure that new rights provide an attractive and competitive offer, whilst ensuring we balance a range of interests on the seabed, helping deliver the UK’s transition to a low-carbon energy mix.” Following this second phase of engagement, The Crown Estate intends to confirm plans for the new offshore wind leasing round. This could be launched in the early part of 2019, maintaining a pipeline of projects through to the late 2020s and beyond. This move follows the recent round of extension applications for sites from previous rounds, for which successful applicants were announced on 4 October (ES637). Subject to Habitats Regulations Assessment, extensions could exceed 3GW. The Crown Estate

Amazon has announced plans to deploy 20MW of rooftop solar panels across 10 of its UK fulfilment centres, in addition to battery storage systems designed to help local and national flexibility services. Announced on 16 October, the plans will be implemented over the next 18 months, with the solar panels expected to generate electricity equivalent to powering 4,500 homes. The solar systems, funded and developed by Macquarie Principal Finance, are part of Amazon’s commitment made last year to deploy solar on 50 customer fulfilment centres globally by 2020. Amazon has also signed a deal for 100% renewable electricity to power its UK buildings. Stefano Perego, Operations Director for Amazon UK, said: “By diversifying our energy portfolio, we can keep business costs low and pass along further savings to customers.” Amazon UK

Foresight Solar Fund confirmed on 18 October that the company has accepted applications in respect of 53,994,250 new shares, equivalent to approximately £58mn of gross proceeds. This new funding has been directed at the acquisition of a portfolio of 11 operational assets that the Company intends to acquire. These have an installed capacity of 80.9MW and are all located in the UK. Together with the prior acquisition of UK operational solar assets in August 2018, the company expects that its portfolio will represent a total of 869MW of installed capacity across 54 solar power assets which is expected to further drive efficiencies of scale in terms of ongoing operational costs. Alexander Ohlsson, Chairman, said: “This acquisition will substantiate the Company’s position as the largest UK-listed dedicated solar energy investment company by installed capacity”. Foresight Solar Fund

Planners have granted approval to a £220mn waste-to-energy plant at Immingham, Lincolnshire. As reported in Waste Management World on 12 October, a decision notice was issued by North East Lincolnshire Council, granting use of land to the south east of Immingham Port. Developer North Beck Energy said that the plant will convert 500,000 tonnes of waste materials otherwise headed to landfill or exported to European energy

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plants into electricity and, potentially, heat energy. North Beck Energy also said 350 jobs will be created during the three-year construction phase of the project, as well as 40 full-time roles at the plant during its minimum 25 years of operation. North Beck Energy’s Development Director James Baker said: “With construction and funding arrangements nearing completion, we are now looking to finalise fuel supply agreements with suppliers. We expect to have all this in place by mid-2019 so that building work can start on site within the next 12 months.” He continued: “Using domestically sourced fuel, North Beck Energy will deliver a secure output of energy, unaffected by political and economic changes overseas.” North Beck Energy

SSE completed the installation of the final turbine at the Stronelairg onshore wind farm on 11 October. The 228MW Stronelairg wind farm is located near Fort Augustus in the Great Glen, Scotland, and is the last of SSE’s projects to be delivered under the Renewables Obligation. It consists of 53 V117 and 13 V112 Vestas 3.5MW turbines. Main construction for the site commenced in early 2017. David Sutton, Head of Projects, said: “It’s fantastic to see Stronelairg reach this important milestone. Since construction began back in 2016, the project team has battled some unique challenges, including severe weather and the beast from the east, difficult road conditions and geography as they worked to reach this milestone.” No link

The Association for Decentralised Energy (ADE) announced on 16 October it has launched a Heat Network Industry Council to support government in achieving its vision of a sustainable industry. The new council will develop an offer to government on what industry can do to create jobs and investments, cut costs to those looking to invest in heat networks as well as customers supplied by a heat network, reduce carbon in line with industry’s commitment to decarbonisation, create more liveable cities and deliver “exceptional customers outcomes” if the correct policies are put in place. The council consists of members including Siemens, Engie, E.ON, SSE, EDF Energy and Vattenfall. ADE Director Tim Rotheray said the council will set out the “ambitious commitments of what the heat networks industry will deliver, in return for policy measures which ensure heat network infrastructure projects are an attractive investment proposition.” ADE

The Energy Networks Association (ENA) has launched a Biomethane Connections Code to make it easier for biomethane producers to get green gas into the grid. Announced on 16 October, the code aims to help speed up connections ahead of the January 2020 Renewable Heat Incentive (RHI) deadline. The code pledges that, to ensure plants can be connected as quickly as possible, gas network operators will: introduce a standard way of connecting plants across GB, share resources as much as possible and be fully transparent with biomethane developers about the speed and resources available to deliver connections. The ENA said that the introduction of the code follows its own research, which found that 75% of people want the government to prioritise domestic green gas over imported fossil fuel gas, and up to £400mn is expected by the ENA to be invested in biomethane plants across the country over the next 16 months. Tina Hawke, Chair of ENA’s Biomethane Group, commented: “This Code puts us in a good shape to manage and enable the predicted fast growth in the biomethane sector. We could have 50 per cent more plants introducing this green gas to grid across the UK by January 2020. The Code is a simplified, consistent process to help make this happen, without compromising on what is our absolute priority, safety.” ENA

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A new paper by former electricity regulator PPM tariff that was initially only available as a trial Professor Stephen Littlechild has found that the but that was later available at £946, which was Prepayment Meter (PPM) tariff cap is not then £142 below the tariff cap. (Bulb’s tariff no encouraging a range of tariff prices from suppliers. longer offers a saving of that amount: after its own price increase on 10 September 2018 and the tariff The paper, titled Is there Competition below the cap increase on 1 October, it now offers a saving of PPM Tariff Cap? What are the Implications for about £52.) But how many other tariffs offered – Policy?, investigated in detail the lowest price PPM and still offer – significant savings against the tariff offers available today on Ofgem-accredited cap?” Price Comparison Websites (PCWs). PPM tariffs available post-October cap increase Recent Ofgem data has suggested that the cheapest PPM offer was £142 below the cap level PWC uSwitch listed 28 suppliers, half of which had throughout the summer. However, the report has offers at or almost at the same level as the cap. found that the range of offers that are widely These suppliers comprised all six large suppliers, available and significantly below the cap is much all five medium suppliers (First Utility, Ovo, Utility smaller than first appears. With the exception of Warehouse, Co-op and Utilita), and three smaller one fixed tariff offered by one large supplier, all suppliers (Green Network Energy, Ecotricity, and large and medium suppliers were pricing at the Toto). Two small suppliers offered small savings of level of the cap, along with several small suppliers. £11 and £33, nine small suppliers offered savings in the range £51 to £77 and three small suppliers Evidence for the impact of the PPM tariff cap was offered higher savings of £110, £118 and £145. presented in two graphs in Ofgem’s State of the Energy Market 2017. The report highlighted that small suppliers benefit from being exempt from social and environmental The first (Figure 1) showed that, once the cap came levies such Energy Company Obligations and into effect in February 2017, the tariffs offered Warm Home Discount. converged with few suppliers offering anything below the cap. Gas prices from British Gas, What this means is that, excluding one EDF Energy npower, SSE, E.ON, OVO Energy, Utilita, EDF tariff, all tariffs offering savings of £50 to £80 were Energy and ScottishPower all converged to the from small suppliers who, in effect, avoid costs cap price or a few pounds below it. For electricity, worth £40 or more relative to their competitors. this was also the case, apart from British Gas, which Figure 1: Effect of price cap on PPM tariffs offered a tariff an annual cost £30 cheaper than the cap level. Cheapest prices The other graph (Figure 2) showed a £71 differential between PPM cap and cheapest tariff until September 2017, when it fell to £53 for a few months, before then increasing to £85 in March and £142 in April. However, the report said that the average tariff is now following the cap very closely, suggesting that most prices offered are not significantly cheaper than the cap level. Littlechild said: “I am told that Bulb had a Vari-Fair Beta

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The report said that as a Figure 2: PPM prices and the PPM tariff cap consequence “much of the price competition under the tariff cap is an artificiality attributable to small supplier subsidies”. Are larger savings available? The report then considered eight PCWs to look at the tariffs offering the largest savings. It found that, on the surface, 14 suppliers were offering 21 different tariffs with savings of over £80. However, seven tariff offers were restricted to customers in particular localities and not widely available. Five tariff offers appeared not to be available on the suppliers’ websites. One tariff offer depended on consumption of other products. • the finding that fewer tariff offers are One tariff was available, but with “approximately significantly under the tariff cap than at first zero savings”. appears should be taken into account in Four tariffs were available with positive savings but setting the SVT/default tariff cap and in below £80. Two tariff offers with the same supplier reviewing the PPM tariff cap “may or may not be available above £80, albeit • the small supplier exemptions are distorting one of them at a lower saving than offered”. This the perception of competition and masking the left one tariff, from ExtraEnergy, that was offering impact of the tariff cap, so consideration should savings of more than £80. be given to scaling them back faster or Quality of service removing them Another area which the report considered was • the focus should switch from the cheapest customer service, arguing that it was an essential tariffs because of the inaccuracies mentioned factor in whether consumers switched or not. above and the failure to take into account customer service quality, and Economy Energy and Extra Energy offered some of the lowest tariffs, but they both ranked low for • stakeholders should consider whether focusing customer service on Trustpilot. Only one energy on switching rates is a good representation of supplier (Spark) is ranked consistently worse than the market working – Littlechild pointed out both. that switching tends to demonstrate customer dissatisfaction. Only two suppliers scored well on quality of service across all metrics – these being Bulb and The full paper is available to download on the Octopus. These supplier share in common the fact University of Cambridge Energy Policy Research they have 100% green energy. The paper added: Group website here. “price is not the only consideration for customers. Paper author Professor Stephen Littlechild was a Some may decide to switch, or not to switch, for member of the Monopolies and Mergers reasons of customer service.” Commission from 1983 to 1988 and director Implications for policy general of Electricity Supply from 1989 to 1998. Since 1999 he has been an international Littlechild listed five implications for policy for the consultant on privatisation, regulation and government and Ofgem to consider: competition, and an economic adviser to Ofgem. • something should be done to reduce He is now a Fellow in privatisation, regulation erroneous listings on PCWs, perhaps by and competition at the Cambridge Judge allowing PCWs to make some charge on Business School. suppliers for the listings

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Most gas contracts rose last week, with summer 21 the exception. Day-ahead gas gained 5.0% to 68.0p/th as temperatures are forecast to remain below seasonal normal levels. However, prices fell to 71.4p/th in the middle of the week amid strong LNG deliveries, reversing recent trends of subdued imports. November 18 gas rose 1.2% to 71.4p/th. The majority of seasonal gas contracts rose week- on-week, up 0.3% on average. Summer 21 was the exception, down 1.5% to 48.9p/th. Summer and winter 19 went up 1.4% and 1.0% to 61.2p/th and 69.0p/th respectively. Annual April 19 gas was 1.2% higher week-on-week at 65.1p/th.

All baseload power contracts to summer 19 rose last week. Day-ahead power lifted 0.8% to end the week at £64.4/MWh, as reduced wind output and lower temperatures tightened supply and demand fundamentals. November and December 18 power both gained 1.2% week-on-week, rising to £68.1/MWh and £69.1/MWh respectively. In contrast, most seasonal power contracts dropped last week, down 1.1% on average, following commodity prices lower. Summer 19 was the exception, rising 0.1% to £58.0/MWh. Annual April 19 power decreased 0.4% to £60.4/MWh.

The weekly average Brent crude oil price fell for a second week, dropping 3.3% to average $80.4/bl, down from $83.1/bl the previous week. Prices fell below $80.0/bl on 15 October as Saudi Arabia announced it would increase production in November, despite geopolitical tensions between it and the US creating some volatility. API 2 coal also fell for the second week, down 0.2% to average $96.5/t last week. Although prices dropped to $95.3/t on 17 October, coal prices recovered to end the week up at $99.3/t. EU ETS carbon prices fell 7.3% to average €19.1/t and remained below €20.0/t throughout the week. Prices dropped to a two-month low of €17.9/t on 16 October amid uncertainty over the effects of a no- deal Brexit on the EU ETS.

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