Informer Issue 489 - 24/11/2020

The UK Government aims to secure up to 12GW of renewable energy capacity in the next Contracts for Difference (CfD) auction, more than twice the amount procured in the last round.

BEIS said the CfD round four auction, which will open late next year, could secure enough capacity to power 20 million electric cars on the UK's roads each year.

The round will feature three pots for different technologies, which will all compete for 15-year subsidies.

Onshore wind and solar will be able to compete for contracts for the first time since 2015 and floating wind will also be able to take part alongside less established technologies such as Advanced Conversion Technologies and tidal stream. Offshore wind will have its own standalone pot.

Energy Minister Kwasi Kwarteng said: “The UK is a world leader in clean energy, with over a third of our electricity now coming from renewables. That huge achievement is thanks to the government’s CfD scheme.”

The Government is also launching a new consultation on proposals to boost local content levels on projects to ensure the UK economy reaps maximum benefits from the investment.

Hugh McNeal, Chief Executive of RenewableUK, welcomed the inclusion of onshore wind.

“As one of our lowest cost, large scale power options, onshore wind has a vital role to play in meeting the challenge of net zero and the re-opening of CfD auctions is an important step to ramp up investment in this key technology,” he said.

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Ofgem has launched a consultation on changes to the default tariff price cap which could see domestic energy bills rise by £21 per household.

The regulator said the pandemic is expected to lead to consumers struggling to pay bills which will affect suppliers.

The existing price cap methodology includes an allowance for suppliers to recover the cost of bad debt expected in normal economic times but Ofgem said the pandemic has resulted in anticipated bad debts rising to levels that aren’t covered by the cap.

Anna Rossington, Deputy Director of Future Consumers & Retail Price Protection at Ofgem said it is now considering whether these higher bad debt costs for suppliers should be factored into the default tariff price cap when it is next updated from 1 April 2021.

An ‘Adjustment Allowance’ would help suppliers deal with the economic fallout, however it could be partially offset by the end of a temporary £15 increase currently in place as a result of a judicial review into how Ofgem calculated suppliers’ wholesale energy costs in the first cap period. Ofgem said that meant the net impact of the change on bills could be around £6.

Ofgem’s consultation will be open until 21 December, with a final decision due in early February.

When the Covid-19 lockdown was brought in the UK and wholesale energy prices fell sharply, the regulator reduced the price cap by £84 a year annually from 1 October.

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The unveiling of the UK’s ten-point plan to tackle climate change has been hailed as a major milestone for the green economy.

The plans include a quadrupling of offshore wind by 2030, building 5GW of low carbon hydrogen production capacity by 2030 and developing the next generation of small and advanced reactors.

The new plan set out by Prime Minister Boris Johnson also sets an earlier 2030 target for the phase-out of sales of new internal combustion engine (ICE) vehicles, up from a previous target of 2040. Hybrid vehicles get a reprieve until 2035. A £1.3 billion fund has been established to back EV charging infrastructure, including residential, on-street and throughout the network of motorways.

National Grid ESO Director Fintan Slye said the acceleration of EVs had a wider role to play in achieving Net Zero.

“Rather than placing a strain on the grid EVs can play a key role in decarbonising both transport and electricity supply, with smart charging and vehicle to grid technology helping us use renewable energy more efficiently, charging when the sun shines or the wind blows and discharging back to the grid at times of peak demand,” he said.

“If delivered, these commitments can have the dual effect of stimulating the economy, focused where possible in the areas of society most affected, while also accelerating the UK along the path to Net Zero”.

Frank Gordon, Head of Policy at the Renewable Energy Association (REA), said: “The electric vehicle charging infrastructure sector stands ready to roll-out enough charge points to meet demand so long as a supportive regulatory regime is in place. Renewable transport fuels will play a critical and complementary role to this policy, and will be needed in greater volumes to ensure that we maximise emissions reductions from the millions of petrol and diesel cars and vans already on our roads, not just from new ones.”

Sir John Armitt, Chair of the National Infrastructure Commission, said the 2030 deadline for the ban on the sale of new petrol and diesel cars and vans was “an important signal to the market”.

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The reactors at the Hinkley Point B nuclear power plant in Somerset will be shut down within the next two years, EDF Energy has confirmed.

The French group said the defueling process would start no later than July 2022 after cracks were discovered in the graphite core of the reactor. The original shutdown had been expected in 2023.

Matt Sykes, Managing Director of EDF Generation, said the reactors were “in exactly the sort of condition” expected after 40 years of operation.

“As a responsible operator we feel it is now the right thing to do to give clarity to our staff, partners and community about the future life of the station,” Sykes said.

Tom Greatrex, Chief Executive of the UK’s Nuclear Industry Association said the news was “a reminder of the urgency of investing in new nuclear capacity to hit net zero”.

“Hinkley Point B has produced more clean electricity and saved more emissions, 105m tonnes, than any other single power station in British history. It can only be replaced by new nuclear stations that produce the same reliable, always-on, emissions-free power that Hinkley has provided for more than 40 years,” he said.

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Major investors plan to almost double the amount they allocate to renewable energy infrastructure in the near-term, according to a new report.

The survey by Octopus Renewables found that 50% of investors said green energy projects have become more attractive due to the Covid-19 crisis due to their stable and predictable cash flow.

More than three-quarters of investors also cite pressure from millennials as boosting demand for renewables.

The report said global investors managing some $9 trillion are expected to increase their renewables allocation to 8.3% of their overall portfolio in the next five years, from 4.2% currently and rising to 10.8% in 10 years.

However, Covid-19 has slowed the pace of divestment from fossil fuels, with investors on average divesting 4.5% of their overall portfolio in 2020, compared with 5.7% forecast for 2020 in Octopus’ 2019 survey.

Alex Brierley of Octopus Renewables said: “Renewable energy has proved an incredibly attractive asset class in the face of this year’s volatility, buoyed both by growing external pressures to invest responsibly, and by investors looking for long-term sources of yield".

“There is further progress to be made however, and alongside renewables investment, divestment from fossil fuels also remains key".

“As gatekeepers to trillions of dollars, institutional investors have a critical role in fighting climate change. But to move the dial, investors have been clear that issues such as lack of government coordination, liquidity issues, and energy price uncertainty are standing in their way.”

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