Robin Hood Energy Reports Its First Operational Profit and Profit After Tax, with the Number of Customer Accoun

Tom Crisp Editor 01603 604421 [email protected]

ENERGY PERSPECTIVE 02 Monday 02/07 – Robin Hood Energy reports its first operational profit

Rolling the dice for CCS – Tom and profit after tax, with the number of customer accounts rising by

Crisp more than 41,000 to almost 168,000. Vattenfall confirms that the European Offshore Wind Deployment Centre in Aberdeen Bay has POLICY 05 generated its first power. BEIS consults on extending SMETS1 end date Tuesday 03/07 – BEIS consults on a revised final SMETS1 end date, Progress to eradicate fuel saying it is the last time it will consider a delay. Professor Martin Cave, poverty stalls the government’s preferred candidate for Chair of Ofgem, is

Scottish Parliament backs questioned by the BEIS Committee. Rachel Reeves MP welcomes his publicly-owned energy company appointment, with the committee approving his candidacy. The Welsh Parliamentary update: week 27 2018 government launches a consultation on proposals to not support any new licensing of onshore petroleum extraction. REGULATION 11 Wednesday 04/07 – Foresight Solar Fund announces that it has Cave commits to fight for Ofgem’s independence raised over £48mn through a placing of new shares. Phase seven of Penalties and redress lead to the Energy Entrepreneurs Fund is opened by BEIS. Daligas is issued over £15mn in consumer legal directions by the Competition and Markets Authority for failing to benefits provide pricing information to microbusiness customers. INDUSTRY STRUCTURE 15 Thursday 05/07 – Business and Energy Secretary Greg Clark Independent suppliers set new announces new energy efficiency targets for the public sector. The market share record department also confirms the level of support to be made available BP Statistical Review sees energy under its Industrial Heat Recovery Support programme, following a use and emissions increase consultation. The Commons Housing, Communities and Local REA finds renewables sector at crossroads Government Committee concludes its inquiry into fracking planning guidance. BEIS publishes a policy paper setting out the government’s NUTWOOD 20 vision for the future of the construction sector, including enhanced The default tariff cap: impacts energy efficiency. EDF Energy increases its dual fuel standard variable and implications: A Cornwall tariff by 6%. The move is widely criticised by consumer groups, with Insight paper for Which? – Craig Lowrey warnings further supplier price rises may occur.

MARKETS 22 Friday 06/07 – Ofgem confirms that the inclusion of renewables in the Capacity Market will be considered under the five-year scheme review. Independent energy trading house Danske Commodities is acquired by Equinor for £354mn. Energy UK warns that the uncertainty around whether the UK will remain in the European Emission Trading System is already having a “direct impact on the day-to-day business of energy companies”. Shell supports calls for the UK to bring forward its 2040 ban on new petrol and diesel cars and accelerate the move to greener energy.

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Rewind to November UK subject to costs coming down sufficiently” and 2007 when the first to maximise the industrial opportunity. To do this it carbon capture and has already established a CCUS Cost Challenge storage (CCS) Taskforce and committed to publication of a competition envisaged deployment pathway for CCUS by the end of 2018, a commercial which will set out the steps needed to meet this demonstrator at a coal- ambition. fired power station by Tom Crisp The CGS also undertook to spend £100mn from Editor 2014. Even as recently the BEIS Energy Innovation Programme to support 01603 604421 as early 2015 CCS was [email protected] industry and CCUS innovation and deployment in still seen by the UK, including £20mn on a demonstration policymakers as an area of strategic national programme focussed on supporting next technological advantage. But the £1bn generation capture technologies. commercialisation competition being run by the government was abruptly cancelled as part of that Internationally the government is looking to year’s Spending Review, with the Treasury citing develop closer collaborative working with concerns around the high costs. The technology countries such as Norway, the US, Canada and seemed to have reached the end of the road at Australia, and has committed a further £10mn in an least for the foreseeable future. international investment programme. Three years on and the inexorable calculus of Eye in the sky decarbonising industrial heat — including The necessity of continuing support for CCS was controllable power generation — without it has led well-illustrated in the CCC’s latest progress report both industry and policymakers to re-evaluate the (see ES624 p.5), which continued to stress the technology. These efforts have been brought to importance of delivering CCS, both to facilitate the the fore recently by the Business, Energy and current 2050 target and to be an enabler of Industrial Strategy Committee’s inquiry into the deeper emissions reductions beyond 80%. subject announced in May. This will focus on the government’s efforts to bring forward the CCC scenarios for 2050 envisage a range of technology, and tellingly, whether or not there is a required CO2 capture volumes of at least 60Mt, realistic “Plan B” if cost reductions don’t occur. The and potentially well over 100Mt/ year. The Committee on Climate Change’s (CCC’s) latest variables here are the extent of the deployment of annual Report to Parliament has also reiterated in negative emissions technology, the use of CCS in strong terms the need to keep CCS open at least industry and power and the use of low-carbon as an option for later decades to enable deep hydrogen. The technology is seen as the key that decarbonisation. unlocks deeper decarbonisation in many sectors, and indeed the holy grail of meeting international In this week’s Energy Perspective we consider the climate goals – negative emissions. latest moves to make CCS a reality. CCC analysis suggests that bioenergy with CCS Colour up (BECCS) in the UK could remove up to 45MtCO2 Having been very quiet on CCS since the annually by 2050. In industry, the CCC’s central cancellation of the commercialisation competition, scenario suggests that it will be cost-effective to the launch of the Clean Growth Strategy (CGS) late deploy 3MtCO2 of industrial CCS by 2030 last year indicated renewed official interest, albeit alongside energy generation projects, increasing with a different, longer-term focus and many would to 16MtCO2 by 2050. Any future decision to argue a reduced level of ambition. decarbonise heat using low-carbon hydrogen will require substantial domestic hydrogen production. The CGS pledged to demonstrate international The CCC suggests the best way of producing large leadership in carbon capture usage and storage volumes of low-carbon hydrogen is via natural gas (CCUS), by collaborating with global partners and reforming with CCS. supporting industrial innovation. It also committed to working in partnership with industry, through a Meanwhile in the power sector, of the CCC’s five new ministerial-led CCUS Council, “to put us on a new scenarios that meet the 100gCO2/kWh target path to meet our ambition of having the option of for 2030, three require CCS, with two of these deploying CCUS at scale during the 2030s in the

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being the scenarios most likely to deliver below rates. If the pilot is successful, Drax will examine 50gCO2/kWh (see Figure 1). options for a similar re-purposing of existing infrastructure to deliver more carbon savings. Figure 1: The CCC's new power scenarios Moreover, the interest around the potential for use of hydrogen to decarbonise the gas grid has also re-galvanised the push towards CCS. For example, Cadent’s Hynet project plans to deliver cost- effective CCUS infrastructure in the mid-2020s by re-using the Liverpool Bay oil and gas fields infrastructure. There is, then, a clear trend here of existing players seeing the opportunity of harnessing CCS to reutilise existing infrastructure to aid decarbonisation. It is also clear, though, that industry alone cannot deliver this infrastructure, and public-private partnership will be essential to any successful deployment. Source: CCC Bones However, in the committee’s assessment of This need for collaboration was the key finding of progress, CCS is categorised as “red”, with current Element Energy’s recent analysis on policy funding deemed sufficient only to deliver small- mechanisms to support the large-scale scale demonstration projects. deployment of CCS. In its milestones for the coming year, the CCC The consultants set out the current situation thus: outlined how it expects to see the CCUS • For the most part, CCS has not progressed deployment pathway published by the year’s end, beyond the demonstration stage, which the but with support for pilot projects implemented by sector has completed. Key elements such as the end of 2021. This would be followed by large-scale capture and storage have been infrastructure clusters in the 2020s, to allow proven to work, and there are “no areas of deployment at scale by the 2030s. This fundamental technical uncertainty”. However, deployment must cover both power and industry stakeholders are hesitant to commit the emissions and should be on the path to capturing resources necessary to scale-up and roll-out at least 20MtCO2/ year in 2035. deployment of the technology The headline from the CCC is that, if decarbonisation in the late 2030s and 2040s is to • Carbon pricing as it currently applies appears be achieved, CCS is essential but that investment insufficient to deliver CCS as commercially it is is needed soon. not the lowest cost abatement option available today in a number of sectors. This market Shooters failure comes despite the fact that CCS is Given the renewed focus from policymakers and expected to be needed as part of the least stakeholders, Drax announced on 20 May that it is cost, deep decarbonisation programme in to pilot the first BECCS project in Europe. The those sectors in the future, and demonstration project will see the company • For CCS to be contributing at scale to emission partner with Leeds-based C-Capture and invest reductions in the period 2030-35, “immediate £400,000 in what could be the first of several pilot action is needed”, principally because the projects undertaken at Drax to deliver a “rapid, dialogue between stakeholders has articulated lower cost” demonstration of BECCS. the costs of CCS, without sufficiently The first phase of the project, which has now articulating its value. started, will look to see if the solvent C-Capture Four policy instruments to achieve CCS has developed is compatible with the biomass flue deployment were shortlisted: gas at Drax Power Station. A lab-scale study into the feasibility of re-utilising the flue gas • A CCS obligation with certificates desulphurisation absorbers at the power station • An emissions performance standard (EPS) with will also be carried out to assess potential capture certificates

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• Public procurement, and • Tax credits. The report made clear there is no set one-size-fits- all mix, with different countries’ circumstances being more suitable to some options than others. The key consideration for the UK government was identified as its role in sharing the costs of CCS deployment and reducing risk. The principles for distribution of costs are to seek the widest funding base (affordability), make the polluter pay, place the incentive closest to the mitigation decision, ask for contributions from beneficiaries and assign risks to those who have the most control of the risks and the appetite to bear them. Applying these principles, all parties must contribute to host CCS projects to be exempt from the EPS for a costs, but the burden should shift over time onto period of three years. consumers (see Figure 2). But the government has since made clear that any The report concluded that government has an low-carbon levies (other than pre-specified CfD important role in reducing or adopting risks from costs) can only be accompanied when other the private sector and in coordinating delivery as support costs begin to fall, and that is not CCS scales up, although efforts can shift towards expected before the mid-2020s. the private sector over time, achieving more Stroker efficient outcomes. In summary, the government’s stance on CCUS is The UK already has some support provisions in evolving but focussed on longer-term deployment. place through existing primary legislation. The After two failed commercialisation competitions, a Energy Act 2010 creates a framework for a more sober, diversified and collaborative approach financial mechanism to support CCS is being adopted. Commercialisation is not now demonstration projects on commercial-scale expected in the near-term and expectations electricity generation. It also provides for a levy around deployment at scale has been pushed imposed on electricity suppliers and funds to be back to the 2030s, but early progress is still disbursed through assistance schemes or via needed on demonstrators if this ambition is to be contractual means to projects selected by a realised. competitive process. The Energy Act 2013 also provides for new fossil fuel generation plants that At the same time, there are real questions emerging around what would happen if the desired cost reductions do not materialise, and Figure 2: Envisaged shift of balance of costs over time what the cost to the consumer might be. Recent indications that the UK could look to pursue an even more aggressive decarbonisation pathway towards zero carbon by 2050 means the push for CCS will become even stronger as there are some sections of the economy that may never be entirely decarbonised. This creates the need for negative emissions technologies, of which BECCS seems currently the most viable. There will be an early opportunity to test the merits of this revamped policy, the changing technology and cost background through the on-going inquiry of the BEIS Committee. Submissions are sought by 28 August. The debate should be greatly enhanced by the report of the Cost Challenge Taskforce, which is reportedly due to deliver its Source: Element Energy findings before the end of the month.

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Josephine Lord, [email protected]

The government has proposed a revised date of volumes maintained. These derogations aim to 5 December 2018 as the final end date for help suppliers manage the costs of an uncertain SMETS1 smart meters to count towards transition by allowing them to deploy excess suppliers’ roll-out totals. SMETS1 stock if necessary after the end date. Currently, suppliers can count SMETS1 meters BEIS has proposed that 5 December would also be towards their totals until 5 October, itself a revised the applied date for the end of the Advanced date set in January. As these meters do not offer Meter Exception for suppliers to smaller non- the benefits of SMETS2 meters, including the domestic premises, which is currently also set at 5 benefits of full interoperability from the point of October. This deadline sets the date up to which installation, the existence of a cut-off date acts to advanced meters can be installed and still count encourage the transition to installing SMETS2 towards the roll-out. In proposing the extension, meters. BEIS said it took account of the specific considerations of this market sector, including the In a consultation issued on 3 July BEIS said that, availability of variant SMETS2 meters that would while the industry transition to SMETS2 has now be required in a greater proportion of non- started in earnest, its analysis suggests that domestic premises and which are not expected to suppliers accounting for the majority of smart be available until Q3 2018. meter deployments will not be in a position to complete their transition at full scale by 5 October. Recognising that most suppliers have made less There had been some “residual issues” in the end- progress towards transitioning to SMETS2 meters to-end system, revealed through testing and for prepayment customers, BEIS has also through the pilot deployment of SMETS2 meters. proposed that suppliers should be able to replace existing non-smart, prepayment meters with On balance, BEIS did not view these to be SMETS1 meters until 15 March 2019. No additional industry-wide impediments, but it said they have derogations will be provided on this date. The date been widespread enough and with sufficient is based on an analysis of meter availability, impact to prevent a well-managed transition to maturity of prepayment functionality testing and SMETS2 deployments at scale. progress against the transition plans of suppliers Within the DCC, system defects had been with the great majority of prepayment identified in the communications hubs for all deployments. BEIS observed that the regions which, while not sufficient to prevent consequences of operational issues can also be piloting, would prevent an efficient transition to full- greater for prepayment customers, who can be left scale deployments. While firmware updates have off supply in the event of defects, meaning that sought to address these defects, suppliers needed energy suppliers need to thoroughly test the time to retest ahead of starting full-scale additional functionality. transitions. BEIS noted that, in addition, the North BEIS said there is now sufficient headway in the region communications system had seen less progress of the transition to not entertain further extensive piloting than others. adjustments; further risks need to be managed by For its part, BEIS said that suppliers leading the suppliers within the revised dates. Legal drafting transition do not expect to receive final versions of on the prepayment meter end date will be laid SMETS2 meters in sufficient volumes to initiate full- before Parliament in the autumn and will then form scale transition until August, having had to address part of the Smart Energy Code. a range of hardware, firmware and certification Responses are requested by 14 August. issues. It believes this leaves not enough time for suppliers to undertake residual testing and an According to the latest industry data, effective transition by 5 October without placing approximately 1,000 SMETS 2 meters have been consumer benefits at risk. deployed in the live environment. The dates for derogations from the earlier SMETS1 Given this is the fifth such delay and a further end date that have been granted would likewise delay was ruled out at the last extension, there shift back and are now proposed to apply from 6 is now a growing credibility issue here. December 2018 to 15 March 2019, with the existing Smart Energy Code

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Tom Lawson, [email protected]

BEIS released its annual fuel poverty report on proportion of households in fuel poverty projected 26 June, using data from 2016 to analyse and to fall to around 10.1% as those just below the identify trends for fuel poverty data in England. A threshold are pushed out of fuel poverty. number of aspects of it will concern Figure 1: England fuel poverty 2003-16, projected 2017-18 policymakers. Source: BEIS Since 2001, the government has been legally obligated to set out policies that will, as far as possible, cut fuel poverty. A variety of schemes and measures have been introduced to address the issue, yet the number of fuel poor households has not fallen in line with targets. A household is considered fuel poor if it is left with a disposable income of less than 60% of the national median after required fuel costs are met. In line with the general trend of 10-12% of households in England being classed as fuel poor, the 2016 data found 11.1% to be in fuel poverty (2.55mn homes). This represented a 0.1% year-on- year increase compared to 2015. However, the fuel poverty gap – the difference between average energy bills and what households can afford to pay – narrowed slightly. It was estimated Responding to the report, Shadow Business and at £326 in 2016, a 4.4% decrease on 2015. Energy Secretary Rebecca Long Bailey said: “It is a national scandal that an increasing number of There was further progress made towards the people are forced to live in fuel poverty as a result interim target of “as many fuel poor households as of rip-off prices, a broken energy system and a reasonably practicable” to achieve a minimum government that doesn’t care.” The Green Party energy efficiency rating of D and E or above by also criticised the findings and called for the 2020. From 2015-16 this increased from 90.4% to government to increase the roll-out of household 91.1%. However, the latest BEIS Energy Company insulation improvements. Obligation (ECO) figures showed the average number of measures per month has been 46% The 2016 increase in fuel poverty, and predicted lower in the past 13 months compared to April continued increase in fuel poverty gap, comes 2015-March 2017 under ECO2. despite a prepayment price cap being introduced in April 2017. Director of Policy and Research for The report outlined how the fuel poverty status of National Energy Action, Peter Smith, told The households was dependant on three key drivers: Guardian: “It shows that some households in a risk income, energy efficiency and costs of required of fuel poverty are not yet benefiting from the fuel. As a result, it said it was difficult to accurately safeguard tariff [price cap].” determine the absolute reason for change. But in 2015 BEIS incorrectly predicted that the proportion After improvements in recent years, BEIS will of households in fuel poverty would decrease. be disheartened by this report. Part of the reason for the hiccough is the steady rise of BEIS expects relatively stable income levels and an third party charges, which will continue. increase in efficiency installations combined with a 1.1% rise in domestic energy bills in 2017. It also But it is in the area of energy efficiency that anticipates a further increase in 2018 to result in an further effort should be directed, especially in increased fuel poverty gap but a decrease in the targeting measures on those who need the proportion of fuel poor households. In 2018 the support most. fuel poverty gap is estimated to be £357 (9% higher than 2016) due to higher fuel costs, with the BEIS – Fuel Poverty Labour Green Party

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Tom Lawson, [email protected]

The Scottish Parliament has called for views on a A key point highlighted from the government’s proposed publicly-owned energy company Strategic Outline and stakeholders was that GB (POEC) for Scotland and published its own electricity supply is a low margin market, with the review of the evidence so far. pre-tax margin on the average dual fuel consumer bill at just under 5%. It also highlighted the large The Scottish government originally put forward the number of small suppliers emerging and said that, idea for a POEC last year as a potential means to therefore, the government would be entering a help to alleviate fuel poverty. It said the company tough market if it were to go ahead. would be not-for-profit, buy energy wholesale or use Scottish renewable power and provide energy Other challenges listed included a rapidly “as close to cost price as possible.” changing energy system, customer acquisition and retention and costs such as consultancy and In March the government released a Strategic compliance. “Taken together, these changes – and Outline, which set out options and possible the uncertainties they bring – suggest a need for outcomes of the proposals. It said that the POEC the POEC to have a very clearly defined purpose,” could be in operation by March 2021 if ministers the review said. finalise the model to be used by early 2019. Options put forward ranged from a 100% Cases of existing POECs were listed, highlighting government-owned company, at greater expense financial challenges but social gains. Robin Hood but with more state control, to a White Label model Energy announced its first profit in 2017-18 (see run through an existing company, at reduced costs p.19), and Bristol Energy expects to be profitable but with limited state control and lower revenues. by 2021. The Scottish Parliament has reviewed the The call for written views closes on 13 September. evidence in the report to produce a scoping note But in June the Welsh Assembly rejected a Plaid accompanying its call for views (open until 13 Cymru proposal of a POEC for Wales, with September) as part of the Economy, Jobs and Fair concerns raised over viability and possible “unfair Work Committee’s scrutiny of energy policy. institutional advantages” over private companies It suggested four overarching objectives that could and that could distort competition. However, local feasibly be delivered by a Scottish POEC: creating authorities have continued to be active in the new energy infrastructure, accelerating a wider supplier area, with Swansea City Council recently energy system transformation, increasing seeking views on launching an energy supplier. consumer engagement and reducing consumer Figure 1: National comparisons of the percentage of costs. These were described as “related and households in fuel poverty in the UK mutually reinforcing” and it was stated that several could be met with “sufficient resources”. The report said that a POEC could “recycle energy market profits back to consumers, lowering bills and helping to tackle the fuel bills element of the causes of fuel poverty,” (see Figure 1). Other ways the report suggested the company could help cut bills included supporting generation cost reductions to lower the wholesale power prices and supporting local generation to potentially help local consumers avoid certain market costs. Source: Welsh government The report also said that while the government and While we are strong advocates of local energy private companies are already providing supply, a POEC is a huge and risky step in a investment in new energy infrastructure and market still largely characterised by consumer engagement, a POEC could act to better disengagement. We will shortly do a longer coordinate existing schemes, as well as increase editorial on competitive options in Scotland. levels of investment and accelerate roll-out. Scottish Parliament Scottish government

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Tom Crisp, [email protected]

The Business, Energy and Industrial Strategy strategy. It is why we are spending money on Committee held a pre-appointment hearing with supporting low-emission bus vehicles and on Professor Martin Cave, the government’s preferred encouraging people to buy low-emission vehicles. candidate for Chairman of Ofgem on 3 July (see When we publish our Road to Zero Strategy p.11). shortly, we will be setting out more of our plans to create a greener vehicle fleet on our roads.” Commenting after the session Rachel Reeves MP, Chair of the Committee, said: "I wish Martin every A new All-Party Parliamentary Group (APPG) on success in his appointment and look forward to Hydrogen was launched on 3 July. Cadent, him being a visible, effective Chair of the Office of Northern Gas Networks, SGN and Wales and West Gas and Electricity Markets. The energy market Utilities are all supporting the new group, which needs a tough regulator. I hope Professor Cave will focus on “raising awareness of, and building will do all he can to ensure that Ofgem is a support for large scale hydrogen projects” – such champion for energy consumers, including for as conversion to a hydrogen domestic gas grid. vulnerable customers and those on low incomes, Chair Anna Turley (Labour, Redcar) commented: and also for small businesses who often bear the “I’m excited about the potential of hydrogen to brunt of higher energy costs.” enable the country to significantly decrease our carbon emissions, create lots of good long-term The Domestic Gas and Electricity (Tariff Cap) Bill job opportunities and position the UK as a global completed Report Stage in the Lords on 4 July. leader in green technology.” The Bill passed the stage without debate and now moves to Commons consideration of Lords On 29 June the Public Accounts Committee amendments on 18 July. opened an inquiry into progress being made in the decommissioning of the Sellafield nuclear power The Housing, Communities and Local Government site. The announcement comes after a report by Committee’s published its report on 5 July into the National Audit Office into the Nuclear planning guidance on fracking (see p.9). Decommissioning Authority’s (NDA’s) work on BEIS Minister Richard Harrington delivered a Sellafield found a forecasted overspend of £913mn statement on the government’s Construction on the project. Sector Deal on 5 July. The BEIS Committee will conduct an evidence At Treasury Questions on 3 July, Sir Henry session on 10 July on the Draft National Policy Bellingham (Conservative, North West Norfolk) Statement for nuclear waste Geological Disposal asked what assessment had been made of the Infrastructure. The committee will hear from effect of the tax regime for onsite battery storage relevant stakeholders as well as BEIS Minister on the development of the UK battery storage Richard Harrington and BEIS officials Imran Nazir, market. Economic Secretary to the Treasury John Deputy Director, Decommissioning, and Stephen Glen responded that a range of policies are in Speed, Director, Nuclear. place to support battery storage, including “the Steve McCabe (Labour, Birmingham, Selly Oak) carbon price support mechanism […] the tabled a series of Written Questions on smart government’s smart systems and flexibility plan; meters recently, which were answered by Energy and the Faraday Challenge Fund.” Bellingham and Clean Growth Minister Claire Perry on 5 July. It highlighted the opportunity of combining battery was revealed that the government’s conclusions to storage with offshore wind, to which Glen consultations on enrolling SMETS1 meters into the responded: “the combination of that with support DCC will be published “later this summer”, along for the battery storage sector is important, and we with a consultation on enrolment of the remaining will be supporting it through the capacity market, cohorts of SMETS1 meters. which is helping to bring down costs.” Both houses are due to rise for Summer Recess on At Transport Questions on 5 July, Barry Sheerman 24 July. (Labour, Huddersfield) asked what action the government was taking on air pollution. Transport Links underlined above. Secretary Chris Grayling responded that “On clean transport, this is a central part of the government’s

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Business and Energy Secretary Greg Clark announced new energy efficiency targets for the public sector in a speech on 5 July. Clark said that central government will work towards a reduction of 43% greenhouse gas emissions by 2019- 20 compared to 2009-10 levels and that meeting the target would potentially deliver savings of £340mn. Clark said: “We have made significant progress so far, meeting our previous target three years early and saving just over £100mn last financial year as a result.” He also announced a voluntary Emissions Reductions Pledge for the wider public and higher education sectors of a 30% emissions reduction by 2020-21 against a 2009-10 baseline. The commitments followed the launch of the Construction Sector Deal, which reiterated the 2030 “mission” to halve energy use in new buildings by 2030 and work to retrofit existing building stock. Also on 5 July BEIS released its decision on its Industrial Heat Recovery Support (IHRS) programme, following a consultation. BEIS said heat recovery technologies would save industry money and reduce emissions but that “less than half of the potential is commercially viable at present”. The consultation is intended to address the barriers to uptake and inform future government support. As currently proposed, £6mn will be available for Phase 1 Feasibility Studies and £12mn for Phase 2 Capital Grant projects despite the majority of respondents raising concerns that the funding was insufficient due to the high level of commitment and resources needed from applicants. BEIS – public sector speech BEIS – industrial heat

BEIS released its latest energy trends statistics on 28 June, including its review of Q1 2018. Renewable technologies contributed a record 30.1% of electricity generation during Q1 2018, up from 27% in Q1 2017. There was also a record 27.9TWh of electricity generated by renewables in the first three months of the year – a 10.2% increase on the same period in 2017. Renewable capacity was up 11.2% on Q1 2017 to 41.9GW. The figures also revealed coal demand from power generators dropped 13% in Q1 2018 compared to the first quarter of 2017 and production experienced a 27% drop compared to Q1 2017. However, coal imports were 30% higher. Gas demand was 7.4% higher than Q1 2017 but production was 4.1% lower. Nuclear’s share of generation fell from 18.8% in Q1 2017 to 17.9% in the first quarter of 2018. The data also showed that total energy production was 1% lower than Q1 2017, but final energy consumption was 7% higher. A 13.2% rise in domestic consumption was put down to colder weather compared to last year. Energy prices for both domestic and non-domestic consumers saw an increase. Between Q1 2017 and Q1 2018 domestic electricity prices rose by 11% in current terms and gas prices increase 0.6%. Average electricity prices for non-domestic use rose by 7% and gas prices rose 4.2% over the same period. BEIS

A government report into proposed changes to planning guidance on fracking has warned that moving decision-making to a national level would contradict the principles of localism and “exacerbate existing mistrust between local communities and the fracking industry.” The Planning Guidance on Fracking report, published 5 July, follows a Housing, Communities and Local Government (CLG) Committee inquiry into planning decisions on fracking in light of expected increases in both new projects and existing projects entering their production phase. It focuses on whether existing planning guidance for fracking planning applications should be updated; how Mineral Planning Authorities (MPAs) balance local and national requirements when deciding on applications; and whether such applications should come under the National Significant Projects regime. The report warns the government against the latter, stating that MPAs – which are tasked with determining planning applications – are best placed to understand local conditions and fracking projects. It adds that

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“there is little to be gained” from such a move and that “taking decision making powers away from local planning authorities would be a backward step.” Other recommendations in the report included ensuring that the revised National Planning Policy Framework proposed by government clarifies and consolidates fracking policy, the creation of an online “one-stop shop” of policy, regulatory and planning documents and increasing caps for individual projects. Parliament

Lesley Griffiths, the Welsh Cabinet Secretary for Energy, has announced that the Welsh government has set interim emissions reduction targets and its first two carbon budgets. In a statement on 28 June, Griffiths explained that the Welsh cabinet had agreed to set interim targets of reducing emissions against a 1990 baseline by 27% by 2020, 45% by 2030 and 67% by 2040. It has also set the level of Wales’s first and second carbon budgets. The first carbon budget aims to reduce emissions by 23% on average between 2016 and 2020. The second aims to reduce emissions by an average of 33% between 2021 and 2025. Currently, Wales has reduced emissions by 14% since 1990. The Welsh government also announced that it will be launching a consultation in July on how best to achieve its low-carbon pathway to 2030 and maximise benefits on its “well-being goals”. Griffiths noted that the targets will be “extremely challenging” to meet as historic data shows emissions are “disproportionately volatile in Wales”. It was noted that nearly 60% of Welsh emissions currently come from heavy industry and electricity generation, which Griffiths said reinforced the need for setting emissions reduction targets. Welsh government

On 28 June BEIS published its second quarterly update to Parliament on the government’s progress on the UK’s exit from the Euratom treaty. While the future UK-EU economic relationship negotiations are yet to begin, the government has made clear that it will seek a close association with Euratom. The report stated that as of June the UK and EU have reached agreement on all Euratom-related articles of the draft Withdrawal Agreement and the relevant text has therefore been finalised. Most recently, on 26 June, the Nuclear Safeguards Bill received Royal Assent and the government has said it plans to consult on the underlying draft Nuclear Safeguards Regulations this month. The UK has now signed two bilateral safeguard agreements with the International Atomic Energy Agency (IAEA) to replace the trilateral agreements between the UK, IAEA and Euratom. BEIS said: “This marks an important milestone in ensuring the UK can have an internationally-recognised safeguards regime in place when Euratom arrangements cease to apply in the UK.” The government also said that it had signed Nuclear Cooperation Agreements (NCAs) with all priority countries for when the Euratom ceases to apply to the UK. In May it signed a bilateral NCA with the US to help “ensure uninterrupted cooperation and trade” in the civil nuclear sector. Now that the EU’s June summit has taken place the UK government is set to announce its proposed approach and ambition for a future relationship with the EU. Current arrangements will continue until 31 December 2020. BEIS

Our latest Chart of the Week is Moving up a gear: BP purchases Chargemaster. Last week’s Cornwall Insight blogs included Fight the power: CRU, Huntstown and the Appeal Panel.

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James Cunningham, [email protected]

On 3 July the Business, Energy and Industrial Cave was then asked about a future framework for Strategy Committee held a pre-appointment regulation. He highlighted the loss of confidence in hearing with Professor Martin Cave, the the regulatory system and also noted the widely government’s preferred candidate to became reported profits of network companies in recent Chairman of Ofgem. years, which he labelled “excessive”. He said that to tackle this issue the regulator would consider a When asked about why he applied for the role, shorter period of return. Cave told the committee Cave explained that he had extensive knowledge that the framework for 2021 would include a and experience of the energy sector and had shorter period, from eight years to less than five, previous experience advising government and and would also have a lower starting point for working with regulators in the water and telecoms profits to be made. He added that there was also a sectors. He also noted that he had previously need for a correction mechanism, which would act conducted regulatory reviews on behalf of the as a built-in mechanism to reduce the rates of government. return on equity. Cave was then asked about what he saw as the On Ofgem staff numbers Cave acknowledged that challenges and risks in the energy sector. He they were declining and that the implementation of responded that one aspect of the industry that the price cap added additional burdens. However, proved challenging was the high proportion of he declined to comment on whether Ofgem was people’s salaries that they were required to spend under-resourced. He told the committee that the on energy use. Therefore, his approach to gender pay gap in Ofgem was relatively small regulation was to view the product through the compared to other regulators but noted that it did eyes of the end users. This, he suggested, would widen for bonuses. help him to decide whether prices were excessive or not. The committee then asked Cave’s view on the role of Parliament in relation to Ofgem. He replied that He also highlighted the potential risks to Ofgem of it was very important that Parliament scrutinised the major changes that were occurring in the the work of the regulator and said that he would sector as a result of the digital transformation, resist government interference in Ofgem if he which he said would change the nature of thought it was causing undue infringement on the regulation in a significant way. Cave also noted the regulator’s independence. potential risks of Brexit but suggested that, as energy was a regulated sector, it would be less Finally, the committee asked on what basis the affected than other industries. success of Cave’s tenure could be judged. He replied that this should be based on the end Cave suggested that the needs of customers were position of households and whether they had been not currently being met due to the high cost of adequately protected. He also advised the energy. He described this as an endemic problem, committee to consider whether the benefits of the highlighting the challenges being faced by small new measures to protect customers had been businesses in particular. sufficiently spread out. On the forthcoming price cap, Cave voiced Following the session, Cave’s appointment was concerns over whether vulnerable customers endorsed by the committee. would actually benefit from the cap. Upon being asked whether the need for a price cap Cave was the dissenting voice in the CMA represented a failure of the Big Six, he defended Energy Market Investigation pushing for a the commercial activities of suppliers and stated wider price cap. While he now has the that this was the reason for the need of regulators. opportunity to see that initiative to completion, He acknowledged that a price cap was an this hearing makes clear Ofgem has to work to effective tool but added that further engagement a much wider and increasingly congested with customers should be encouraged to avoid the agenda. need for a price cap at all. Parliament

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Emma Bill, [email protected]

The regulator has published its fourth annual with licensees by visiting and talking to them rather Enforcement Overview, covering investigations than opening enforcement investigations. opened during April 2017 to March 2018 and During 2017-18 the regulator closed four other enforcement activities. Four compliance compliance cases without opening formal cases and three investigations resulted in direct enforcement investigations. While Ofgem noted compensation to customers and redress that most licensees are quick to take corrective payments to the Money Advice and Energy actions to solve the identified problems and limit Savings Trusts, amounting to £15.1mn. consumer harm, compensation and redress According to the report, issued on 29 June, there represent around a third (£5.4mn) of total were nine live cases at 31 March 2018. Five of payments made during this period (see Figure 1). these were opened during the reporting period and include an investigation following Figure 1: Compliance cases closed without formal enforcement concerns that British Gas (BG) was charging Company Decision Breach Outcome customers termination fees where they were not applicable, which may have affected Failure to pay compensation to British switching behaviour. In August, an July 2017 customers following missed £1.1mn Gas investigation into an undisclosed party (or appointments parties) was opened in relation to suspected breaches of the Competition Act (CA) 1998, Failure to migrate customers onto September fixed term or evergreen tariffs SSE £670k Chapter II. Investigations into suspected 2017 within 49 days following removing breaches of Standard Licence Conditions a tariff from the market (SLCs) 31A and 25C by SSE and OVO Failure to inform customers of the opened in November and February, December E.ON correct information regarding exit £21k respectively. Iresa has been under 2017 fees when switching supplier investigation since March this year for infrequent billing, poor customer service and Failure to implement correct price complaints handling. December cuts to within the level of the new Utilita £3.61mn 2017 PPM safeguard tariff for some of its Four ongoing cases include an investigation smart meter customers into whether Economy Energy, E and software consultancy Dyball Associates have Source: Cornwall Insight summary of Ofgem data infringed Chapter I of the CA with respect to Reported in ES624, Ofgem, for the first time, a suspected anti-competitive agreement. Economy issued a warning alongside its Provisional Order Energy is also being investigated for suspected on Iresa, that it may revoke the supplier’s licence if breaches of SLC 25. it fails to resolve customer service issues. A further investigation is in relation to Extra Following Ofgem’s November investigation into Energy’s compliance with its obligations under SLC SSE, the supplier has since agreed to pay £1mn in 7B, 14, 21B, 25C, 27, 31A, and with the Consumer voluntary redress. Complaints Handling Standards Regulations 2008. Ofgem is also investigating if npower failed to The regulator’s sixth Annual Compliance and meet its obligation to install advanced meters in Enforcement Conference will be in Autumn 2018. non-domestic premises (SLC 12). While Ofgem is willing to rely on alternative BG was issued with a £9.5mn penalty (direct action and bilateral agreements, its compensation and redress) in June 2017 for failing Enforcement Guidelines continue to determine microbusiness customers, while E was ordered to whether it decides to open an investigation. make redress payment of £260,000 in January Though it appears inclined to acknowledge 2018 for non-compliances in relation to mis-selling swift remedial action, licensees should expect and conducting appropriate background check on to have to compensate affected consumers as sales agents. Still, Ofgem stated in many instances it has addressed compliance problems directly a minimum regardless of perceived fault. Ofgem

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Ofgem’s first Consumer Impact Report (CIR), published alongside its Annual Report and Accounts, confirms that it expects consumers to receive £7.8bn in direct benefits over the next 17 years as a result of some of its key decisions during the 2017-18 financial year. The CIR, published on 28 June, found that for every £1 spent by Ofgem during April 2017 to March 2018, consumers should receive direct benefits of £87 based on its administrative expenditure for the 2017-18 financial year of £90mn. The figure is based on decisions taken during the reporting period, including a number of enforcement and compliance actions worth £11mn and £8mn respectively, and the extension of the safeguard tariff to 1mn vulnerable customers in February this year, which is expected to save customers around £128mn over two years. Decisions in relation to the new switching arrangements are expected to deliver £40mn, while £18mn of consumer benefits has been estimated following the introduction of new licence conditions for the installation of prepayment meters under warrant in January 2018. In the longer term, changes to the charging arrangements for smaller embedded generators are expected to benefit consumers by almost £7.6bn between 2021 and 2034. In addition to these direct benefits, the net present value of indirect benefits – notably decisions on the interconnector cap and floor regime – is estimated at almost £8.8bn. Ofgem also confirmed a further £540mn of reduced funding for network companies in view of parallel work undertaken during the Mid-Period Review of the transmission and gas distribution price controls, representing £197mn. However, the Fleetwood entry point in gas transmission comprises the majority savings of £345mn. Going forwards, the regulator expects to publish annual CIRs. Ofgem – CIR Ofgem – Annual Report and Account

Energy suppliers have reportedly been blocking transfers from automatic switching services such as Flipper and Switchd, causing Ofgem to order them to stop. These services compare deals for consumers and automatically instigate switches, usually when a certain savings threshold is met. However, three suppliers – First Utility, OneSelect and Bulb – stopped “hundreds” of customers being switched either to or from them in this way, according to a report in The Times on 1 July. Flipper and Switchd complained to Ofgem about the issue, with the regulator deciding in May that suppliers should accept switches instigated by automatic switching services. In one case, Flipper said it was stopped from switching almost 400 members to OneSelect, forcing it to find an alternative or leave people with their existing supplier. The regulator reportedly said it has “made it clear” that suppliers need to work with switching services. BEIS commented that suppliers should “embrace and support innovation”, and that suppliers should “treat auto-switch requests as they would any other switch”. First Utility responded that its aim is to build “long-term relationships” with its customers, and that this was more difficult with a third party. The supplier planned to meet with Flipper to discuss future co-operation, whilst Bulb also stated it was in conversation with these services. Ofgem announced on 12 June that suppliers will be required to automatically compensate customers if their switch goes wrong or is blocked. No link

Lawyers of the Big Six have allegedly warned that the General Data Protection Regulation (GDPR) rules may make the Competition and Markets Authority’s (CMA’s) disengaged customer database remedy illegal. The issue was reported in the Times on 3 July, quoting a senior figure in the Big Six who stated that the Information Commissioner’s Office (ICO) had “grave concerns” about the remedy. Set out by the CMA in December 2016 following its investigation into the energy market, the remedy would require energy suppliers to provide information to Ofgem on all their customers who have been on a default tariff for at least three years. This will be included in a database, with the CMA’s original intention being that rival suppliers would be allowed access to this data so they can target marketing. The source was quoted as saying “If we have

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customers who have ticked a box saying they don’t want us, let alone anyone else, to contact them, are we supposed just to hand over their details so that any one of the 76 other supplies can contact them?”. The companies believe they are in an “invidious” position, at risk of a fine of 10% of turnover from Ofgem if it breaches its licence conditions, or a 5% fine from the ICO if they comply with the obligation and breach data protection law. An Ofgem spokesperson responded: “Ensuring the privacy and protection of customer information on the database is fundamental.” The regulator stated at its Independent Supplier Forum event on 18 May that it is currently inclined to reserve the database for its own use for targeting impartial cheapest market offer communications, and that the database remedy was considered GDPR-compliant by the ICO. No link

The regulator issued its decision on 29 June to allow Scottish Hydro Electric Power Distribution (SHEPD) to recover £122.8mn during the remainder of the RIIO-ED1 price control in relation to the interim energy solution for Shetland. In November 2017, Ofgem rejected the costs for the proposed Shetland New Energy Solution (SNES), agreeing instead that SHEPD should manage the continued operation of Lerwick Power Station until 2025. The regulator initially proposed to allow the recovery of £118mn (2012-13 prices) to cover the extended solution, the preparation of an enduring solution post 2025, and the costs incurred by National Grid since the publication of the regulators minded to decision on the costs for the SNES solution in July 2017. Following a consultation held in May on the proposed costs, the regulator has decided to increase the totex cost allowances by removing proposals for 10% efficiency reductions in a number of areas. These include insurance, a new generating unit, the extension of the Lerwick Power Station work programme, Sullom Voe Terminal Power Purchase Agreements, and the preparation of the enduring solution. Costs for battery storage will also not be subject to a 10% efficiency reduction, but these will be ring fenced and any part of the allowance not spent on batteries will be returned to consumers. The regulator has also decided to retain the proposed uncertainty mechanism for ex-ante costs, and allow the recovery of the SNES residual costs as proposed out in its consultation. Although the interim solution will run until 2025, the RIIO-ED1 price control will conclude in 2023, and the remaining costs from 2023-25 will be assessed as part of the RIIO-ED2 process. Ofgem

ACER rejected on 28 June a request for exemptions from some measures of the third energy package for the AQUIND interconnector project between GB and France. AQUIND’s exemption application was jointly submitted by Ofgem and the French regulator CRE in November, and sought relief from a number of EU requirements, including the need to reinvest congestion revenues to guarantee availability of allocated capacity or to increase interconnection capacity through network investment. Exemptions were also sought on requirements relating to unbundling, third party access, and on terms and conditions for connection and access. The request was rejected, as ACER felt that the project did not meet one of the requirements of Article 17 of the third package regulations, which states that projects can only receive exemptions if the project is at a high enough risk that it would not be realised unless the exemption is granted. The agency considered that, as the project has received Project of Common Interest status, AQUIND is able to submit a request to Ofgem and the CRE for investment, and that the possibility for the AQUIND interconnector to follow a regulated route is backed up by the ACER assessment that the project would be socially beneficial. Responding to the decision, AQUIND said that it strongly disagreed with the rejection. It said that it believes the project meets all necessary criteria for exemption and that it would appeal. ACER AQUIND

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Jacob Briggs, [email protected]

Following the publication of Cornwall Insight’s Octopus Energy, which also offers 100% renewable Q2 2018 domestic market share survey, we take electricity for its tariffs, also recorded significant a look back over the quarter at some of the key growth over the period and has now passed the trends in the household energy supply market, 250,000 account mark – one of three suppliers to where small and medium suppliers now hold pass the “medium supplier” threshold in Q2 2018. over 25% of the dual fuel market. This leaves 51 small suppliers – those below Against a backdrop of increasing switching, rising 250,000 energy accounts – holding a combined prices increases, and media attention, large 4.7% share of the energy market. Although the suppliers have seen their collective quarterly average market share per small supplier has losses continue into a sixth year. With price rise declined on 2017, it still remains in-line with the announcements coming from three of the six large average small supplier position since 2014. This suppliers in the reporting period, our survey, which competition is reflected in the characteristics of covers the domestic account holdings of suppliers electricity switching patterns, with the rate of over the three month period to 30 April 2018, switching between SaMS recorded by Energy UK shows that the large suppliers have collectively growing, as more small suppliers increasingly lost over 1mn accounts in the six months to 30 compete with each other to win a similar pool of April 2018. customers. In its latest annual report, SSE noted the loss of Figure 1: Domestic energy market share at 30 April 2018 by over 400,000 energy accounts over the last year. supplier size In light of these losses, and following its own 4.7% account growth, E.ON UK is now the second largest supplier in the GB domestic energy market, overtaking SSE for the first time since 2007. The collective losses seen by the large suppliers 18.4% have fuelled the continued growth of the small and medium suppliers (SaMS). Collectively, this group – comprising suppliers that have energy account holdings below 3mn, covers 64 suppliers. This group reached a 23.2% share of the overall energy market at 30 April 2018, up from 17.9% at 30 April 2017. The SaMS have a slightly larger share of the 76.8% dual fuel market, which comprises 79.2% of the domestic market – reflecting their lack of single fuel heritage, and together holding over 25% of this market – their highest ever share. Large suppliers 6 suppliers At 30 April 2018, medium suppliers – those with between 250,000 and 3mn energy accounts, held Medium suppliers 13 suppliers 18.4% of the domestic energy market. Suppliers in Small suppliers 51 suppliers this category have seen the largest growth in the market, led by the likes of OVO Energy, Bulb, and Octopus Energy. Source: Cornwall Insight Bulb, which has now passed 450,000 customers, Cornwall Insight’s Domestic Supplier Market has recorded amongst the highest annual growth Share Survey comprises quarterly updates in the lifetime of the survey. As a result, Bulb has covering the market position of the growing seen its customer base more than double since 31 number of suppliers in the market. For more October 2017. This rapid growth has been driven information, please contact Jacob Briggs at by a combination of its referral scheme, [email protected]. sustainable branding, single variable tariff and strong customer service. Cornwall Insight

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James Cunningham, [email protected]

BP’s latest annual benchmark has found that the driven by demand in India (18mtoe). Chinese global fuel mix in the power sector is very similar demand also rose slightly (4mtoe) after three to the levels seen 20 years ago. Carbon successive annual declines between 2014 and emissions from energy consumption increased 2016. Total OECD demand fell for the fourth year in by 1.6%, after little or no growth for the three a row, down by 4mtoe. Global coal production years from 2014 to 2016. increased by 105mtoe (3.2%), the fastest growth rate seen since 2011. Despite this, coal’s share of The latest BP Statistical Review of World Energy, primary energy fell to 27.6%, its lowest level since published in June, also found that the growth in 2004. primary energy consumption averaged 2.2% in 2017. This was an increase on the 1.2% seen in Renewable power production rose by 17%, higher 2016 and the fastest growth recorded since 2013. than the 10-year average and the largest increment It is also above the 10-year average of 1.7%/year. on record (69mtoe). Wind accounted for over half of the growth in renewables and solar contributed Natural gas accounted for the largest increase in over a third, despite accounting for just a fifth (21%) energy consumption, followed by renewables and of the total (see Figure 1). oil. The overall growth in energy consumption was driven by a 3.1% in China, which remained the Figure 1: Global electricity use by source largest growth market for the 17th year in a row. The report found that last year the oil price averaged $54.19/barrel, up from $43.73/barrel in 2016. This was the first annual increase recorded since 2012. Global oil consumption rose by an average of 1.8% (1.7mn barrels per day) (b/d), above the 10-year average of 1.2% for the third consecutive year. This was driven by demand in China (500,000b/d) and the US (190,000b/d).

Global oil production rose by 0.6mnb/d, below Source: Carbon Brief, from BP data average for the second year in a row. The US (690,000b/d) and Libya (440,000b/d) reported the China saw a country record for growth in largest increases in output, while Saudi Arabia (- renewables, up by 25mtoe. This was the second 450,000b/d) and Venezuela (-280,000b/d) saw largest contribution to global primary energy the largest declines. growth, behind only natural gas in China. Natural gas consumption increased at the fastest Global nuclear generation increased by 1.1%. rate since 2010, growing by 3% (96bn cubic Growth in China and Japan of 8mtoe and 3mtoe metres(bcm)). Consumption was again driven by respectively was partially offset by declines in China (31bn cubic metres), as well as the Middle South Korea (3mtoe) and Taiwan (2mtoe). East (28bcm) and Europe (26bcm). Demand in the US fell by 1.2% (11bcm). Total power generation rose by 2.8%, in line with the 10-year average. Almost all (94%) of this growth Global natural gas production rose by 131bcm (4%), came from emerging economies. Generation in which was almost double the 10-year average OECD countries has remained flat since 2010. growth rate. Russia saw the largest growth at Renewables accounted for nearly half (49%) of the 46bcm, followed by Iran at 21bcm.The gas trade growth in power generation, with most of the expanded by 63bcm (6.2%) as growth in liquified remainder coming from coal. The overall share of natural gas outpaced the growth in pipeline trades. renewables in global power generation increase The increase in gas exports was driven primarily from 7.4% to 8.4%. by Australia and US LNG, up by 17bcm and 13bcm respectively, and Russian pipeline exports (15bcm). The report shows that, after a three-year hiatus, carbon emissions have returned to Consumption of coal increased by 25mn tonnes to oil equivalent (mtoe) (1%), representing the first their upward path. increase since 2013. This growth was largely BP

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Joe Camish, [email protected]

Analysis by the Renewable Energy Association Figure 1: Employment summary per sector (REA) has raised concern that, despite a year of records, the high renewables growth experienced during the years of the coalition government could be coming to an end. On 28 June the Renewable Energy Association (REA) published its Renewable Energy Review. The report highlights the number of ‘firsts’ for renewable energy in terms of policy developments, energy output and total carbon emissions. In this record-breaking year, the share of renewable electricity generation reached a record 29.4%. This represented a 4.9% increase compared to the previous year as generation hit 98.9TWh – 18.8% higher than in 2016. This achievement was credited to higher renewables capacity (now 40.5GW), primarily observed in the onshore/ offshore wind and solar sectors, coupled with higher wind speeds. However, the report also highlights the challenges faced by the industry due to prolonged political uncertainty and the future energy relationship with Europe. It argued that, despite the UK’s clear commitment to leading the smart energy revolution and the transition to low-carbon transport, it may be too late in delivering on its domestic and EU environmental agreements. Source: Innovas The REA cites concerns related to the The stand-out trend in the figures was the 20.3% government’s abrupt policy changes, which it drop in employment in the solar sector; this loss is believes is hampering growth. An example is the linked to the early closure of the Renewables government’s “inability to compile a cohesive heat Obligation and a change in policy on Feed-In strategy that clearly addresses the legacy of the Tariffs. Further reductions are forecast in the nation’s poorly insulated homes”, renewable heat paper. This also resulted in a dramatic fall in solar source alternatives and improves energy efficiency installations, with 1.4GW in 2016-17 completed in industry. compared to 3.2GW in 2015-16 (down 76%). In terms of policy, the paper goes on to note the Commenting on the report, REA CEO Nina “clear lack of joined up thinking present” when Skorupska said: “We urge the government and considering the benefits of embracing a circular other key stakeholders to accelerate the changes economy. The “on track” renewables and carbon necessary to create market structures and figures also mask the underperformance of the regulations so that the UK is one of the leading transport sector in meeting its 2020 Renewable destinations for energy investment. Without clarity Energy Directive (RED) targets. of regulatory structures, confidence will wane.” The value of the sector stood at some £17.9bn, but This annual review is a welcome perspective the report also highlighted the lack of growth on the positive economic effects of supporting observed in employment figures, rising just 0.9% renewables. This year’s edition underlines the compared to 2015-16 (see Figure 1) to just over sector being at a watershed. 127,000 employed by 6,651 firms. REA

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The company confirmed on 5 July that it will introduce a 6% dual fuel increase on its standard variable tariff. This translates to an average £70 annual rise, taking the average annual bill to £1,228/ year. The new prices will be effective from 31 August. The rise was attributed to increases in wholesale prices, with wholesale energy prices having increased 18% since the start of the year, and 13% since April. EDF Energy said 60% of customers will be unaffected, including those who are have been encouraged to move to a fixed price deal. EDF Energy had previously introduced a 1.4% dual fuel increase, announced in April and which came into effect in June. EDF Energy Managing Director of Customers Béatrice Bigois said: “We know that another price rise will not be welcome, and we had hoped that our limited changes announced in April would be enough. However, energy costs have continued to rise significantly and despite our best efforts to absorb some of these by reducing the costs within our control – sadly we can no longer sustain this.” Gillian Guy, Chief Executive at Citizens Advice, said: “This price rise is a bitter blow for loyal EDF Energy customers, who will be dismayed to hear their bills are going up yet again. Anyone would struggle to afford two price hikes in three months. But groups including the elderly, people on low incomes and those with disabilities will be particularly hard hit as they are least likely to switch supplier.” EDF Energy Citizens Advice

A joint statement from the retailer M&S and supplier SSE has confirmed that the two companies plan to end their white label energy supply business partnership. M&S first entered the market in 2008. The announcement, published on 5 July, explained that under the agreement SSE supplied 100% green energy to customers and helped support over 70 community energy projects under the M&S Energy brand. The white label supplier’s customers will continue to be supplied by SSE after the agreement ends in September 2018. M&S Energy will be writing to customers to let them know what their options are after that point. M&S SSE

On 2 July Robin Hood Energy’s full accounts were published, detailing a first profit for the supplier in the year ended 31 March 2018, its third year of trading. The not-for-profit supplier is owned by Nottingham City Council. The accounts show the supplier made an operating profit of £742,000 compared to a loss of £6.5mn in 2017, making Robin Hood Energy the first publicly-owned energy supplier to report a profit. Turnover increased by £44.4mn in 2017 to £70.4mn and customer accounts increased from 127,000 in 2017 to 168,000 in 2018. The supplier, which borrowed £20mn to set up, said it had recently been valued at around £30mn. The company said the surplus will be used to help those most vulnerable and to ensure Nottingham residents benefit from the company’s best rates. Robin Hood Energy will voluntarily offer the Warm Home Discount, following the example of Bristol Energy and Our Power. The scheme is currently only mandatory for energy companies once they reach 250,000 accounts. The company also said it will be switching all its electricity to be supplied from UK-based wind and solar projects and will also protect customers on its Nottingham prepayment tariff from price rises. Councillor Steve Battlemuch, Chairman of Robin Hood Energy, said the supplier was “pleased” to have created a surplus within three years, with other suppliers taking “at least five years” to do the same. Robin Hood

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On 29 June Centrica’s Energy Marketing and Trading business announced that for an undisclosed sum it had acquired a 50% stake in Barrow Green Gas (BGG), which currently ships almost half of Great Britain’s green gas supply. In November 2017 BGG announced that the Green Gas Certification Scheme had revealed that its sales of Green Gas Certificates had hit a total of 1TWh of green gas. Centrica said the move would give it “access to leading expertise in the biomethane market and strengthen its ability to offer customers a wider choice of renewable energy products.” It added that the deal would also provide growth opportunities for BGG to access Centrica’s market knowledge, capabilities and tools. BGG and Centrica will continue to operate as independent companies following the acquisition. Co-Managing Director for Energy Marketing and Trading at Centrica Cassim Mangerah said: “We expect the biomethane market to continue to grow across the UK and Europe, underpinned by supportive regulation and growing customer demand for renewable energy.” BGG was established in 2012. It supports biomethane producers by facilitating the supply of biomethane to gas buyers and provides Green Gas Certificates to energy suppliers. Managing Director of BGG Tim Davis said: “We will continue to focus on the needs of the green gas market while being able to offer our customers a wider range of services through Centrica’s position in the wider energy market.” Centrica

Foresight Solar Fund announced on 4 July that it had raised £48.1mn through a share offering that it plans to use to finance the acquisition of a portfolio of solar sites. The company raised the funds through a placing of new ordinary shares. It noted that the offer was significantly over-subscribed and investor demand exceeded the maximum placing size of 44,995,209 shares. It therefore undertook a scaling back exercise with respect to the applications received. The money will now be used to help fund Foresight’s acquisition of a portfolio of 18 solar sites with a total installed capacity of 134.2MW. The acquisition of the sites is expected to complete by the end of July and be worth approximately £55mn. Chairman Alexander Ohlsson said: “Through the anticipated acquisition of 18 operational assets in the UK, Foresight Solar Fund Limited will become the largest UK-listed dedicated solar energy investment company by installed capacity, further diversifying our asset portfolio and underpinning our long-term dividend policy.” Foresight Group

Analysis by the International Energy Agency (IEA) has suggested that gas can expect to have a “bright future” over the next five years. The Gas 2018 report, published on 26 June, predicted that strong demand growth in China, greater industrial demand and rising supplies from the US will combine to transform the global gas market between 2018 and 2023. Global gas demand is expected to grow at an average rate of 1.6% per year to reach just over 4,100bcm in 2023, up from 3,740bcm in 2017.Amongst end users, industry is expected to become the largest contributor to the increase in global gas demand, overtaking power generation which has historically accounted for the majority of demand growth. Overall, the IEA expects industry to account for over 40% of growth in global gas demand to 2023, followed by 26% from power generation. Fatih Birol, Executive Director of the IEA, said: “In the next five years, global gas markets are being re-shaped by three major structural shifts. China is set to become the world’s largest gas importer within two-to-three years, US production and exports will rise dramatically […] and industry is replacing power generation as the leading growth sector. While gas has a bright future, the industry faces tough challenges. These include the need for gas prices to remain affordable relative to other fuels in emerging markets and for industry to curb methane leaks along the value chain.” IEA

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The incoming default tariff cap for domestic of the underlying regulatory framework for the customers risks slowing the rate of innovation and market. level of investment in the energy sector, potentially Supplier responses to the default tariff cap are not risking long-term customer benefit, according to a expected to be uniform and will instead depend new report by Cornwall Insight. The report upon their individual business models – i.e. their Technological Change and Innovation in the GB approach to defending profit margins or their Market – How might it be impacted by the Default market share, and the number of default tariff Tariff Price Cap? was commissioned by consumer customers they have (see Figure 1). group Which? While technological and Figure 1: Supplier archetypes and possible strategic responses to the default tariff cap commercial innovation will continue under the cap, regulatory uncertainty resulting from this legislation – and wider changes across the industry – could hamper investment in new products and services, the report adds. Cornwall Insight supplemented its own research for the consumer group with interviews with a range of participants from across the sector – including suppliers, generators, network companies, investors, technology providers Source: Cornwall Insight and battery storage companies. Based upon interviewee responses, and for the purposes of the report, In some instances, suppliers may exit the industry innovation was broken down into two categories: as a result of the cap – the new policy having been cited by Flow Energy as one of the reasons for the The evolution of existing products and services sale of its business to Co-Operative Energy in April through existing market participants was typically 2018. seen as occurring within the current regulatory framework, or capable of occurring without the Such developments will affect competition, need for extensive regulatory change. customer choice and – in turn – innovation. One supplier noted in their response that “If the cap is A revolution of new products and business models too low, companies will be hit and there will through market disruptors was more likely to inevitably be less money to invest in new require regulatory reform and restructuring to opportunities, and (this) could have a major cooling accommodate these new entrants to the sector, effect on the level of investment across the energy bringing in new services and technological space. If it is set too high, then the money will still applications. be there, but it will be politically unacceptable… Taking this perspective, respondents noted that and hamper investor confidence.” the impact on the cap on innovation would depend The risks for customers in a rapidly-evolving upon several factors, including: the level and market could include a mounting complexity of structure of the cap; how suppliers react to the products that makes comparing providers more cap, and particularly how they seek to attract difficult – particularly in the growing trend of customers; the ability of disruptors and new bundled offers that encompass more than just providers to enter the market in the wake of the energy supply – and reduced customer choice in cap; the level of engagement from customers and the presence of mergers and consolidation in the their demand for innovation, particularly in the sector. smart meter era; and the flexibility (or lack thereof)

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In recent years, there has also been an increasing The issue of the regulatory climate was cited as emphasis on “smarter” flexible arrangements at being of particular importance, given the the local level. Often “proof-of-concept” schemes, convergence of several policy decisions in 2020 – these could result in innovation projects being of the current earliest end date of the default tariff greater interest to the increasing number of cap. Such issues included the deadline for unconventional suppliers and other disruptive suppliers to offer smart meters to domestic business models. customers, the implementation of next-day switching and the introduction of half-hourly Given that such local projects are commonly reliant settlement. Interviewees commented on the on community and customer engagement, there is unpredictability and complexity of legislation, a risk that the price cap could be viewed as an particularly that this could be dissuading new enduring solution to energy costs, serving as a entrants from outside of the sector or result in disincentive to participate in such innovative them scaling back their plans to meet the schemes. This concern was epitomised by one prevailing regulatory rules. respondent, who noted “Most people will hear a very simple message – the government is now In the face of a dynamic regulatory climate, one of looking after you when it comes to energy prices. the greatest challenges to innovation is therefore People will switch off to energy and stop switching that many of the energy sector’s fundamental and engaging.” changes are still in their early stages. “We are at a place where mobile phones were in the 1980s and As well as being responsible for implementing the 1990s,” one supplier said of their role in the cap, as the sector regulator Ofgem must foster an industry, “You couldn’t see what the future would environment within which existing participants can be or what an iPhone would even look like. It is the allow their business models to evolve. From a evolution of the business models that will change.” regulatory perspective, one of the main challenges for Ofgem is therefore to encourage disruptors to The full report is available to download here. join the energy sector. Two of the methods by Craig Lowrey is a Senior Consultant at Cornwall which it is doing so is its review of the supplier hub Insight. model and through its regulatory sandbox.

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All gas contracts increased last week. Day-ahead gas gained 8.1% to 57.8p/th, due to high gas demand for power generation, increased exports to Belgium, and low levels of LNG imports. In addition, strong demand for storage injection across Europe has supported prices. Month-ahead gas prices grew 5.0% to 58.2p/th, up 4.1% from the same period last month when it was at 55.9p/th. Seasonal gas contracts ascended 2.1% on average last week, following oil prices higher. Winter 18 was up 1.8% to 65.0p/th and summer 19 increased 3.0% to 51.9p/th.

All near-term baseload power contracts rose last week. Day-ahead power increased 9.0% to average £56.9/MWh, supported by its gas counterpart. Day-ahead power hit a fresh three- month high of £58.5/MWh on 3 July as wind output plummeted. The contract was supported by low wind output throughout the week, with wind accounting for only 8.5% of the generation mix. Month-ahead power lifted 4.1% to £56.2/MWh, and September 18 power went up 2.7% to £58.5/MWh. All seasonal baseload power prices experienced bullish growth last week, rising on average by 1.7%. Winter 18 gained 1.7% to £62.1/MWh. Summer 19 and winter 19 rose 2.4% and 2.2% to £51.1/MWh and £57.1/MWh respectively.

Brent crude oil grew 2.4% to average $77.9/bl, up from $76.1/bl the previous week. Oil prices started last week at $78.6/bl as Saudi Arabia and Russia lifted output, officially relaxing the production cut agreement. Oil prices stayed high amid numerous supply disruptions, including the announcement of force majeures at Libyan ports, ongoing disruptions at Syncrude Canada’s production facilities, and sanctions on Iranian exports. EU ETS carbon prices increased 2.0% to average €15.4/t last week, up from €15.1/t the previous week. EUA prices are currently 210.7% higher than the same time last year when they were €5.0/t. EU ETS prices reached a three-week high within-day on 5 July, hitting €15.8/t. API 2 coal grew 5.0% to average $91.1/t last week. API 2 coal prices hit a five-year high on 4 July, rising to $91.6/t.

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