Informer Issue 503 - 09/03/2021

Nine energy network operators have appealed to the competition watchdog over plans to significantly reduce their rate of return in the next price control period. The operators, including National Grid, Scottish Power and Northern Gas Networks, argue Ofgem’s proposals put the investment needed for the UK's Net Zero targets at risk.

The Competition and Markets Authority (CMA) will decide whether to grant the companies permission to appeal Ofgem’s RIIO-2 final determination within two weeks. It will then have six months to determine whether Ofgem's proposals can go ahead. In January, Ofgem’s final determination put the allowed return on equity under the 2021-26 price control at 4.3% - slightly higher than previously proposed, but still around 40% lower than under the previous period. Ofgem said that will enable customers to see a £2.3 billion saving over the course of RIIO-2 price control, equivalent to an average bill reduction of about £10 before inflation.

Ross Easton, director of external affairs at the Energy Networks Association, said: "The UK's energy network operators remain focused on providing a low cost, net zero energy system to the public.

"To deliver this, it is essential that the regulatory environment is attractive to the significant investment the country needs over the coming years."

Akshay Kaul, Ofgem's director of networks, responded that the price control “drives a fair price for consumers, improves services and boosts green energy investment”.

"We respect the CMA appeal process, where we will defend robustly our decisions which are in the best interests of consumers and tackling climate change.

"While the appeals could take around six months to resolve, they will not delay any investment and we look forward to working closely with industry to accelerate investment for a green recovery."

Read more

Energy industry bodies have given a lukewarm reaction to the Budget, welcoming a number of measures but arguing it fell short of the ambition needed for a green recovery.

Chancellor Rishi Sunak confirmed a number of announcements which had mostly already been trailed, including the establishment of a £12 billion UK infrastructure Bank which could help finance major renewable energy and clean technology projects, new green savings bonds and the upgrading of port infrastructure to support expansion of offshore wind. He also announced the launch of a £68 million UK-wide competition to pilot energy storage prototypes including longer duration systems.

Although Dr Nina Skorupska, Chief Executive of the Association for Renewable Energy and Clean Technology, welcomed the measures announced, she said overall the Budget was a “missed opportunity”.

“It lacked the detail to provide a watershed moment for businesses in our sector and new ‘green’ projects are limited to only a few regions and countries of the UK.”

Skorupska said reduction of VAT on a range of renewable energy and clean technologies was one of the straightforward measures which could have been taken.

Energy UK’s Chief Executive Emma Pinchbeck was also disappointed: “Meeting the most ambitious climate change targets of any major economy will require more ambition than was in the Budget. We need a concerted, cross-Government approach to deliver on the Prime Minister’s 10 Point Plan and the Energy White Paper - particularly on how to make our buildings energy efficient and low carbon.

“The energy sector is ready to continue reducing emissions, supporting jobs all around the country, and driving economic growth – the question is how the Government plans to turn their ambition, and our willingness to invest, into a plan of action.”

Read more

The year-ahead Capacity Market auction cleared at a record high price with batteries, demand side response, and gas projects securing the lion’s share of contracts.

The T-1 auction cleared at £45/kW/year with National Grid ESO procuring 2.25GW of capacity. The auction, initially set for two days, cleared within the first day of bidding.

The capacity for 2021-22 is made up of 156 units with a total of 17 batteries securing contracts, a significant increase on the previous auction when just two had been successful.

The capacity procured came in just under the 2.4GW set by BEIS last month. The target had been upped from 0.4GW previously to manage what was described as “range of non-delivery uncertainties”.

Glenn Rickson of S&P Global, said: "The high price reflects the late decision to contract an additional 2GW of T-1 capacity in light of the non-delivery risk for a number of Capacity Market capacity holders.”

The T-4 auction for capacity for delivery 2024/25 is scheduled to start today. The capacity target for the auction was last month increased by 0.5 GW to 40.1GW, although that is down by 3.2 GW on the last T-4 auction.

Meanwhile, BEIS has launched a consultation on ways to improve the Capacity Market, which was introduced under Electricity Market Reform to help achieve security of supply.

The proposals include requiring all Capacity Market Units to be registered as Balancing Mechanism Units which BEIS said will improve the system operator’s visibility of assets on the system and their ability to manage security of supply.

Read more

The UK Government lacks a plan for how it will achieve net zero by 2050 despite setting a legal target almost two years ago, an all-party group of MPs has concluded.

Although the Government intends to publish a plethora of strategies this year setting out how it will reduce emissions, "at present, there is no coordinated plan" with clear milestones towards achieving the target, the Public Accounts Committee said.

The committee’s report also said that government departments are not yet sufficiently considering the impact on net zero when taking forward projects and programmes.

Although as much as 62% of the future reduction in emissions will rely on individual choices and behaviours, such as replacing boilers that use fossil fuels or buying an electric vehicle, the Government has also not yet engaged with the public on the changes required.

Meg Hillier MP, Chair of the Public Accounts Committee, said: "Our response to climate change must be as joined up and integrated as the ecosystems we are trying to protect. We must see a clear path plotted, with interim goals set and reached - it will not do to dump our emissions on poorer countries to hit UK targets. Our new international trade deals, the levelling up agenda - all must fit in the plan to reach net zero.

“COP26 is a few months away; the eyes of the world, its scientists and policymakers are on the UK - big promises full of fine words won’t stand up." In a separate report, MPs on the Business, Energy and Industrial Strategy (BEIS) Committee, criticised preparations for COP26 in Glasgow.

The Government refuted the claims, pointing out that it has been leading the world on tackling climate change with a faster reduction in emissions in recent years than any other developed nation.

Read more

Ofgem has awarded a licence for the grid link to the world’s largest offshore wind farm after it secured a record £1.2 billion investment.

Diamond Transmission Partners, a consortium led by Mitsubishi Corporation, the Japanese industrial group, was selected by Ofgem to own and operate the offshore transmission system linking Hornsea One to the British mainland. It has signed an agreement to the transmission assets from Hornsea 1 for almost £1.2bn.

The grid link for the 1.2GW, 174-turbine wind farm off the coast of Yorkshire can deliver enough electricity to power more than one million homes.

The UK government has set a target of 40GW offshore wind capacity by 2030, almost quadruple the existing capacity, to help reach net zero emissions by 2050. New electricity grid links are needed to deliver this power and under the regulatory framework, bidders compete to buy them from the wind farm developer. In return the winning bidder receives a guaranteed level of income which is set by Ofgem for running the link for up to 25 years.

Ofgem has awarded 21 licences through the process, with a total of £5.7bn being invested in links for 7.8GW of offshore wind capacity.

Rebecca Barnett, Deputy Director for Commercial and Assurance at Ofgem, said the record investment for the Hornsea link “demonstrates the appetite of global investors to support the UK’s transition to net zero emissions”.

“Ofgem’s regulatory framework ensures that this investment can be attracted at the lowest possible cost, saving consumers hundreds of millions of pounds on their energy bills.”

Read more