Energy and Utilities

The Energy Transition | DFS goes live for the first time

Published on 30th Jan 2023

Welcome to our top picks of the latest energy regulatory and market developments in the UK's transition to net zero.

This week we look at National Grid ESO ordering the demand flexibility service to go live for the first time, £30 million of funding for hydrogen, BEIS' utilities regulation review, and the EU's proposed reform of the electricity market.

Demand flexibility service goes live for the first time

National Grid ESO (NGESO) ordered the demand flexibility service to go live for the first time on the evening of the 21 January 2023. This follows a number of test events run by NGESO that have taken place between November 2022 and January 2023.

The live event ran between 17:00 and 18:00 and requested a 659 MW reduction of demand. According to NGESO's statistics published after the event, demand was reduced by just over this amount.

Participating consumers are asked to reduce their power consumption. They can achieve this by refraining from running what the NGESO describes as "power hungry" appliances such as washing machines, clothes dryers, dishwashers and electric showers. As a benefit of doing so, consumers receive a guaranteed minimum price of £3/KWh.

Hydrogen BECCS Innovation Programme phase 1 ends

In January 2022, the Department for Business, Energy and Industrial Strategy (BEIS) launched the Hydrogen Bioenergy with Carbon Capture Storage (BECCS) Innovation Programme. It aims to accelerate the commercialisation of innovative clean energy technologies, part of which involves supporting hydrogen innovation projects. 
Phase 1 commenced in summer 2022 and will end this month. Phase 2 is due to begin in in spring 2023 and will end on 31 March 2025.

Phase 1 was supported by £5 million of funding. This was used to support 22 programmes which aimed to develop feasible prototype demonstration projects that will be run in phase 2. Only projects that have successfully secured phase 1 funding and completed their phase 1 project will be eligible for phase 2. BEIS will support successful phase 1 projects by providing £25 million of funding to support the physical demonstration of the initiative in the second phase. Projects that progress to phase 2 will need to consider environmental safety, air quality and fugitive hydrogen emissions.

Phase 2 will also provide accelerated support for companies that meet the definition of small and medium enterprises. This support is designed to increase the chance that qualifying suppliers will be successful in bringing their innovation to market, and includes helping with the preparation of commercial plans, the development of marketing strategies and engagement with investors.

Hydrogen BECCS involves the energy generation from biogenic feedstocks through gasification or other bioenergy conversion routes. In both phases, the technologies that will be supported are feedstock pre-processing, gasification components and novel biohydrogen.

BEIS launches utilities regulation review

BEIS has launched its review into the economic regulation of utilities, which was originally announced in January 2022. The review covers energy, water and telecoms regulation. Topics to be analysed as part of the review include the duties of regulators, the need for a clear strategic direction, how innovation and competition can be increased and how the regulatory appeals processes currently work. BEIS has also confirmed that the review will now also cover how to encourage greater investment and how to enhance the consumer experience in these sectors.

The original paper was launched following a recommendation from the National Infrastructure Commission that the UK's regulatory framework for utilities be updated and strengthened in order to overcome long-term challenges that it was not originally designed to address. The review will need to address how the government can ensure that regulators' duties will allow them to meet systemic challenges and provide strategic clarity through a letter of strategic guidance.

Government departments, regulators, academics and businesses will be consulted as part of the review. There will be an open consultation published in spring 2023 in order to seek further views.

EU launches consultation to reform electricity market

The European Commission has launched a consultation on proposed reforms to the electricity market. The consultation opened on 23 January and will run until 13 February. The target audience for the consultation includes government authorities, regulators, market participants and industrial consumers. The reforms focus on providing urgent adjustments to increase market resilience and reduce the impact of gas prices on electricity prices for consumers while supporting the transition to net zero. 
The consultation notes that consumer prices are increasing due to the high price of fossil fuels, despite the growing mix of renewable energy. Ad hoc regulation has resulted in increased market uncertainty, so any future intervention will need to preserve investment incentives. The consultation focuses on: 

  • Improving market transparency, integrity and surveillance. 
  • Increasing consumer protection.
  • Improving the functioning of markets in order to ensure the security of supply, fully utilising storage and demand response.
  • Decreasing the link between fossil fuel prices and electricity bills. 

The Commission aims to deliver legislative proposals in Q1 2023.

This article was written with the assistance of Saskia Zant-Boer and Hannah Wooderson, trainee solicitors.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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