Informer Issue 482 - 06/10/2020

Prime Minister Boris Johnson is setting out ambitious plans to dramatically increase offshore wind capacity to enable it to power every home in Britain within a decade. His speech to the Conservative Party's 'virtual' conference will outline his vision for the country to be the world leader in offshore wind technology and create up to 60,000 jobs as part of green recovery plans. The plan will require a four-fold increase in offshore capacity to 40GW by 2030, with the number of turbines rising from around 1,800 to more than 7,000. The UK Government already had a target to increase the amount of electricity produced by offshore wind from the current level of 10GW to 30GW. Some £160 million will made available to upgrade ports and infrastructure as the next generation of turbines are built. The Government is also targeting 1GW of floating wind by the end of the decade. "As Saudi Arabia is to oil, the UK is to wind - a place of almost limitless resource, but in the case of wind without the carbon emissions and without the damage to the environment,” Johnson will say. The Prime Minister will acknowledge that the Conservatives have not always been backers of wind power but he said the advent of increasingly powerful offshore turbines had changed the debate. Johnson is expected to announce wider green energy measures later this month, including investment in hydrogen and carbon capture and storage, alongside plans to accelerate the ban on new fossil-fuel cars

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Instances of negative power pricing have been more than twice as high so far this year compared to 2019, according to new data. European power market data analyst EnAppSys said excess electricity in the market had increasingly led to consumers being paid rather than charged to use electricity. The study showed that in the nine months to September 2020, European countries on average saw negative day ahead prices almost 1% of the time (0.8% on average). These levels were typically 3-4 times higher than those seen between 2015 and 2018, and more than twice those in 2019. With supply required to match demand, the day ahead price of power in markets increasingly fell below zero. Alena Nispel, Business Analyst of EnAppSys, said: “In such an event, generators will stop producing power if production costs get too high, making it unprofitable in the long run – as a result, the energy supply is reduced. Consumers are being paid in order to increase the energy demand. “If the frequency of these events increases, it may become the norm to move away from the fixed value in the future and instead use more power when the market is oversupplied and less when power is at a premium.”

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Ofgem is consulting on issuing seven suppliers with final orders to compel them to pay more than £34m owed in outstanding payments under the Renewable Obligation (RO) and Feed-in Tariff (FIT) levelisation scheme.
If the suppliers fail to pay, the regulator said it could take enforcement action which could include revoking a supplier’s licence Under the RO schemes, suppliers have to demonstrate they have sourced enough electricity from renewable sources to meet their obligation by presenting RO certificates to Ofgem by 1 September. If suppliers do not have enough ROCs to meet their obligation, they must make up the shortfall by paying into a buy-out fund. Ofgem said 24 active suppliers missed the deadlines, but 17 of these have either since paid the amount owed or given satisfactory assurances on meeting their obligations. If the final orders are confirmed later this month, the seven suppliers will be compelled to pay into the buy-out fund by 31 October. If they do not pay Ofgem could start the process of revoking their licences.

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The recovery of grid balancing costs should be via a fixed charge on final demand rather than the current system where they are levied on suppliers and generators based on half hourly costs, according to an industry task force. The Second Balancing Services Charges Task Force, established by system operator National Grid ESO at Ofgem’s request, has spent two years looking at how to better allocate grid balancing charges which are increasing amid greater decentralisation and decarbonisation of electricity production. The task force has said a volumetric (£/MWh) charge should be fixed over 14/15 month periods based on forecasted costs, with similar notice periods in advance of its recovery. A final report proposing the changes has now been sent to Ofgem. An earlier task force concluded that the current Balancing Services Use of System (BSUoS) charge was hard to forecast, complex, and increasingly volatile. It also said it does not provide “any useful forward-looking signal which influences user behaviour to improve the economic and efficient operation of the market.”

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Ofgem has set the maximum and minimum revenues for the Viking Link project, a 1.4GW connection from Lincolnshire to Denmark that is expected to see £5.2 billion in consumer benefits over 25 years. The Viking Link project is the world’s longest subsea electricity interconnector and is one of several new projects proposed to link Great Britain with neighbouring countries. Akshay Kaul, Networks Director at Ofgem said: “Interconnectors boost competition and increase security of supply by allowing us to import from a wider, deeper and cheaper pool of electricity available in neighbouring countries. Ofgem regulates interconnector revenues, making them attractive to investors while encouraging competition from a more diverse range of market participants.” In its cap and floor scheme, Ofgem sets the cap on the maximum revenue a developer can earn and a floor for the minimum. If developers do not make enough from charges to use the link, their revenue will be ‘topped up’ to the floor level. The top-up funds ultimately come from small increases to the high voltage grid charges consumers pay as part of bills. Excess revenue above the cap is paid out to customers through small reductions in these charges. In its Final Project Assessment on the link, Ofgem has set the provisional cap at £111.5 million a year and the floor at £61.7m. That is a reduction on the £115.2m cap and £66.5m floor initially pencilled in. Ofgem said the decrease reflects a combination of decisions on allowed costs and cost savings against the forecasts made by the developers

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