The Low Carbon Contracts Company Confirms That 10 Successful Projects from the Second Contracts for Difference A

Tom Crisp Editor 01603 604421 [email protected]

ENERGY PERSPECTIVE 02 Monday 09/10 –The Low Carbon Contracts Company confirms that 10 successful projects from the second Contracts for Difference Open verdict – the Clean Allocation Round have signed a total of 16 CfDs. At a select committee Growth Strategy hearing senior civil servants involved in agreeing the deal for the POLICY 05 Hinkley Point C nuclear project say any renegotiation would have put the project at risk. E.ON completes the installation and grid connection Draft legislation gives details of SVT price cap of a 10MW battery storage project at the Blackburn Meadows biomass Civil servants mount defence of plant. Hinkley Pont C Energy UK calls for policy Tuesday 10/10 – First Minister Nicola Sturgeon confirms that the certainty and stability Scottish government will set up a publicly owned, not for profit energy CCS network “could boost company by the end of the Scottish Parliament in 2021. The UK economy by £160bn” remains in the top 10 most attractive countries for renewables in EY’s Parliamentary update – Week 41 2017 RECAI rankings. The National Audit Office criticises the handling by the Nuclear Decommissioning Authority of the Magnox REGULATION 12 decommissioning contract. WHD customers to gain price Wednesday 11/10 – The government announces it will provide up to cap protections

Suppliers broadly compliant with £557mn for less established technologies through Contracts for government schemes Difference auctions, with the next, third auction planned for Spring 2019. BEIS also confirms Scottish islands wind will be allowed to INDUSTRY STRUCTURE 15 compete. Ofgem confirms the prepayment price cap will be extended Grid forecasts increased to include around 1mn extra Warm Home Discount customers. The capacity margin for coming Nuclear Safeguards Bill is published in Parliament, in preparation for winter IRENA: Battery storage costs the UK leaving Euratom. could fall 66% by 2030 Thursday 12/10 – BEIS releases its Clean Growth Strategy, detailing NUTWOOD 18 actions where progress is most needed to achieve the fifth carbon budget. Measures embrace carbon capture and storage, renewable Renewables and battery co- location on the cusp heat and transport, and there is a distinct reemphasis on energy – Tom Palmer efficiency. BEIS publishes for pre-legislative scrutiny a draft Bill to cap domestic energy prices. National Grid releases its Winter Outlook, MARKETS 20 showing comfortable security of supply situations for electricity and gas. Friday 13/10 – The National Infrastructure Commission delivers its Interim National Infrastructure Assessment. The Mayor of London launches the first phase of the London Community Energy Fund, which aims to support the development of community solar energy projects. DONG Energy announces that it has entered an agreement with Gas Power Developments and GAM Capital for the operation of three 6MW flexible gas peaking plants.

The Clean Growth only “carbon savings from about 30% of the new Strategy (CGS) was proposals” had been quantified. The implication is published last that the unquantified policies once properly Thursday, several detailed will get us there. name changes and But it is clear that the government is seriously more than many considering using “flexibilities” within the Climate months later than Change Act to meet the budgets “if this presents originally signalled better value for UK taxpayers, businesses, and Ed Reed by the government. Associate Director domestic consumers”. These levers include carry 01603 404410 The intent of the forward of over-achievement from earlier budgets, [email protected] CGS has always carry back from later budgets, or making use of been to set out how international carbon credits. This is despite the the government will meet the legally binding fourth CCC having previously come out strongly against (2023-27) and fifth (2028-32) carbon budgets, and the use of international offsets. by the end of the fifth budget period to cut its greenhouse gas emissions by 57% compared to Figure 1: Performance against carbon budgets 1990 levels. The purpose of the budgets is, of course, to deliver greenhouse gas emissions to 80% below 1990 levels by 2050. In this week’s Energy Perspective, we set out why we believe the CGS contains laudable aspirations, but the balance of probability suggests the fifth carbon budget will still not be met, undermining the trajectory for achieving the 2050 target and commitments under the Paris Agreement. Expert witnesses

In its Meeting Carbon Budgets: Closing the Policy Source: BEIS Gap 2017 Report to Parliament, published in June 2017, the Committee on Climate Change (CCC) As the CCC has also pointed out in a statement stressed the need for new policies or the fourth issued on the day of the CGS publication, this and fifth carbon budgets will be missed. The approach would make subsequent budgets even June report highlighted that there was more than harder to achieve and only increase the cost a 100MtCO2e gap between the range deliverable burden later down the line. by current government policies and the implied Objection, your honour pathway to achieve the agreed fifth carbon budget, with heat and transport targets particularly Aside from this headline shortcoming, the CGS behind. As a result, all eyes have turned to the also features some classic government tactics of CGS to see if it can close the gap and define a re-framing previous policy commitments. detailed plan. The “Sector Deal” for offshore wind will provide up Unfortunately, the 165-page strategy is still lacking to £557mn for less established technologies under on this score. Instead of achieving the 57% cut by the Contract for Difference scheme. But, this is the 2032, the CGS delivers only a 53% reduction (see £730mn previously earmarked for three CfD Figure 1). This is two percentage points more auctions, netting out the money spent in the emissions reductions than existing policies will second allocation round this summer. deliver. The inclusion of onshore wind projects on the Whilst the directional move is positive, this isn’t the Scottish isles in the next CfD auction in spring 2019 radical plan to guarantee carbon budget is to be welcomed, and ends a flip-flopping compliance that it was originally intended to be. consultative journey that began in November 2016. Energy Minister Claire Perry in media interviews Tellingly, its adoption is still subject to State Aid acknowledged this but stated in Parliament that approval.

The commitment to close unabated coal by 2025, sector CCS competition. This sum includes up to and consultation response on this policy published £20mn for a CCUS demonstration for new alongside the CGS, is the next step of a policy technologies and an extra £10mn for the UK’s consulted on November 2016 but originally given £60mn international CCS programme, which life in Amber Rudd’s 2015 “re-set” speech. Whilst began in 2012. the consultation response confirms that the Further detailed plans on the “deployment government will now implement the policy, the pathway” for CCUS are deferred to 2018, with absence of detailed plans nearly two years after it plans for CCUS to be deployed at scale in the was originally announced is hardly revelatory and 2030’s, and only then if cost reductions allow. This rather disappointing. timetable, and the paucity of spending, is despite The CGS emphasises the role of the Renewable the CCC consistently highlighting the importance Heat Incentive in supporting the transition to low- of CCS to achieving the carbon budgets. carbon heating. It focusses on existing budget This amount is also considerably less than the commitments and reforms that were underway £460mn pledged to work on future nuclear fuels, ahead of the CGS, and which also harks back to new nuclear manufacturing, reprocessing and consultations in 2016. Spending already committed advanced reactor design. to the development of heat networks in areas of heat demand, as part of the last Comprehensive But fracking and unconventional gas extraction are Spending Review, is also name-checked. noticeable in their absence. Previously seen as an important transitional solution, fracking does not In transport, we have effectively the re- even get name checked. This probably has more announcement of the end of sales of petrol and to do with continuing low gas prices than diesel cars by 2040 and a focus on the role the increasingly hostile public opinion. While we are already trailed Automotive and Electric Vehicles no friends of fracking, we do question policy Bill will help with supporting infrastructure for consistency as a robust strategy needs to be electric or hydrogen vehicles. resilient to different pricing outcomes, and we can And yet we still await news of a new accounting see scenarios where local gas prices could controls for low-carbon (which the CGS tells us to rebound in the context of diminished gas storage. expect later in the year). Serial offender Details on a carbon price for the power sector after More concerning is that an obvious opportunity to 2021 will follow, to be set out in the budget. It pursue low-cost, decarbonisation pathways seem looks like the risk of carbon pricing falling away to have been ignored. has at least rescinded, though there is no steer on whether the UK will stay within the EU Emissions Disappointingly onshore renewable technologies Trading Scheme. still remain outside policy thinking. Expectations that the evidence of low whole-system costs of A bit of previous deployment for onshore wind and solar would see The CGS does resurrect some much-needed a renaissance under the CfD have been dashed. policy focusses, with Carbon Capture and Storage Onshore wind was barely mentioned in the CGS, (CCS) being a good example. and outside of the Scottish islands remains excluded from competitive CfD procurement. The last meaningful act by government on CCS was the u-turn and withdrawal of potential support For solar farms, the sector appears to be expected in November 2015 to leading power projects to rely on development without any subsidy with seeking to deploy the technology. The CGS storage co-location as a means of making the resurrects CCS as carbon capture, usage and investment case stack up. storage (CCUS), giving much importance to its role Wave and tidal technologies don’t fare much in decarbonising energy intensive industry and better: the document notes simply that “they could business and in hydrogen production for low have a role in the long-term decarbonisation of the carbon heat and transport. UK, but they will need to demonstrate how they Unfortunately, the financial commitment and detail can compete with other forms of generation”. lag the rhetoric. The level of money on offer in the Speculation that the small-scale Feed-in Tariff CGS for CCUS innovation is £100mn, which is 10% scheme will be closed to new developments in of the previously axed spending in the power-

2019 is looking more likely. But an update is make available innovation funding, there as yet is deferred to later this year. no real indication on why industry would make substantial investments to radically change their Mitigating circumstances process fuel usage. But the CGS does contain some interesting new The commitment from government to investigate ideas for which government should be given different pathways to decarbonise heat (e.g. credit. This is even if the detail on what the electrification, hydrogen, biomass) is also a step in quantifiable impacts will be or when they will be the right direction. But this is an exercise that felt remains unclear. should have commenced earlier given how critical In transport, which accounts for almost a quarter of the sector is to wider carbon reduction targets carbon emissions, there is clearer recognition of (heat accounts for a third of carbon emissions). the scale of the challenge. To achieve the fifth This Parliament will be about preparatory work – carbon budget requires emissions from transport including a report in mid-2018 – for decisions to fall by almost 30% compared to today, at least impacting the 2020s. The options under 30% of new car sales are expected to be Ultra Low assessment are broadly the same as they have Emission Vehicles (ULEVs) by 2030, and possibly been for several years - biogas, heat pumps and as many as 70%. For new vans, up to 40% of sales hydrogen – so it is frustrating it is taking so long to could be ULEVs by 2030. arrive at more detailed assessments of the right These figures bring sharply into focus the scale of mix of options to pursue. And the repeated the challenge. Aside from re-announcements here criticism by the CCC of the passivity of policy in too, the most material policy is the £1bn earmarked this area is not laid to rest. for encouraging the uptake of Ultra Low Emission Verdict Vehicles (ULEVs). But what is lacking is the detailed road map of how to achieve these The CGS itself frustrates and excites. It contains ambitions. many reannouncements of existing policy commitments. Where there are genuinely new The language around energy efficiency is much ideas, the quantifiable impacts of those will only more ambitious than other recent policy become obvious after further consultation and pronouncements. In the household sector, the assessment. Energy Company Obligation (ECO) scheme will be extended to 2028 at the current funding levels. The strategy’s advocates will argue that it is a The government is also aiming to improve the strategy and not a plan (and therefore stronger on energy efficiency of households to EPC Band C for ideas than specific policy details). But the simple fuel poor household by 2030, and “as many fact is, as a coherent set of policy proposals, it homes as possible” by 2035. There is also a call aims lower than required. Use of accounting for evidence on how to reform and streamline the devices to bridge the gap to the fifth carbon Green Deal, and make pay-as-you-save (PAYS) budget if unquantified parts of the strategy prove approaches more accessible. insufficient will only defer problems. Boosting usage efficiency in the business and There also remain cohesion issues with driving industrial sector also comes into sharper focus. down energy costs. It seems very strange for the This accounts for a large share of emissions, about CGS to front-run the Helm review. The CGS makes 25%. The government wants these sectors to a simplistic improve their energy efficiency by a minimum of assumption that 20% by 2030, with an industrial energy efficiency there will be scheme that will be firmed up next year. This may consensus include tighter building regulations (it is relevant between Helm’s the Hackitt review due to report in Spring next findings and the year) and the deployment of more efficient pathways equipment. But the CGS gives no indications on established in the the mechanisms of how to achieve the ambitious CGS itself. If the aspirations over the coming decade. Helm review is truly independent, we The CGS accepts that, to achieve real emissions see real scope for reduction in these sectors, fuel switching will also disagreement. have to take place. But, while the government will

Tom Crisp, Editor, [email protected]

BEIS published the Draft Domestic Gas and be able to be extended on an annual basis, up to Electricity (Tariff Cap) Bill on 12 October, offering three times to expiry in 2023. more insights into the specifics of how the Tariff cap conditions will not apply to customers broader price cap will operate. who are subject to the existing prepayment meter As its rationale for the legislation, BEIS cited the – cap or tariffs to which suppliers “attach an challenged by industry – Competition and Markets environmental claim above and beyond the Authority finding that customers of energy environmental benefit requirements on suppliers”. suppliers were paying £1.4bn/ year more than they Prime Minister Theresa May commented: “I have would be in a truly competitive market. been clear that our broken energy market has to Measures in the draft bill would limit the cost of change – it has to offer fairer prices for millions of standard variable tariffs (SVTs) and other default loyal customers who have been paying hundreds tariffs. When constructing the SVT price cap, the of pounds too much. Today’s publication of draft government has stated that Ofgem must legislation is a vital step towards fixing that, and in specifically consider: offering crucial peace of mind for ordinary working families all over the country.” • “the need to protect existing and future domestic customers who pay standard variable The government has asked the Business, Energy and default rates and Industrial Strategy Select Committee to conduct pre-legislative scrutiny of the draft bill. In • the need to create incentives for holders of an investor call BEIS stated it expects the pre- supply licences to improve their efficiency legislative scrutiny process could take • the need to set the cap at a level that enables approximately 3-4 months. The legislation is effective competition for domestic supply expected to receive Royal Ascent by end of 2018. contracts Bernstein forecast that the likely timeline for the • the need to maintain incentives for domestic imposition of the cap is Q1 2019. Analysts at customers to switch to different domestic Barclays predicted that, if the SVT cap is set at a supply contracts, and fair level to reflect long run costs based on the existing pre-payment meter cap methodology, • the need to ensure that holders of supply then an efficient Big Six supplier should be able to licences who operate efficiently are able to achieve EBIT margins of approximately 2-3% after finance activities authorised by the licence”” expected cost cutting. The price cap will operate on an absolute basis, The bill was immediately criticised by Labour. extend to England, Wales and Scotland, and is Responding, Shadow Secretary of State for intended to be temporary. Business, Energy and Industrial Strategy Rebecca As drafted the proposed legislation would mean a Long-Bailey said the legislation was “wholly cap would run until 2020, at which point Ofgem inadequate”, saying “It has no detail on the cap, would recommend to government whether it what level it will be at, how it is to be calculated or should be extended. whether consumers will receive the £100 savings they were promised. It passes the buck yet again Ofgem will be required to review the market for to Ofgem.” domestic electricity and gas supply contracts, to assess whether conditions for effective As with all primary legislation, this bill mostly competition are in place. This includes the sets the framework rather than the specifics of progress of the roll-out of smart meters. The the policy. The spotlight will now swing back regulator must then produce and publish a report onto Ofgem’s proposals for dealing with and make a recommendation as to whether or not vulnerable customers in the near term (see this it considers that the tariff cap conditions should be issue, p.12). extended to have effect for the following year. BEIS The ultimate decision to extend the price cap will lie with the Secretary of State and the cap would

Cory Varney, Writer, [email protected]

The Hinkley Point C deal would have collapsed if managed to renegotiate and drive costs down, it the government had tried to renegotiate it, would have led to a “huge amount of delay”, according to Stephen Lovegrove, former putting decarbonisation objectives at risk, as new Permanent Secretary at DECC. nuclear would not be coming on in time to compensate for old nuclear plants going off the Lovegrove was among witnesses giving oral system in 2025. evidence at the Public Accounts Committee’s (PAC) inquiry into Hinkley Point C on 9 October, With regards to offshore wind, Chisholm said where the PAC heard that the generating capacity value-for-money tests carried out in 2016 had offered by Hinkley (3.2GW) would be vital in shown the difference in cost between nuclear and ensuring a secure supply of electricity and offshore wind had become “more marginal” reducing emissions. The panel was also told that between 2013 and 2016. However the comparison Hinkley still represents good value for money, was not a case of “apples and apples”. Chisholm despite criticisms over costs to consumers. said it was “vital” to have a reliable source of baseload energy that did not originate from wind. It was Scrutiny focused on the project’s cost, the risks of also felt having some nuclear energy mix would the deal for consumers, the risks remaining for the lead to lower overall costs of the energy system project, and what lessons have been learned. The going up to 2050 and beyond. Chisholm also committee also considered a recent report from expressed confidence that the power Hinkley will the National Audit Office (NAO), which warned it provide will be available “when we need it” from would take decades to know whether Hinkley 2025 onwards. would represent good value for money for UK taxpayers. On the structure of the deal itself, Chisholm said that EDF and CGN would not be receiving any Opening the session, PAC Chair Meg Hillier money until Hinkley begins generating electricity, outlined current estimates suggesting consumers meaning the project developers have a strong will pay top-up payments of around £30bn over the commercial incentive to minimise delays – with 35 years of the whole government contract, direct costs of construction over £18bn. Lovegrove equating to around £10 to £15 on every annual explained the deal had been structured to protect electricity bill. Witnesses were asked why the deal the taxpayer and bill payer from the project’s cost was not renegotiated when it became evident the and schedule overrun, meaning they only pay for initial terms “did not look quite so good” alongside the electricity. Lovegrove said the deal was a “very the continued fall in offshore wind costs good one within the policy constraints at the time”. (£57.50/MWh in the last CfD auction) versus Chisholm added though it was “extremely unlikely” Hinkley’s strike price (£92.50/MWh). the government would come out with an identical According to both Lovegrove and Alex Chisholm, model for any future nuclear plants. current Permanent Secretary at BEIS, the deal In the event that there was a delay, Chisholm would not have likely survived any attempt at expressed confidence BEIS would be able to take renegotiation. Chisholm outlined how, while the necessary actions using the capacity market government’s case for Hinkley was becoming auctions on one year ahead and four years ahead more marginal, the same could be said for EDF timescales. with costs rising and its projected return on investment reduced to a range of 8.2-8.5%. He These official rebuttals of criticism of Hinkley said: “there should be no easy conclusion that the have been heard before. deal was too favourable to EDF.” What seems to be new here is a recognition of Due to these diminished returns, Lovegrove added needing to be prepared for a delay in that, if the government had tried to “squeeze the construction, with the timetable having already terms more”, the chances of the deal surviving slipped. would have been “negligible”. Lovegrove also suggested that, even if the government had Parliament

Tilly Pembroke, Analyst, [email protected]

Energy UK has delivered a series of place to invest in for projects due for final recommendations for government to alleviate investment decision (FID) beyond 2020. key concerns of investors in the energy sector. Secondly, the finance market is no longer willing to Published on 5 October, Investment in the Future provide to companies with revenues focussed Energy System identified how, as the UK energy around generation asset ownership relying solely sector develops into a more digital, flexible and on a merchant model. To prevent this, regulation innovative system, it faces huge investment and policy should provide clear signals for challenges focussed around the ultimate future investors looking to finance emerging energy goal of decarbonisation. technologies that offer economic value. This provides visibility for investors to ensure they can For climate goals to be reached, increasing levels understand potential revenue streams. of low-carbon generation must be deployed at the lowest cost to consumers, whilst still maintaining Thirdly, within the retail industry the supply market security of supply. The most recent official level of competition and political pressure is estimates put the value of investment needed in making it an increasingly difficult area to operate in decarbonisation at £180bn by 2030, across new and raising comparatively low-cost finance. To generating capacity and network infrastructure. rebuild trust the government should deliver an annual energy statement, setting out forthcoming The report was built on interviews and roundtable energy policy, and providing a clear vision for discussions with investors and found that a investors. number of recent policy changes within the sector had been highlighted as a key area of concern and Progress through innovation and local a significant cause of reduced confidence (see engagement, with an overarching strategy should Figure 1). be set out by government to offer visibility to investors and developers within heat solutions.

Figure 1 – Illustration of current investment Finally, lack of strategy in certain energy policy environment for power generation projects areas and limited dialogue between policy makers, has resulted in unnecessary risk and increasing concern among investors in the energy industry and the finance sector. Energy UK will host a series of events, including an annual roundtable with the investor community, industry and government to discuss topical issues around financing and investment of projects within the energy sector. Lawrence Slade, Chief Executive of Energy UK, said: “The message from investors and the energy industry is clear – if the government provides certainty and stability, we can deliver the investment required.” Source: Energy UK The Clean Growth Strategy provides clearer Energy UK outlined these key concerns and timescales for decisions on some issues recommendations for the government to adopt. referenced here. Key decisions on the levy In particular, there is currently poor visibility control and carbon pricing frameworks remain beyond 2020-21 over power policy, with no cost overdue. But the latest policy statement will control framework to replace the expiring Levy have done little to demonstrate that the Control Framework. This has lead to the government recognises the underlying issues development pipeline becoming a less attractive surrounding investor confidence. Energy UK

Cory Varney, Writer, [email protected]

According to research, an East Coast Carbon potential – even if conservative assumptions are Capture and Storage (CCS) network could boost used. the UK economy by a projected £160bn between The report said that a stand-alone analysis had now and 2060. considered the discrete implementation of only the The study, led by the Caledonian Clean Energy early phases of the network between 2020 and Project, was published on 5 October. It said that 2025, with the assumption there were no further the benefits of the scheme would outweigh the CCS developments. In this case, the resulting costs by as much as £129bn. At the same time, benefits still outweighed the costs 2:1. Concluding, around 225,000 jobs could be either created or it said that the first CCS investments could be retained and close to 1.5Gt of CO2 could be delivered on a “no regrets basis” and provide captured and stored. valuable options for the future. Therefore, delaying deployment into the 2030s would only serve to The proposed scheme would see dedicated CO2 “limit future options and increase the challenge of infrastructure link clusters of major industry and meeting carbon reduction targets”. power generation in Scotland, Teesside, the Humber region and the South East, to CO2 The report called for “consistent progress on transport and offshore storage (T&S) sites in the critical enabling actions pre-2020”. This would UK Continental Shelf (UKCS). The report said that include sufficient funding being made available to investment would be committed in the early 2020s support the first phases of investment pre-2020 for and could proceed in “discrete phases” of around the East Coast network, beginning with existing five years. Each phase would build on and use the initiatives such as the Caledonian Clean Energy infrastructure established in previous phases and Project at Grangemouth and the Teesside would be optimised, recognising that “neither Collective Projects. technology nor policy stand still”. It recommended transparent and quantified cost Such an approach, the report said, would negate benefit analyses are undertaken when comparing the need for the UK and Scottish governments to alternative approaches to achieving emissions deliver a whole series of investments upfront and reductions – as comparing overall economic, create options for the future as the UK’s societal and environmental benefits can highlight decarbonisation strategy continues to evolve. the full value of CCS. It also called for a commitment to create a dedicated national CCS Extending the asset lifetime will further add to the Delivery Body. Such a body would have the benefits of such a scheme, the report explained, as explicit task of working with the private sector to carbon prices escalate. The benefits include deliver the necessary CO2 T&S infrastructure. This, avoided emissions costs, increased domestic the report assured, would deliver a substantial economic activity (GVA), environmental benefits economic benefit and enable a globally and an impact on the UK balance of trade (BoT). competitive UK CCS industry and skills base. With regards to the last of these, the report said Stephen Kerr, Project Director of the Caledonian that every 5MtCO2/y of additional CO2 imported Clean Energy Project, said: “We’ve shown that for from another country and stored in the UKCS on a every £1 invested in Carbon Capture, the payback commercial basis had a cumulative positive impact to the UK economy is almost £5.” He added: on UK BoT of £8bn. “Strong leadership and a clear approach are now The report further warned that delaying the required to deliver carbon capture benefits in our deployment of CCS into the 2030s is a “false economy, our industries and our climate” economy”. It said it was inconsistent with meeting UK carbon reduction targets and could leave a gap The findings of this comprehensive report of 700MtCO2 by 2050. appear especially timely with CCS now back more clearly on the policy agenda in the Clean Furthermore, it explained that with no plan for Growth Strategy. We will address touchpoints large-scale decarbonisation, industry closures are and gaps in an early comment. more likely to occur, meaning 75,000 fewer jobs and a £21bn reduction in the cumulative GVA CCSA

Tom Crisp, Editor, [email protected]

BEIS published the Draft Domestic Gas and The Public Accounts Select Committee held a Electricity (Tariff Cap) Bill on 12 October (see this hearing with former and current officials involved issue p.5). The bill has been submitted to the in the Hinkley Point C deal (see this issue p.6). Business, Energy and Industrial Strategy The Business, Energy and Industrial Strategy Committee for pre-legislative scrutiny. Committee announced it will hold a one-off BEIS also published the Nuclear Safeguards Bill on evidence session on 17 October about the different 11 October. The bill creates the legal framework for energy price cap proposals and their implications a nuclear safeguards regime to operate in the UK. for customers, energy prices and competition. The This domestic regime, which will be the committee will hear from representatives of responsibility of the Office of Nuclear Regulation, Ofgem, Centrica and OVO Energy, as well as will replace the current legal framework provided Professor Catherine Waddams. principally by the UK’s membership of the Euratom Four House of Commons select committees treaty. Second Reading of the bill is scheduled for launched a joint inquiry on 9 October to scrutinise 16 October. the government's plans to reduce the harmful Energy Minister Richard Harrington commented: effects of air pollution on public health and the "We are bringing forward the UK's first new nuclear environment. The cross-party inquiry will examine power plants in a generation and it is in our mutual whether the government’s plan goes far enough, benefit to maintain the successful working fast enough to both meet legal limits and to deliver relationship we have now with Europe, and the the maximum environmental and health benefits. rest of the world, on nuclear matters […] This is Lilian Greenwood, Chair of the Transport Select what we will be looking to secure in negotiations Committee, said: "The Department for Transport with our partners.” needs to harness the potential of schemes such as electric vehicles, clean buses and diesel In the debate that followed the publication of the scrappage which all demonstrate that the transport Clean Growth Strategy (see this issue p.2), Climate sector is capable of coming up with solutions to Change and Industry Minister Claire Perry said the tackle poor air quality.” plan would “continue our work in cutting emissions, but we can also cut consumer bills, The House of Commons Library published a drive economic growth, create high-value jobs updated briefing on 5 October on Energy Bills and right across the UK and improve our quality of life”. Proposals for Reform. Shadow Energy Minister Alan Whitehead, while In a Written Answer, Energy Minister Richard welcoming the additional policies in the document, Harrington confirmed the government has no plans challenged Perry over the fact that on present to remove the long-standing arrangements for policies the UK is set to miss its key targets for managing transmission constraints. decarbonisation, set out in the fourth and fifth In a further Written Answer, Harrington confirmed carbon budgets. no discussions had been had between EDF Energy Perry responded that the government has included or CGN and the government on the potential carbon savings from about 30% of the new financial consequences for them of the decision to proposals, while some of them would continue to delay in 2016the approval of Hinkley Point C. be shaped. Challenged on making the Contract for This week the Draft Electricity Supplier Obligations Difference auctions technology neutral, Perry said (Amendment and Excluded Electricity) the department “try to be technologically neutral in (Amendment) Regulations 2017 will be considered the auction structure to ensure that sources of in the Commons in a Delegated Legislation energy are the lowest cost and the most effective Committee. in terms of decarbonisation.” No link

At the SNP’s 2017 conference in Glasgow on 10 October, First Minister Nicola Sturgeon committed to creating a not-for-profit government-run energy company by the end of the Scottish parliamentary term in 2021. Sturgeon said renewable energy would be bought wholesale or generated in Scotland sold to customers as close to cost price as possible with “no shareholders to worry about” and “No corporate bonuses to consider”. The intent behind the scheme is to give people – particularly those on low incomes – more choice and the option of a supplier whose only job is to secure the lowest price for consumers. The speech also highlighted the Scottish government’s strong track record on decarbonisation. In 2007, the SNP pledged that by 2020, 50% of the electricity consumed would come from renewable sources – this was achieved in 2016 with 54% of electricity consumed coming from renewables. Scotland is also home to the largest tidal power array in the world with the world’s largest floating windfarm soon to be inaugurated. Elsewhere at the conference, Minister for Transport and the Islands Humza Yousaf reaffirmed that the Scottish government will be bringing forward a Climate Bill to the Scottish Parliament to raise ambition beyond existing targets. SNP

On 3 October the Scottish government announced that it will not support the development of unconventional oil and gas in Scotland, meaning the planning directions which gave effect to the moratorium in January 2015 will remain in effect. Minister for Business, Innovation and Energy Paul Wheelhouse said the consultation on unconventional oil and gas received 60,000 responses, of which 99% were opposed to fracking. The decision followed an extensive period for gathering data, public engagement and dialogue on the issue, including a four-month public consultation. Those who opposed fracking emphasised the potential for long-lasting negative impacts on communities, health, environment, and climate. In addition, they expressed concern over the ability of regulation to mitigate these negative effects and were unconvinced by the value of any potential economic benefits available or its contribution to Scotland’s energy mix. Paul Wheelhouse said: “Having taken account of the interests of the environment, our economy, public health and the overwhelming majority of public opinion, the decision I am announcing today means fracking cannot and will not take place in Scotland.” He added: “Scotland’s chemicals industry has conveyed strong views on the potential impact of shale on the sector. I want to be clear that regardless of our position on unconventional oil and gas, our support for Scotland’s industrial base and manufacturing is unwavering.” In order to place this announcement into immediate effect, the Scottish government wrote to local authorities across Scotland to make clear that the directions that gave effect to the moratorium will remain in place. A parliamentary vote on the ban is to take place in the near future, followed by a Strategic Environmental Assessment. Scottish government

Citizens Advice has revealed that Distribution Network Operators (DNOs) have performed strongly when it comes to meeting the Guaranteed Standards of Performance in 2015-16. The standards relate to regulations that set out minimum levels of service to customers. Outlining its findings on 9 October, Citizens Advice said that overall performance in meeting standards is “excellent” though there were pockets of poor performance in the gas sector that were in need of improving. The research also found that energy customers missed out on at least £2.2mn in compensation that they were entitled to during 2015- 16. Networks paid out a total of £5.4mn in compensation because of some customers not receiving services in line with the standards, but a further 30% owed was not paid. Citizens Advice said that it was not clear whether customers were missing out on more because the data Ofgem asks network companies to submit is limited.

Moving forwards, the charity listed several recommendations for Ofgem and industry to follow, including automatic compensation. This would be for all guaranteed standards, moving towards a type of regulation that puts the onus on networks to identify failures and compensate customers. It noted this should involve removing any requirement for customers to submit a claim for compensation that still exist in the regulations. Other recommendations addressed Ofgem reviewing its reporting requirements for networks to ensure information about the scale of non-payments of compensation is captured and that networks should interpret the requirements in the same way. Network companies should also reflect on how they can make customers aware of the standards and share best practice with one another. It was also suggested Ofgem extend the use of penalties against networks that do not pay out due compensation to cover all standards. This would ensure networks are incentivised to identify and compensate customers not service in line with the guaranteed standards. Citizens Advice

The Social Market Foundation (SMF) has identified key drivers behind concentration and a lack of competition in UK consumer markets in new research. In the gas and electricity markets, the SMF found that, while they have become less concentrated since the early 2000s, they continue to be dominated by the Big Six. This lack of competition was found to have had a number of negative outcomes for consumers, including poorer customer service, lower levels of trust and higher prices. The research also looked at the key drivers behind concentration in markets, including higher fixed costs and regulatory and licencing requirements which deter new entrants from entering into consumer markets. In the energy market specifically, the report said companies face significant environmental and social obligations upon reaching 250,000 customers – this can deter entrants from providing new products and services to scale up. Furthermore, it suggested the dominance of dual fuel energy tariffs can undermine competition in gas and electricity markets. It explained “bundling” can decrease the likelihood of an individual switching supplier for a given product. The report is the first part in a research project, set to conclude in early 2018. SMF said that the next report will look to consider the ways in which policymakers along with others can reduce concentration, encourage competition and deliver a better deal for consumers. SMF

The Committee on Climate Change (CCC) confirmed on 10 October that Lord Deben, and committee member Paul Johnson have been reappointed to their roles. Lord Deben has led the Committee since 2012. His five-year term, due to end this year, has been extended for a further five years until September 2022.Paul Johnson is an economist. His five-year term, which also concludes this year, has been similarly extended for a further five years until 2022. Claire Perry, Minister for Climate Change and Industry, said: “I welcome the reappointment of Lord Deben as Chairman of the Committee on Climate Change and of Paul Johnson as Committee Member. The UK was the first country to introduce legally binding emission reduction targets under the Climate Change Act and we have led the G7 group of countries in cutting our emissions, while growing our economy by more than two thirds since 1990. The independent advice provided by Lord Deben, Paul Johnson and the entire Committee will help us continue to lead the world in clean growth.” CCC Our latest Chart of the Week considers Northern European gas stocks. Last week’s blogs included Lost in transmission and How likely is water competition for households?

Steven Britton, Senior Regulatory Analyst, [email protected]

Ofgem has launched its statutory consultation on which suppliers can extrapolate how much to plans to extend the existing retail domestic price charge customers for any consumption value. cap for prepayment customer to also cover There is a total of 42 different levels: one each for customers who are on standard variable tariffs standard electricity, Economy 7, and gas, for each (SVTs) or default tariffs with the mandatory of the 14 Distribution Network Operator regions. Warm Home Discount (WHD) suppliers. The level for each period will be published Opening the consultation on 11 October, Ofgem approximately two months ahead of it coming into explained that this would protect about 910,000 effect. The level of the PPM cap for the period additional vulnerable households from high bills, starting in 1 October (and hence the Feb 2018 estimating the combined saving at £100mn a year. effective) is shown in Figure 1. This is an average of £110 per customer: £122 for Figure 1: Breakdown of PPM cap, 1 October 2017 the average dual fuel customer, or £85 for single fuel electricity customers. The regulator laid out its view of how the energy market was not working for all customers, noting that the difference between the average Big Six SVT and the cheapest tariff on the market currently sits around £320. While switching is on the rise (hitting 20% in electricity last year, and 17% in gas), and the number of households on SVTs has fallen (by 2mn since 2015), the regulator recognised that it will take time for disengaged vulnerable consumers to benefit from this. As a result, Ofgem argued that there was a need for prompt action. Source: Ofgem Ofgem also made clear that the cap will apply to all Ofgem considered that the cap was an appropriate meter types, in contrast to the PPM cap, which intervention to take as it was a short-term measure does not apply to SMETS2 PPMs. The WHD cap and could be implemented quickly due to will come to an end when the government’s price suppliers already being set up to deliver the cap is implemented, or by the end of 2019, prepayment (PPM) cap. That said, Ofgem did whichever is first. acknowledge that the cap level would not fully reflect the cost of serving non-PPM customers. Moving forward, Ofgem said in the accompanying press release that it will work on extending price Having decided to introduce a cap, the regulator protection to at least a further 2mn vulnerable decided to use WHD recipients as the target households for winter next year. “once the timing customer group rather than those on the Priority of the government’s price cap is confirmed.” Service Register on the grounds that they are already targeted for being fuel poor. Ofgem noted Responses to the statutory consultation are though that the WHD does not cover all of the requested by 13 November. customers it would like to protect, having estimated that there are 5.6mn households on We have argued before that the WHD is a SVTs which have a member who receives at least rather crude metric, but even allowing for its one form of income- or disability-related benefit. choice as an aid to speed of implementation, this will fail to help any consumers until winter The cap applies to the customers of WHD- is largely over. It is interesting that Ofgem is mandatory suppliers who are on “default tariffs”, putting more effort in its accompanying defined as a SVT, deemed, or rollover fixed tariff, including those in both the Core and Broader WHD statements into encouraging suppliers to groups. In practice the cap will work the same way withdraw SVTs than commenting on the merits as the PPM cap: the level of the cap is to be of the government’s wider cap. updated every six months (April and October), from Ofgem

Rowan Hazell, Regulatory Analyst, [email protected]

Data from the new supplier performance report GnERGY, OVO Energy and Hudson Energy all published on 21 September showed that provided end of year returns for the GER more suppliers were largely compliant with the than two weeks after the submission deadline for government’s social and environmental schemes, the 2014-15 financial year. npower also recorded a with only two incidents given the highest severity class three non-compliance for the GER during score of four. 2014-15, its misreporting of data to Ofgem having prevented its non-compliances and non-fulfilment The data details non-compliances that took place of obligations being identified. The final class three between October 2015 and December 2016, non-compliance was from LCC Power, which failed relating to the delivery of the Feed-in Tariff (FIT), to submit RO Certificates by the 1 September Renewables Obligation (RO), Energy Company deadline for 2015-16. The Irish company, now Obligation (ECO), Warm Home Discount (WHD), known as Go Power, erroneously believed that and Government Electricity Rebate (GER) schemes. Certificates had been submitted, but went on to Suppliers mostly complied with their obligations, make a late payment to meet its obligation. with the majority of the 414 non-compliances made For lower severity non-compliances, the FIT being minor or administrative mistakes. OVO scheme dominated the results, with all of the 245 Energy recorded the most non-compliances – 30 – non-compliances for the scheme given a severity but all bar one of these was given a severity score score of below two. Errors included incorrectly- of two or lower. reported levelisation figures, procedure notes Figure 1: Severity scores of non-compliances by scheme lacking detail, and installations being placed on incorrect tariffs. 15 Ofgem data audit errors that 0 1 2 3 4 Total identified incorrectly registered installations as ECO 0 14 7 0 0 21 original installations rather than installation extensions were included in the report, despite the GER 0 86 28 5 1 120 error not arising directly from the supplier. Alongside six errors with a severity score of three FIT 5 230 10 0 0 245 or four, the GER also saw relatively high levels of lower severity non-compliances, with 114. These RO 0 23 0 1 1 25 errors included: not notifying customers of rebates on bills, rebates being issued late, and failures to WHD 0 1 2 0 0 3 evidence effective customer handling processes. Only two incidents were given the highest severity The regulator believes that publishing the data score of four. npower failed to meet its licence increases the transparency of the delivery and conditions by not confirming that it had attempted administration of the various schemes, which cost to provide the GER to around 24,500 eligible consumers more than £6bn a year. Updates to the customers for the 2014-15 year. The supplier was supplier performance report will now be published ordered to submit an additional return and Impact every six months. Assessment audit report by March 2016, and this was completed on schedule, leading to around This is a useful new report pulling together a 17,000 additional rebates being made and allowing lot of information into one place. the case to be closed. The other class four non- The number of minor non-compliances compliance was by EPG Energy, which failed to highlights the administrative burden and meet the late payment deadline for the RO for complexity that these schemes place on 2014-15. The payment was subsequently made after the deadline. Ofgem considered taking domestic energy suppliers, but overall enforcement action against EPG Energy, but significant non-compliances are few and far decided not to pursue this. between. Six of the 414 incidents were given a severity score Ofgem of three, the second highest rating. Extra Energy,

National Grid issued a notice on 3 October on the value of the Avoided GSP Infrastructure Credit (AGIC) for the 2018-19 transmission network use of system (TNUoS) tariff, together with the details of how the figure, set at £3.22/kW, has been calculated. Under the arrangements approved by Ofgem under CUSC modification CMP264/265, the existing net half hourly demand tariff will be replaced with two new tariffs, a gross half-hourly demand tariff charged to gross demand, and an embedded export tariff paid to embedded generation exports. The embedded export tariff consists of the existing demand locational tariff plus the AGIC. The AGIC represents the value provided by embedded generators in respect of the avoided costs of Grid Supply Point infrastructure, and it will rise by inflation under the RIIO-T1 price control period to March 2021. The embedded export tariff will also see a phased reduction in the current residual tariff element, with a floor of zero to avoid negative tariffs. National Grid has also issued an implementation guide to CMP264/265, which explains how the modification will change the current charging arrangements and how industry parties will be affected. It will also issue a revised forecast for the 2018-19 tariffs by the end of October and an updated five-year forecast based on the new methodology by the end of November. Ofgem’s decision to approve CMP264/265 is currently the subject of a claim for judicial review; it has confirmed the decision stands unless quashed by the courts. National Grid

The regulator issued proposals on 4 October on the implementation of the EU network code on harmonisation of transmission tariffs (TAR NC). It is proposing to make National Grid Gas responsible for certain tasks under the code and to direct a timetable for undertaking them. Ofgem believes that this will minimise the duplication of work and ensure that legally binding deadlines can be met. These tasks are proposed to include performing cost allocation assessments on the TAR NC proposals and tasks relating to consultations, although there are several tasks where the regulator has not yet made a decision. Ofgem expects that the TAR NC requirements will be largely implemented through the UNC, and specifically UNC621 which was raised by National Grid to make changes to the transmission charging arrangements, in part to align them with the TAR NC. The network code requires Member States to implement a transparent reference price methodology by 31 May 2019, and Ofgem currently anticipates that UNC621 will be submitted to it in spring 2018, although it notes that alternative proposals may be raised. However, because the proposal is to comply with European law, under National Grid’s licence Ofgem can if it wishes direct that the proposal proceeds on a timetable that it determines. The regulator has also proposed that, given the interdependency of the TAR NC and UNC621 requirements, the stakeholder consultation processes of each are aligned. This would mean that the UNC621 industry consultation and the TAR NC requirements for stakeholder consultation would be carried out through a single consultation document, proposed to be the UNC621 draft modification report. Responses are requested by 1 November and Ofgem will provide an update on its decision by 10 November. Ofgem

ENTSOG and ENTSO-E detailed their joint scenario report for the Ten-Year Network Development Plan (TYNDP) 2018. For the TYNDP 2018, the ENTSOs have developed four scenarios covering 2020 to 2040 in collaboration with stakeholders. This is the first time the ENTSOs have combined their efforts to develop a common set of scenarios, which aim to place consumers at the centre of achieving decarbonisation through an evolution of consumer behaviour, a fit-for-purpose regulatory framework, and reliance on renewable energy through new and innovative uses. The scenarios are consistent with achieving EU targets aimed at reducing emissions to at least 80% below 1990 levels by 2050. Responses are requested by 10 November. ENTSOG

James Cunningham, Writer, [email protected]

On 12 October National Grid published its Winter Figure 1: Electricity Operational view 2017-18 Outlook Report 2017-18, predicting a significant increase in the electricity capacity margin. The System Operator (SO) has increased its forecast of the electricity supply margin to 6.2GW, or 10.3%, on an underlying basis. On a transmission demand basis, this margin is increased to 11.5%. In both cases the equivalent loss of load expectation (LOLE) is 0.01 hours per year. This winter will be the first delivery year for the Capacity Market (CM). Grid said that the scheme encourages the investment necessary to replace Source: National Grid ageing power stations and provides back up for intermittent and inflexible low-carbon generation. higher than forecast gas demand for electricity generation that was seen last year as a result of In June’s Winter Review and Consultation lower than predicted electricity imports to GB. This document, grid estimated the margin for this winter winter the SO said it expects imports to be higher to be between 3.7GW and 4.9GW. Since then, than last year, and therefore more in line with additional generation capacity without CM previous winters. contracts have suggested they will remain operational this winter. This has resulted in the Exports of gas to Continental Europe are predicted forecast margin being increased to the 6.2GW to be lower than last winter. Analysis of forward level (see Figure 1). prices has suggested that the price differential will be sufficient to encourage gas flows from Belgium National Grid said that, similar to last winter, it to GB. Exports to Ireland are assumed to remain expects transmission system demand to peak at stable due to the Corrib field continuing to reduce 50.7GW in mid-December. It added that based on Ireland’s demand for GB exports. Total gas data provided by generators, normalised and demand for the winter is forecast to be 51bcm, with average cold spell (ACS) demand can be met in all a peak demand forecast for a 1-in-20 winter of weeks throughout the winter under the three 502mcm/day. interconnector scenarios with low, medium and full interconnector imports from Continental Europe. The report noted that in June Centrica announced the permanent cessation of storage operations at The company reiterated that it is confident it has the Rough gas storage site. However the company the right products and strategy in place to help plan to extract all the recoverable cushion gas balance the system, even under colder conditions from the field. Therefore, Grid expects to see a than have been seen in recent years. return to storage withdrawal capacity this winter. On winter gas supply, the report found that GB will National Grid also expects imports from BBL to continue to benefit from a wide range of dynamic continue to be reduced. In December 2016 long- sources of supply and that it therefore expects term contracts expired, leading to reduced imports sufficient gas to meet the winter demand. It was of no more than 20mcm/day. BBL flows could be noted that the current view of forward fuel prices further reduced if the decision is taken to reduce would suggest that gas will be cheaper than coal production at the Groningen field. A decision is and therefore more profitable for electricity due in November. generation during the winter. The size of the margin raises questions as to National Grid predicts that gas demand for winter whether it was necessary to bring forward the 2017-18 will be slightly lower than experienced in Capacity Margin auction to cover the 2017-18 winter last year. The primary driver for this is winter at a cost of c£400mn to consumers. expected to be a reduction in gas use for electricity generation. This was attributed to the National Grid

Neil Mearns, Analyst, [email protected]

The International Renewable Energy Agency revenue streams, which could further improve the (IRENA) has found that the cost of battery energy economics of BES projects. storage (BES) for stationary applications could Other battery storage technologies offer further fall by up to 66% by 2030. large cost reduction potential. Flow batteries, The findings, published in Electricity Storage and which have the advantage of operating at close to Renewables: Costs and Markets to 2030 on 9 ambient temperatures, could see installed costs October, commented on the new economic and fall by two thirds by 2030. High temperature commercial opportunities created by the tumbling sodium sulphur batteries, flywheels (rotational price of batteries, which could result in 17-fold kinetic energy storage) and compressed air energy growth by 2030. storage could see installed costs fall by up to 60%, 35% and 17%, respectively. Currently, pumped hydro storage dominates global storage installed capacity, comprising 96% of the Taking lithium ion phosphate BES as an example, 176GW already installed. Other storage systems – Figure 1 shows the breakdown of potential savings thermal, battery and non-pumped hydro across manufacturing and various battery mechanical – contribute a total of 6.8GW globally. components. Technological advancements and economies of Figure 1: BES cost reduction potential, 2016 and 2030 scale, however, are set to propel the development and uptake of alternative storage technologies, especially lithium-ion (Li-ion) and flow batteries. One area where falling battery costs will have an impact is EVs. Between 2010 and 2016, the cost of EV batteries fell by 73% according to BNEF. This trend will continue to stimulate the adoption rate of EVs, which will in turn contribute further to lower battery costs. Research suggests the growth in Li- ion battery manufacturing for EVs could see cost in stationary applications decrease by another 54- 61% by 2030. In Germany alone, small-scale Li-ion battery system costs fell 60% between Q4 2014 and Q2 2017. Falling battery costs will open significant potential for growth in behind-the-meter applications. For example, those with rooftop solar photovoltaic installations will be able to increase their self- consumption, while reducing peak demand IRENA Director-General Adnan Z. Amin, charges. commented: “As storage technology improves and BES in this application is likely to improve prices decline, both utility-scale and small-scale, dramatically in Europe particularly over the next distributed applications could grow dramatically, few years. This is due to high residential and accelerating renewable energy deployment”. commercial electricity rates, competitive cost The IRENA report gives a comprehensive structures for solar PV and decreasing payments for grid connection. overview of BES outlook to 2030, and provides valuable information about lesser Frequency regulation is another area where known varieties of BES systems and their battery storage is likely to have an impact; 10-15% scalability and suitability for large-scale of total installed BES capacity could be dedicated applications. to primary use frequency regulation by 2030. In addition, there is potential for BES to perform IRENA multiple grid services offering potential for higher

Statistics from Energy UK have shown that over 550,000 customers switched electricity supplier in September, up by close to half (46%) on the same month in 2016. The total number of customers who have switched in 2017 has now reached 4mn, with a third of switchers changing supplier for the first time in the past 12 months. In September, the net gain by small and mid-tier suppliers was 163,274 – this is 30% of all switches. This is an increase on the previous month, where small and mid-tier suppliers had a 25% net gain. Lawrence Slade, chief executive of Energy UK said: “The energy market is rapidly transforming as competition continues to flourish and the numbers of consumers engaging in the energy market continues to grow. Over half a million consumers switching suppliers in the space of a month, shows the scale of the growing momentum.” Energy UK

On 6 October E.ON launched a 100% renewable electricity and gas tariff for electric and hybrid vehicle owners. The Fixed 1 Year Electric Vehicle is a dual rate tariff that offers customers a day rate, and a night rate priced 33% below the day rate for use when many owners will choose to charge their electric vehicle (EV). Chris Lovatt, Managing Director of E.ON’s Residential Business, said: “At E.ON we’re focused on providing sustainable solutions for our customers’ homes and with the increase of electric cars on our roads we’re pleased to be able to offer a tariff which gives our customers the flexibility to access cheaper electricity rates backed by renewable sources to charge their vehicles, while helping them save on costs.” E.ON

Statoil announced on Monday 9 October that it has made an oil discovery at the Verbier sidetrack well in the outer Moray Firth, which suggests a minimum of 25mn recoverable barrels of oil in the immediate vicinity. In its announcement Statoil said the initial results suggest that the discovery could range between 25mn and 130mn barrels of oil. Statoil and its partners will now continue to assess the data to determine the exact size of the discovery. Jenny Morris, Vice President for Exploration in the UK, said: “The results show that we made the right decision to sidetrack the well, and this discovery proves that there could be significant remaining potential in this mature basin.” Statoil

On 4 October, software services provider ENSEK revealed that it has agreed an investment with LDC, a subsidiary of Lloyds Banking Group, allowing it to “embark on the next stage of its growth journey”. The transaction will see LDC invest for a significant minority alongside management. ENSEK explained that following this, it plans to invest further in product and new proposition development. CEO Jon Slade said: “The energy sector is facing a period of unprecedented change, driven largely by the number of smaller suppliers entering the market. We want to build on our work of providing market-leading software services to energy suppliers, large and small, across the UK and continue to help them use data to become more efficient and competitive within the growing market." ENSEK further announced that Ian Peters, formerly MD of Centrica, will join the board as a non-executive chairman. ENSEK

Earlier this month Climate Change and Industry Ultimately Anseco will be relying on cross- Minister Claire Perry unveiled the first subsidisation of the two assets to manage the unsubsidised solar and storage site in the UK. The overall returns of the project. FFR revenue capture 10MW solar park and 6MW battery at Clayhill in will not be directly correlated to times of low solar Northamptonshire has been developed by Anesco. captured prices, but the combined revenues are obviously deemed sufficient to make this project This milestone was accompanied by a further viable. important announcement, this time relating to co- location of batteries with built renewable assets. Anesco may also feel they can add capacity Just before Clayhill’s opening Anesco and Ofgem market revenues in the future too. confirmed that three other solar sites had been The model successful in qualifying for Renewable Obligation Certificates (ROCs) with storage on site. The fact that a commercially-minded company like Anesco has been confident enough to build and The Ofgem decision confirmed that electricity used operate Clayhill is bound to encourage the rest of to charge the storage asset would be considered the market to make their own investigations into RO eligible, thus highlighting the possibility of the viability of this model more widely. navigating co-location of batteries through the RO governance process without risk of loss of subsidy. In terms of co-location of storage with existing sites, there are likely to be many built solar and New dimension even more wind sites that have spare grid capacity These developments represent two significant suitable for co-location. The spare capacity arises milestones in the deployment of solar and storage often because planning conditions and site design in GB, with many other companies interested in issues reduce the size of the project after the grid developing new unsubsidised solar or wind and connection offer has been signed. This issue of the co-located battery projects or utilising existing co-location of storage with RO renewable projects spare connection capacity on their own existing is not new, and was a discussion point between RO solar and wind sites to install batteries. project owners and Ofgem at least as early as two years ago. The Clayhill project is the first case of unsubsidised solar development in the GB where the project The focus of project owners has been on trying to connects to a public network, although there have resolve any perceived issue of “double” subsidy been many private wire arrangements without (ROCs issued twice for the same MWh) and subsidy agreements. The pioneering project will delineating between green power and brown provide a valuable exercise in seeing if the power imported to charge the battery. Owners and additional revenues accruing to the battery offset operators have been exploring sensible metering declining captured solar wholesale prices and arrangements between the renewable and storage deliver a commercially viable proposition when assets onsite, making it clear what is and what is taking into account storage capital costs. not ROC-able generation, without risk to RO eligibility. The unsubsidised solar-storage combination for Clayhill has been supplied by BYD (Solar and However, despite the evident Anesco success in storage) and Huawei (“ground breaking” 1,500V making such arrangements work for their specific inverters), and the technical capabilities and costs projects, and Ofgem blogging on the matter of this partnership could have played a role in recently, the RO guidance for generators is still boosting viability. Likewise, the site is located clear that when amending the application RO close to existing solar assets and shared certification would be withheld during the period of infrastructure costs may have a part to play. consideration, and that if co-location was deemed “a material change” the project would lose its It is also important to emphasise that the storage future RO eligibility. This is a mighty risk for owner facility will not be used for wholesale power operators to take given the materiality of RO arbitrage, but instead for participation in the income to investment returns. increasingly competitive Firm Frequency Response (FFR) tender market, providing high and low For so long as the guidance introduces uncertainty frequency response to National Grid. about the continued RO eligibility of a project

seeking to co-locate storage, it is always going to Catching up be a major obstacle to pursuing this route. Whilst the new, unsubsidised Clayhill project and Taking a risk the existing RO co-located success stories are very positive developments, the fact is that the business This is particularly the case for those debt project case behind adopting both models more generally financed RO renewable projects where the loan across the markets is unlikely to be ubiquitously agreements will contain covenants obliging the attractive or without risk. project to seek lender consent for this type of activity. As the Anesco investment would have Anesco, as first movers in both unsubsidised and been an equity only investment, it may have had new co-located sites and co-located existing more flexibility to take the risks necessary under subsidised sites, have now lit a trail for others to the existing RO generator guidance. follow. Indeed, they have set out aspirations to develop a larger portfolio of such projects. For other projects not in the same position, they have two choices. First, they must either run the What is now required is for policy, rules and gauntlet and trust they fit the precedent set by regulations to catch up with market innovation to Anesco’s projects – and that this precedent will be make best use of the latent, low carbon and applied consistently. Alternatively they will have to flexible potential both models offer. wait and see if the promised revised guidance to Tom Palmer is a Senior Consultant at Cornwall be consulted on and issued later this year is clear Insight. enough to remove seeds of doubt in the minds of investors.

Most near-term gas contracts increased last week. An exception was the day-ahead gas contract which slipped 6.4% to 43.9p/th, with strong withdrawals from storage and cuts to exports to Belgium leaving the system oversupplied across most of the week. The contract is currently 2.6% higher than its level the same time last year (42.8p/th). All seasonal gas contracts experienced gains. The summer 18 gas contract grew 1.9% to 42.8p/th, and the winter 18 contract increased 1.3% to 49.9p/th. On average, seasonal contracts rose 1.2% last week.

Near-term baseload power contracts experienced mixed movements last week. The day-ahead contract fell 7.1% to £45.0/MWh. This was despite higher demand and news of extended outages to French nuclear reactors. All seasonal power contracts strengthened last week. Summer 18 power experienced a gain of 1.2%, whilst the winter 18 power contract rose 1.5% to £48.2/MWh.

Brent crude oil prices experienced an uptick of 0.3% to average $56.3/bl. Concerns of cuts to oil exports from the Iraqi Kirkuk region due to potential unrest between Kurdish and Iraqi forces raised prices at the end of the week. Prices last week were also supported by expectations that OPEC will continue to act to restore the market balance. OPEC are due to meet on 30 November to discuss potential further output reduction plans. API 2 coal prices rose 1.3% to average $80.4/t, amid the news of French nuclear outages at 20 sites throughout the country, boosting demand for coal. EU ETS carbon prices followed their commodity counterparts upwards, gaining 1.9% last week to average €7.1/t.