British Gas Announces Significant Changes to Its GB

Tom Crisp Editor 01603 604421 [email protected]

Monday 20/11 – British Gas announces significant changes to its GB retail business model, including the withdrawal of its Standard Variable ENERGY PERSPECTIVE 02 Tariff for new customers. The Energy Networks Association launches a consultation on its Electricity Network Innovation Strategy. Bloomberg Creating a fairer market – Our New Energy Finance predicts the global energy storage market will fourth annual retail conference double six times between 2016 and 2030. EY says the coming decade POLICY 05 will be “critical” for the UK nuclear supply chain in the UK if it is to increase its capacity to deliver new build. Budget signals moratorium on new renewables spending Tuesday 21/11 – BP agrees to sell a package of its interests in the Energy industry disappointed by Budget Bruce assets in the North Sea to Serica Energy. E3G analysis finds Government made “grave renewables can make up 61% of the EU electricity mix by 2030 – strategic errors” over Hinkley above current targets and at a lower cost. Utility Warehouse confirms Point C: PAC over the half-year to 30 September its revenue rose 2.6% to £299mn, Parliamentary update - Week 47 2017 up from £291mn in 2016.

REGULATION 11 Wednesday 22/11 – Chancellor Philip Hammond delivers the Autumn Budget, confirming the government will not introduce any new low- Ofgem initiates Charging carbon electricity levies – outside of existing commitments – until the Futures Forum One in, one out on SSE licence burden of current costs falls at a sustained level. The Public Accounts compliance Committee criticises the negotiation of the Hinkley Point C deal. EU Prescriptive licence condition on member states endorse the provisional deal that had been reached on back-billing to be introduced reform of the EU Emissions Trading System post-2020. Statkraft and INDUSTRY STRUCTURE 16 Statoil’s 402MW Dudgeon offshore windfarm in Great Yarmouth officially opens. British Gas sees huge customer losses but proposes fairer tariffs Thursday 23/11 – Centrica announces that between 30 June and the National Grid reports steady H1 end of October 2017 it GB business lost 823,000 energy supply 2017 performance accounts. The Shetland New Energy Solution proposal put forward by NUTWOOD 20 National Grid and Aggreko is rejected by Ofgem. The regulator also

Evolution, not revolution, in GB confirms a £260,000 fine for supplier E over failures relating to its energy retail supply please – agents. Peter Atherton Friday 24/11 – The Environmental Audit Committee announces the MARKETS 22 launch of an inquiry to scrutinise the government’s approach to develop “world leading” Green Finance capabilities. Results from Ofgem’s large-scale randomised control trial suggest increased switching among customers who have been on standard variable tariffs for over three years. The EU’s Third Report on the State of the Energy Union argues that the energy transition is not possible without adapting the infrastructure to the needs of the future energy system.

On 22 November we held to the energy system and that, as the scope of the our annual retail energy services market expands, so does the perception conference, this year titled of what engagement truly means. Rather than Fairness and Competition defining fairness specifically, it was perhaps better in the Retail Energy Market. to begin by identifying the principles that underpin fair markets. Now that we are in a world James Cunningham of price caps, the agenda is Miller said that a principles-based, rather than Writer refocussing on showing outcomes-based, approach to fairness will become 01603 959884 energy markets work for all increasingly important in shaping the required J.Cunningham@cornwall- insight.com consumers. But there are regulatory and policy responses to market two other key themes developments. He concluded that the issue of influencing the domestic sector. They are fairness is unlikely to be solved by a single silver technological innovation in companies’ bullet, but will instead require a suite of measures, propositions and services for customers, but also some of which were likely to endure the need to help those customers that cannot and Weights and measures will not engage, especially if they are vulnerable. Rachel Fletcher, Senior Partner at Ofgem, then This Energy Perspective reports on the main argued that there is an issue of social fairness themes and messages from the event. within the energy market. As of April 2017 some Setting out your stall 60% of customers were still on standard tariffs. Cornwall Insight CEO Gareth Miller opened Fletcher suggested that new suppliers will have to proceedings by noting that, as in previous years, increase their market share to survive, and that an the debate about competition in the market will ongoing focus on customer engagement will inevitably touch on the relative balance between support continued innovation. She emphasised the Big Six and Small and Medium Suppliers Ofgem’s recent work on improving engagement (SaMS), various issues of innovation, and political including its trials of a database of disengaged and regulatory interventions. However, he added customers (reflecting a CMA report that the context against which these discussions recommendation), penalties on suppliers for failed are now taking place has shifted dramatically. switches to make them clean data and improve consumer confidence, and putting in more reliable Miller said that the energy market is currently switching arrangements by 2020. Interestingly she going through a period of change more profound also suggested that technological advances could than at any point since price controls lapsed in the increase the likelihood of deeper segmentation early 2000s. He highlighted some of the work within the market. being done by Ofgem to address the issues of vulnerability and fairness, including a consultation Responding to criticisms that the recent comments on the supplier hub model, the implementation of from Ofgem CEO Dermot Nolan on price controls its disengaged customer database, and the were “aggressive”, Fletcher disagreed. Instead a implementation and planned extension of a price responsible regulator should question whether the cap for prepayment and vulnerable customers. structure of the market remains fit for purpose, These initiatives, Miller said, have the potential to adding that market arrangements need to be catalyse enduring change. structured in a way that allows customers to fully benefit from innovation. She gave the example of There have also been some notable changes in peer-to-peer energy trading, which may be being the business models of suppliers. Miller particularly hindered by the requirement to register meters to flagged the recent announcement of the proposed suppliers only for all the energy that flows through merger between the retail businesses of SSE and them at a specific time. npower, which evidenced that the traditional vertical integration model adopted by the largest Self-service players was disintegrating. Sara Vaughan, Strategy and Corporate Affairs Miller suggested that switching is not necessarily Director at E.ON UK, gave a large supplier’s the best metric of showing how customers relate perspective on current changes in the market,

emphasising that competition has already led to For example Steve Smith pointed out that the established players taking “radical action” in order switching process in energy is much simpler than to retain customers. She argued that there is a in other sectors, such as banking, but questioned need for regulation in the energy market to protect whether the required will from the industry was vulnerable customers, but that there is less need there to improve and speed up the switching to protect customers who could engage but simply process. He added that simply providing smart choose not to. On price controls Vaughan said that meters won’t make the market fairer, unless the they were an imperfect solution that could data from them is then made available for negatively impact customers, and that to be something useful to be done with it. effective they must still allow room for competition. Dodimead suggested that the potential future Chris Houghton, Managing Director of Retail at benefits of behind the meter technologies, such as OVO Energy, then gave a counter opinion, saying smart heating systems, will outstrip those offered that price caps will benefit the market by by SMETS 2 meters. But Rossiter said there was increasing competition and driving innovation in still a cost barrier to these types of systems. the market. He suggested that the profit pressures It was recognised that new technologies would resulting from a price cap would force companies create a more fragmented market, potentially to become more innovative with their business offering benefits to some consumers and an model to reduce costs. Houghton added that in the awareness that there may be consequences of this energy market there is a need for better fragmentation for all users including those not competition, rather than just more competition. directly affected, which may increase detriment. Pick and mix Village store Anna Moss, Retail Team Leader at Cornwall The afternoon session kicked off with a Insight, introducing a session on innovation and presentation by Pixie Energy Director Nigel smarter markets, began by highlighting the vast Cornwall, who articulated a vision of a new energy range of options available to domestic customers, supply landscape from a local perspective. with 65 active suppliers offering nearly 200 tariffs. Access to these deals is also much easier through Cornwall argued that policy and regulatory change the increasing presence of price comparison sites, has so far failed to keep up with the requirements and these options are now easier to understand. of the local energy supply industry and that it is Collective switches have also helped drive therefore time for some fresh thinking. Cornwall engagement by persuading some disengaged supported a root and branch review of the supplier customers to change supplier. Moss also spoke hub model, which has reinforced the dominance of about community supply schemes, noting that large suppliers and subsequently stifled council brands were aiming to create higher trust competition. It wasn’t just more, but different types in switching, offer lower prices to local residents of suppliers and service providers that were and often were trying to focus on community needed, and without change competition would benefits and vulnerable customers. remain focussed on commodity-type supply. The first panel session then comprised D’Arcy Cornwall said there was the opportunity to create Rossiter (Head of Insight, Centrica Connected local supplier arrangements, facilitating direct Home), Jo-Jo Hubbard (COO and Co-founder, access between generators and consumers. There Electron), Rob Smith (Head of Policy and Public is an emerging view that distribution system Affairs at Smart Energy GB), Steve Smith (Director, operators could have a role in balancing supply Flipper!) and Shaun Dodimead (Chief Executive and demand at a local level, and they were already Officer, Gilmond). beginning to offer flexibility services. Innovation Link and regulatory sandbox were useful There was concern that existing industry systems initiatives, but if the aim is truly to enable a smart, would inhibit the opportunity for technology to decentralised energy systems that was smart then deliver benefits for consumers. This concern bolder action is required. related to the lack of a central register of assets to enable parties to connect through electronic Buyer beware systems plus worries that the existing Attendees then heard about innovation in the infrastructure would not be robust enough for the established energy market from a new entrant’s new paradigm. perspective. Greg Jackson, CEO of Octopus Energy, said that consumers in the energy market

are often given misleading information on energy need for legislation to allow them to happen was costs when they look to switch suppliers. He noted. A member of the audience asked whether suggested that retail energy markets fail to deliver the panel believed that there could be a consumer for consumers because they provide information backlash from opt-out collective switches. While on the basis that consumers will act in a purely there was no definitive answer, Citizens Advice economically rational way. Policy Advisor Colin Griffiths said that consumers can react more negatively when they are made to Jackson argued that giving consumers too much do something, rather than choosing to. choice, without the appropriate level of information, leads to them lacking the confidence Check out in making the correct choice. He suggested that Summing up Cornwall Insight’s Robert Buckley Octopus Energy through its use of bespoke said the event revealed the increasing pace of technology was bringing innovation to the market innovation but the growing importance of fairness. already, through helping them understand At one level it was evident that competition in the consumption and pricing information and domestic supply market is more intense than ever, reinvigorating face-to-face sales. despite the imminence of wider price caps. Next MoneySuperMarket’s Stephen Murray argued Arguments about the merits of price caps are still that the energy industry can’t simply impose raging, but there is growing activity in many areas change on consumers, but instead needs to work of the market also aimed at making the markets with them. He also called for different stakeholders fairer for consumers, especially the vulnerable. in the sector to share data between themselves to Ofgem is clearly highly active and engaged in this better help vulnerable customers. work, leading a debate that has led to the Gus Wood, a Partner at the law firm Gowling WLG, questioning of the fundamentals of the retail explained how newer suppliers had been able to market design from a new point of view – one of innovate in how they sourced wholesale energy. A fairness rather than efficiency. While some might new market in wholesale providers has emerged in see this as aggressive because it challenged offering services to suppliers that help them tackle traditional assumptions, it was timely and trading barriers, including credit requirements, appropriate. Industry processes and structures trading concentrated in compulsory trading such as the supplier hub are coming under windows and market foreclosure arising from sustained scrutiny for the first time. But that vertical integration. Wood stated that the benefits scrutiny is not just about unpicking what we have of these partnering arrangements included access now, rather to allow efficiency or service to product on predictable and stable prices. improvements that could bring the widest market benefits. This included for key stakeholders such Prix choc as the disengaged and the vulnerable. The final session of the day focused on And noting what Rachel Fletcher had remarked vulnerability, engagement and the changing earlier, technology could enable suppliers and market with a debate led by Catherine Waddams, others to segment the market more than ever, so (Professor of Regulation, Norwich Business there will need to be an enduring role for School). Waddams said that it was important to regulation to protect the interests of all consumers. realise that there is no single model for consumer behaviour, and that as a result there is no single correct approach for tackling disengagement in an effective way. Adam Boorman (Regulation Team Leader at Cornwall Insight) said it is important that all consumers can benefit from innovation, not just those well-off enough to afford them. He also noted that much of the debate on tackling disengagement has focused on financial aspects, rather than addressing other forms of vulnerability. There was much discussion of the merits of opt-out collective switches for disengaged customers. Benefits were felt to centre on better deals, but the

Tom Crisp, Editor, [email protected]

Chancellor Philip Hammond delivered the The document also indicated the closure of the government’s Autumn Budget on 22 November. Feed-in Tariff scheme in April 2019. While the speech was light on energy Clarity was also given in the Budget on the future announcements, the supporting documentation trajectory of carbon pricing. The Budget document contained some major policy shifts. confirmed that the government is confident that In a separate paper, Control for Low Carbon the current Total Carbon Price (the combination of Levies, the government confirmed that in place of the EU Emissions Trading System and the Carbon the Levy Control Framework, there will be a new Price Support) is set at the right level, and will Control that will mean there will be no new low- continue to target a similar total carbon price until carbon electricity levies until the burden of such unabated coal is no longer used. costs is falling. On the basis of the current forecast As previewed before the Budget, significant (see Figure 1), there will be no new low-carbon investment will be directed at furthering the uptake electricity levies until 2025. of electric vehicles. The government will regulate Figure 1: Low Carbon Levies Forecast to support the wider roll-out of charging infrastructure; invest £200mn, to be matched by private investment, into a new £400mn Charging Investment Infrastructure Fund; and commit to electrify 25% of cars in central government department fleets by 2022. The government will also provide £100mn to guarantee continuation of the Plug-In Car Grant to 2020 to help consumers with the cost of purchasing a new battery electric vehicle. The Budget also confirmed that from November 2018, the government will introduce “Transferable Tax History” for transfers of oil and gas fields in the North Sea to encourage new entrants. Draft Source: BEIS legislation to implement this will be laid in Spring 2018. Existing commitments will be honoured, including The government will further launch a technical existing Contracts for Difference (CfDs), contracts consultation on allowing a Petroleum Revenue Tax under the Renewables Obligation and Feed-in deduction for decommissioning costs incurred by a Tariffs, and the up to £557mn in new CfD funding previous licence holder. already announced in the Clean Growth Strategy. Anything beyond this is considered a new levy. Looking into the future, the Budget confirmed the imminent publication of the Industrial Strategy, and New low-carbon spending will only be considered also that Budget 2018 would set the Climate if the aggregate of existing levies is forecast to Change Levy main rates for the years 2020-21 and have a sustained and significant fall in real terms, 2021-22. or where new levies have a net reduction effect on bills and are consistent with the government’s The ambition of the BEIS Clean Growth energy strategy. It was reported in the FT that this Strategy just weeks ago now jars gratingly Control would also not stop negotiations being with the halt by Treasury of new low-carbon conducted for support beyond 2025, for example spending for seven years, beyond that already for new nuclear. announced. The industry now has little choice As a result, central estimates of generation but either to focus on subsidy free projects or capacity by GW released as an annex show a halt making the net value argument. of growth in capacity for effectively all Treasury – Budget Treasury – Cost Control technologies apart from offshore wind. Paper

Tilly Pembroke, Analyst, [email protected]

The policy shifts announced in the Autumn 2017 saying: “Philip Hammond has failed to deliver on Budget were met with negative reactions from low-carbon energy. Keeping the carbon price floor the energy sector. unchanged was the bare minimum expected before the Budget, and does not make up for the On the hiatus on low-carbon spending, Lawrence hat-trick of freezing new low-carbon support, Slade, Chief Executive of Energy UK commented: throwing North Sea oil and gas another lifeline, “Given the great advances the industry has made and shying away from fuel duty changes that in delivering cleaner energy at the lowest cost to would both encourage lower-carbon transport and consumers, the lack of ambition from the tackle the air pollution crisis.” government to build on this progress is disappointing.” He added: “Postponing further Julie Hirigoyen, Chief Executive at the UK Green support for renewables until 2025 denies the Building Council (UKGBC), highlighted positives opportunity for other technologies and projects to from the budgets but indicated the need for follow suit”. energy efficiency measures, saying: “Whilst we welcome measures to encourage housebuilding, Leonie Greene, Head of External Affairs at Solar an emphasis must be placed on delivering high- Trade Association, echoed this for solar saying: “It quality, energy efficient homes that provide real isn’t right that solar is being put at a disadvantage value for people and places.” Hirigoyen added: “It in the UK where it does not benefit from any of the is encouraging to see environmental priorities tax breaks available to fossil fuels.” Greene added: recognised for their economic potential with “The Chancellor still has an opportunity to take a positive steps towards improving air quality, small step in the right direction by including solar incentivising the move towards electric vehicles, under the eligible technologies list for Enhanced and reducing plastic pollution. However, this Capital Allowances in the Finance Bill, when it Budget fails to recognise the significant economic goes to the Commons.” potential of low-carbon buildings and infrastructure James Court, Head of Policy and External Affairs at or the opportunity to use fiscal policy to help the Renewable Energy Association, echoed these deliver the Clean Growth Strategy.” verdicts, commenting: "Whilst the announcements Dorothy Thompson, Drax Group CEO, was a for electric vehicles are positive, the UK dissenting voice, welcoming certainty on the future government seem to be turning their back on carbon price. She said: “Having this clarity from the renewables by announcing no new support for Chancellor on the Carbon Price Floor will help to projects post 2020 and a freeze on carbon taxes. unlock further investment in low-carbon and This could see a hiatus in much needed renewable technologies, […] At Drax, we will now infrastructure development. Considering this is continue to explore new ways of converting our coming only a couple of months after the much- remaining coal generating units to biomass and vaunted Clean Growth Plan, it's hugely gas, and build new rapid response gas plants.” disappointing.” EEF’s Head of Climate, Energy and Environment The Energy and Utilities Alliance (EUA) highlighted Policy Roz Bulleid also expressed support, concerns over the Budget’s lack of focus on the commenting: “The Chancellor has rightly energy sector, indicating the importance of recognised the challenge the UK’s uncompetitive upcoming carbon budgets, rising levels of fuel electricity prices create for businesses here. We poverty and increasing concerns considering the look forward to seeing more detail, but the sustainability of the UK’s energy mix. commitments on carbon pricing and low-carbon EUA said “The government had the opportunity to levies both look promising in this respect.” show clear ambition and drive with regards to investing in measures to tackling issues pertaining The industry’s reaction didn’t come as a to decarbonisation, air quality and fuel poverty; in surprise. Both generation and retail markets this, it has under delivered.” are now under sustained political pressure. Dr Jonathan Marshall, energy analyst at the Energy Drax EUA ECIU UK GBC Energy UK and Climate Intelligence Unit (ECIU), focusses on STA EEF the budgets lack of change towards carbon pricing

Cory Varney, Writer, [email protected]

The Public Accounts Committee (PAC) has negotiations, PAC called for BEIS to “re-evaluate concluded that no part of government protected and publish its strategic case” for supporting the interests of consumers when agreeing the nuclear power, before agreeing any further deals. deal for Hinkley Point C. Alternative ways to finance the deal, in a manner The committee released its report Hinkley Point C: that may have offered better value for consumers, Third Report of Session 2017–19 on 22 November. were also not sufficiently considered by BEIS and It criticised the government for not attempting to the Treasury. The PAC explained that Hinkley was renegotiate the deal when it became clear the expensive as the government wanted the project case for new nuclear power had weakened. It developers to bear all the construction risks. stressed that now the government must deliver on However, alternative financing models, where promises of wider benefits made to UK early project risks would have been shared, could businesses, workers and apprentices, explaining have significantly reduced total costs. In future, that BEIS currently has no plan in place for PAC called for BEIS and Treasury to show decision securing these wider benefits. The committee makers the cost and risk implications of different highlighted how with the case for Hinkley possible financing structures when appraising continuously weakening, since its strike price of large infrastructure project, even if outside the £92.50/MWh in 2013 was agreed, emphasis had prevailing policy. been given instead to its “wider benefits” of jobs Moreover, there has been uncertainty over and skills creation and business opportunities. whether Hinkley will be completed on time, which The committee said the creation of BEIS had could pose a risk to energy security. The presented a clear opportunity to link the nuclear committee said the government was relying on the programme to the government’s Industrial Strategy Capacity Market to mitigate known or likely to drive economic opportunities and growth. But slippages in delivering the project. The PAC BEIS did not know what extent workers and recommended BEIS publish a “Plan B” for companies will benefit from Hinkley, nor from the achieving energy security. This would be as well as wider follow-on new nuclear programme. To rectify delivering on its decarbonisation and affordability this, it urged BEIS to put a plan in place as part of ambitions, before the end of this year and review developing the Industrial Strategy for realising the and revise it every year in light of progress. wider strategic and economic benefits of Hinkley. The committee also expressed concerns over the It added that the department should explain how it department’s ability to identify any possibly delays will prove the benefits have been achieved. as early as possible – due to the government’s Furthermore, the committee said no one in poor track record on effective contract government had protected the interests of energy management. The Low Carbon Contracts consumers when doing the deal. A BEIS Company (LCCC) has been designated to monitor assessment was criticised as it had not sufficiently progress and manage the contract. PAC said BEIS considered the costs and risks of the deal for must ensure, on an ongoing basis, that the LCCC consumers, and only went out to 2030, despite the has the skills, capacity and access rights to enable long-term nature of the Hinkley contract. It also did it to monitor delivery on the project effectively. not consider whether consumer top-up payments PAC Chair Meg Hillier MP said: “The government would be affordable in the context of support for made some grave strategic errors here and must other low-carbon technologies. PAC said that by now explain what it will do to ensure these are not March 2018 BEIS should explain how it will ensure repeated.” there is an independent and transparent assessment of the impacts on consumers, This report shows the tectonic shift in priorities including the impacts on the poorest households, in government, from no consideration of when agreeing future energy infrastructure deals consumer impact in 2013 to it being the paid through consumer bills. primary focus now. With regards to consumers being locked into an PAC “expensive deal”, despite it becoming clear the case for Hinkley and nuclear had weakened during

Tom Crisp, Editor, [email protected]

The Budget was delivered on 22 November by • New Clause 10 – means any licence changes Chancellor Philip Hammond (see p.5). made by Ofgem in relation to half hourly In the debate that followed Labour Leader Jeremy settlement can come into effect before 56 Corbyn said the government was “weak on those days, as currently set out in the 1989 Electricity who exploit people, such as rail companies hiking Act fares above inflation year on year, and water At Prime Minister’s Questions on 22 November, companies and energy suppliers”. Green Party Co- Nic Dakin (Labour, Scunthorpe) asked for leader Caroline Lucas highlighted the “really guarantees that, if the current flexibility within the terrible news” of no money being available for EU Emissions Trading System are not retained as renewables before 2025, while at the same time the UK leaves the EU, the UK government would tax breaks being gifted to oil and gas firms. Lib act immediately to ensure British industry was not Dem Deputy Leader Jo Swinson also attacked the penalised financially. Prime Minister Theresa May government’s green record, highlighting that responded that she would “look carefully to ensure “Today, we saw no new resource for tidal, energy that the arrangements in place are in the national from waste or carbon capture and storage”. interest”. The Public Accounts Committee published its In a Westminster Hall debate on 22 November report on Hinkley Point C on 22 November (see Lee Rowley (Conservative, North East Derbyshire) p.7). expressed “complete and absolute opposition to The Business, Energy and Industrial Strategy exploratory drilling, which may lead to fracking, in Committee held an evidence session on 22 the North East Derbyshire constituency”. Energy November on the Clean Growth Strategy (to be Minister Richard Harrington responded that covered in full next week). constituents have to consider what the benefits and disadvantages of fracking might be, including The committee also held a session the same day a community benefit fund. on the outcomes of the Bonn COP23 climate talks. The session focused on progress made towards The 10th Delegated Legislation Committee implementing the Paris Agreement, links between considered the Renewables Obligation UK and international climate change action, and (Amendment) (Energy Intensive Industries) Order what EU withdrawal means for the UK’s 2017 on 23 November. The Order was agreed and involvement. On whether COP23 made progress moved to the Lords, with the exemption set to towards implementing the Paris Agreement, Bob come into force on 1 April 2018. Ward, Policy and Communications Director at the The Environmental Audit Committee launched a Grantham Research Institute on Climate Change Green Finance inquiry on 24 November. and Environment felt it had done so in two major areas. The first is the Paris rule book, which should One Early Day Motion of note was tabled last be finalised by next December, said Ward, and the week: second is the global stocktake. Ward explained the • EDM 562 was tabled by Green Party Co-leader stocktake will lead countries to submitting pledges Caroline Lucas on 20 November. It welcomed for 2020, where they should increase the ambition. the agreement at the Bonn climate summit that The government tabled new clauses to the Smart there would be no renegotiation of the Paris Meters Bill on 21 November. agreement and calling on the UK government to withdraw its support for fracking • New Clause 8 – gives powers to Ofgem to This week, on 28 November, the Business, Energy make changes to electricity licence and Industrial Strategy Committee will hold a documentation to enable half hour settlement further oral evidence session on the Clean Growth data to be calculated using smart meters data Strategy, hearing from Climate Change and • New Clause 9 – explains the steps Ofgem Industry Minister Claire Perry and BEIS officials. must go through to do this including who they Links underlined above must notify and how, and

The Office for Nuclear Regulation (ONR) and the Environment Agency announced on 16 November that they are progressing their assessment of the HPR1000 reactor design for the UK. The second phase of assessment follows preliminary work by the General Nuclear System (GNS) and regulators. The GNS is a joint venture company owned by China General Nuclear Power Corporation (CGN) and EDF. Phase Two officially commenced on 16 November, and consists of a Generic Design Assessment (GDA) process which allows the regulators to begin assessing the safety, security and environmental aspects of new reactor designs before site-specific proposals are submitted. Phase two of the projects is estimated to last 12 months. However, due to the project’s complexity and the level of scrutiny required in the GDA process to ensure the reactor’s safety, the assessment is expected to take around four years to complete. In addition to the assessment process the General Nuclear System (GNS) will be launching a comments process, to gather and respond to comments and questions about the reactor design. Once the GDA process is completed, the regulators will issue reports on their findings alongside supporting technical assessment reports. ONR Deputy Chief Inspector Mike Finnerty said: “The purpose of GDA is to determine whether the design meets the robust safety and security standards to make it suitable for use in the UK. I am satisfied that there are adequate project management and technical provisions in place to enter Step two of the process and, as regulators, we can begin our technical assessment phase.” Environment Agency

Britain’s biggest energy users have called on the government to address gas security after the closure of Rough – the country’s biggest gas storage facility. Trade associations, unions and energy storage companies wrote to Business and Energy Secretary Greg Clark calling for an inquiry into the supply and cost risks that could result from Britain’s reliance on imported gas and lack of storage capacity. The letter was signed by the leaders of the Major Energy Users Council and the Energy and Utilities Alliance, and argued that there is a “clear problem” posed by Brexit as it may make it harder to rely on imports from countries in the European economic area. The letter highlights that a recent impact assessment by BEIS was flawed by solely focussing on import supply capacity and ignored the potential dangers associated with delivery and price security resulting from the UK’s growing dependency on imported gas. The letter said that this, combined with international price volatility and a lack of adequate gas storage capacity in the UK, will increase the likelihood of short-term demand-supply imbalances and will be to the detriment of all consumers. A government spokesperson responded: “The UK has highly diverse and flexible sources of gas supply both domestic and imported, protecting consumers from increased prices and mitigating future price volatility.” No link

A study conducted by National Energy Action (NEA) has warned that over 0.5mn eligible households will miss out on £260 in energy savings this winter by not being covered by Ofgem’s proposed safeguard price cap. Research released on 15 November ahead of the Autumn Budget highlights that the 0.5mn vulnerable customers on low-income who miss out on current support such as the Warm Home Discount currently stand not to benefit from the safeguard price cap. In addition, the report also revealed over 1mn fuel-poor families in England will not have the cash to meet basic living expenses this winter, facing an income loss of up to £9,331/ year set to cover basic essentials including energy. The findings were released as the report Bridging the Gap as part of NEA’s winter-long warm homes campaign. The campaign calls for five key actions to help boost incomes and reduce costs for lower income households, these include: calling on the Department for Work and Pensions to pause the acceleration in rolling-out universal credit, and for the Treasury to reverse the freeze on working-age benefits and tax credits,

BEIS to reduce the threshold for suppliers to deliver the Warm Home Discount for vulnerable customers, and finally HM Treasury to use the Budget to establish a national boiler scheme. Peter Smith, NEA Director of Policy and Research, commented “these households are mostly working-age, fall into the lowest income deciles and in some cases are already facing thousand pound gaps between their incomes and the essential cost of living”. NEA

The Competition and Markets Authority (CMA) has taken the provisional decision to remove Rough gas storage undertaking from its owners Centrica and Centrica Storage Limited (CSL). In June 2017 CSL announced that it intended to close the site due to its age, physical deterioration and the associated safety risks, as well as the high cost of refurbishing the facility to make it operable. Centrica and CSL therefore requested that the CMA remove historic undertakings – designed to ensure competition in the sector – as part of the closure process. These included the legal, financial and physical separation of CSL from Centrica, restrictions on Centrica’s access to capacity and ensuring non-discriminatory access to capacity for Rough’s customers. The companies will also require agreement from the Oil and Gas Authority to cease storage operations. The CMA concluded that the deterioration of the facility represented a change of circumstance given the deterioration of the facility it would not be “reasonable or proportionate” to leave the undertakings unchanged. This is due to the fact that in the CMA’s estimation it would not be economic to refurbish the facility, and such an investment would be likely to have been made by “any other reasonable storage operator.” CMA Chair Martin Cave commented on 15 November: “CMA panel members made this provisional decision based on the age and degradation of the gas wells and other facilities at Rough, which mean that the assets are no longer capable of safe operation for gas storage without substantial refurbishment.” CMA

On 22 November, EU member states endorsed the provisional deal that had been reached on reform of the EU Emissions Trading System (ETS) for the period after 2020. Key reforms include: • the cap on the total volume of emissions will be reduced annually by 2.2% • the number of allowances to be placed in the market stability reserve (MSR) will be temporarily doubled until the end of 2023, and • a new mechanism to limit the validity of allowances in the MSR above a certain level will become operational in 2023. The agreed text will now be submitted to the European Parliament for approval. The reforms task the EU with delivering on its target of cutting greenhouse gas emissions by at least 40% by 2030, as well as encouraging innovation and promoting the use of low-carbon technologies. Despite reports the UK was threatening to vote against the legislation, due to a “Brexit no deal” clause being added, Britain voted in favour. EU Council Our latest Chart of the Week explores routes to market for the electricity produced by CHP power stations. Last week’s blogs included our Budget Alert and news of Cornwall Insight’s minority investment from BGF and the appointment of our new chair Volker Beckers.

Josephine Lord, Regulatory Consultant, [email protected]

The group is intended to bring together Ofgem- implementation issues and risks; developing an led and industry-led electricity network charging overall approach to implementation; coordinating reviews. It had its first meeting on 9 November. implementation issues where necessary and appropriate; and facilitating progress by task Around 70 organisations representing a wide forces in implementing individual projects. It will range of network users attended the Charging liaise closely with the CFF. Futures Forum (CFF) by invitation. Ofgem wants the forum to provide an opportunity for Ofgem explained that the task forces will make engagement in policy development with wide recommendations to the CFF followed by an industry representation. Meetings are expected to Ofgem decision on the appropriate next steps. be held quarterly. This might include a Significant Code Review or a direction to raise a modification proposal, the The Ofgem-led projects include the Significant issuing of an open letter or no change. Where Code Review for the Targeted Charging Review there are proposed new areas of work, following (TCR) looking at residual network charging, and discussions at the CFF, Ofgem may direct a new work under the TCR examining forward-looking task force to be set up, or a new topic to be charges. Industry-led projects including the discussed at an existing task force. charging workstream under the Energy Network Association’s Open Networks’ project and the Two task forces are initially being created to look distribution charging methodology forum’s reviews at areas under the TCR, one on forward-looking of the two distribution charging methodologies. network charges and one on network access arrangements. These will inform Ofgem’s initial Ofgem’s Frances Warburton will chair the CFF and proposals for reform, which are expected to be also the supporting Charging Delivery Body to consulted on in the summer. The appropriate coordinate the development and implementation vehicle for reform will also be determined, of changes, with a secretariat and task forces including potentially another SCR. supporting the work (see Figure 1). The CFF should enable stakeholders to provide policy input and To give stakeholders a clear direction on how to technical expertise for policy development, keep take issues forward, the regulator will issue stakeholders informed about the progress of work “coordination guidance” on where and how to areas and identify appropriate task forces and help initiate action. This will take into account set their terms of reference. parameters such as: strategic fit; whether the issue forms part of ongoing wider work; the degree of The Charging Delivery Body will translate the consumer impact; feasibility and other practical results of the CFF into manageable actions and considerations; coordination and sequencing with ensure these are delivered in a timely manner. This other changes and significance or urgency. The will include: considering cross-code forum was introduced to Ofgem’s latest thinking on Figure 1: The Charging Futures “ecosystem” key areas to be addressed, including forward- looking and residual network charges (see ES594). Industry players will need to become familiar with this additional and important governance structure quickly. While the CFF will provide an opportunity for periodic industry input, and the task forces will look at issues in more detail, Ofgem is clearly in the driving seat in pushing forward developments. National Grid Track the latest industry developments with our Meeting Report Service. Contact Vicky Simonds Source: Ofgem at [email protected].

Rowan Hazell, Regulatory Analyst, [email protected]

An investigation into SSE over concerns that short-lived nature of the issues and the relative customers were not treated fairly when being limited degree of financial harm. switched to prepayment meters (PPMs) was In May 2017, SSE agreed to the implementation of closed by Ofgem on 20 November. Rather than improvement actions, which included the retraining applying a penalty, the regulator engaged with of staff to ensure that the ability of customers to SSE to resolve the issues. pay could be assessed, and that customers would On the same day, a separate investigation was be offered access to the government run Fuel opened into the cheapest tariff messages SSE Direct scheme, which allows a set amount to be provided to its prepayment customers. deducted from benefit payments to cover energy costs. Other actions included new monitoring Ofgem opened an investigation in July 2016 arrangements for calls with customers struggling to concerning SSE’s treatment of over 1,800 pay; and an average refund of £9 for customers customers who had received PPMs between who paid more from having their PPM meter August 2014 and January 2015. The investigation installed, along with a £20 compensation payment. focused on compliance with the now-defunct Where appropriate, SSE also offered customers Standard Licence Condition (SLC) 25C on who had switched to a PPM the option to have a standards of conduct, which required suppliers to credit meter reinstalled at zero cost. make efforts to treat domestic customers fairly, including those being switched to a PPM. Following a review in October, Ofgem was satisfied that appropriate remedial action had been Additionally, the investigation looked into potential taken to address the non-compliant activity, and breaches of SLC 27.1, which requires suppliers to the investigation was closed. offer a wide choice of payment methods; SLC 28.1 on providing appropriate information to the The regulator said that the case highlighted customers; SLCs 27.5 and 27.6 on services to be several lessons for suppliers when communicating offered if the customer has difficulty in paying; and with customers struggling to pay. It also SLC27.8 on taking all reasonable steps to recommended that suppliers ensure they are ascertain the customer’s ability to pay. compliant with changes to the supply licence, including updates to the standards of conduct, The investigation found that several breaches had which included the new principles on informed occurred. Ofgem said that SSE advisors did not choices and vulnerability. routinely offer customers the option to pay for their energy through deductions from social security Alongside the notice of the case closure, the benefit, and did not consistently assess the ability regulator announced it had opened a separate of customers to pay when agreeing debt investigation into potential breaches of SLCs 25C repayment plans. SSE also failed to provide and 31A over concerns that SSE had failed to customers with clear and comprehensive written provide accurate information in annual statements details on some of the disadvantages of PPMs. on the cheapest tariffs that prepayment customers Additionally, it was found that SSE wrote to could switch to. It was stressed that the opening of customers ahead of their PPM installation the investigation did not imply that any findings promising access to the cheapest tariffs, but 337 had been made about non-compliance, and an customers ended up paying more after having SSE spokesman reportedly said that the their meter installed, with total overpayments of investigation related to a historic system issue that around £3,000 across all affected customers. had been identified, resolved, and voluntarily reported to Ofgem. The findings of the investigations were considered, and Ofgem decided to take alternative action This PPM case shows how complex licence under the enforcement guidelines. Rather than compliance can be, but it also shows the applying a financial penalty, it worked with SSE to regulator working collaboratively with the implement improvements to address the issues. supplier during the enforcement process. This course was considered appropriate due to the Ofgem - closed case Ofgem - opened case

Emma Bill, Regulatory Analyst, [email protected]

Ofgem has opened a statutory consultation and financial hardship of catch up bills. This will inviting views on its proposals to introduce a 12- restrict suppliers’ ability to recover charges month back-billing limit to protect domestic and whether through catch-up bills, increasing direct microbusiness customers. Following monitoring debits, or by adding debt to a prepayment meter. the regulator does not consider the current The 12-month limit will apply in all cases except voluntary principles provide consumers with where the consumer is at fault, such as where the sufficient back-billing protection across all consumer behaves unlawfully or prevents access suppliers. to the meter. The regulator opened a statutory consultation on This principle does not require that consumers be Protecting Consumers Who Receive Back-bills on actively involved in the billing process. For 16 November. Its key objective is to protect the instance, failure to provide a meter reading does interests of energy consumers. Following not exempt the supplier from the back-billing limit. monitoring, Ofgem noted that even where Further to this, the proposed limit will apply to both suppliers are signatories to voluntary traditional and smart meters and will apply to all commitments, such commitments do not meter types and modes, including prepayment. sufficiently protect domestic consumers from being Based on Ofgem’s expectation that suppliers will presented with a large catch-up bill. For instance, use smart meter data to bill customers accurately the Big Six, who are signed up to the voluntary based on actual consumption, it does not consider Billing Code, accounted for over 60% of back- it appropriate to issue a separate limit to smart billing cases reported to the Citizens Advice meter back-billing at this time; although this will be Consumer Service in 2016. Further, the kept under review, along with reducing the back- Ombudsman has emphasised that different billing time limit as the smart meter roll-out suppliers have different attitudes to applying the progresses. If approved, Ofgem plans to introduce back-billing principle with some suppliers this requirement through a prescriptive licence demonstrating poor performance. condition to clearly demonstrate to the industry Figure 1: Domestic back-billing cases 2012-2017 what the minimum standards are. Suppliers would be permitted to voluntarily reduce their own back- billing limits should they wish. Suppliers will have 56 days from the date the licence is modified to ensure their systems are ready to apply the limit. Ofgem has clarified that the new licence condition will not apply in any circumstances where a bill or any demand for payment is issued or made prior to the implementation date. Still, the regulator expects suppliers to continue to follow the spirit of the back-billing principle until this policy becomes

effective. Ofgem emphasised the need to act Over 10,000 domestic back-billing cases were quickly, as. the smart meter roll-out is leading to reported in 2016 (see Figure 1). In contrast, there historic billing inaccuracies being uncovered. have been relatively fewer cases reported to Citizens Advice and the Ombudsman by Reponses are requested until 18 December. microbusiness consumers, with 375 and 399, These measures will have a significant impact respectively, in 2016. In 2016-17, the median back on smaller suppliers, who hold a bill issued to domestic consumers was £1,160, with disproportionate number of accounts affected. extreme cases in excess of £10,000. The median length was 24 months for domestic consumers. With margins already wafer thin, suppliers will notice the impact on the bottom line. As a result, Ofgem has proposed a 12-month back- billing limit to protect consumers from the shock Ofgem

In his speech at the Smart Futures event in Edinburgh on 14 November, Ofgem CEO Dermot Nolan said that regulation would need to be re-written to keep pace with the rapid changes in how GB generates and uses energy. Nolan highlighted how the supplier hub principle had reinforced the market dominance of large players and potentially stifled retail competition. He noted recent changes, including some of the large suppliers reconfiguring their businesses, for example by selling generation assets, or even by seeking to merge. As it is the regulator’s ambition to spread the costs of running the networks more fairly, Nolan referred to the protections intended for vulnerable customers over the next five years as an area of high importance. This would particularly be the case as an increasing number of households and businesses generate a proportion of their own electricity on site, such as through roof-mounted solar panels, which will have implications for the socialisation of costs for those who remain connected to the grid. In discussing its strategy for regulating the future energy system, published on 4 August, Nolan referenced Ofgem’s joint publication with government, the smart systems and flexibility plan, planned changes to the licensing of storage and the reduction of embedded benefits to reduce market distortions. Whilst he noted that the uptake of new technologies, such as electric vehicles (EV) and heat pumps, will demand significant extra capacity, Nolan confirmed that the regulator considers it fair to charge peak time usage of, for example, a high capacity EV charger or household battery. In this case, the absence of reform could put those who don’t use EVs or batteries at risk of subsidising extra capacity to serve EV users. Nolan added that outdated rules must be reformed to create a level playing field to facilitate the most efficient ways of generating, supplying and using energy. Ofgem

On 14 November Co-operative Energy (CE) issued a claim for certain additional costs it incurred in acting as Supplier of Last Resort (SoLR) to customers of the former GB Energy Supply (GBES). CE’s claim covers the recovery of 70% of ex-GBES customers’ net credit balances (£10,979,815), emergency wholesale procurement (£1,269,801), the cost of capital to fund credit balances (£1,790,167) and IT migration costs that relate to it acting as a SoLR (£859,300). The regulator appointed CE as the SoLR for GBES customers on 29 November 2016 following the company’s financial failure. This was the first SoLR event in eight years, and the first since Ofgem updated its guidance on SoLR arrangements to include protection of customers’ credit balances. At the time of GBES's failure, initial information indicated the amount of customer credit balances to be protected was around £25mn. After unbilled consumption was taken into account, this amount reduced to around £15mn. In its letter, published on 16 November 2017, Ofgem has clarified its minded-to view to allow CE to recover a portion of the costs of protecting the credit balances owed by GBES to the customers CE acquired, in line with commitments given at the time of appointment, as well as certain other SoLR related costs. The regulator noted, however, that it did not intend to consent to recovery of the IT migration costs. Ofgem welcomes interested parties to comment by 14 December. The regulator will issue its final decision in January, with the costs to be recovered through network charges in 2018-19. Ofgem

The regulator issued its decision on 16 November to reject a rule change to the CUSC that would have provided generators with a £120mn rebate of their transmission network use of system (TNUoS) charge relating to charging year 2015-16.

SSE, who raised the proposal, had argued that European Regulation 838/2010, which limits the annual average charge that can be paid by generators to no more than €2.50/MWh, had been breached. It therefore believed that the excess payment should be returned to generators. As the total charge is split between generators and suppliers, this would mean a repayment by suppliers. Three alternatives were developed, in addition to the original proposal, on the timing and method of the rebate. Ofgem rejected the modification on the grounds that most if not all local network charges, which mainly relate to transmission links connecting offshore wind farms to the grid, should be excluded from this cap. If these charges are excluded, then the cap would not be breached. However, Ofgem also said that it did not consider the expected outcome of charging arrangements designed to comply with the narrow interpretation of the Regulation (including offshore connections) is consistent with the intent of the Regulation: to harmonise arrangements and ensure network charges for the transmission system do not undermine the internal market. Ofgem

Elexon and National Grid issued consultations in parallel on 15 November on the different elements of a proposal that seeks to ensure that the same arrangements apply to balancing services that are provided outside the Balancing Mechanism (BM) to those that already apply to those provided within it. Currently, when a service is provided through the BM, the energy account of the provider is adjusted so that any energy produced as a consequence of provision is removed from its imbalance position. However, the same does not happen for services provided outside the BM, where the additional energy results in an extra payment to the supplier associated with the balancing service provider. P354 Use of ABSVD for Non-BM Balancing Services at the Metered (MPAN) Level, raised by ENGIE, seeks to have suppliers’ imbalance positions adjusted to remove the impacts of non-BM balancing service provision. The proposer argues that the current position is leading to inefficient procurement and dispatch, as (depending on the contract that the supplier has with the balancing service provider) the provider has the additional benefit of the spill energy income, and therefore is in an advantageous position in offering services. The workgroup for P354 has initially recommended implementation. To achieve this change, modifications are required not only to the BSC, but also to National Grid’s methodology statement on Applicable Balancing Services Volume Data (ABSVD). Responses to both consultations are requested by 15 December. Elexon – P354 National Grid - ABSVD

The Agency issued its second report on the implementation of the gas balancing network code on 16 November, which considers progress in 26 balancing zones using the same evaluation framework used in its initial report last year. The network code has been applicable since 1 October 2015 and ACER found that implementation is still patchy, with some regimes in a well-developed stage, while others have made some or no progress at all. It urged transmission system operators and National Regulatory Authorities to work together with market participants to promote greater access to short-term commercial opportunities, active trading platforms and revision of the limited access to transit infrastructures. ACER said that for its second report it has developed a new Balancing Analytical Framework to allow effective balancing regime comparison, and has quantified the performance of the balancing regimes of Great Britain, Belgium/Luxembourg, Germany, Denmark, France, Slovenia and Spain. It has also acquired a better understanding of a broader set of balancing regimes, including the ones most lagging behind – Romania, Bulgaria and Greece. The framework uses both commercial and physical data for assessing wider regime performance, and while ACER said that acquiring the necessary data limited the application of the framework, it looks forward to receiving data for all the indicators used to enable future monitoring. ACER anticipates that the framework will provide lessons and insights that may inform whether and how balancing regimes should evolve. ACER

Jacob Briggs, Analyst, [email protected] British Gas has announced energy customer or openly available tariffs, with npower and EDF losses of over 800,000 since June, alongside Energy currently offering targeted, exclusive tariffs losses in its home services division. It prefaced to customers coming to the end of specific deals. this news with a range of updates aimed at British Gas has more than 65% of its customers improving customer engagement, including the currently on SVTs. It will make contact with them removal of its standard variable tariff (SVT) for twice a year to encourage moving to a new tariff new customers. and to offer them “better” deals. The supplier In a trading update on 23 November, British Gas claims to have contacted all its SVT customers this announced that it lost 823,000 energy supply year, with 10% switching to new tariffs to date. accounts between 30 June and 30 October 2017. British Gas also called for moving funding of all It announced a price increase on 1 August. government policy costs out from energy bills, This brings energy account losses year-to-date to arguing that paying for these policies through 1.2mn, approximately 8% of its customer base. energy bills “penalises the less well off, hitting These are the heaviest losses seen by any of the them especially hard because energy often makes large suppliers. The supplier attributed over up a larger portion of their household spending.” It 650,000 departures to collective switch schemes, also called for action against suppliers who were white-label fixed price, and prepayment tariffs. The lagging in terms of smart meter roll-out. supplier reported that efficiency improvements, Mark Hodges, CEO, Centrica Consumer, including headcount reductions, are set to exceed commented: “These proposals must be given a expectations by around £50mn, offsetting some of real chance to work over the next few months and the losses. But Centrica also reported lower than judged independently. We believe they will have a expected performance in North America. far more positive impact than a price cap.” The supplier attributed around 150,000 switches to British Gas also took the opportunity in calling for a its September price increase, and the general uplift “fairer, simpler deal” to preview a range of up- in switches seen over this summer. coming products. Focussing on bundled On the basis of the trading update, the company propositions, British Gas introduced tariffs that will signalled a 15% downgrade in its profit forecasts, couple energy with Hive connected home with a proportionate reduction in its dividend products and boiler servicing. This followed forecast, which includes a one-off write for the difficult results for both divisions, with British Gas North American retail business. losing 39,000 home service customers and looking set to fall short of its full-year Hive British Gas preceded the trading update with a installation targets. highly publicised move on 20 November, announcing a range of initiatives to provide greater Alongside new tariffs, British Gas is expanding its fairness and engagement for customers alongside Rewards scheme launched in April 2017. Over reductions in their bills. The initiatives are set to be 500,000 customers have signed up to the implemented by the end of this financial year. scheme, which includes free energy through Loyalty Days, exclusive boiler offers, and Sky Chief amongst its proposals is the pledge to Movies vouchers. unilaterally withdraw its SVT for new customers. British Gas will also cease using the SVT as its A bleak trading update has effectively acted default tariff, instead introducing 12-month fixed as a profit warning, with an accompanying tariffs that, in-line with Ofgem requirements, will slide in shares of ~15% on Thursday, the carry no exit-fee. biggest one day fall in Centrica’s share value. As well as replacing its default tariff, British Gas is The pivot to home services will be even more looking to reduce the number of customers that closely scrutinised given the ongoing roll onto it. To achieve this, it will offer customers approaching the end of their existing deal the deterioration in legacy businesses. choice of at least two “competitive” new fixed-term British Gas Centrica – Trading Update tariffs. It is unclear whether these will be exclusive

Cory Varney, Writer, [email protected]

National Grid has published its half year results Gas Transmission to deliver Return on Required for the period ended 30 September 2017, with Equity in line with last year. the system operator stating it has made “good As seen in Figure 2, operating profit, excluding progress” against key priorities. timing issues, from National Grid’s joint ventures Published on 9 November, the results were found and other activities stood at £158mn – up 4% year- to be a little below consensus with regards to both on-year. National Grid Ventures includes Grain operating profit and earnings per share. Statutory LNG, existing interconnectors and those under operating profit was £1.3bn, as seen in Figure 1, development, Cadent, Metering and Property. The while statutory earnings per share stood at 19.5p. market expected a strong rise in this segment; In contrast, interim dividend per share was in line however almost all businesses were found to be with policy at 15.49p, up 2.1%. flat year-on-year.

Figure 1: National Grid Financial Summary, six months Figure 2: National Grid Overview of First Half ended 30 September

Source: National Grid

National Grid said that its regulated operations had Source: National Grid continued performing well in the fifth year of the Excluding timing issues, National Grid’s UK RIIO T1 price control, with reliability remaining Electricity Transmission business saw its operating strong and businesses continuing to drive profit fall 11% year-on-year to £540mn. The fall was efficiency and build on the significant total caused by lower base line revenues, higher expenditure savings achieved for customers. It controllable costs, pension costs and the cost of also noted it is working “proactively” with Ofgem separating the System Operator business. Capital to achieve shared objectives for RIIO T2. investment fell from £586mn to £515mn. This was Commenting on the results, National Grid Chief a reflection of lower investment due to the Executive John Pettigrew said: “Our outlook for the completion of parts of a number of large projects, year is unchanged, underpinned by our including the London Power Tunnels and the expectations for a stronger second half. We are Wimbledon substation, as well as lower investment focused on completing rate filings in the US, in the Western Link when compared to the prior continuing proactive discussions with Ofgem period. Nevertheless National Grid said it expects ahead of the next regulatory settlement in 2021 its UK Electricity Transmission business to deliver and seeking new opportunities to grow the 200 to 300 basis points range of outperformance business and optimise our performance.” in the future year. Higher revenues saw UK Gas Transmission While these results were a little below operating profit rise 25% year-on-year, excluding expectations, National Grid has maintained its timing issues, to reach £144mn. Capital investment outlook for the year. was up £41mn to £157mn, with work continuing on Its share performance has continued to be National Grid’s Feeder 9 project to build a lack-lustre despite an intensive share buy- replacement pipeline under the Humber Estuary back programme as political anxieties of a alongside work on a new compressor turbine at Peterborough attributed as reasons why. Labour government weigh. Furthermore, National Grid said that it expects its National Grid

On 14 November ESB announced that it is planning to develop 800MW of clean electricity generation projects in Scotland, which will primarily be onshore wind. The company currently holds 11 windfarm projects through working in partnership with developers, with the aim to bring its total onshore wind portfolio in GB to over 1GW by 2030. In order to establish this level of renewable development in Scotland ESB has also officially opened a Glasgow-based office. Currently the company’s total renewable generation portfolio can generate and supply over 1,000MW of green energy to homes and businesses throughout Ireland and the United Kingdom. Commenting on the announcement, Scottish Minister for Business, Innovation and Energy Paul Wheelhouse, said: “I warmly welcome ESB’s commitment to Scotland, and the company’s ambitious investment plans for developing renewable energy projects here.” ESB

Eelpower has commissioned a 10MW battery storage facility in Leverton. The lithium-ion unit was constructed by Anesco in an 18-week period using batteries from Chinese firm BYD. The project will seek to support the grid during frequency events, underpin security of supply and reduce costs for high energy using businesses. In last month’s frequency response tender round the unit managed to secure a contract, aided by Limejump. Coupled with this, the company had already acquired a 15-year Capacity Market contract, which will start in October 2020. Mark Simon, Chief Executive of Eelpower, said the Leverton project is to be the first in the pipeline that the company aim to build and operate across the next three-years, with hopes to develop storage projects totalling 150MW. Eelpower also plan to add battery storage facilities at three river hydro projects, which were financed and built by their sister company Barn Energy in Yorkshire in the past two years. Eelpower

Plutus PowerGen (PPG) has announced that the 20MW flexible generation site in Crumlin, South Wales has entered operation. Crumlin has a 15-year Capacity Market contract, beginning in 2019, and has prequalified for next year’s T-1 Capacity Market auction. The site is one of nine that it holds in partnership with Rockpool, which provides the funding for the developments. Charles Tatnall, Executive Chairman of PPG, said: “As winter kicks in, so too does the need for increased energy and responsive flexibility within the UK power market. PPG is focused on providing responsive and flexible generation through rapid-response FlexGen facilities”. The news comes after the announcement at the start of the month that PPG successfully commissioned its first flexible energy site in Plymouth. Plutus PowerGen

Smart infrastructure supplier Aclara has announced a partnership with UK Power Networks (UKPN) on a project to help network operators reduce the duration and frequency of power outages by locating faults faster. Aclara said in an announcement on 16 November that the £2.6mn project will use Aclara sensors to collect data on faults. So far UKPN have installed 400 of Aclara power sensors as part of its Grid Monitoring platform.

The data collected from these will then be used in algorithms to provide close to real-time visibility and better awareness of what is happening on the distribution network.

Aclara

In an investigation into how fast energy suppliers answer phone calls, Which? found that Bulb was fastest with an average time of 27 seconds, while E.ON UK was the slowest on average at 14 minutes, 18 seconds. Published on 16 November, the findings showed the slowest four companies to pick up were E.ON UK, British Gas, SSE and npower. Across all suppliers it took on average 1 minute 13 seconds to get through to sales and 3 minutes 10 seconds to get through to customer service. The research also found that it was much quicker to get in touch with suppliers via live chat. Despite only eight suppliers providing this function, waiting times were much faster, ranging from 4 seconds with Utilita to 2 minutes and 32 seconds with Bulb. EDF, First Utility and npower all averaged under 20 seconds. Alex Neill, Which? Managing Director of Home Services, said: “It’s unacceptable that the worst performing energy suppliers keep their customers waiting on the phone for so long.” Which?

ReNews reported on 20 November that EDF Energy Renewables has begun exporting power from its Blyth offshore wind demonstration project. The 41.5MW site is located off the Northumberland coast and, while commissioning work is ongoing, EDF said it expects the project to be fully operational during the coming weeks. The project includes concrete gravity- base foundations that were installed in August using a “float and submerge” technique for the first time. No link

The last couple of weeks has seen two significant for established suppliers to defend both margin events for the future of the GB retail supply sector. and market share. First, two of the so called Big Six suppliers SSE and Energy demand has fallen year-on-year for a Innogy announced that they were to exit the decade as technology and changes in consumer market via the merger and spin-off of their UK behaviour has structurally altered the way businesses. Second, Centrica gave a trading households use energy. Whilst the mass roll out of update that was in effect a profits warning, which electric vehicles may reverse the falls in electricity resulted in its shares falling 15%. demand at some point into the future, it is the continued decline gas demand that is the biggest Centrica’s position is dire. Its shares closed last threat to the profitability of suppliers. week at 139p, which is the lowest share price since 2004. Centrica’s share price has now fallen by Finally, the supply market has become the focal 65% since its high in 2013. This compares to the point for all the discontent that surrounds the UK FTSE 100, which is up c.10% in the same period. energy market. Supply has proven to be a Centrica’s market cap now stands at only £7.7bn convenient punch bag for the media and and its shares trade with a massive 7.8% dividend politicians. Whilst the market is not without its yield. faults, it has become the catch-all for the problems, inefficiencies, and contradictions of UK energy A dividend yield this high suggests strongly that policy. investors believe that the current dividend payout is unsustainable and therefore a dividend cut at So will other members of the so-called Big Six some point in the future is likely. seek follow SSE and Innogy and seek to exit the retail supply market? These two events are of course related. SSE and Innogy no longer want to have direct exposure to Centrica has little choice but to remain committed GB retail supply. They have therefore decided to to the market. It dramatically changed strategy a exit the market via a merger and listing of their couple of years ago, forsaking its previous drive retail businesses. into upstream oil and gas assets to re-focus on its consumer oriented businesses. Centrica believes Whilst both companies have tried to garner that its future lies in selling technology solutions to excitement about the prospects for the new the home, using its large energy customer base as standalone retail business, the fact has not been a springboard. lost on investors that two of the largest and long- term players in the retail supply market have However, for EDF Energy retail is clearly not a core decided to exit. activity. It represents a tiny fraction of its operations and indeed EDF lost money in both Whilst Centrica’s profits warning last week was 2015 and 2016 in retail electricity supply. There is largely down to an unexpected deterioration in its also speculation in France that EDF itself may US Business, the already weak outlook for GB undergo a radical restructuring, which might retail supply was also downgraded. trigger action. Centrica has now lost nearly 1.2mn retail accounts At the moment Iberdrola owned ScottishPower so far in 2017. With government imposed price looks content to stay in the GB retail market. The caps looming, analysts are forecasting a sharp business has been consistently profitable, earning reduction in profits from British Gas Retail in the a 4.4% margin across supply in 2015 and 3.5% in coming years. 2016. Iberdrola itself has been stable in recent The UK retail supply market has turned toxic for years and continues to follow a “conglomerate” the Big Six suppliers. Competition from small- and business model that values diversification and medium-sized new entrants has cost them 20% vertical integration. market share and put downward pressure on Whilst it is hard to argue that UK energy supply is a margins. The vast majority of the new entrants are long-term core business for E.ON, it has currently loss-making and are targeting growth nevertheless been profitable for them in recent rather than profits. This makes it almost impossible

years – they made £337mn across supply in 2016. innovation brought by a myriad of smaller suppliers Nevertheless E.ON, like Innogy, has undergone a could well off-set any downside. radical restructuring in recent years and its But at the very least the government should management is now much more focused on perhaps reign in its assault on the sector. The delivering returns and are unlikely to hesitate to future of Centrica, which has been a cornerstone act if market conditions become too tough. of the UK energy sector for decades, is under So of the Big Six tradition players only Centrica is serious doubt. What’s more the other traditionally fundamentally committed to GB energy supply. utility players are beginning to exit the supply ScottishPower and E.ON are likely to remain in the market, just as they have conventional generation. market for the time being providing returns are The traditional Big Six may be doomed in any case adequate. EDF is perhaps the most likely to review as they are overwhelmed by technology and their participation in the near future. nimble new entrants. Should the government be concerned if the Big Six But such fragmentation carries risk, and the exit the market on mass? Possibly. What is government should be wary of accelerating the guaranteed is that the market would become very process. Let the market decide both the direction fragmented. and pace of the change. Most customers would be with much smaller Cornwall Insight Associate Peter Atherton is a suppliers – many of whom lack financial and well-known equity analyst having headed utility human capital. And no supplier would be vertically research at several eminent City institutions, integrated to any significant extent – something most recently Jefferies, and is a respected that was thought to be essential only a few years energy commentator. ago. Of course, increased choice / competition /

The day-ahead gas contract leapt 8.6% to 56.2p/th last week. Outages across three UK gas facilities and at the Oseberg gas field forced prices upwards. Further support was provided by colder temperatures forecast for the following week. This was despite an oversupplied system towards the end of the week. The month-ahead (December) contract lifted 7.6% to 56.4p/th, up from 52.4p/th the previous week. The Q118 contract rose to 56.9p/th, its highest price on our record for the contract going back to September this year. Summer 18 gas lifted 2.5% to 45.5p/th.

After the previous week’s losses, all baseload power contracts last week strengthened. The day-ahead contract lifted 4.0% to £53.4/MWh. This was despite rising wind generation across the week, which would have aided in capping gains. The month-ahead (December) contract boosted 5.2% to £54.4/MWh. The contract is now 16.0% above its level last year (£46.9/MWh). Near-term power prices were supported by the gains experienced by the gas market. The summer 18 power contract lifted 1.8% to £45.1/MWh.

Brent crude oil prices continued to experience minor changes, as it showed an uptick of 0.4% to average $62.5/bl. Prices strengthened with the Saudi Arabian energy minister announcing that extensions to OPEC and non-OPEC production cuts should be agreed upon at the next OPEC meeting on 30 November. API 2 coal prices subsided last week, falling 1.1% to average $83.6/t. Losses have stemmed from the continued decline in Chinese demand for coal. This is largely due to air pollution measures restricting coal use across northern China, coupled with the roll out of a government gasification campaign. EU ETS carbon prices upped a shade to average €7.5/t. It was reported that the UK government would attempt to obstruct post-2020 EU ETS reform agreements during the week. Such concerns did not come to the fore, with reforms agreed on 22 November.