Tom Crisp Editor 01603 604421 [email protected]
ENERGY PERSPECTIVE 02 Monday 21/05 – Prime Minister Theresa May pledges that new Looking beyond the cliff edge: technologies and modern construction practices will be harnessed to emerging power market trends – Tim Dixon at least halve the energy usage of new buildings by 2030. The two task forces established by Ofgem under the Charging Futures Forum POLICY 05 to consider network access arrangements and the forward-looking elements of network costs issue their final report. The Competition Defra unveils Clean Air Strategy and Markets Authority releases the text detailing the findings of its MPs blame clean energy investment low on policy Phase 1 investigation into the proposed SSE/npower merger, warning changes it could raise prices. CMA cites risk of price rises as key concern in SSE/npower Tuesday 22/05 – The government consults on its draft Clean Air merger Strategy, confirming it plans to maintain the existing EU model of Energy UK puts forward EMR integrated industrial pollution control post-Brexit. Ofgem opens an reform recommendations Parliamentary update: Week 21 investigation into National Grid Electricity Transmission’s demand 2018 forecasting. Cuadrilla seeks consent to hydraulically fracture the UK’s first ever horizontal shale gas well at its Preston New Road site. REGULATION 12 Wednesday 23/05 – Energy UK shares its views on potential Task forces deliver report on improvements to the Energy Market Reform framework, including future network charging and access introducing a revenue stabilisation Contract for Difference. Energy Minister Claire Perry commits £21.5mn of UK funding towards a global Smart Meters Bill passes final parliamentary stages carbon capture and storage challenge. A BEIS civil servant states at an event that the department is not planning to change the rules for the INDUSTRY STRUCTURE 16 Contracts for Difference scheme before the 2019 auction. The Oil and Gas Authority offers 123 licences over 229 blocks or part-blocks to 61 SSE looks forward to “year of transition” companies in the 30th Offshore Licensing Round. Centrica on track to meet targets despite customer losses Thursday 24/05 – Scottish Climate Change Secretary Roseanna Npower and Innogy results Cunningham pledges that Scotland will be one of the first countries in largely as expected the world to achieve a 100% reduction in carbon emissions. Citizens Advice research highlights challenges of engaging with the energy NUTWOOD 20 market for people with mental health problems. The Telegraph reports Rocket boosters, revolutions and 12,000 SMETS1 smart meters are being replaced with other first positive outcomes; why BEIS’ generation meters every month. next solar step is crucial – Liam Stoker Friday 26/05 – SSE’s 2018 results show it lost 430,000 customer Corporations cannot get enough accounts in its retail division while the government's energy price caps of a good thing – Perry Sioshansi’s Letter from America for vulnerable customers also hit profits. SSE also confirms plans to construct an 840MW £350mn CCGT power station at Keadby, without MARKETS 22 a capacity market agreement in place. The Scottish government raises its carbon reduction target to 90% of 1990 levels by the middle of this century.
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After a long drawn-out The experience in places such as California has winter characterised by triggered a range of supply- and demand-side extreme weather and responses with new pricing structures, storage, record spikes for gas and and gas turbines operated mainly for flexibility. power prices, we now And this pattern is now being evidenced in GB. look towards the summer. Take me high Indeed summer 2018 could prove to be a One consequence of these trends is the Tim Dixon ground-breaking period depression of peak power prices on days with high Wholesale Team Lead where some long-held solar output. Figure 2 illustrates several days 01603 959881 theories about flexible recently that experienced lower average prices t.dixon@cornwall- insight.com power systems are finally over the peak (7am – 7pm) than during off-peak put into practice. periods on the N2EX day-ahead auction. In this Energy Perspective we explore a range of Figure 2: N2EX Day-ahead hourly auction prices emerging market phenomena reflecting an electricity market in rapid in transition. The millennium prayer GB renewables capacity now exceeds 40GW, sufficient to meet demand at certain times. While this is unlikely in practice owing to the need for flexibility and response, we have already seen this month record low levels of coal output. In the wholesale market, peak power prices have also fallen below those for off-peak power. Overall transmission system demand is expected to be lower this summer than in 2017, according to Increased volatility and greater price differentials National Grid. This is due to further increases in between periods of low and high demand is also the amount of distributed generation – at the start producing arbitrage opportunities. This is of May there was just over 13GW of embedded something that will be welcomed by storage solar and nearly 6GW of embedded wind capacity operators and flexible generation looking for alone. revenues beyond grid procured services. Falling transmission demand, particularly at times Where do we go from here? of high solar output, means daytime minimum The rest of the generation mix over summer will be demand can now fall below the overnight contingent on renewables and nuclear output, minimum. Indeed, this has already occurred this needing to act flexibly as intermittent sources of summer as over 8GW of solar on 5 May led the generation fluctuate. For instance, last summer for afternoon minimum to be 500MW lower than every extra unit of renewable generation, one unit overnight. Figure 1 illustrates the demand shape of gas-fired generation was lost, according to this creates, sometimes termed ‘the duck’s back’. National Grid. Figure 1: Demand and solar output, 5 May 2018 As for coal, clean dark spreads – the difference between the price a coal-fired plant can sell its power for on the wholesale market and the cost it takes to produce that power – are close to negative for summer months. This means coal stations cannot make money from generation alone. Coal units will as last year operate at significantly reduced running hours and potentially only have volumes accepted in the Balancing Mechanism (BM).
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Indeed GB recently broke a national record by Day-ahead peak power prices are also increasingly going 76 hours without burning coal. The new falling below prices for the corresponding record came after coal was not used to generate baseload contract. This has already occurred 13 any of the country’s electricity from 9.05am on 21 times since summer 2016, and it can be expected April until 1.10pm on 24 April. It is likely this record to occur more this summer. will be broken again this summer, with the least available coal capacity in the week commencing Figure 4: Captured solar and wind prices against APX half-hourly Market Index Price 30 July amid planned outages at Aberthaw and Cottam power stations, while Drax will be converting a unit to biomass. In contrast clean gas spreads are sitting higher (see Figure 3). Gas will therefore act as the primary flexible generator in the mix, especially as we are also seeing an increasing need for the system operator to instruct generators to turn down.
Figure 3: Clean spark and dark spreads (at 24 May 2018) Small corners Negative prices are also becoming more commonplace. These arise when National Grid instructs inflexible generators (most commonly wind, but it can include thermal and storage), to reduce power put onto the system to ensure they have sufficient provision of headroom, footroom and inertia – the ability to absorb changes to frequency. Now you see me, now you don’t These actions also occur when and where there Another phenomenon becoming more prominent are localised transmission constraints – where the in the market as renewables increase is wholesale electricity transmission system is unable to power price cannibalisation. We covered this effect transmit power to the location of demand due to in-depth in a recent Insight Paper. congestion. This is something that we have seen Price cannibalisation is the depressive influence on already this summer with numerous windfarms the electricity price at times of high output from having bids accepted at -£100.0/MWh or below, intermittent generation. The absence of fuel costs meaning they get paid this value to turn down and the incentive to capture as much subsidy as compensating them for lost subsidy payments. possible makes these generators competitive in However, the commissioning of the Western wholesale markets, squeezing out capacity from HVDC link this summer – a transmission cable less efficient and higher cost conventional linking Hunterston and Deeside – should ease generation. The effect is therefore low, or some of these constraints between England and sometimes negative, wholesale power prices. Scotland. This depressive effect is set to be increasingly felt. Negative prices are becoming more common in In our most recent Green Power Forecast, we imbalance prices, with 38 instances last summer assessed the effects of price cannibalisation on alone. There have been 18 so far this year, solar and wind plants. We assessed the “captured compared with 11 in the corresponding period price” of wind and solar over the past few years 2017. These are derived directly from the prices of versus the average half-hourly Market Index Price actions accepted in the BM. (MIP) to reflect values they realistically achieved in They have also occurred on the within-day traded the market based on respective generation market (see Figure 5), but they are yet to be seen profiles. As Figure 4 shows wind receives the at the day-ahead stage. However, with increasing lowest captured wholesale price, achieving around deployment of renewables on the system, we do 4.5% less than the baseload (24hr MIP average) expect these to become more of a feature in the price during summer seasons, while solar has traded markets going forward, as has already been recently achieved a small premium averaging witnessed in Germany and other places with high around 0.5% - 1.0%. levels of renewables deployment.
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Figure 5: Year-to-date instances of negative pricing in the BM high and revenue streams subject to 18 16 risk and 14 uncertainty, we 12
10 are unlikely to see May) - 8 the impacts of (Jan 6 4 such
Number Number negative of periods 2 developments 0 fully work through 2017 2018 the system. Negative prices are most likely to occur during spring and autumn months when wind output Coal generation trends higher, but while demand levels remain low. will continue to Within-day, these periods are common before the lose out as it morning and evening peaks, when prices are rising struggles to and generating units are dispatching to meet compete and increased demand but renewables output is carbon prices bite. climbing at the same time. Pumped storage plants Further declines in output will also be seen as Drax will look to take advantage of excess generation is converting a fourth unit to biomass this summer, and negative prices by pumping water into their and Eggborough is due to close its doors in upper reservoirs. Coal and gas-fired stations will September. also look to take advantage by pricing bids and Gas-fired generation will also see its presence offers into the BM to reflect a higher possibility of decrease as renewables take priority in the negative prices, and by bidding to be paid to turn generation stack. However, it may find some down. respite from more volatile prices, particularly on Something’s going on the BM with its more marginal imbalance prices (a factor that will be reinforced from November 2018 These emerging impacts will have mixed impacts with the implementation of PAR1). But incentives to on market participants. build new gas-fired generation remain weak. (How Renewables generators under the Contracts for one explains the SSE decision last week to build a Difference (CfD) scheme are insulated from falling new CCGT at Keadby 2 against this background is prices, with the guarantee that they will be ‘topped a complex issue that we will address next issue). up’ to their strike price regardless of whether high As for the consumer, there may be some benefits renewables output depresses wholesale prices. at times of very low, even negative wholesale This situation creates a limited incentive for CfD prices. However, the increasing volatility of prices projects to act flexibly on the system, and it is likely close to delivery is putting increased risk on to exacerbate the impacts of price cannibalisation suppliers and off-takers as they look to fine-tune as a large volume of new subsidised wind capacity and balance their positions. This risk will inevitably is due to come online under the scheme towards find its way into supply contracts through higher the end of this decade and throughout the 2020s. premiums. And of course subsidy costs under the However, incentives to reduce output do apply if CfD and capacity support will continue to inflate prices go negative, with no subsidy paid to bills. generators under the CfD rules after six consecutive hours of negative prices on the day- Congratulations ahead auction (applicable to projects from In the round, then, this summer could be a Allocation Round 2 and onwards). landmark season for the wholesale power market, Unlike CfD projects, ROC and FiT renewables with emerging trends of lower peak demand, price projects will feel the effects of price cannibalisation cannibalisation and negative prices no longer and perhaps have an incentive to act flexibly in being isolated events. It is to the industry’s credit future due to their exposure to wholesale prices though that such seismic shifts are being (though the subsidy benefit will greater limit the integrated at least as yet smoothly. Indeed the impact relative to conventional generation). general tenor of National Grid’s Summer Outlook However, incentives to better manage (see ES613) was generally relaxed. But we still intermittency has also led to an increased interest have a long way to go up the learning curve, and in the co-location of storage with renewables. It is there will inevitably be surprises in store. still early days and, with battery costs currently too
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Tilly Pembroke, [email protected]
On 22 May Environment Secretary Michael Gove Defra estimates that these actions will reduce the published his department’s Clean Air Strategy, costs of air pollution to society by an estimated aimed at building on the government’s legally £1bn annually by 2020. binding emission targets with new goals to cut Currently, industry emissions from larger plants public exposure to particulate matter pollution. (those over 50MW) are controlled through the EU The new strategy complements the government’s Industrial Emissions Directive (IED). The Clean Air recent Industrial Strategy, the Clean Growth Strategy committed to maintaining the UK’s long- Strategy and the 25 Year Environment Plan. It standing policy of continuous improvement in recognises that the UK already has a strong track relation to industrial emissions, building on existing record on reducing air pollution, particularly in the good practice and the current EU framework to energy sector (see Figure 1). Industrial emissions of deliver a stable and predictable regulatory nitrogen oxides to air have reduced by 74%, environment for business. The government also emissions of sulphur dioxide have reduced by 97% aims to work with all industrial sectors to explore and emissions of volatile organic compounds have future opportunities to improve further through a reduced by 73%. series of sector roadmaps that set ambitious standards. The government will also work to close Figure 1: Industrial emissions trends the regulatory gap between the current Eco-design and medium combustion plant regulations to tackle emissions from plants in the 500kW to 1MW thermal input range, which currently fall between different regulatory regimes. Furthermore, the report recognised domestic burning for heat as a major area of concern to human health. This continued burning of solid fuels such as wood and coal has had a significant impact on air quality, now representing the single largest contributor to national particulate matter emissions at 38%. In order to reduce these resultant emissions, Defra has pledged to: prohibit the sale of the most polluting fuels, ensure only the cleanest stoves are available for sale by 2022, and update legislation on “dark smoke” from chimneys Source: Defra and Smoke Control Areas. Lawrence Slade, Chief Executive of Energy UK, Going forward the plan seeks to: commented: “The energy sector has made huge • halve the number of people living in locations progress in tackling air pollution by reducing where concentrations of particulate matter are harmful emissions. Low-carbon generation also above the World Health Organisation guideline reached record levels, making 2017 the greenest limit of 10 ug/m3 by 2025 year yet.” • introduce new primary legislation, to give local The strategy indicated that any change the UK governments new powers to improve air faces to its emissions regime post-Brexit will quality be incremental. • invest in new scientific research and There are some things here that may have a innovation, and substantial impact though, such as limits on • ensure only the cleanest domestic fuels will be home fuels, how this links in to heat available for sale, preventing 8,000 tonnes of decarbonisation and the increased role of particulate matter entering the atmosphere local authorities. each year. Defra
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Tom Lawson, [email protected]
On 16 May the House of Commons downward trend to key policy changes made by Environmental Audit Committee published the the government in 2015 that the Committee said report of its inquiry into the government’s are likely to have harmed investor confidence in strategy to develop “world-leading green finance low-carbon projects. capabilities”. These included: The inquiry began in November 2017, with the closing the Renewables Obligation to onshore findings detailed in the committee’s Green • Finance: Mobilising Investment in Clean Energy wind a year earlier than planned, and Sustainable Development report. • removing the Climate Change Levy exemption The report scrutinised the government’s green for renewables, finance aims set out in the Clean Growth Strategy, • reducing Feed-in-Tariffs for small-scale and it examined whether its polices have delivered renewable generation, the investment needed to meet the legally binding climate targets. • cancelling the Zero Carbon Homes policy due to come into force in 2016, and The Committee on Climate Change has estimated that, to meet its carbon budgets, the UK must • cancelling the £1bn Carbon Capture and invest up to 1% of GDP/ year – approximately Storage competition. £22bn – to 2032. Following the passage of the Other possible influencing factors cited in the Climate Change Act 2008, the Environmental report include the privatisation of the Green Audit Committee report said that the UK “made Investment Bank and a reduction in European significant progress in redirecting investment Investment Bank lending following the UK’s EU towards cleaner sources of power”, and as a result membership referendum. is on track to meet the third carbon budget up to 2022. Chair of the Committee Mary Creagh MP (Labour, Wakefield) said: “The government’s Clean Growth However, the report highlighted a “dramatic and Strategy was long on aspiration, but short on worrying collapse” for low-carbon energy detail. The government must urgently plug this investment in the UK since 2015. In 2017, policy gap and publish its plan to secure the investments were at their lowest level since the investment required to meet the UK’s climate global financial crisis of 2007-08. Investments fell change targets.” by 10% in 2016 and 56% in 2017 (see Figure 1). The Committee put forward several Figure 1: New investment in clean energy in the UK by sector ($bn) recommendations to the government. These included: • negotiating to maintain a relationship with the EIB to allow riskier, early-stage green infrastructure projects continued access to development bank finance • issuing a Sovereign Green Bond to set a benchmark of good practice for domestic green bonds, and • encouraging ministers to find new ways of Source: Bloomberg New Energy Finance supporting councils to mobilise investment in Despite being encouraged by elements of the local low-carbon energy projects. Clean Growth Strategy, the Committee said that, The policy recommendations are interesting, even if all of its policies are delivered, there would and they seem sensible. It will be interesting to still be a shortfall in meeting the fourth and fifth see how the government responds. carbon budgets between 2023-32. It attributed the Parliament
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Tom Crisp, [email protected]
The full decision text of the Competition and Figure 1: Shares of supply of energy to domestic Markets Authority (CMA) phase 1 decision on the customers in GB (number of accounts, October 2017) SSE/npower merger was published on 21 May. The proposed merger of SSE’s GB domestic retail business with npower to form a new energy company was first announced in November 2017. The CMA considered two different theories of harm as part of its assessment of the horizontal unilateral effects of the merger in the supply of electricity and gas in GB: Source: Parties’ submissions based on Cornwall Insight data • the loss of rivalry in the process by which supply in the energy market will not accurately suppliers, and particularly the larger suppliers, reflect the dynamic of competition as they are set their Standard Variable Tariff (SVT) prices, significantly affected by the large suppliers’ “high and numbers of incumbent disengaged customers”. • the loss of rivalry to attract new customers. Shares of supply therefore disproportionately represent a stock of customers rather than current Competition concerns centred on how each of the customer preferences. Equally though, the CMA larger suppliers, including SSE and npower, is found that the switching rates between SSE and constrained in its SVT price setting behaviour by npower are “consistently low”, providing strong the other larger suppliers. Post-merger, concerns evidence that the parties are “not particularly close focused on how the removal of part of this competitors.” comparative constraint could result in higher SVT prices among all the larger suppliers compared to Another area where competition concerns were a counterfactual scenario where no merger takes raised was the relationship between npower and place. Utility Warehouse. The CMA stated it “cannot exclude the possibility” that the merger may also This concern was evident in stakeholder raise competition concerns in relation to the submissions. Ofgem told the CMA that “it is vertical relationship between npower and Utility probable that the [SVT] price charged to customers Warehouse, given that the wholesale price paid by will be the higher of the two tariffs charged by SSE Utility Warehouse is set by reference to SVT prices and npower”, and that “this transaction could and “an increase in SVT prices may lead to the influence other suppliers increasing prices, in foreclosure of this competitor.” But npower particular, their default tariff prices”. submitted in response that any increase in its SVT The CMA noted the considerable number of new price would result in the wholesale price paid by suppliers that have entered the GB domestic Utility Warehouse being only marginally higher, market in recent years. However, customer and so would not result in a material effect on disengagement and higher costs arising from competition. However, Utility Warehouse regulatory obligations (above a certain size) were disagreed and said its ability to compete identified as continuing to be “significant barriers” effectively would be reduced. to their expansion. Moreover, the small number of The phase 2 investigation is ongoing, with a customers on SVTs with the small and medium provisional decision expected in mid-August. suppliers means that they are seen as being unlikely to affect significantly the SVT price setting The stance being taken by both companies behaviour of the larger suppliers “for a involved in the merger is that no mitigation considerable time”. measures are necessary. Interestingly the On their combined supply shares, the two parties CMA is due to report about the same time as submitted that these should not raise competition Ofgem will be announcing the reset of its price concerns as, on both the national and regional cap. level, they fall well below 40% (see Figure 1). CMA However, the CMA considered that shares of
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Tom Lawson, [email protected]
Ahead of the forthcoming review of the • a revenue stabilisation CfD to reflect Electricity Market Reform (EMR) package substantial cost reductions in established low- introduced through the Energy Act 2013, trade carbon technologies association Energy UK published its own recommendations for changes on 23 May. • advance notice of future CfD auctions at regular intervals to maximise competition by The EMR programme was put in place to address helping generators develop supply chains and the energy “trilemma” of security, consumer plan more effectively for future investment affordability and decarbonisation and will be reviewed by the government in 2019. In this “vision • an extension of Milestone Delivery Dates for paper”, Energy UK sets out suggestions on how CfD projects from the current 12 months to 18 the EMR can “bring even greater benefits for or 24 months consumers and the UK economy in future”. • allow renewables to participate in future CM Energy UK emphasises its support for the EMR and auctions and also look to see how innovative argues that it has been a success in “drastically new models such as hybrids and aggregated reducing costs and incentivising billions of pounds sites can take part, and of investments”. It highlighted the success of two • review CM rules and governance, including major elements of the programme: the latest penalties and fees, to be to ensure they remain Contracts for Difference (CfD) auction in fit for purpose. September 2017 saw the cost of offshore wind projects nearly halved (see Figure 1), whilst the The trade association said that the revenue latest T-4 Capacity Market (CM) auction resulted in stabilisation CfD – the so-called subsidy-free CfD - the lowest ever clearing price. is necessary despite falling costs of onshore wind and other established technologies due to Figure 1: 2017 CfD prices awarded vs Hinkley C new nuclear plant and projected costs of new CCGTs wholesale price fluctuations caused by fossil fuel price volatility. It added: “The provision of such contracts will ensure consumers are accessing the cheapest new electricity sources needed.” Speaking on 24 May at the launch of an Energy UK paper on the upcoming five-yearly review of the EMR framework, senior BEIS civil servant Jane Walker said that a CfD review will be carried out as part of the review, but that “this review isn’t proposing to change anything ahead of round three.” She also said that there were “no plans at the moment to change the approach to the bidding structures” for CfD auctions. Round three is expected to take place in February 2019.
Source: Carbon Brief A useful paper, with some sensible recommendations. However, to “not only keep up the pace of decarbonisation in future but go further and We can expect a growing number of faster”, the trade association has put forward a contributions like this on EMR reform as BEIS number of recommendations to improve and gears up for its review. There is no set ensure the continued success of the scheme’s key timescale for the review yet, but we can elements. expect other major stakeholders to continue to These recommendations include: lobby for their suggestions. Energy UK
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Tom Crisp, [email protected]
Following the previous week’s Second Reading In response to the government’s Clean Air (see p.13), the Smart Meter Bill passed Third Strategy (see p.5), Chair of the House of Commons Reading on 22 May without debate. The Bill Transport Committee Lilian Greenwood MP said received Royal Assent on 23 May. that: “The government has rejected a ban on petrol and diesel cars before 2040. It seems that today's The Domestic Gas and Electricity (Tariff Cap) Bill announcement lacks the ambition and innovation had its Second Reading in the House of Lords on that is desperately needed to cut vehicle 22 May. BEIS Minister Lord Henley stated that the emissions and, more importantly, reduce our Bill had one central aim, "to give Ofgem the reliance on cars.” powers and duties to design and implement a tariff cap for standard variable and default-rate tariffs as Also on transport, on 22 May a Westminster Hall soon as possible". debate was held on job losses in the UK Automotive Industry. Matt Western (Labour, In the ensuing debate, Lord Stevenson (Labour) Warwick and Leamington) argued that “to expressed concern at an overall lack of specificity accelerate fleet renewal, motorists must have the in the legislation. He called for more clarity on: the confidence to invest in the cleanest cars for their preferred level for the cap, a duty on Ofgem to needs, however they are powered. A consistent consult on how measures on competition and approach to incentives and tax and greater consumer protection can accurately be quantified, investment in charging infrastructure will be critical. a timetable for the implementation of the Bill, and a Now more than ever, we need a strategy that long-term vision of how the government plans to allows manufacturers time to invest, innovate and reform the energy market post-price cap. sell competitively, and which gives consumers Conservative peer Lord Ridley criticised the logic every incentive to adapt.” of the Bill, arguing: “In effect, the government have asked the energy suppliers to be their tax In a Written Answer on whether financial support collectors and are now, in an incoherent gesture, had been offered to Hitachi to build the Wylfa forbidding their tax collectors from collecting the nuclear power station, BEIS Minister Richard revenue. The energy suppliers would be acting Harrington responded that “the government entirely reasonably if they were to tell the regularly engages with developers in the UK government to collect their own taxes and take the including Hitachi regarding the construction of a consequent blame.” Lord Teverson (Lib Dem) new nuclear power station. These commercial suggested that there should be a relative cap and discussions are ongoing and no final decisions that decisions on the green exemption must be have been made. These discussions are made on the same date as the rest of the cap so commercially sensitive.” as to avoid inconsistency and imbalance. In a Written Answer published on 23 May, Energy Lord Henley concluded the debate saying the and Clean Growth Minister Claire Perry set out conditions for the removal of the cap were not what support BEIS offers for new community provided for "as in a changing market we do not energy co-operatives. She stated that the want to impose conditions that may not be met or government had announced a new Local Energy tie the removal of the cap to measures that will not Programme in the Clean Growth Strategy and to be in place by the time that the wider market has date have committed £7mn with a further £1mn become competitive.” The Bill was committed to a allocated for 2018. Grand Committee. John Mann (Labour, Bassetlaw) tabled Early Day The House of Commons Housing, Communities Motion 1303 on 22 May, highlighting academic and Local Government Committee held a further research warning of the significantly enhanced risk evidence session on Planning Guidance on of earthquakes posed by fracking beneath coal- Fracking on 21 May. Chair Clive Betts stated that mined areas where mining-induced seismicity has the committee was surprised and disappointed by already occurred. the previous week's ministerial statement, stating The House of Commons Library published a he believed that ministers had made up their mind briefing on Nuclear Safeguards Bill on 24 May. before the committee had completed its enquiry and asked for further clarification from ministers. Links underlined above.
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Theresa May announced on 21 May that the UK is to use new technologies and modern construction practices to at least halve the energy usage of new buildings by 2030. Delivering a speech on the government’s Industrial Strategy, May outlined four “Grand Challenges” with “enormous potential for the UK economy”. Among them was a clean growth aim of improving energy use in new buildings, with heating and powering buildings accounting for 40% of UK total energy usage. She said: “By halving the energy use of new buildings – both commercial and residential – we could reduce the energy bills for their occupants by as much as 50%.” It is intended that meeting this challenge will drive innovation and higher standards in the construction sector, helping it to “meet our ambitious homebuilding targets and providing more jobs and opportunity to millions of workers across the country.” Julie Hirigoyen, Chief Executive of the UK Green Building Council (UKGBC), welcomed the PM's "bold" commitment on building energy efficiency, but warned it would need to be backed with clear and consistent policies. She said: "Addressing the energy used in new and existing buildings will be central to delivering clean growth and can only be achieved with strong leadership from government working in close partnership with the industry." 10 Downing Street
A policy essay by Middlesbrough South and East Cleveland MP Simon Clarke has proposed allowing fresh deployment of onshore wind, where there is community support. The essay, published by the Centre for Policy Studies (CPS) on 15 May, was part of the series, New Blue: Ideas for a New Generation. The collective essays outlined “practical policy suggestions intended to speak to young voters’ concerns.” Throughout the essay, Clarke noted the substantial reduction in wind costs since the last Contract for Difference auction, suggesting that offshore wind generation will be cheaper than the cost of new nuclear. Furthermore, the report found any future onshore projects will result in the agreement of fixed prices below the expected market rate, due to being cheaper than offshore installations. In addition, Clarke advocated the re-powering of existing windfarms, embracing carbon capture and storage, and ending EU tariffs on solar panels as essential routes to a carbon-neutral Britain. The report promoted research from the Energy and Climate Intelligence Unit, which found the re-powering of turbines set to cease operating over the next five years could power 800,000 homes and save consumers more than £77mn/ year on their energy bills compared to building new gas capacity. Meanwhile, another essay by the Conservative Environment Network’s Isabella Gornall called for the adoption of a net zero emissions target and faster roll-out of electric vehicle infrastructure. CPS
The government has overlooked resource efficiency as a climate policy to cut carbon emissions, a Green Alliance report published on 14 May has warned. The report, Less in, More out, based on research conducted by the Centre for Industrial Energy, Materials and Products (CIEMAP), found that resource efficiency in five key sectors could make a significant contribution to meeting future carbon targets. The report stated that on current trajectories the UK is projected to exceed its carbon budgets in the 2020s and 30s. Therefore, “new sources of carbon savings must be found if the UK is to become a net zero emissions economy by 2050, as the government is considering”, it said. The report found potential carbon savings from successfully implemented resource efficiency measures are greater than those already achieved by many of the government’s climate policies, including the Renewable Heat Incentive, the Renewable Transport Fuel Obligation, and the smart meter roll-out. Resource efficiency in the construction sector offers the greatest opportunity to reduce carbon emissions, mainly by addressing ‘operational carbon’ from heating and powering buildings. The report suggested the construction sector has the potential to reduce emissions by 79.14MtCO2e between 2023 and 2032.
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Improvements in material use alone have the potential to reduce emissions by nearly 200MtCO2e by 2032, it added. The Green Alliance recommended the government establish sector-specific “resource efficiency partnerships” in order to meet its climate targets. These collaborations could develop benchmarks, identify and spread innovative ways to increase resource efficiency and ensure the government achieves its goal of doubling resource productivity by 2050, as set out in its Industrial Strategy. Green Alliance
The UK government is failing in its “duty of care” to the offshore industry by delaying the publication of a proposed oil and gas sector deal, Shadow Business and Energy Secretary Rebecca Long-Bailey has said. Reported in Energy Voice on 21 May, the comments were made in relation to the government confirming it would press ahead with a series of sector deals in November as part of its Industrial Strategy. Long-Bailey said: “It’s a duty of care really from the government to make sure that the industry has that support and direction going forward. We’re at a critical point now where a sector deal would encourage private investment – it would provide certainty of direction for the sector.” Asked about Labour Leader Jeremy Corbyn’s comments to “look very carefully at tax changes” for the North Sea if he becomes the next prime minister, the shadow energy secretary added: “It’s certainly something that I think as soon as we were in power, we would carry out an urgent review into the tax landscape for the oil and gas industry and the energy sector overall.” No link Our latest Chart of the Week explores whether market-leading tariff deals provide suppliers with a sustainable margin to cover their own costs and allow profit. Last week’s Cornwall Insight blogs included Re-wiring – interconnectors to face increased policy scrutiny.
Energy Spectrum 619 | 29/05/2018 | page 11
Josephine Lord, [email protected]
The two task forces under the Charging Futures levels in transmission and distribution, plus Forum (CFF) that have been considering options locational charges at transmission and EHV for forward-looking network charges and distribution level generated by complementary network access arrangements issued their joint methods, with an HV/LV representative model final report on 22 May. adjusted for locational issues (e.g. a generator- dominated network). The advantages and The report details the process that the task forces disadvantages of moving to a shallow connection have followed, the framework for analysis they policy across all voltages was considered. developed and the options they considered. It stressed that the terms of reference were For C2, the task forces concluded that reallocation ambitious and that the breadth of the work and the of access rights could offer benefits in certain relatively limited timescales meant that they have scenarios. Providing users with a wide range of not been able to address all aspects fully. Their access choice and the ability to vary this choice work should therefore be seen as the “start of through the lifetime of their connection would discussions [….], not the final word”. allow users to connect quickly (ahead of wider network reinforcement), and to trigger efficient The task forces established a structure for analysis, reinforcement at a time when user requirements which identified “building blocks”, the key design indicate this is appropriate. parameters, such as the firmness of network access and type of locational signal. Within these, Tariff design and charging methodologies were a number of alternative options were established not included in the building blocks but instead for the way the building blocks could be designed. considered as separate issues. Among the task forces’ conclusions was the finding that there is a The building blocks were then developed into two natural split between transmission/EHV and LV/HV main “clusters”, which represent a combination of networks and that there is merit in trying to building blocks that are naturally linked so they rationalise the two EHV methodologies and can be considered together. These are Cluster 1 transmission charging methodologies. They also (C1), which includes those building blocks which highlighted the potential benefits of cost-reflective influence users’ investment decisions (see Figure time-of-use and seasonal tariffs. 1), and Cluster 2 (C2), those which influence users’ operational decisions. These clusters were The task forces went on to develop four “plausible subsequently developed into four and five variants packages”, which are sets of options that could be respectively. taken forward as potential new arrangements for network charging and access. We will consider For C1 the task forces’ analysis concluded that a these in more detail next issue. greater alignment at transmission and distribution levels is desirable to avoid boundary issues. This The output from the task forces will inform could be achieved by a common shallow Ofgem’s thinking ahead of its consultation on initial connection charging boundary across all voltage proposals for reform, which is expected in the summer. Following this, Ofgem envisages setting Figure 1: Cluster 1 factors in investment decisions out its proposed next steps later in the year, which may involve launching a Significant Code Review. The report covers a lot of ground and the task forces have made useful progress, including examining contrasting approaches at transmission and distribution level. Although the task forces are now stood down, there is much work remaining to reach concrete proposals, consult on them and implement them.
Source: National Grid National Grid
Energy Spectrum 619 | 29/05/2018 | page 12
Rowan Hazell, [email protected]
The Smart Meters Bill passed its Third Reading in A second amendment from the Liberal Democrats, the House of Lords on 22 May. The Bill is looking which was not moved, would have required the to introduce new powers to facilitate the roll-out Secretary of State to determine and specify a of smart meters. The regulator has also issued an testing regime for SMETS2 meters. It would also open letter on the progress suppliers are making. have included a provision setting out that no more than 5,000 SMETS2 meters could be installed until Clause 1 of the Bill will extend the powers of the the requirements of the testing regime have been Secretary of State to implement and direct the met. As of 17 April, around 290 SMETS2 meters smart meter roll-out until 1 November 2023. had been installed in the live environment. Without the Bill, the powers will expire in November this year. As noted by BEIS following The Bill was passed on 22 May. the Second Lords Reading on 13 March the Ofgem also recently published its views on the proposed extension has raised concerns there is progress that suppliers are making towards their ultimately an intention to move the 2020 deadline. roll-out obligations. It said that, for most large However, the government has made it clear that suppliers, the number of meters installed was in extending the powers to 2023 would allow it to line with the milestones that had been set for 2017. continue to oversee the programme after the Also noted were the plans to introduce capabilities deadline, and it would also help consumers to for SMETS1 meters to be enrolled in the DCC, and make the most of their meters once installed. A Ofgem encouraged suppliers to plan for the National Audit Office report on whether the smart enrolment phase ahead of the services going live. meter implementation programme is on track is due in the autumn. The regulator recognised that suppliers are making reasonable progress with over-the-air Plans for a new special administration regime for firmware upgrades, which will ensure that certain the DCC in the event of its insolvency are set out non-SMETS meters are SMETS1 compliant. But it by Clauses 2-10. This is to ensure that if the DCC reminded suppliers that updates need to be did fail, impacts such as the loss of billing services completed before the SMETS1 end-date in order to could be minimised. count towards roll-out obligations. The government has also added additional clauses It also said that some small suppliers are breaching relating to the introduction of domestic market- the terms of their supply licences by not complying wide half-hourly settlement, which will make use of with the obligation to become a DCC user. The smart metering data. Clauses 11-13 will provide regulator said it was addressing the issue directly Ofgem with powers to implement the new with suppliers in line with its enforcement settlement system without having to rely on the guidelines, which set out the alternative actions code modification process. that can be taken before an enforcement case is The Bill completed the Report Stage in the House opened. of Lords on 15 May ahead of the Third Reading. Recommendations going forward were also made, Labour had proposed an amendment with support among them that suppliers should work to ensure from the Liberal Democrats which would require that all customers can receive meters, and that the Secretary of State to publish a national plan for appropriate re-contact strategies should be smart metering within one month of the passing of considered in cases where a meter has previously the Bill. The amendment would also have seen a been refused. Suppliers were also encouraged to clause requiring that, if fewer than 500,000 quickly and safely increase installer resource in the SMETS2 meters were in operation by 31 December light of increases in demand for meters. 2018, the roll-out would have been halted until the Secretary of State undertook a review of the With the government adamantly sticking to the programme. 2020 deadline, there needs to be more focus In response BEIS committed to publishing a on the possibility of SMETS2 meters not being forward plan of activity on the roll-out programme readily available by the SMETS1 end date of 5 by the end of 2018. Welcoming the commitments, October, and the upheaval this may cause. Labour withdrew the amendment. Parliament Ofgem NAO BEIS
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Ofgem has requested views in relation to the RIIO-1 price control reopener mechanism, designed to allow network companies to propose adjustments to baseline expenditure allowances when there is more certainty. Under the current RIIO price controls for electricity and gas transmission (RIIO-ETI and -GT1) and gas distribution (RIIO-GD1), a reopener mechanism is included for cost categories where there was uncertainty about expenditure requirements at the time of setting allowances. Adjustments to allowances can be proposed in two windows, one which occurred in May 2015, and a second running over May this year. On 17 May Ofgem confirmed that it is expecting submissions from four network companies: National Grid Electricity Transmission, National Grid Gas Transmission (NGGT), Cadent, and Wales & West Utilities. So far, only submissions from NGGT are available for comment, including on its additional allowances for one-off asset health costs and costs related to pipelines affecting or being affected by land use. Based on 2009-10 prices, these additional allowances amount to £139.9mn and £23.1mn, respectively. The former figure reflects the cost associated with replacing part of an existing gas pipeline following NGGT’s discovery in 2009 that an underwater section could become exposed to damage. The regulator has set out questions in its informal consultation to ascertain stakeholder views on the submissions that it expects to receive from the four network companies throughout this month. In particular, views are sought on the evidence presented on planned expenditure and whether it is necessary, efficient and proportionate. Ofgem welcomes responses by 15 June, with the regulator’s minded-to position on all submissions is to be consulted on in late July or early August. Determinations on all submissions are required by 30 September. Ofgem
March 2018 saw the highest delivery of measures so far under the Energy Company Obligation (ECO) Help- To-Heat scheme, according to household energy efficiency statistics published by BEIS on 17 May. The new statistics found that, throughout March, 22,003 ECO measures were installed, 17% higher than the previous highest month of February 2018. BEIS revealed that during the first 12 months of ECO Help-to-Heat, the average number of measures per month has been 46% lower than under ECO2 (April 2015 to March 2017). However, the estimated cost per year of the ECO Help-to-Heat Obligation is also around 25% lower than ECO2. Notified installs for the ECO Help-To-Heat scheme have consisted of cavity wall insulation (38%), boiler upgrades (19%), loft insulation (19%) and 'other heating' (14%). BEIS recorded around 15,700 solid wall insulations, which accounted for 8% of all measures. In total the data gave a provisional estimate of 2,301,002 measures installed under ECO up to the end of March 2018. Through ECO Help-To-Heat, the Affordable Warmth obligation has delivered around 93,000 measures in some 71,000 low income and vulnerable households, by the end of March 2018. BEIS
Following recent Parliamentary approval of changes to the domestic and non-domestic Renewable Heat Incentive (RHI) regulations, Ofgem has issued a full set of guidance in support of reforms to the non-domestic RHI scheme. The regulator also confirmed the deployment of the necessary systems updates to this end. On 22 May the regulator published several new guidance documents on the scheme, covering applications, eligibility, metering requirements, and data submission, along with an updated heat pump installation declaration form. Also published was guidance on the new regulations for shared group loops, which are ground loops connected to two or more heat pumps. As in the domestic RHI, payments will typically be made on the basis of the deemed heat demand of each property. Before making a submission, Ofgem said that applicants should consult the revised Guide to Tariff Guarantees, published on 16 May.
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With respect to RHI changes in the domestic sphere, Ofgem confirmed that it will follow with a more detailed note in June, outlining the upcoming major changes to the domestic scheme, with regards to Assignment of Rights regulations, which are due to come into effect on 27 June. Ofgem
Ofgem approved on 4 May the original proposal for British Gas’s DCP288 Introduction of the Electricity Theft Detection Incentive Scheme, which will implement a scheme to incentivise the detection of electricity theft in an arrangement based on the one already in place for the gas market. The regulator considers the modification to be a proportionate and practical measure to mitigate the theft risk. It also recommends industry consider reviewing the scheme over time and the approach to theft given the likely impact that the roll-out of smart meters will have. The approved scheme will set targets for theft detection, in the first year 30,000 domestic and 4,000 commercial thefts, with individual supplier targets based on market shares. The incentive payment will be £400 per confirmed theft detection for both sectors. Ofgem confirmed why it had rejected the two alternative proposals DCP288A and DCP288B raised by First Utility and Gazprom, respectively. Under DCP288A the theft target for suppliers with less than 2mn electricity metering points would be an adjusted percentage in the first two years of the scheme, while the shortfall would be allocated to suppliers exceeding the 2mn threshold. While it was deemed that customers who switch to smaller energy suppliers are less likely to engage in energy theft, other suppliers argued that consumers engaging in theft may switch from large to small suppliers to avoid detection, once they know they are under investigation. In contrast, DCP288B would incentivise each supplier to investigate all leads provided by the Theft Risk Assessment Service (TRAS) service provider or an Electricity Distribution Network Operator. However, a few suppliers were concerned that the scheme might prompt lower quality, and less reliable theft leads to qualify for the incentive payments. Qualifying suppliers would continue to submit data as currently required under the TRAS arrangements. A monthly indicative summary report will detail an aggregate number of confirmed thefts from each supplier against their target in each of the sectors. A final report will be produced after the scheme year, which will be used by the scheme administrator to calculate the financial debits and credits. Implementation was on 14 May. Ofgem
ACER issued the third edition of its summary report on cross-border cost allocation (CBCA) decisions for electricity and gas Projects of Common Interest (PCIs) on 18 May. The purpose of this report, published ahead of the 2018 edition of the Energy Infrastructure Forum, is to provide a factual review of the CBCA processes. The report covered the 30 investment requests that resulted in CBAC decisions, with 28 adopted by national regulatory authorities and 2 by ACER. 70% of the decisions are for PCIs located on only one country while 30% were for interconnectors. Overall the investment costs of the projects exceeded €12bn, of which €7.6bn was gas and €4.5bn electricity. ACER said most of the decisions were based on cost-benefit analysis showing net positive impacts in the hosting countries, and therefore allocated the investment costs to the country where the actual costs would be incurred. There are four instances of non-hosting countries providing CBCA contributions, all for gas projects, amounting to a total of €130mn. In addition, cross-border compensation payments were decided among the hosting countries amounting to about €130mn. ACER
Energy Spectrum 619 | 29/05/2018 | page 15
Tom Goswell, [email protected]
SSE published its full year results for 2017-18 on in renewable generation (which saw profits rise 25 May, reflecting on a year that presented “a 21% to £473.8mn) and in thermal generation. number of complex challenges”, but delivered Renewable sources, including pumped storage, earnings per share ahead of expectations. increased output to 9.4TWh (up from 7.9TWh), Overall adjusted operating profit for the group fell primarily due to increased onshore wind capacity slightly (2.4%) to £1.83bn, reflecting a 18.5% (which now stands at 1.9GW) and improved decrease in profit from its Networks division, and a generating conditions. Additionally, over the year, smaller 4.6% decrease in Retail. SSE improved the management of its hydro stations to optimise value from its flexibility. SSE However, the full-year dividend increased 3.7% to also continues to “develop its expertise” in 94.7p per share, and the company provided a clear offshore wind, which presents “a huge dividend policy over the next five years (up to the opportunity” for the company to deliver its end of the current distribution network price decarbonisation ambitions. control period). The dividend in 2018-19 is expected to rise 3% to 97.5p and should not be Figure 1: SSE segmental financial performance subject to the timing of the SSE Retail demerger Adjusted operating profit with npower or the government’s impending price 2017-18 2016-17 cap. Post-merger, the dividend of the remaining (£mn) SSE business is expected to be rebased at 80p, SSE group 1,828.7 1,874.0 then increased over the next three years at least in line with inflation. Retail 402.8 422.3 On the npower transaction, SSE has now split its domestic retail business into SSE Energy Services. Wholesale 652.4 514.6 Shareholders will be required to approve relevant resolutions at a General Meeting on 19 July, and a Networks 763.1 936.5 circular will be released on 27 June. Subject to In thermal generation, SSE will shortly begin work regulatory approvals, the merger is still expected on an 840MW CCGT at Keadby 2, as well as to complete in late 2018 or early 2019 – with the continuing the development of a CCGT project at Competition and Markets Authority set to release Ferrybridge D. It has increasingly created value its Phase 2 investigation findings in August. from the flexibility of its current CCGTs. SSE Energy Services results were separated out. The Networks division saw profits fall 19% to These showed the loss of 410,000 domestic £763.1mn, with expected reductions in energy accounts, with 20,000 further accounts lost transmission and distribution profits. This is in its energy services division. Profits from expected to reverse in the next financial year, with domestic supply were flat at £260mn, with the a phased recovery on income in transmission. impact of the current price caps offset by efficiency savings and increased sales due to cold weather. It City analysts Jefferies responded positively to the also now has 850,000 smart meters on supply, results, particularly praising the “attractive” meeting Ofgem targets, although the “many and dividend and the visibility over the next five years. varied costs” of the roll-out were challenging. SSE’s results will be seen as a positive for In non-domestic supply, where SSE will continue investors, with a clear dividend policy over the activities, 40,000 sites were added, taking its total next five years. to 490,000. However, profits here dropped by However, the poor operational result in Retail 28% to £64.2mn. The company’s focus for next is clear and, combined with weak npower year here is on growing its core market segments and broadening into services such as energy performance and increasing competitive optimisation and demand-side response. pressures, may be of concern to the management of the demerged retail business. SSE’s Wholesale division was the one area where profits increased, rising 27% to £652.4mn (see SSE Figure 1). This was largely due to increased output
Energy Spectrum 619 | 29/05/2018 | page 16
Matt High, [email protected]
A Trading Update published by Centrica on 14 Marketing & Trading. The company fixed 145,000 May stated that the company had achieved boiler breakdowns – more than twice the normal “good” financial performance over the last year. weekly number. Additional call-out costs are This was boosted by increased energy demand expected to result in UK services H1 2018 adjusted due to colder than normal weather, despite a operating profit being lower than in H1 2017. decline in the company’s customer numbers. Centrica added that “competitive intensity” According to the update, published prior to remains high for its UK and North America Centrica’s AGM on 14 May, consumer account Business divisions, but it expects “improved” full- holdings from the company’s Centrica Consumer year adjusted operating profit compared to 2017. division fell by 62,000 in the first four months of Elsewhere, end of April order book figures were this year. Meanwhile energy supply accounts in the 24% higher than the previous year in Distributed wider UK market fell by 110,000, it said, a decline Energy & Power – Centrica is targeting an increase attributed to “market switching trends”. of at least 50% in full-year revenue in this area. However, the trading update also noted that As to the UK’s energy supply market, Centrica is account holdings in Ireland, UK services and North working on the assumption that a temporary American services were broadly stable, adding default tariff cap will be in place at the end of this that “net consumer customer account losses in the year. Stating its belief that price controls in year to date have slowed materially relative to the competitive energy markets are “not good for average of 2017.” customers”, it points instead to actions and measures it announced in November 2017 as part The company continues to see growth in its of a 14-point plan to be “a much more sustainable Connected Home and Distributed Energy and solution than a tariff cap”. Power business, adding 91,000 customers to the former in the first four months of 2018 and The company has ended its standard variable tariff expecting to reach 1mn customers imminently (see (SVT) for new customers and has introduced a new Figure 1). fixed-term default tariff – the “Temporary Tariff” – which is priced below the standard tariff. Currently Connected Home gross revenue over the first four 3.8mn customers are on an SVT, down from 4.3mn months rose by 37% compared to the same period at the end of 2017. last year. During 2018 Centrica plans to double revenue in this area and add 500,000 new Iain Conn, Centrica Group Chief Executive, said: customers. “Our focus remains on performance delivery and Figure 1: Centrica Connected Home growth financial discipline and we remain on track to achieve our 2018 Group targets.” Analysts at RBC warned they were “far from convinced that [Centrica] will be able to deliver any bottom-line growth over the next few years, and it remains beset by political and competitive pressures.” Centrica’s sliding share price had captured the headlines in advance of this update. It Source: Centrica Plc revealed a shot in the arm from colder weather, and continuing progress on cost Centrica noted that it continues to “focus on control and developing its proposition and improving customer service levels and customer service to customers. So far this is translating outcomes”, pointing to a number of new product launches and propositions that are designed to through to on target financial performance, but “enhance customer relationships”. the City clearly has a sharp eye on whether its diversified supply strategy will deliver. Colder than normal weather at the start of 2018 led to increased energy demand, managed by the Centrica company’s energy supply businesses and Energy
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Oliver Archer, [email protected] npower published its Q118 results on 14 May In renewables, investments in Q1 2018 mainly showing increased revenue and EBIT, but focused on onshore wind projects in Italy and domestic customer numbers down 66,000. onshore and offshore wind projects in UK. Higher Parent company innogy also published results on financial investments in the prior year were due to the same day showing a stable outlook, with the acquisition of the solar PV specialist Belectric. market still focused on the upcoming E.ON – Successful participation in the latest UK RWE asset swap. renewables auction round with the Triton Knoll offshore wind project was also cited as “proving its npower reported year-on-year gains in revenue competitiveness in a challenging market and adjusted Earnings Before Interest and Tax environment.” (EBIT) for the first time in two years in Q118, with Chief Executive Officer Paul Coffey attributing the City analysts noted there was no change to overall improvement to “tight cost discipline”. Group guidance for the year, saying innogy’s results were not expected to have an impact given The supplier reported revenue of £1,894mn, up the anchoring of its share price to the wider £172mn compared to the same period last year, developments expected from E.ON and RWE. with adjusted EBIT up 27% to £37mn. Increased consumption and npower’s Standard Variable Figure 1: innogy and npower Q118 results Tariff (SVT) price rise drove the increase in turnover, while the £8mn increase in EBIT was Innogy Q118 Q117 attributed to improved business-to-business margins and the supplier’s recovery programme. Revenue (€mn) 11,630 12,370
The release warned that, while progress was being Adjusted EBITDA (€mn) 1,582 1,617 made “the competitive landscape looks set to remain tough”, with rising wholesale and policy costs, as well as the upcoming SVT price cap. Consequently, the supplier’s focus will remain on npower Q118 Q117 cost management. “Intense market competition” also led to a further drop in domestic accounts, Revenue (£mn) 1,894 1,722 alongside some of its fixed tariffs ending during Adjusted EBIT the quarter. 37 29 (£mn) The update also highlighted positive progress being made in customer service - saying its latest Total customer 4.84 4.91 Citizen’s Advice star rating was its highest ever. On accounts (mn) smart meter deployment, it noted roll-out is on track with a SMETS2 pilot progressing and a wider Domestic (mn) 4.44 4.51 roll-out expected “later this year”. SME (mn) 0.17 0.17 The supplier also took the opportunity to provide an update on the merger with SSE’s retail division, Industrial and 0.23 0.23 saying the deal is “progressing according to plan Commercial (mn) following the CMA’s decision to refer the merger to Cost control and colder weather helped a Phase 2 review”. npower boost its first quarter earnings, but its Parent company innogy’s Q118 results showed a struggles servicing and holding household 2% reduction in EBIT to €1.2bn. The reduction was customers continue. attributed to the costs of developing its retail business, with UK retail investments up slightly to Innogy is preparing for the npower demerger €13mn from €12mn. The company confirmed its by removing the UK retailer from its future 2018 outlook, and it expects to see adjusted EBIT earnings guidance. of about €2.7bn and adjusted net income of over npower innogy €1.1bn for the year.
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EDF is reportedly seeking to sell a potential 49% stake in its UK renewables arm EDF Energy Renewables, according to the Financial Times on 20 May. The company is reported to have hired Barclays to seek potential bidders for EDF Energy Renewables and advise on the deal. The company owns one offshore windfarm and 23 onshore windfarms in the UK. The article stated that EDF hopes to have offers in by the end of May, which could realise £600mn. Such a deal would be the largest UK renewables disposal by EDF yet. No link
German renewables developer Energiekontor announced on 18 May that it had signed a long-term power purchase agreement (PPA) with a global company in the consumer goods industry for an 8.2MW onshore wind project in Yorkshire. The company believes that it is the first wind farm project in the UK to proceed without government subsidies. “The economic viability of this project is based solely on the conclusion of this PPA,” said the company’s statement. The Withernwick II scheme is an extension to the Withernwick I wind farm and will add four 2.05MW turbines to the existing facility. The development will take the total capacity of the extended Withernwick wind farm to 26.65MW. Withernwick II secured approval at the end of 2016 and is set for commissioning by the first quarter of 2019. CEO of Energiekontor AG Peter Szabo said: “The financial close for the Withernwick II project shows that our efficiency measures to reduce costs are indeed bearing fruit and that we are already able to implement a wind farm profitably at pure market conditions.” Energiekontor
The Crown Estate Scotland is aiming to facilitate the development of a new generation of offshore wind projects in Scottish waters with proposals to grant additional seabed leases, it announced on 21 May. It published a draft process proposal and has called on interested parties to submit feedback to help shape the plans. The announcement stated that there are currently two offshore wind projects operating in Scottish waters (Robin Rigg and Hywind Scotland) and two under construction (Beatrice and the European Offshore Wind Deployment Centre), with more due to be built soon. However, with new offshore wind projects taking five to 10 years to develop and construct, the Crown Estate recommended that work begin immediately to ensure that further projects continue to be built from the late- 2020s onwards. Any new projects will have to be sited in areas identified in Marine Scotland’s forthcoming Sectoral Marine Plan for Offshore Wind. Submissions are open until 31 August. Crown Estate Scotland
Drax has announced that it will pilot the first bioenergy carbon capture and storage (BECCS) of its kind in Europe. The company claims that if the project is successful it could make electricity produced by its North Yorkshire power station carbon-negative. Announced on 20 May, the project sees Drax investing £400,000 and partnering with Leeds-based technology company C-Capture to help it deliver a “rapid, lower cost” demonstration of BECCS. The technology will remove greenhouse gases from the atmosphere at the same time as electricity is produced. Drax says BECCS has the potential to deliver roughly 55mnt of net negative emissions a year in the UK. The first phase of the project will begin this month to assess the power station’s compatibility with a solvent developed by C-Capture. Drax hopes to then install a unit to isolate the CO2 produced by biomass combustion this autumn. If the pilot is successful, Drax will examine options for similar re-purposing projects for its existing infrastructure. Drax
Energy Spectrum 619 | 29/05/2018 | page 19
If you’re a parliamentarian and find yourself in the Two months later the RO was abruptly cancelled capacity of energy minister – and given how and before the end of the year, the FiT slashed to frequently we go through them, chances are you ribbons as part of a much wider green policy cull probably will do at some point – then the rate at wrought by Rudd’s cabinet colleague and which the UK decarbonises its power supply is of chancellor at the time, George Osborne. upmost importance to you. “We have a million people living under roofs with That, in turn, leads you to solar PV, one of the solar panels and that number needs to increase,” cheapest sources of renewable power with the Rudd said in May 2015. added potential to give more power – quite It wasn’t quite the case then, and it still isn’t quite literally – to the consumer. the case now. If anything, Rudd’s solar revolution Only the energy minister’s relationship with solar has stymied residential solar deployment, with PV tends to be quite turbulent. Ministers have installs nearly 80% down on previous rates. embraced and heralded, dismissed and ignored So you can forgive the industry for taking Claire solar in equal measure, particularly over the last Perry’s comments a fortnight ago with more than a three years. Policy has come and gone, support pinch of salt. has dwindled. And all the while, solar has spent time on the tips of politicians’ tongues. The Energy and Clean Growth Minister told us on the sidelines of All-Energy that the post-2019 solar Greg Barker, Climate Change Minister for four strategy, which her department is currently in the years between 2010 and 2014, was among the first process of finalising, would have some “really to embrace PV in a big way, speaking of his desire positive” outcomes. to put “rocket-boosters” under commercial-scale solar installs in July 2014. Quite what those will be remains unclear, and it is unavoidable that any strategy is now five months It wasn’t the first time Barker had outlined his solar late, given that it was supposed to be published ambitions. Three years earlier he’d spoken of his before the end of last year. desire to end the boom-and-bust cycle of solar development before inadvertently sparking exactly There are, however, some murmurings that solar that. may receive some sense of direction before the summer is over, and that will be most welcome. The 31 March RO deadlines were famed for triggering frantic activity, with independent Given the policy status quo there is some feeling connection providers dispatching agents via that solar is almost listing, slowly moving from one helicopter in the days and weeks leading up to the quarter to the next, aided ever so slightly by deadline. gradually decreasing costs and business model innovation. But those rocket boosters failed to ignite. C&I installs have bubbled along and do, it has to be And this is where BEIS can step in. Unlike in 2014 said, continue to in spite of feed-in tariff upheaval. or 2015, UK solar does not need rocket boosters Lift-and-shift and permitted development rights or a revolution. It doesn’t need ample subsidy or have also helped make commercial PV an easier any additional fiscal support. sell. But there has been no real significant surge in All it needs is a level playing field – the chance to deployment. compete with other generators fairly and squarely. But the solar industry didn’t have to wait long for If this forthcoming strategy can achieve just that, the next big promise. No sooner had Amber Rudd it’ll be worth far more to the industry than any replaced Ed Davey as Energy Secretary at Three outlandish claim. Whitehall Place than she promised the Hastings Observer that she would “unleash a new solar Liam Stoker is Editor of Solar Power Portal, the revolution” in the UK. leading renewable energy resource for all UK solar power and energy storage developments. And she did. Of sorts. where this article originally appeared.
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More businesses go 100% renewables – What is amazing is that companies are doing this increasingly it is simply seen as good business unilaterally, with no pressure or obligation from a practice. regulator or anyone else. It is considered good business, the norm, it is expected. Those who do not favour renewables, for ideological or whatever reason, must be frustrated While many rely on others to supply the renewable as increasing numbers of businesses, large and energy, usually through power purchase small, go 100% renewables. agreements (PPAs) and other commercial arrangements, an increasing number of companies They are willing to pay a premium to do so – are making direct investments in renewable although the premium paid over buying brown or generation such as wind farms or solar plants. black electricity is diminishing to the point where it Another popular scheme is to install solar PVs on is not much to speak of. their own under-utilized roofs, cutting down on And once you join the 100% renewable energy their electricity bills. club, you can brag about it, which adds pressure A recent survey by the Solar Industry Energy on others to do the same. The trend is definitely Industries Association (SEIA) in the United States catching on. Pretty soon the headline will say that reported that there are currently more than 4,000 such and such company is NOT using 100% businesses alone with over 2.5GW of installed renewable energy and ask why not? solar capacity – and counting. It started with high tech companies with deep According to the SEIA’s survey, America’s top pockets, but not anymore. In April 2018, Proctor & corporate solar users added 325MW of solar Gamble (P&G) announced that it will switch to capacity across 7,400 locations in 2017, an 100% renewable energy by 2030 at all of its plants increase of 43% over 2015. and facilities while pledging to reduce water use by 35%. Leading the pack was Target, which added 40MW of new rooftop PV capacity for the year for a total to 205MW – that is the size of decent power plant. Figure 1: Going solar, one at a time Other big players include Walmart Top 10 Corporate Solar Users with 150MW along with others – many with large flat roofs in their Megawatts (MW) warehouses, retail facilities or office buildings. As time goes on, any flat roof 205.03 without solar panels will be a wasted opportunity. Perry Sioshansi is founder and 149.43 president of Menlo Energy Economics and is the editor and 120.72 publisher of EEnergy Informer, from which we have sourced this article, and which we commend. 79.40 Cornwall Insight and Pixie Energy 51.49 50.75 50.21 will be jointly hosting an event on 44.85 35.28 33.60 19 June with Perry Sioshansi on Innovation and Disruption at the Grid’s Edge event. Read more Target Walmart Prologia Apple Kohl's Costco General IKEA Macy's Amazon Growth here. Properties Let us know if you would like to Source: SEIA receive an invitation.
Energy Spectrum 619 | 29/05/2018 | page 21
After a period of bullish movement, the majority of gas contracts experienced losses last week. Day-ahead gas declined just 0.3% to 57.1p/th week-on-week. However, prices did reach a near three-month high of 59.0p/th mid-week as a series of planned and unplanned outages across the UKCS, predominantly to Langeled and Vesterled pipelines and St. Fergus terminal, restricted supplies. All seasonal gas contracts underwent bearish movement, declining 2.7% on average. Winter 18 gas lost 0.1% to 64.1p/th and summer 19 gas dropped 2.6% to 49.1p/th.
Near-term and long-term power contracts showed diverging trends. Contracts to winter 18 all rose, with day-ahead power up 2.4% to £56.0/MWh amid a decline in forecast wind output. On 24 May day-ahead prices reached a fresh near three-month high of £57.0/MWh. In contrast, seasonal baseload contracts from summer 19 to winter 20 declined on average by 1.3%, weighed on by lower gas prices. Summer 19 fell 1.5% to £50.0/MWh, and winter 19 power lost 1.3% to £56.1/MWh.
64 After a prolonged period of growth, Brent crude oil spent much of last week around the $79.0/bl mark. 60 Prices stayed high as improving US-Chinese 56
relations acted to improve the oil demand outlook, £/MWh while new US sanctions against Venezuela are 52 expected to further impact the nation’s oil output. 48 However, prices showed a sharp decline on Friday, 17/5 18/5 19/5 20/5 21/5 22/5 23/5 24/5 25/5 falling to $76.7/bl in the afternoon, as OPEC W18 S19 suggested relaxing current production cuts. Ann Oct-18 30-day mavg annual
API 2 coal prices slipped 0.5% on average last week to $88.6/t, lowering from $89.1/t the previous 16.0 104 15.5 99 week. 15.0
94 $/bl (Brent), $/t (coal) 14.5 EU ETS carbon prices grew 6.3% to average 14.0 89 €15.7/t, rising from €14.8/t the previous week. 13.5 84 Prices hit €16.1/t on 24 May, representing a fresh CO2e €/t 13.0 79 12.5 74 near seven-year high, supported by periods of 12.0 high German power prices and strong EUA 11.5 69 11.0 64 demand but were then weighed upon by weak 23/3 30/3 6/4 13/4 20/4 27/4 4/5 11/5 18/5 25/5 auction results on Friday. weekly averages Carbon 2018 Coal Y-A Oil M-A
Energy Spectrum 619 | 29/05/2018 | page 22