Tom Crisp Editor 01603 604421 [email protected]

ENERGY PERSPECTIVE 02 Monday 08/10 – A report by the Intergovernmental Panel on Climate Splitting the atom: the need to Change says that limiting global warming to 1.5C would require “rapid prioritise work on the supplier hub – Nigel Cornwall and far-reaching transitions” in land, energy, industry, buildings, transport, and cities. Ofgem’s second cross-code survey on code POLICY 05 administrators’ performance shows “confidence and knowledge in CCC warns Road to Zero dealing with industry codes has increased among smaller parties”. The Strategy falls short as hybrid UK Atomic Energy Authority consults on a new £40mn thermal support cut hydraulic research and testing facility proposed for North Wales. IPCC warns world has 12 years Centrica announces that it has completed construction of two new to prevent 1.5°C rise CMA gives SSE-npower merger 50MW fast response gas power plants in Lincolnshire and unconditional approval Peterborough. OVO Energy and First Utility publish their latest annual Parliamentary update – Week 41 results, both reporting a profit. 2018 Tuesday 09/10 – The SNP’s annual conference in Glasgow, which REGULATION 11 started over the weekend, ends with Minister for Energy, Connectivity BEIS clarifies future for SMETS1 and the Islands Paul Wheelhouse predicting renewables capacity in meters Scotland could double. Ofgem opens a tender for owning the Survey says smaller parties more electricity transmission link to the 1.2GW Hornsea 1 windfarm project. It confident in dealing with codes also confirms that it has been granted an injunction compelling INDUSTRY STRUCTURE 15 npower to allow 100,000 of its customers to join its next collective National Grid says energy switch trial. supplies secure for winter Wednesday 10/10 – The Competition and Markets Authority delivers ESO kicks off new reactive power services tenders its final report into the SSE-npower merger, approving the deal without Suppliers looking for shelter in conditions. Research from the Institution of Engineering and scale and adjacent markets Technology and Nottingham Trent University finds the UK cannot NUTWOOD 20 meet climate goals without retrofitting older homes. Shell and its project partners approve the development of the Arran oil field in the Political fixers: reviewing the central North Sea. party conference season – Peter Atherton Thursday 11/10 – The Committee on Climate Change warns that the MARKETS 22 Road to Zero Strategy is insufficient to deliver the transport emissions reduction required for the Fifth Carbon Budget. But the government also removes incentives to buy the least efficient plug-in hybrid cars. Ofgem publishes its second annual State of the Energy Market Report, confirming a falling number of customers on default tariffs. Friday 12/10 – The government releases its latest tranche of papers, confirming that in the event of no Brexit deal being reached the UK would immediately leave the EU Emissions Trading System and the Internal Energy Market. North Beck Energy secures planning approval for a £220mn waste to energy facility which will generate nearly 50MW.

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Last November Ofgem the focus for performance assurance and customer commenced work on protection. the shape of future In all cases, the system at the heart of these supply market trading arrangements was heavily centralised and arrangements based around complicated settlement systems and (ES595). A call for complex rules. The hub structure template remains evidence was the same today as it was in 2001, and became followed by its Nigel Cornwall national from 2005 with its roll-out to Scotland. Director response in July, with n.cornwall@cornwall- the conclusion that To complete the picture, the last decade also saw insight.com “there is a strong case the introduction of more low-carbon policy support for fundamental schemes, which required the supplier to collect reforms to be explored” to address barriers to payments from customers to pass through to other innovation, including “the entrenched role of parts of the value chain. Consequently, the traditional suppliers” (ES629). It noted specifically supplier hub also become embedded in the wider that “seeking to adapt a model put in place 20 legal and regulatory landscape (see Figure 1). years ago may not be enough”. But the electricity system has progressively Stripping back the headlines, it also signalled that decentralised, and questions have begun to arise work to support fundamental change was complex about the single pathway to the customer through and needed developing within a more explicit a deeply centralised national hub. Above all many assessment framework. It was unlikely to deliver now challenge the need for all customer proposals for early change, as it was focussing on interaction to be routed through a fully licensed the period after “temporary price protection”. It and nationally registered supplier, and Ofgem has would nevertheless also seek to take near-term concluded the hub is a primary barrier to actions to promote innovation and competition innovation. The advent of smart metering and half “apace”. hour settlement for smaller customers, and the emergence of a wide range of technologies and In this week’s Energy Perspective we focus on the potential services behind the meter, demand more entrenched role of traditional suppliers, which is flexible arrangement. short-hand for the supplier hub, and explain why the need to test other models and approaches in But for the present any party seeking to undertake the short run is a necessary step to defining an activity on significant scale has to weigh up the longer-term changes. costs and complexities of becoming a supplier itself or agree terms with an existing supplier to Safe from harm manage the market interface. Today’s supplier hub arrangements were put in Special cases place largely between 1990 and 1998. They were established progressively and gave rise to the There have been previous attempts to separately licensed electricity supplier being at the accommodate the increasing diversification across centre (hub) of the retail market in electricity (though Figure 1: Supplier hub evolution gas arrangements are based on broadly similar principles) and the single point of contact with the customer. Under it, in addition to competing for customer contracts, the supplier is responsible for paying for and billing all elements involved in delivering power to the customer, including imbalance charges from Source: Cornwall Insight 2001. The hub also became

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the system. A decade or so ago the industry and five (out of 30) were selected for evaluation for worked up options that could help smaller regulatory sandbox treatment in July 2017. A generators and suppliers to operate within the second round of expressions of interest followed market without having to become embroiled in the in October 2017. supplier hub. This resulted in the “licence-lite” To date results of only the first round have been approach introduced in 2009 whereby any entity announced, in September 2018, with three projects could apply for an electricity supply licence, but it led respectively by EDF Energy, OVO and could out-source key functions to another licensed Empowered granted formal sandbox status. supplier. This tried to mimic the gas market where Interestingly two of these centre on peer-to-peer the supplier undertakes customer-facing activities trading arrangements and as such could directly and the shipper (a role that does not exist in challenge aspects of the supplier hub model. electricity) the market facing aspects. Clearly Innovation link and the regulatory sandbox The failure of licence-lite (there are two examples it oversees is a work in progress. These do create of its use) can be explained by the need to safe environments for credible new approaches to negotiate complex arrangements with an existing be trialled in a live environment. Over two years on licensed to provide the necessary balancing and from the launch, we have yet to distil any proper compliance services. It swaps out one form of learnings, though in part it would be asking too complexity and cost for another (albeit much much to obtain hard findings from trials involving smaller). We have previously argued that, for the technology and new processes. But workshops mechanism to work, there needs to be an hosted by Ofgem have suggested it needs to build obligation on larger suppliers to offer these on the arrangements. services at reasonable terms, as well as standardised agreements to support negotiations. One specific move to enhance the arrangements has been to encourage code administrators to More recently, in 2015, Ofgem issued a discussion establish their own sandbox arrangements to paper on the benefits of, and barriers to, non- permit derogations to support innovation trials, and traditional business models (ES485). The regulator P362 Introducing BSC arrangements to facilitate concluded this work in September 2015 with a an electricity sandbox has already done this for the commitment to “publish a proposed course of Balancing and Settlement Code (BSC). Ofgem is action by the end of the year”. This work-plan also encouraging other code administrators to though did not materialise, as it ran into the follow suit, but as yet good words have yet to Competition and Markets Authority review. translate into tangible actions. One limited But the regulatory debate up to the latest Ofgem response has been the adoption of a new principle push has been addressing yesterday’s problems. in the Code Administrators Code of Practice to Since 2015 the market-place has been reinventing support innovation and innovators. itself. Contractual variants of models involving But even here there are lessons for Ofgem. Elexon “senior” and “junior” suppliers (á la licence-lite), brought forward P362 last November, but the including a myriad of small white label deals, have basis for it was agreed a while before that. It was multiplied. We are also seeing many established approved in August, but the market still awaits an suppliers offering a range of different service- indication of when expressions of interest can be based models, and the more progressive are submitted and the necessary steps to take. It is making innovation and cross-sectoral plays. looking unlikely if this depth of process is required While there is much to be optimistic about here, throughout that meaningful trials can start much the changes that are being seen today are the tip before the middle of next year, which appears a of the iceberg. It is very clear that the forms and lost opportunity. Furthermore, exemptions are approaches adopted by “disruptors” have had to likely to touch on other codes, but the vires for be fitted within the traditional supply model. seamless trials do not yet exist. Unfinished symphony Inertia creeps Much of Ofgem’s recent thinking though has been Ofgem is in a difficult position. On the one hand it funnelled into the supporting work around is being urged by a growing corpus of widely Innovation Link. This catapult-style arrangement divergent innovators to move rapidly to allow new was first mentioned in the Smart, Flexible Energy disruptive propositions and business models into System Call for Evidence in November 2016 and the market. On the other hand, it is rightly cautious was launched the following month. It called for a that the huge change programmes underway at first round of expressions of interest in early 2017

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the moment need to be seen through because of The third stream is “more seamless market entry the consumer benefits it associates with them. for innovative propositions” but within the existing licensing arrangements and code framework. This This tension came through in remarks made by will build on its work through Innovation Link, and it Dermot Nolan at Energy UK’s 2017 annual is undertaking a discovery exercise with innovators conference in which Ofgem’s Chief Executive said, which “will ensure we better understand their “[consumer access to data] holds back new experiences in trying to enter the market”. entrants who want to offer customers innovative products and services. In part this is down to the This approach is sensible given that there is no supplier hub model which allows suppliers to obvious single solution that presents itself today control their customers’ data. Smart meters will that would be fit for purpose for the next decade break this stranglehold, enabling consumers to and beyond. Besides technology and commercial give their data directly to third parties, but the roll- innovation is constantly raising new questions. out will take years to complete.” Atlas air Ofgem has therefore concluded in the July letter But we think Ofgem can and should do more that work to reform the supplier hub cannot wait under its near-term actions, and this hinges on until extant workstreams conclude, and that it bolstering the work of Innovation Link and the needs to “assess and, where appropriate, redesign emerging regulatory and code sandboxes. There the retail energy market”. It also acknowledges now needs to be another way forward in today’s that in parallel it needs to consider the obligations very different market-place that does not depend placed on suppliers, data availability and access on licensed suppliers controlling the gateway to and the consumer protection framework. But it the market through the systems and regulations also recognises “any new reforms will need to be that underpin it. One answer here is to enable iterative and approached in phases.” meter splitting. To keep up momentum, it has already embarked An example has already been provided by on discussions with stakeholders on (i) its Elexon’s Enabling Customers to Buy Power From objectives for reform, (ii) the new market design Multiple Providers white paper (ES614). This does options that can be explored, and (iii) specific create a new party agent to provide assurance that implementation options that could be adopted. billing and settlement continue to work accurately This all sounds, of course, highly logical but rather for the customer and the correct service providers nebulous. This process is aside from what now are being credited and debited each half hour. It appears to be related but separate streams on would allow in theory at least the ability for alternative default arrangements for the different suppliers to provide service behind the disengaged and customer protections for meter, perhaps with different parties being intermediary activities. identified with different services (supply to Ofgem seems to have acknowledged problems in batteries and EV charge points, for instance). making progress to date and explicitly seeks to Our colleagues in Pixie Energy have developed counter criticism that it is not pushing ahead fast one way in which they believe it could work, but enough. It therefore sets out near-term actions to other service providers and aggregators will have promote innovation and access. At this stage other ways of operationalising meter splitting. The Ofgem has committed to look at three things. important thing is to test these out, identify the The first is customer data access, and it has necessary work-arounds that are needed and already issued an open letter Enabling customer ensure the data in the energy market (ES629), which is “a call functionality to action”, and it has been appointed to lead cross- these government work to follow-up the midata initiative. approaches enable can The second is seeking to “simplify the regulatory be built into landscape by exploring how to accelerate the the new consolidation of relevant industry code provisions foundation into the Retail Energy Code” that will underpin systems that faster switching governance. The themes here are will be consolidation and best in class governance, while required to promoting innovation and competition. It aims to replace the have the revised arrangements at latest by end supplier hub. 2020.

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Tom Crisp, [email protected]

The Committee on Climate Change (CCC) reviews the operation of the EV market, to published an open letter to Transport Secretary establish whether the “willingness of Chris Grayling on 11 October, delivering the manufacturers and dealers to sell EVs is a barrier committee’s assessment of the government’s to uptake.” Specific targets should also be set Road to Zero Strategy. around emission from trucks. New HGV CO2 targets for 2025 and 2030, in line with the EU The CCC welcomed many of the initiatives set out proposals, would provide a clear direction of travel in the Road to Zero, but it warned that its detailed for the truck sector. assessment indicates that there remains a “large gap” to the most cost-effective path for reducing The government should also be more proactive in transport emissions, with transport the largest setting a vision for future travel demand. Evidence emitting sector and its emissions continuing to from cities like Manchester shows it is possible to climb (see Figure 1). plan for economic growth while reducing car traffic, by promoting walking, cycling and public Figure 1: Sector emissions as a share of UK total, 2016 transport and deterring car and van traffic. The negative consequences of continued freezes in the fuel duty escalator were also outlined. The direct result of the fuel duty freeze since 2011 has been a 4% increase in traffic growth, an additional 4.5mn tonnes of CO2 on UK roads and a 1-4% drop in public transport journeys. Also on 11 October the DfT outlined changes to the Plug-In Car Grant in light of increasing uptake of EVs. These broadly represent a shift away from Source: CCC support for hybrids to pure EVs. The CCC’s headline recommendation was that the Buyers of Category 1 plug-in hybrid cars, which government should accelerate the uptake of the emit less than 50 grams/km of CO2 and have a cleanest vehicles. In particular, this would mean zero-emission range of at least 70 miles, will only that the commitment to end sales of conventional be eligible for a £3,500 grant going forwards – a petrol and diesel vehicles should be brought 22% reduction on the previous grant level of forward from 2040 to 2035 to ensure road £4,500. Additionally, purchases of Category 2 and transport emissions are near-zero by 2050. A 3 hybrids, which emit up to 75 grams/km of CO2 stretching target can be set now to give industry but with a lower zero-emission range, will no and consumers certainty. In particular, financial longer be eligible. New grant rates will come into support for the higher upfront costs of electric effect on 9 November. If sales are higher than vehicles (EVs) will be required beyond 2020. expected, grant rates may be reduced before this. EV charging infrastructure should also be Society of Motor Manufacturers and Traders CEO prioritised. Next year the CCC will publish advice Mike Hawes added: “Prematurely removing on the number and types of charging points upfront purchase grants can have a devastating required to achieve high levels of EV uptake in the impact on demand – without world-class UK. A wider assessment of the barriers to uptake incentives, government’s world-class ambitions will from reliability and unfamiliarity issues should also not be delivered.” be undertaken by the government. The CCC’s critique is a compelling one. Supply chain issues and delays are also identified as a barrier in need of addressing. Vehicle The cut in grant funding will be seen as manufacturers are releasing new EV models, but opportunistic. On the one hand it fits the CCC there is increasing evidence that production call for a focus on the cleanest vehicles, but it volumes are insufficient, with demand outstripping will also undermine manufacturers’ confidence supply for many models, resulting in long waiting about policy stability. times. It is recommended that the government CCC DfT

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Nick Palmer, [email protected]

The UN Intergovernmental Panel on Climate Figure 1: Comparison of Pathways P1, P2, P3 and P4 Change (IPCC) has released a special report on global warming, concluding that the world has 12 years to stop average temperature increases compared to the pre-industrial era of more than 1.5°C. It also detailed the scale of change that would be needed to achieve this. The report Global Warming of 1.5°C was presented in Incheon, South Korea, on 8 October. It compared the scenarios of a 1.5°C and 2°C global temperature rise and their relative impacts. The half-degree difference could have several implications, such as preventing corals from being completely eradicated and easing pressure on the Arctic. Limiting the global temperature ascent to 1.5°C, the IPCC said, would require “rapid and far reaching” transitions in energy, land, urban and infrastructure, adding that these transitions would Source: IPCC be “unprecedented in terms of scale”. Energy and Clean Growth Minister Claire Perry The report recommended that, to successfully limit said: “As policy makers we need to work together temperature rise to 1.5°C, 100–1000GtCO2 would to accelerate the low-carbon transition to avoid the need to be removed from the atmosphere over the costs and misery of a rapidly warming world.” remainder of the 21st century. Carbon pollution Shadow BEIS Secretary Rebecca Long Bailey would have to be cut by 45% by 2030, compared responded, saying: "The Tories are way off course with the 20% needed to limit the rise to 2°C, and it to meeting our existing climate targets” and would need to be reduced to zero by 2050, as referred to a climate crisis. opposed to 2075. Additionally, carbon prices would need to be three to four times higher than A spokesperson for the National Infrastructure for a 2°C rise scenario. Commission said: “Today’s report highlights the devastating impact that rising global temperatures The IPCC proposed four pathways to limit the rise could have on our planet and the need for urgent to 1.5°C (see Figure 1). All four solutions included action to prevent the worst from happening. Our reforestation, a shift to electric vehicles and National Infrastructure Assessment (NIA) highlights greater implementation of carbon capture the need to act now to protect communities from technology. The report outlined concerns extremes of weather, including floods and regarding the progress of carbon capture and droughts… [Our] recommendations have been put storage projects, which are essential for reducing to government and we look forward to hearing emissions in the concrete and waste industries. how they plan to put them into practice.” Professor Jim Skea, a Co-chair of the IPCC working The next step on an international level is for the group on mitigation, added: “We show it can be report to be presented to governments at the UN done within laws of physics and chemistry. Then climate conference in Poland at the end of 2018. the final tick box is political will. We cannot answer that. Only our audience can – and that is the This report represents a much more strident governments that receive it.” warning from scientists. The CCC’s advice on how the UK can achieve more ambitious In response to the IPCC report, both the UK and targets and net zero emissions will be closely Scottish governments have announced they will be seeking new advice from the Committee on scrutinised, as will the government’s response Climate Change (CCC) to come up with more to the NIC. ambitious targets. IPCC

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Tom Lawson, [email protected]

On 10 October the Competition and Markets Figure 1: Estimated market share post SSE/npower merger Authority (CMA) confirmed that it had decided that the proposed merger between SSE Retail and npower can proceed following its phase 2 investigation. An inquiry into the proposed merger between the two suppliers was launched by the CMA in February. A phase 1 investigation raised concerns that the deal could reduce competition for customers on standard variable tariffs (SVTs) and potentially leading to higher energy prices for some bill payers. It was therefore referred to a more in-depth phase 2 investigation, which led to a decision in August to provisionally clear the deal. Source: Cornwall Insight with CMA data

In its final report on the merger, the CMA detailed Responses to the CMA from other large suppliers the findings of its inquiry group in examining the all broadly agreed that the merger would not possible impact of the deal on SVT prices. It found significantly impact the SVT market. However, that SVT prices are mainly driven by changing Centrica argued that the investigation should not wholesale costs, but the large energy suppliers have focused solely on SVTs. E.ON stated that the take account of each other’s tariff changes when merged company may be able to reduce costs choosing the size and timing of their own. Bad through synergies, while EDF noted that IT system publicity from being the first to increase charges or migration could harm the firm’s customer service. make bigger increases means more of their customers switch away. Responding to the final report, Chief Executive of SSE Alistair Phillips-Davies said: “We’ve always The investigation concluded though that SSE and believed that the creation of a new, independent npower were not close rivals for customers on energy and services retailer has potential to these tariffs and therefore there was no reason the deliver real benefits for customers and the market merger should not go ahead. The decision comes as a whole.” ahead of the introduction of the default price cap, which Ofgem is to implement to protect But Labour’s Shadow Business Secretary Rebecca disengaged customers on SVTs from the end of Long Bailey said it would allow the Big Six to the year. become the Big Five. She added: “I’m concerned at this decision in an energy market that is already Anne Lambert, Chair of the inquiry, said: “With failing households.” She also highlighted that in many energy companies out there, people 2017, SSE awarded its Chief Executive a 72% pay switching away from expensive standard variable rise while raising average bills by £76, and that tariffs will still have plenty of choice when they npower increased tariffs by £64. shop around after this merger.” The designated executive committee for the new The merger will see the formation of the second- company has now been appointed, including biggest energy supplier in the UK (see Figure 1). Stephen Forbes as CCO and Tony Keeling as During the investigation, Ofgem proposed that this COO, and SSE said it was “continuing to work could lead to the two largest suppliers driving towards completion” in Q1 2019. pricing and media attention without significant constraint from the remaining three large suppliers. The logical outcome. But this is in effect still However, the CMA noted that British Gas was just the start of the merger journey, with currently the largest supplier by “some margin” billings systems still to integrate and inevitably and that there was no indication that it is a price the cost cutting to deliver the savings pledged leader. It added that it did not receive any to investors, against a backdrop of opposition evidence from suppliers to suggest that the from Labour. merger would create price leadership or that impact the likelihood of price coordination. CMA

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Tom Crisp, [email protected]

The Commons and Lords returned from the Section 43 of the Deregulation Act 2015, allowing conference recess on 9 October. local authorities to set energy efficiency standards. Shadow Energy Minister Alan Whitehead had Transport ministers faced Oral Questions in the inquired as to whether local authorities can set Commons on 11 October. Responding to a question energy efficiency standards higher than Level 4 of on electric vehicle (EV) infrastructure, Transport the former Code for Sustainable Homes. Secretary Chris Grayling confirmed the government would shortly consult on introducing a One Early Day Motion of interest was tabled requirement for charge points in new homes in immediately before the conference break: England, plus all new lampposts to include charge • EDM 1635 was tabled on 13 September by points, where appropriate. Lloyd Russell-Moyle (Labour, Brighton Asked about concerns over Brexit’s impact on Kemptown), calling for the government to Jaguar Land Rover’s EV investment, Grayling said: cease issuing permits for the development and “I am very excited about what it is doing on EVs, expansion of shale gas fracking and calling for and I assure the hon. Gentleman that I know of no it to consider renewable alternatives reason why it would pull back on that investment. The House of Commons Library published a Indeed, I am looking forward to the Government briefing on Shale Gas and Fracking on 8 October. Car Service taking delivery of its first five electric vehicles from Jaguar Land Rover in the next few The Parliamentary Office of Science and days.” Challenged on cutting incentives to hybrid Technology published a briefing on Flexible vehicle buyers (see p.5), he said: “We are focusing Electricity Systems on 2 October. our support on EVs, which are the part of the Looking forward, the Treasury has confirmed that market we want to see grow the fastest.” Chancellor Philip Hammond will deliver the Budget A debate was held in Westminster Hall on 9 on 29 October. October on the Oil and Gas Industry. John McNally On 17 October the BEIS Committee will hold a (SNP, Falkirk) opened it stating that with sales up session as part of its ongoing Industrial Strategy: by 18.2% between 2016-17 and 2017-18 and the Sector Deals and Productivity inquiry. Witnesses North Sea holding up to 20bn barrels of oil, the will be Benj Sykes, Vice President of Ørsted, sector is in “very strong health”. However, he Andrew Jamieson, Chief Executive of the ORE warned that Brexit will have a significant impact on Catapult, and Emma Pinchbeck, Executive Director the oil and gas sector, including the impact on at Renewable UK. frictionless access to goods and services, and a potential skills shortage. The other danger, Energy and Clean Growth Minister Claire Perry will McNally said, came from the upcoming Budget, appear before the Lords EU Energy and with the potential for the Treasury to again use the Environment Sub-Committee on 23 October to North Sea as a “cash cow”. face scrutiny over what steps BEIS has taken to prepare for the possibility of a “no deal” departure Peter Aldous (Conservative, Waveney) agreed that from the EU. Members will particularly question the the North Sea needed a stable fiscal regime, with Minister on the detail of EU notices that relate to its attractiveness as a basin based on the fact it is energy and climate change. fiscally competitive. BEIS Minister Richard Harrington stated that oil and gas would be part of Two Private Members Bills scheduled to have their the UK’s energy mix for “decades to come”. He Second Reading on 26 October are the Local added that the government had not yet reached Electricity Bill, which would aim to enable the final stage of the process on assessing the electricity generators to become local electricity potential for a sector deal, although it will do so suppliers and the Domestic Energy (Value Added “soon”. He added: “It is a question of assessing the Tax) Bill, which would reduce VAT on energy bills. value for money of the amount of contribution This does not mean, though, that they will be expected in the deal from government.” debated. In a Written Answer, published on 9 October, Links underlined above Housing Minister Kit Malthouse confirmed that the government has no current plans to commence

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As covered in last issue (ES636), at a Conservative Party conference fringe event on 2 October organised by Centrica, Exchequer Secretary to the Treasury Robert Jenrick said: “We’ve asked the National Infrastructure Commission (NIC) to work with us on how to improve regulation and what are the range of options across industries to make them more consumer-focused and inject more competition.” The NIC is to carry out the review at the direction of Chancellor Philip Hammond, which could see the creation of a single watchdog for gas, water and electricity. The NIC subsequently gave further details of the review on 3 October. Now termed a “regulation study”, it will examine: • what future changes will affect the regulated sectors • whether the regulatory model encourages where appropriate, sufficient competition and innovation to support efficient delivery of infrastructure • how well regulators work together and collaborate on cross-cutting challenges and significant infrastructure projects, and • how government and regulators work together, and how government can effectively deliver its objectives in these regulated sectors, while continuing to safeguard the independence of the regulators. The NIC will report in Spring 2019. NIC

The department confirmed on 5 October that Natascha Engel had been appointed as the new independent Commissioner for Shale Gas. Engel was Labour MP for North East Derbyshire from 2005 to 2017. The role is intended to act as a communication link between local communities, the shale gas industry and the industry regulators. The position is not a regulatory role and has “no powers of enforcement or investigation”. To preserve the independence of the regulators, the commissioner will not comment on any specific regulatory decisions. Energy and Clean Growth Minister Claire Perry said: “It’s important we get the facts straight on shale gas and that communities can access the best scientific information when engaging with the developers and regulators. This new role will provide a single point of contact for local residents to get the information they need and have their questions answered.” Meanwhile, Cuadrilla has confirmed that it commenced the hydraulic fracturing process on 13 October at its Preston New Road site, which will take approximately three months to complete for both exploration wells. The fracturing of the shale rock will release the natural gas in the shale to flow up the wellbore to the surface. The flow rate of the natural gas will be tested over approximately six months with initial results expected in the first quarter of 2019. BEIS

Scottish Government Minister for Energy, Connectivity and the Islands Paul Wheelhouse has highlighted his belief that at least 10.5GW more renewable capacity can be built in Scotland at a fringe event held during the Scottish National Party’s (SNP) conference. During the event on 9 October, hosted by trade union Prospect, Wheelhouse said that this 10.5GW would be in addition to the current 10.5GW of renewables currently operating in Scotland. Additionally, SNP Infrastructure and Energy Spokesperson at Westminster Alan Brown reiterated his government’s long- standing opposition to nuclear, restating that he did not think it was value for money, in response to Prospect Deputy General Secretary Sue Ferns highlighting nuclear’s potential in the low-carbon energy mix. Ferns also told the event that the trade union movement was “taking on the challenge of climate change very seriously”, while emphasising the “need to value and develop our existing energy workforce” during the low-

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carbon transition. She pressed Wheelhouse and the SNP on ensuring that there was sufficient trade union representation in the future, and Wheelhouse said “I hear you loud and clear and will feed that back” to Roseanna Cunningham, the Cabinet Secretary for Environment, Climate Change and Land Reform. Wheelhouse also referred to the issues surrounding how to ensure that communities which rely on high carbon generation are not left behind in the low-carbon transition – the Scottish government’s Just Transition Commission was launched in September to tackle this issue. At a separate fringe event on 9 October, hosted by Stop Climate Change Scotland, Fiona Montgomery, environmental specialist for Unison Scotland, argued that Scotland 's new Just Transition Commission was vital. However, she felt the commission’s current planned lifespan of two years was too short, and it should be extended. Gina Hanrahan, Head of Policy at WWF Scotland, noted that Scotland 's Climate Change Act 2009 established Scotland as a global leader. The Climate Change Bill now before the Scottish Parliament offered Scotland “a chance to exert the same global leadership”. However, it could do better, she continued. The carbon neutral by 2050 target was too relaxed and should instead be more ambitious, aiming instead for net zero greenhouse gas emissions by 2050. Prospect SNP

A joint report by the Joseph Rowntree Foundation and the Centre for Sustainable Energy (CSE) has called for greater support to be offered to vulnerable people to enable them to benefit from smart meters. The report, Supporting Vulnerable Consumers to Benefit from their Smart Meters, published on 28 September, summarised the findings of a study which ran from January 2017 to September 2018. The results revealed that participants of a trial, which included people with arthritis and other long-term health conditions and living on a low income, found that face-to-face demonstrations of smart meter functionality contributed to their confidence in how to use the devices and improved their recollection of energy advice. It said that “most participants” felt that smart meters reduced their levels of worry around energy bills. The authors called for BEIS to work with Smart Energy GB and energy suppliers to consider how to promote and frame the offer of smart metering related support to vulnerable households. It also said that energy suppliers should see the smart meter roll-out as an opportunity for greater integration of customer-focused services for vulnerable customers. CSE

The progress made by G20 countries is not enough to prevent a global temperature rise of 2°C, the Low Carbon Economy Index 2018 (LCEI) has found. Published by professional services firm PwC on 4 October, the report said that the Paris Climate Agreement to limit the global rise in temperatures to 2°C “looks even further out of reach” based on 2017 data. Not one of the G20 achieved the 6.4% decarbonisation rate required to limit global warming to 2°C, the report stressed, meaning that, at current levels of decarbonisation, the global carbon budget will run out by 2036. According to the LCEI, the UK led the G20 countries in long-term decarbonisation since 2000, although its decarbonisation of 4.7% in 2017 was slightly lower than in 2016. The report found that the UK’s 2017 emissions were 2.9% lower as both coal and gas consumption fell while oil remained at the same level. Renewable generation filled some of the space, and the UK’s overall energy consumption experienced a marginal decrease. China was the overall top performer of the G20, with a decarbonisation rate of 5.2%. PwC Our latest Chart of the Week explores whether the domestic retail market has entered a phase of consolidation. Last week’s Cornwall Insight blogs included Water companies unveil benefits for customers over next price control.

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Steven Britton, [email protected]

The government made several announcements means that many are unable to communicate with on 4 October on the future of SMETS1 smart different supplier systems, and so a significant meters, including confirmation of an extension to proportion revert to traditional mode upon a the SMETS1 end date and clarity over the rules switch. on their future enrolment with the Data BEIS confirmed that suppliers will be required to Communications Company (DCC) service. take all reasonable steps to enrol SMETS1 meters Following its consultation in July (see ES625), BEIS with the DCC within 12 months of the point at has decided to proceed with its position that the which they can be enrolled (or that un-enrolled SMETS1 and advanced meter exception end dates meters are gained through a switch). This was an should be extended to 5 December 2018. The extension from the six months BEIS originally dates – after which installations will cease to count proposed, considering the need for suppliers to towards suppliers’ roll-out targets – had previously test systems and pilot migration of meters to the been set for 5 October. DCC. However, the government has maintained its position that suppliers must take all reasonable In a letter, the Director of Smart Meters and steps to replace any unenrolled SMETS1 meters Systems Daron Walker said BEIS’s decision was with SMETS2 meters by the end of 2020, as a based on the recognition of impediments to the backstop date to ensure customers can be provision of SMETS2 meters that were outside of confident by that time they will retain a smart energy suppliers’ direct control. While over 47,000 service when switching. SMETS2 meters have now been installed, a delay would provide suppliers with a reasonable window BEIS’s other response was to its related to manage their transition to this next generation consultation on which meter cohorts the DCC of meters. should provide a service for: Aclara, Honeywell Elster, Itron, Landis +Gyr, Secure and EDMI. Its 12 suppliers currently hold derogations from the view was that this should cover four of the six SMETS1 end date, which had been set to expire on meter cohorts initially: Aclara, Honeywell Elster, 13 January 2019. However, BEIS decided that Itron and L+G, which represent about two thirds of these derogations should also be extended in line the market. Therefore, BEIS does not wish to delay with the delay, so will now expire on 15 March, the delivery of a timely solution for customers of which was also in line with its original proposals. these four. However, BEIS has adapted its proposal on Whether Secure and EDMI meters will allowing the continued fitting of SMETS1 meters for subsequently be added to the SMETS1 service will use in pre-payment mode where they replace be considered at a later date, when BEIS has traditional pre-payment meters. Instead, they may “sufficiently mature” information on these meters be fitted to replace any traditional meter, until that from existing and prospective service providers, same date of 15 March. and the DCC. Considering this, it urged BEIS explained that it had changed its position in stakeholders to facilitate commercial and technical response to supplier concerns that credit design discussions in order to ensure that this customers wishing to move to a smart-enabled information would be available so that a pre-payment tariff during this period could be consultation on the future of these meters can be prevented from doing so due to SMETS2 pre- launched in a timely fashion. payment functions taking longer to test. It therefore laid draft modifications to the legislation Suppliers will welcome the greater clarity before Parliament on 9 October to enable this, in around the future DCC SMETS1 service and order to prevent a gap in smart meter deployment. the scope to continue installing SMETS1 meters for a while longer. However, the fact is The announcement coincided with the publication that SMETS2 meters should remain the of responses to two consultations BEIS launched in April on maximising the interoperability of SMETS1 priority. Supply chain issues, skills shortages meters (see ES614) and the enrolment of meter and DCC readiness mean that further delays cohorts in the DCC. are likely. While SMETS2 meters are fully interoperable SEC BEIS – Enrolment BEIS – Service between suppliers, the design of SMETS1 meters

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Tom Crisp, [email protected]

The second annual Code Administrators’ Figure 1: Perceived improvements (top) and overall satisfaction (bottom) Performance Survey was published on 8 by code October by Ofgem, identifying best practice and quantifying the level of service delivered to industry participants. The survey was one of the outcomes of the 2016 Code Governance Review. The 2018 survey was undertaken by Future Thinking, with over 200 participants contributing through phone, online and in-depth follow-up interviews. In terms of progress towards the 2017 survey’s recommendations, it was recognised that Source: Ofgem improvements had been made around better website information, usability of telecon facilities information and training and better delivery of and code chairs being more engaged at meetings. information. However, examples of change that have been Key recommendations moving forward from the detrimental have been National Grid removing survey were: historical information in a website update, websites • ensure code administrators are held to a generally not being updated fast enough and consistent standard of service even if they scheduling of meetings being “hit and miss”. cannot operate in a consistent manner In overall trends, there was a shift from the last information should be developed so it can be survey, with organisations that are newer to the • energy market significantly more likely to be easily digested and flagged for action if satisfied (74% vs. 56% in 2017). By contrast, required organisations that have been in the market for 6-9 • where information is provided, ensure it is kept years are less satisfied (54% vs 78% in 2017). There up to date and relevant, and was also a “marked improvement” in reported knowledge of areas the code administrators are • continue to support smaller/ new entry responsible for. In total 86% of respondents had organisations so they can actively participate. some knowledge of code administrator More broadly, businesses felt that the modification responsibilities, up on 72% last year. process should be a “level playing field” and look This carries through to the number of smaller, to code administrators, and Ofgem, to deliver this. newer entities engaging in the modifications Following the survey, participants are encouraged proceed directly. Slightly more smaller to consider individually and collectively how organisations are raising modifications. In 2017 the recommendations could be implemented. percentage of those who had been in the industry less than five years who had never raised a The survey results generate a significant modification was 93%; in 2018 this dropped to 77%. amount of interest from those organisations By contrast, those who have been in the market for delivering the codes. Overall the findings are five years or less are raising significantly more one of progress, but it is clear the landscape is modifications that they did in the previous year. extremely cluttered. In terms of individual performance (see Figure 1), But it’s a shame Ofgem has not flagged the gains in net perceived improvement have been way forward on code governance now that the greatest in the SPAA (32%), SEC (28%) and DCUSA CMA remedies have been left up in the air. (28%). Regarding net overall satisfaction, the BSC This is a subject we will address soon in a came top (86%), followed by SPAA (78%) and the longer comment. MRA (76%). Suggested improvements to further enhance Ofgem engagement and satisfaction included improved

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Business and Energy Secretary Greg Clark announced five winning bidders for the £10mn Regulators’ Pioneer Fund on 5 October. The fund is intended to support bodies to create a regulatory environment that gives innovative businesses the confidence to invest, innovate and deploy emerging technologies for the benefit of consumers and the wider economy. Ofgem secured a share of funding for two projects: • the Secure Data Exchange project, designed to deliver a better user experience for anyone exchanging information with Ofgem or wishes to know what information is available from Ofgem, and • its Energy Market Challenge, which will see the regulator collaborate with Nesta’s Challenge Prize Centre and will together launch a major initiative which stimulates the development of better services for the 8mn households who are not engaged in the energy market. The project will build on the Open Banking model and trial solutions harnessing AI-assisted services. BEIS

The regulator has confirmed the policies to apply during the third phase of the Energy Company Obligation (ECO3), which commenced on 1 October, subject to parliamentary approval of the draft ECO Order. The decision document, published on 26 September, included Ofgem’s response to 49 stakeholder submissions to its July statutory consultation. The majority of respondents (61%) agreed with the regulator’s proposal to introduce a voluntary pre- notification process for early actions, as this will maintain momentum for suppliers, the supply chain and Ofgem. Still, many stakeholders requested guidance for early actions before 1 October, including key documents such as the Boiler Assessment Checklist. The regulator confirmed that it is working with the ECO Reporting Working Group to update key evidence documents to this end. Similarly, while nearly seven in 10 (68%) of respondents agreed with proposals to carry-over, several requested details of ECO3 rural eligibility to support carry-over delivery to consumers in these areas. Ofgem confirmed that suppliers can carry-over up to 20% of their net ECO2 Carbon Emissions Reduction Obligation, where measures were installed on or after 1 April 2017. Suppliers can apply for surplus actions once the regulator has made its final ECO2/t determination, to be completed by 31 March 2019. Following this, suppliers must apply to credit a surplus action towards an ECO3 obligation no later than 30 November 2019. Ofgem

Ofgem’s Procedural Officer had decided that several points contested by Economy Energy (EE) under the ongoing Competition Act investigation into its behaviour fall outside his remit as they raise questions about primary legislation. Issued on 5 October, but made in May, the Procedural Officer’s decision is a response to EE’s request for certain aspects of the handling of the investigation by the Ofgem case team to be reviewed. In an application to the Procedural Officer from March this year, the supplier argued that significant procedural issues arose during the course of the investigation, including privilege against self-incrimination; specifically, and that EE did not consider the Ofgem team gave proper consideration of the right against self- incrimination when conducting interviews. EE also considered that there was a selective interrogation of an unrelated case file, with EE having raised concerns about the procedure by which Ofgem obtained documents in the course of unrelated regulatory contact. The supplier also felt that there was a loss of objectivity by those investigating; the document noted that EE was concerned with the manner the investigation was conducted, particularly the partial interrogation and extraction of certain documents and the selective questioning of witnesses. While the Procedural Officer concluded no procedural defect with respect to these, all complaints were considered to sit outside the scope of the role. Ofgem – Decision Ofgem – Investigation

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The regulator is awarding £2.55mn to Gas Distribution Networks (GDNs) following submissions to the 2018 Gas Discretionary Reward Scheme (DRS), it confirmed on 4 October. Ofgem reported that, at a question and answer session attended by GDNs in June, an expert panel provided feedback for the next DRS. The panel observed, for example, that there was a lot of duplication across the collaborative and individual submissions. As such, the panel considered individual submissions should be clearer on the differences between individual GDN leadership on initiatives and what outcomes are due to collaborative work. Additionally, the panel said that it would like to see a clear strategy to understand how the initiatives were developed and prioritised, in the first instance. It was noted by the regulator that the panel were impressed with six initiatives including Wales & West Utilities’ (WWU’s) work in the area of General Practitioner referrals for vulnerable customers, and Cadent’s Safety Seymour initiative, reaching out to primary school children in areas with high numbers of reported carbon monoxide incidents. It added that Cadent’s campaign has since been rolled-out across the GDNs. The regulator also referred to WWU making available its Energy Pathfinder model to other DNOs. It said that the model identifies potential energy solutions while taking into account several different variables including the cost and feasibility. As such, the panel cited GDNs’ willingness to collaborate and expectation to work together in the future, advising that it would like to see the GDNs setting themselves clear, stretching targets, including benchmarking against the other GDNs, wider utilities and energy companies. Generally, the panel noted that the best submissions and presentations were able to demonstrate that a strategy is embedded within the culture of the organisation, and it was “particularly impressed” with Northern Gas Networks’ efforts to this end. Ofgem

The regulator has published amended project directions for projects funded under its electricity Network Innovation Competition, stating that it is now satisfied that ScottishPower Distribution’s (SPD) Fusion and Southern Electric Power Distribution’s (SEPD) Transition projects meet its conditions for funding. As such, on 2 October, the regulator said that the projects can proceed. Ofgem received updates from the distribution companies on 31 August, which allowed the regulator to ensure that there was no unnecessary duplication between the aforementioned projects and Western Power Distribution’s (WPD’s) Electricity Flexibility and Forecasting System (EFFS). For SPD’s project, Ofgem noted that a further £300,000 has been removed from the funding requested previously by identifying further efficiencies that can be achieved during implementation. The regulator also confirmed that SEPD’s Transition requires £1.7mn less than the original funding request by removing one of the three trials. Ofgem said that funding was also conditional upon the companies engaging with the licensees implementing WPD’s EFFS, and on removing areas of unnecessary duplication, and coordinating activities to ensure the best outcome for consumers. Ofgem – Fusion Ofgem – Transition

CEER made recommendations on the EU legislative package on a New Deal for Consumers on 9 October. It said that the package makes important revisions to the general framework for consumer rights across all sectors. However, it was noted that the new deal could benefit from some further clarifications on bundled products. CEER recommended that consumers who buy bundled products should have rights in relation to price and bill transparency, clarity on liability where multiple parties are involved, and not being disconnected from essential services where a non-essential service is not paid for. Recommendations were also made on the rights for consumers who pay with data, and on 14-day right of contract withdrawal periods in relation to energy. CEER

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Lee Drummee, [email protected]

National Grid published its Winter Outlook medium term should also deliver savings for Report 2018-19 on 11 October. consumers. Its forecast of electricity supply margin has The SO’s forecasts also show sufficient supply increased to 7.1GW, or 11.7% on an underlying margins to meet all gas supply scenarios over the demand basis. The corresponding loss of load winter. Total winter gas demand is projected to be expectation is 0.001 hours/ year. In this year’s 46.6bcm, below the 51.6bcm forecast for last outlook the Electricity System Operator (ESO) the winter and the actual demand of 54.8bcm. calculation behind the supply margin percentage Similarly, 1-in-20 peak day and cold day demand has changed. In previous years, it has been are expected to be lower than last year at calculated as the sum of GB supply and 472mcm/d and 407mcm/d, respectively. interconnection less demand divided by demand Gas demand from all demand types is forecast to less interconnection. However, for this year’s and be lower than last winter, with the exception of future outlooks it will be based purely on demand. exports to Ireland and storage injections, which are Under the old calculation the supply margin expected to remain at 1.8bcm and 2.3bcm, equates to 12.3%. respectively. Gas-for-power demand is forecast to Average Cold Spell (ACS) peak underlying demand drop to 7.0bcm, compared to the 12.7bcm seen is forecast to drop to 60.5GW, while peak last winter given the shifting economics in favour transmission system normalised demand is also of coal over CCGTs. seen to be lower at 48.2GW. On the supply side, the cold day non-storage Minimum electricity demand is forecast at 20.8GW supply forecast is slightly higher at 360mcm/d during the Christmas period; lower than the (354mcm/d in 2017-18). Peak supply (575mcm/d) 21.3GW forecast last winter but higher than the and peak supply minus the loss of the largest actual outturn of 18.6GW. The total maximum piece of gas infrastructure (494mcm/d) are both generation capacity is assessed at 104.7GW, capable of meeting the 1-in-20 peak day demand. 3.5GW higher than last winter. However, the margins of 103mcm and 22mcm are Figure 1: Electricity operational view 2018-19 slightly lower than forecast by Grid for last winter. Whilst noting that LNG supplies are likely to remain low, National Grid did point to the fact that the South Hook LNG terminal has been granted a gas quality specification modification, enabling it to accept cargoes from numerous sources, in addition to the Qatari cargoes it currently receives. The SO also looked back at the events of the Beast from the East last winter, highlighting how power generation demand could have been met without coal on the system. 45mcm of additional gas would have been needed to replace coal-fired generation on 1 March 2018. National Grid stated Source: National Grid ESO that this extra demand could have been met by an Under all interconnector import scenarios, both increase in LNG supplies and maximum imports normalised and ACS demand can be met for the across both IUK and BBL interconnectors. entirety of winter. Even with assumed exports of 1GW via the NEMO link – expected to go live in Despite previous supply concerns that have January 2019 – supply margins are forecast to be helped sustain high wholesale prices, National comfortable. Grid’s outlook suggests that GB has sufficient headroom for this winter. This can also be National Grid also highlighted the move to Price Average Reference volume of 1MWh (PAR 1) under seen as the Capacity Market at work, with the the P305 electricity balancing significant code first T-4 auction now bearing fruit. review. Imbalance prices should become more National Grid volatile during times of system stress, but in the

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Tom Edwards, [email protected]

On 10 October the Electricity System Operator progressed by Figure 1: Illustrative reactive power (ESO) published two Requests for Information CMP305 & balancing (RFIs) on reactive power services to help manage CMP306) and voltage levels in Mersey and South Wales. trial new reactive power tenders in Reactive power (measured in MVar or mega-volt- 2019. amperes) is used by the ESO to manage voltage across the transmission network. When voltage This RFI aims to goes up the ESO needs to absorb reactive power identify potential (-ve MVar) and when voltage goes down the ESO providers and needs to inject reactive power (+ve MVar). At low their capability, demand the ESO tends to have issues with high and National voltages (as the assets generate reactive power Grid aims to during low power flows) on the network, and at open a tender high demand the ESO has issues with low voltage. for the service in early 2019 with Reactive power is highly regional as MVar are not the service effective if they are provided far away from the expected to start need. As a result, the ESO will often constrain off in April 2019. power stations to allow other assets near the node to inject or absorb it. National Grid is interested in Source: National Grid National Grid has noticed since 2007 a shift in its traditional reactive power requirements, driven by reduction transmission-connected providers as well as new in transmission-connected generation and lower non-BM distribution-connected resources. The loading of its lines at certain times. minimum size will be provision of 50MVArs if The ESO currently has two tools to deal with providers are able to absorb and inject reactive reactive power, the Obligatory and the enhanced power, and ESO will accept aggregated services Reactive Power Services (ORPS and ERPS). ORPS as long as the minimum contracted range of is a mandatory requirement for large power reactive power is observed. stations, and payments are based on utilisation at It is looking for a significant amount of reactive a fixed rate set out in the CUSC (£3/MVarh). The power, with a 300MVAr lagging and -400MVAr ERPS is an optional service where providers can leading requirement in South Wales. The daily submit tenders with different prices for availability peak reactive power absorption requirement in and utilisation. However National Grid hasn’t 2018 is estimated to be 6,000MVAr and reactive accepted any tenders since 2009 as it gets injection at around 2,000MVAr, so this tender everything it needs from the ORPS. could account for between 5%-20% of the market. With a changing need for reactive power, the ESO In Merseyside the Reactive Lag Requirement is has been looking at changing the way it procures 170MVAr and the Reactive Lead Requirement is the service. One project, known as Power Potential -125MVA. looked at developing a market for distributed power resources to offer active and reactive power Interested parties have until the 5 November to to the SO in the South East of England. These submit their information to the RFI. services would bid in at 14:00 at the day-ahead stage with tenders accepted by UKPN and offered This is likely to be a highly competitive to the ESO. process, similar to the RFI for the Enhanced Frequency Response service, as many National Grid has committed to reforming and aggregators, batteries and small-scale reviewing the reactive power market as part of the generators are looking for additional revenues System Needs and Product Strategy (SNaPS), in its given falling values in other ancillary services, Reactive Power Roadmap, it set out its plans to remove the ERPS (which has since been the Capacity Market and embedded benefits. National Grid

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Charlotte Farmer, [email protected]

September and October saw multiple updates to The wider Impello results also flagged 50% annual accounts on Companies House for both customer growth in its German retail business, small and medium energy suppliers. While the reaching 30,000 customers by the end of the results paint a mixed picture, the key and 2017. consistent theme from the results was the OVO Energy and the broader OVO Group released difficult market conditions that suppliers are their 2017 annual results on 6 and 7 October, experiencing and the view that there is respite to showing a 100,000 net increase in customer be found at scale and in adjacent markets. numbers and a return to profit at £3.2mn. Co-operative Energy posted its accounts to 27 Going beyond inferences from other suppliers that January 2018 on 27 September, delivering steady operating in adjacent markets is a key source of financial growth, despite falling customer numbers. value for their business, Ovo Energy openly stated The accounts highlighted that turnover increased in its results that “only companies that offer 42% on the previous year, up to almost £400mn. diversified, smart services will thrive.” The group The company also reduced its net loss from £6mn results went on to discuss the successful to £2.4mn over the period. acquisition of CORGI Homeplan in 2017, which The results added that the acquisition of Flow services 160,000 customers across the UK. Energy, which occurred outside of the accounting Figure 1: Summary of turnover and net profit/loss for 2017 period, would bring an additional 130,000 customers and “allow the company to accelerate Supplier Turnover Net profit/loss its growth plans and reduce its cost to serve at a Co-operative £399.7mn ↑ -£2.4m ↑ very competitive price.” Energy Flow Energy itself published annual accounts on 4 Flow Energy £137.5mn ↑ -£15.4mn ↓ October, covering the year to 31 Dec 2017. It saw Green Network growth in turnover of almost 40% to £137.5mn, Energy £34.0mn ↑ -£6.3mn ↓ partly as a result of improving customer “quality”. But the strategic report highlighted that despite First Utility £858.3mn ↓ £23.9mn ↑ the company’s success in “improving the Ovo Energy operational efficiency of the business and £762.5mn ↑ £3.2mn ↑ delivering cost savings”, external factors including Source: Companies House the default price cap and aggressive pricing from new entrants meant that the business “needed the Some in the market are predicting a period of support of a larger energy business.” supplier consolidation due to high wholesale Green Network Energy posted its full accounts for costs and the tentative climate created by 2017 on 28 September, showing a 76-fold increase implementation of the upcoming default tariff in turnover during its first full year of operation. At cap, which will slow down churn. But this the same time, the company’s net loss increased selection of financial results suggest that to £6.3mn as a result of higher administrative concerns to achieve scale are not new to costs. The company stated that it expects an 2018. overall profit for the company in 2018 and will “begin to seek long-term debt, which will be used Although First Utility and OVO Energy are by to support the company’s growth plans.” no means the only suppliers expanding their First Utility and its parent company Impello both service offerings beyond simple energy released their 2017 results at the start of October. supply, we can probably expect similar moves First Utility highlighted that it had returned to from other players in the market in the coming profitability “after a challenging 2016” but had also months. seen turnover fall by around 5% to £858mn. The strategic report outlined declining energy Companies House – OVO Energy customer numbers, but it stated that the company Companies House – First Utility “has seen growth in other areas, namely its broadband business which launched in 2016.”

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Centrica confirmed on 8 October that it had completed the construction of two 50MW fast-response gas-fired plants in Brigg and Peterborough. The new plants have been built on land adjacent to Centrica’s existing gas-fired power plants and each consist of five ~10MW reciprocating gas engines supplied by Wärtsilä. The facilities will be operated from Centrica’s new Energy Control Centre in Peterborough and maintained by local teams. Mark Futyan, Distributed Power Systems Director at Centrica Business Solutions, said: “We’re seeing increasing demand for flexible power so this is an important demonstration of how we can help our customers to navigate the new energy landscape and deliver a variety of end-to-end solutions including onsite generation, demand-side response and energy storage.” Centrica

Scottish and Southern Electricity Networks (SSEN) confirmed on 5 October that it had submitted to Ofgem a Strategic Wider Works (SWW) Final Needs Case for a subsea cable transmission link from the Shetland Isles to the Scottish mainland. Shetland currently operates as an islanded network. A previous competitive approach to tendering for a replacement for the Lerwick power station was cancelled by Ofgem. However, following confirmation from BEIS to allow remote island onshore wind to compete in the next Contracts for Difference (CfD) auction in May 2019, there is now an “opportunity” to progress with the transmission reinforcement, subject to the success of Shetland renewable developers in the CfD auction and regulatory approval. Quoted in Platts on 9 October, an Ofgem source indicated it will consider using its competition proxy model when deciding on the revenue allowance for the proposed Shetland link. “If we decide that a project such as Western Isles or Shetland link is needed, we will then decide on the revenue allowance for SSEN for delivering that project,” an Ofgem spokesman said. SSEN

A new report from Citizens Advice has concluded that small energy suppliers TOTO Energy and Solarplicity rank the lowest in quality of customer service out of all UK suppliers. Published on 4 October, the study revealed that TOTO Energy was the worst scoring supplier, achieving just 1.45 out of five between April and June for its customer service, falling from 1.6 in the previous quarter. Solarplicity came second-last, scoring 1.8. At the other end of the table, So Energy was awarded a rating of 4.7 by customers, achieving the top spot, and medium-sized energy suppliers Bulb Energy and Octopus Energy scored 4.35 and 4.3, respectively. Citizens Advice highlighted the worst-performing companies as proof that there needs to be a strengthening of regulation, calling for Ofgem to tighten up the rules around who is allowed to supply energy. Gillian Guy, its CEO, said: “Too many customers are being let down by firms which aren’t ready or capable of providing a decent level of service. These aren’t small problems. It’s vital that Ofgem now tackles the problem of newer and smaller firms letting people down and tightens up the rules around who can become an energy supplier.” Citizens Advice

The upcoming US sanctions on Iran are due to start from 4 November and could remove up to 1.7mn bpd of crude oil from the market by November. Since the sanctions were announced on 8 May, the price of Brent crude oil has jumped from $75.5/bl to a four-year high of over $86.6/bl on 4 October, with some analysts and traders suggesting oil could potentially

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reach $100.0/bl by the end of the year. The sanctions have driven oil prices higher amid concerns of supply security as OPEC reported it was reluctant to increase output amid fears of oversupplying the market. However, following an announcement on 6 October that the US would consider waiving sanctions on a case- by-case basis, prices have dropped below $83.0/bl. One country hoping to secure a waiver is India, who have been reducing Iranian crude imports since May. The country averaged 0.66mn bpd between April and August but hopes to still take 0.3mn bpd of Iranian oil in November once sanctions are in place. The news of potential waivers came after the National Iranian Oil Company (NIOC) said on 1 October that it would not cut production levels during the upcoming sanctions and would instead focus on increasing oil product sales. A deal to buy three key North Sea gas fields has also moved closer after uncertainty created by US sanctions against Iran delayed the process. Rhum and its neighbouring assets the Bruce and Keith fields deliver about 5% of the gas produced in the UK. The Rhum field – about 240 miles north east from Aberdeen, off Shetland - is co-owned by the Iranian Oil company. An arrangement will be put in place whereby any money made by the Iranian Oil Company from the Rhum field will be held by a third party for as long as the US restrictions are in place. Serica Energy

UK Power Reserve (UKPR) has announced that it is awarding a 120MW battery storage project to energy storage technology and services provider Fluence. Made public on 4 October by UKPR, this transaction has been described as the “largest contracted energy storage portfolio transaction to date globally”. The energy company said that the projects are designed to provide flexibility to the UK’s electricity grid as it accommodates more renewable generation sources. They are required to be deployed by winter 2020 but UKPR has said that they will be ready by the end of summer 2019. UKPR split the 120MW portfolio into two 60MW projects – these will be built using Fluence’s Advancion platform, an industrial-strength energy storage solution designed to be highly dependable in the long-term. Advancion will reportedly adapt to changes in the market to allow UKPR to provide additional flexibility services to the grid, depending on conditions. Sam Wither, Head of UKPR, said: “By splitting our portfolio into two 60MW sets of projects, we’ve had the opportunity to fully assess the market and took a nimble approach to keep up with this rapidly evolving space. Fluence and its Advancion technology again proved their worth throughout this highly competitive process.” UKPR

An investment of £58.7mn in two solar farms in Hull and York has been announced by Warrington Borough Council. The investment, made public on 10 October, will be funded by borrowing, but the council said that the reported savings of £1mn/ year will offset the costs. The 25MW Hull site is expected to commence operations by summer 2019, with the 34MW York project following in autumn, the council said. Both projects are being delivered in partnership with Gridserve and will save a combined 25,000 tonnes of carbon per year. Deputy Leader Russ Bowden said: “This will generate significant income for the council over and above the cost of borrowing for those investments.” Bowden added that the solar farms will generate a surplus of £150mn over 30 years which will “go straight back into delivering essential public services”. Warrington Borough Council

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As the party conference season has now ended it support tidal lagoons starting with the Swansea is worth looking at where the main parties stand on project. energy policy. Here Peter Atherton sets out his In truth at the Conservative conference there was take-aways. very little meaningful debate on energy issues. The first thing to note is that there is still a large There were no material policy announcements by degree of political consensus on many of the big ministers and the fringe meetings were policy issues. For example, all three main national perfunctory. A couple of years ago then Secretary parties continue to advocate that the UK economy of State Amber Rudd had outlined a vision needs to be decarbonised and that the energy whereby the government would move away from sector will be in the vanguard of this move. market intervention and allow technology and As such they all agree that the state must markets to once again drive the industry. Such intervene in the energy market by both supporting thoughts seem to have withered away. low-carbon technologies and by discriminating At the Labour conference by contrast, activists against fossil fuels. continue to be energised by the promise to There is also considerable consensus now that, renationalise the energy and water networks. At its having tackled power generation in the past conference Labour confirmed that they would seek decade, the emphasis now should shift to to re-nationalise both transmission and distribution networks. There seems to be a widespread networks for gas and electricity and also the acceptance amongst politicians that the future lies vertically-integrated water and sewage companies. with distributed generation and discretionary From the discussions (such as they were) at the demand, and therefore action needs to be taken to Conservative conference, it is clear that they have prepare the energy networks for this change. so far failed to develop any sort of meaningful Also, there is continued consensus that the counter argument to Labour’s plans. consumer is getting a raw deal from energy There are probably a couple of reasons for this. companies and needs protection. The exact form the protection should take is disputed, but there is First, is the fact that the Conservatives have now agreement that intervention in the retail themselves embraced massive state intervention supply market is a necessity. in the energy sector and have progressively In short, the political mood remains staunchly interventionist. Figure 1: Conference statements on key issues Issue Labour Conservatives Of course, there are material Renewables Shadow BEIS Secretary Energy and Clean Growth differences opening up between Rebecca Long Bailey: Plan Minister Claire Perry: Combining Labour and the Conservatives in a to reach 60% low-carbon carbon capture technology with few important areas. energy by 2030, which biomass to deliver negative could include 52GW of emission generation may give First, Labour announced that they offshore wind, tripling of the UK much needed “elbow would lift restrictions of the existing solar and doubling room” in its efforts to cut building of onshore windfarms, but of existing onshore wind emissions. Regulation Shadow Chancellor John Exchequer Secretary Robert it would join France and Germany McDonnell: Utilities to be Jenrick: “We’ve asked the in banning fracking. nationalised, with National Infrastructure introduction of democratic Commission to work with us on Also, Labour would shift the public services. Essential how to improve regulation and household energy efficiency service “back in the hands of what are the range of options program from the energy suppliers local councils, workers and across industries to make them and give the job to local councils – customers.” more consumer focused and inject more competition.” who would be expected to spend Climate change Shadow BEIS Secretary Environment Secretary Michael ~£2.5bn/ year. Whether or not this Rebecca Long Bailey: “today Gove: net zero emission is would still be funded by a levy on I state firmly that A Labour “something we have to aim for". energy consumers, or through government will back a However, he said that the final taxation, is not clear. And finally target for net zero emissions decision on the target was above by 2050.” his “pay grade”. Labour announced that it would Source: Cornwall Insight

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increased the level of intervention since taking government, we can expect a miserable evolution office in 2010. of the current structures thereby locking in the myriad of costs and inefficiencies that the Helm For example, the investment making process for Review exposed. The role of the state will continue electricity generation has effectively been to grow. renationalised by being transformed from one based on private sector commercial decisions to If Labour come to power then the state will seek one that is essentially a public procurement direct ownership of assets, which is at least process. And of course the government has intellectually honest. directly imposed price caps on the majority of the Given their lack of proximity to power in retail market. It is therefore rather a moot point Westminster, the Liberal Democrats plans have whether the Conservatives can now argue that the naturally garnered significantly less attention. A boundaries of state intervention have been consultation on how to reshape party policy to reached and that actual public ownership of assets meet the ambition of zero carbon emissions shows would be a ruinous step too far. admirable ambition, but without a radical reversal The second problem for the Conservatives is that in their polling fortunes, it is unlikely to ever get Labour’s renationalisation policy is popular with close to implementation. the public, with polls showing 70% in support. This The SNP’s event was largely a case of maintaining is hardly surprising given that ever since energy the status quo, with no major announcements prices started rising in around 2006 politicians going beyond their Energy Strategy in June. Last from Prime Minister down, surprisingly supported year plans for a publicly-owned energy supplier by leading regulators, have unceasingly attacked were centre stage in Nicola Sturgeon’s speech, but the industry. recent Scottish Parliament hearings have Couple that with some real examples of industry reinforced the need for such an entity to have a incompetence and greed, it is hardly surprising narrow focus to meet planned objectives. that the public supports change. Cornwall Insight Associate Peter Atherton is a So, what can we look forward to under the two well-known equity analyst having headed utility main parties? If the Conservatives remain in research at several eminent City institutions.

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Wholesale gas contracts along the forward curve dropped last week. Day-ahead gas curtailed 7.6% to 64.8p/th. Prices dropped throughout the week and hit a seven- week low of 62.5p/th on 11 October as temperatures rose to 15.3°C and gas for heating demand dropped. November 18 gas decreased 5.2% to end the week at 70.5p/th and December 18 gas went down 5.5% to 73.3p/th. Seasonal gas contracts fell 7.7% on average. Most contracts fell to one-and-a-half month lows on 11 October as commodity prices dropped and fed into the gas curve. Summer and winter 19 fell 7.4% and 6.6% to 60.3p/th and 68.3p/th respectively. Annual April 19 gas slid 7.0% to 64.3p/th.

All near-term baseload power contracts decreased last week. Day-ahead power fell 3.5% to end the week at £63.9/MWh, having dropped to a three- week low of £61.4/MWh on 11 October as high wind output was forecast for the following day. November and December 18 power decreased week-on-week, dropping 4.6% and 3.8% to £67.3/MWh and £68.3/MWh respectively. Both hit lows on 11 October, at £65.9/MWh and £66.7/MWh. Seasonal contracts were down 6.5% on average. Summer 19 lost 6.5% to £58.0/MWh, falling to a seven-week low of £57.5/MWh on 11 October. Annual April 19 power slid 6.2% to £60.7/MWh.

The weekly average Brent crude oil price fell for the first time in two months, dropping 1.9% to average $83.1/bl. Prices started the week down at $83.1/t as the US announced it would discuss potential waivers for Iranian imports ahead of the upcoming sanctions next month. Prices fell below $80.5/bl at the end of the week, as the US stock market fell for a sixth consecutive day amid a slowdown in the global economy and the US- China trade dispute. API 2 coal fell for the first time in 10-weeks, down 2.7% to average $96.7/t last week. Coal prices hit a five-week low of $94.0/t on 11 October. EU ETS carbon prices fell 2.6% to average €20.6/t. Prices dropped to their lowest since 20 August, slipping to €18.3/t on 11 October as temperatures across Europe were above seasonal normal levels.

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