The Energy Transition | Energy Security Bill and Ofgem's Innovation Fund
Published on 16th May 2022
This week we look at proposals for a new Energy Security Bill which were announced as part of the Queen's Speech, Ofgem's newest set of project categories for the Strategic Innovation Fund, Ofgem's decision to establish the Capacity Market Advisory Group, ScottishPower and Storegga's new hydrogen projects, and more.
New Energy Security Bill announced as part of the Queen's Speech
A new Energy Security Bill was announced on 10 May 2022 as part of the Queen's Speech. According to the government, the bill, which is the first energy bill in nearly a decade, will seek to deliver the transition to cheaper, cleaner and more secure energy in the UK.
The bill will focus on 10 elements, including:
- Introducing state-of-the-art business models for Carbon Capture Usage and Storage.
- Reducing the risk of fuel supply disruption by giving government the power to give directions to, require information from, and provide financial assistance to core fuel sector businesses.
- Appointing Ofgem as the new regulator for heat networks.
- Supporting the growing market for heat pumps by providing for a new market standard and trading scheme.
- Extending the energy price cap beyond 2023.
- Enabling the first ever large-scale hydrogen heating trial with the aim of providing insight into the role of hydrogen in heat decarbonisation.
The government anticipates that the bill will create tens of thousands of skilled green jobs and that it will be an important part of the UK's journey to net zero by 2050. Briefing notes to the Queen's Speech described the purpose of the Bill as delivering "the commitments in the British Energy Security Strategy and the Ten Point Plan for a Green Industrial Revolution to build a more secure, homegrown energy system that is cleaner and more affordable."
See our Insight for further information and commentary on these proposals.
Ofgem unveils challenge areas for the second round of the Strategic Innovation Fund
Ofgem and Innovate UK, the UK's innovation agency, have announced the four challenge areas for the second round of funding from the Strategic Innovation Fund (SIF). The SIF is a funding mechanism within the RIIO-2 network price control for the electricity system operator, electricity transmission, gas transmission and gas distribution sectors. First launched in August 2021, the SIF aims to fund ambitious projects which have the potential to accelerate the UK's transition to net zero. The projects are intended to help shape the future of the gas and electricity networks and be able to succeed commercially where possible.
To do this, the SIF sets out strategic "challenge areas" which these projects should focus on. The first four challenge areas included in the August 2021 launch were: whole system integration; data and digitalisation; heat; and zero emission transport. The four new challenge areas are:
- Supporting a just energy transition.
- Preparing for a net zero power system.
- Improving energy system resilience and robustness.
- Accelerating decarbonisation of major energy demands.
The funding will operate in three stages, beginning in September 2022. There will be an initial "discovery" phase during which companies can apply for up to £150,000 to develop their ideas. During the second phase, those projects which have the greatest potential will be awarded up to a further £500,000 for further development. Finally, the most successful projects will receive another round of funding enabling large-scale demonstrations of their ideas and technologies. The aim is to develop innovative projects which are future-ready and can be rolled out across all UK energy networks.
Ofgem stated that it set up the SIF "to harness the power of innovation to help accelerate a fair, affordable and inclusive transition to low carbon energy." Another objective is "to help transform the UK into the ‘Silicon Valley’ of energy, making the UK the best place for high potential businesses to grow and scale in the energy market."
Ofgem set to establish new Capacity Market Advisory Group
Ofgem has issued its decision to establish the Capacity Market Advisory Group (CMAG) in response to its Call for Input published in January 2022. This new advisory group is part of Ofgem's reforms to the Capacity Market Rules change process.
The Capacity Market Rules (Rules) set out the technical and administrative rules and procedures for how the Capacity Market operates and are intended to facilitate the smooth day-to-day running of the Capacity Market, which ensures security of electricity supply through payment for reliable sources of capacity when they are required. The Rules are currently subject to an annual change process to ensure that they can be adapted to reflect changes in the market. However, Ofgem has highlighted that increases in the duration, complexity and difficulty of implementation of the annual change process places a significant burden on Capacity Market participants, delivery partners and Ofgem.
Ofgem has therefore decided to end the annual change process and instead establish the CMAG which will provide a forum for industry to develop, scrutinise and prioritise proposed improvements to the Rules. Ofgem hopes that this will make the rule change process more dynamic and adaptive to changing market conditions. Although, Ofgem will retain full decision-making responsibility, Ofgem hopes to work collaboratively with the CMAG and the wider industry to establish Rule changes that benefit consumers and the security of supply.
Ofgem has invited qualified candidates to apply to be a member of the CMAG and has announced that the Balancing and Settlement Code (BSC) administrator Elexon will act as secretariat for the CMAG. It is expected that the CMAG's first meeting will be held in September/October 2022.
CEO of Elexon, Simon McCalla, said: "The Capacity Market plays an important role in securing electricity supplies and we are very pleased that Ofgem has confirmed that Elexon will take on the CMAG secretariat role. We already work closely with BSC parties to develop and consult on reforms to the BSC, and we can apply this significant expertise and experience to managing the CMAG on behalf of Ofgem, for the benefit of industry parties and consumers.”
ScottishPower and Storegga announce plans to build series of green hydrogen projects
ScottishPower and Storegga, a carbon capture, reduction and removal company, have partnered to develop, build and operate green hydrogen production plants in the Highlands, Scotland. The aim of the partnership is to transform industry and transportation in the Highlands region by replacing fossil fuel sources with green hydrogen supplies.. Potential applications of the hydrogen produced include use in the heating processes of distilleries, as well as use in local manufacturing and food production.
The first project will be the Cromarty Hydrogen Project, located just north of Inverness, and is designed to deliver up to 20 tonnes of green hydrogen per day from 2024. It also has the potential to scale to 300MW through further development stages. The Cromarty Project follows a successful feasibility study led by the ScottishPower and Storegga partnership. Three major distillers, Diageo, Glenmorangie, and Whyte & Mackay, all of which have operations in the Cromarty region, also took part in the study.
It is hoped that the projects will help meet the ambitious carbon reduction targets set by the Scottish export sector and will make Scotland's national drink greener. Barry Carruthers, Hydrogen Director at ScottishPower, has said, "this is a really exciting milestone in our ambitions to support the growth of green hydrogen production across the country and the decarbonisation of heavy industry. We can now get to work on turning plans on paper into tangible and deliverable projects that will transform industry in the Highlands – making a long and lasting difference for people, businesses and communities."
Canadian Solar moves into UK battery energy storage market alongside Pulse Clean Energy
Canadian Solar has announced its first move into the UK battery energy storage space after signing agreements with Pulse Clean Energy to develop four battery storage projects, the locations of which have not yet been disclosed. This collaboration also marks Pulse Clean Energy's first move into the UK storage market as part of its ambition to develop 1GW+ of grid-scale energy storage assets in the UK, following its acquisition of nine diesel generation sites which are being decommissioned and repurposed.
In the past three years, Canadian Solar has built 2.5GWh for energy storage in the US and is currently developing the 350MW Mallard Pass Solar Farm with Windel Energy in the UK.
Under its agreements with Pulse Clean Energy, Canadian Solar will provide integrated energy storage systems and energy, procurement and construction services for the four battery storage projects which will have a total capacity of over 100MWh. Canadian Solar will also maintain and operate the battery assets under a 10-year long-term service agreement which will allow Pulse Clean Energy to optimise the battery storage assets in ancillary grid-services and enhance energy balancing capabilities.
COO of Pulse Clean Energy, Trevor Wills, said: "Battery storage has a critical role to play in energy system stability, and we are excited to be working with the team at Canadian Solar, which has a strong track record in deploying grid-scale renewable and energy storage technologies."