Energy and Utilities

The Energy Transition | Industry views on electricity licence exemptions published

Published on 31st Jul 2023

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

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This week we look at industry views on electricity licence exemptions, agreement of industry stakeholders on the need for green tariff reform,  plans to overhaul the energy retail market, and more.

Government publishes industry views on electricity licence exemptions

The government has published a response to its call for evidence which sought views on the electricity licence exemption regime. The government had sought opinions from existing exemption holders and other stakeholders on how exemptions have worked since the inception of the Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, and how the exemptions regime may need to change to align with current and future market features as well as broader policy goals.

Some of the feedback received from respondents included the following:

  • Greater clarity and certainty are needed in legislation and policy. Uncertainty over the interpretation of class exemptions is creating a roadblock for further investment, particularly in net zero projects but also in other small-scale developments.
  • There is support for a light touch registration/notification system to be introduced, with the focus on keeping any further burdens on stakeholders to an absolute minimum.
  • There is also support for grandfathering to protect existing investments, in the event any changes are made to the exemption regime.
  • Supply exemptions were a particular frustration for some respondents, both in terms of interpretation and content.

The government has said that it will consider the feedback received, with a view to potentially changing exemptions guidance, policy and/or legislation to reflect respondents’ views and concerns.

Industry backs green tariff reform

The Department for Energy Security and Net Zero (DESNZ) has published a summary of industry stakeholders' responses to a recent call for evidence on the regulation of green energy tariffs. The call for evidence (titled "Designing a Framework for Transparency of Carbon Content in Energy Products") posed a number of questions to stakeholders with a view to developing a more transparent framework for carbon content in energy products to be communicated to consumers.

Of the 37 respondents, the majority stated that the current approach of retrospective annualised matching using Renewable Energy Guarantees of Origin (REGOs) did not provide enough transparency. Many went on to add they believed that REGOs caused misunderstandings in customers.  As well as being misleading, almost all of the respondents stated that REGOs did not incentivise financial and commercial decision-making, stating that they have been "too cheap to influence long-term investment decisions". Suggested reforms to help achieve greater transparency included shortening the time in which a REGO can be used to half-hour or monthly (instead of annual) periods to ensure the REGOs were more closely matched with the energy consumed. Other suggestions included the creation of "locational REGOs", so that certificates are matched according to where the energy is produced.

Responding to consultation questions on green electricity tariffs more generally, participants expressed concerns about the messaging produced on carbon content, which could lead to confusion among consumers. Current consumer-facing communications could cause the misconception that electricity was sourced directly from renewable generators. A common solution suggested by respondents for enhancing transparency was the provision of real-time information regarding the carbon intensity of the grid on an hourly and location-specific basis.

The call for reform in the summary of responses echoes previous announcements from energy suppliers such as OVO, which announced its plans to stop using REGOs from May 2023, as we previously reported here.

On the back of the responses from the industry stakeholders, DESNZ has launched a further call for evidence to look at the energy retail market and regulatory policy. That consultation will close on 18 September 2023.

Government to overhaul energy retail market

The government has outlined plans to boost competition and innovation in the energy retail market. The proposals aim to ensure that consumers have better access to energy deals and more control over their energy use via new and improved options, such as:

  • Tariffs offering lower prices at certain times of the day.
  • Smart chargers that automatically put users on the lowest rate to charge electric vehicles.
  • Opportunities to buy shares in renewable energy in return for electricity bill discounts.

The government has sought input from energy suppliers on proposals to ensure consumers benefit from lower energy prices that are reflective of the increased proportion of electricity supplied from renewables, and from energy used when demand is lower. The government also plans to work with the industry to gather its views on ways to make low carbon technologies more commonplace.

Amanda Solloway, Minister for Energy Consumers and Affordability said: "We now want to put power back in the hands of consumers, giving them greater options to cut their energy bills in a market fit for the future. Today, I’m calling on industry to work with us, and take up the opportunities of investing in low-carbon technologies and providing a first-class customer service."

RWE calls for a "rewire" of the power network

In its submission to the House of Common's environmental audit inquiry, RWE has stated that decarbonisation of the power sector will require a "rewire" of the network to ensure a more proactive approach can be taken to prevent issues caused by the current "as little as possible, as late as possible" approach.

The submission also called for an expansion of the resources afforded to Ofgem, Transmission Owners and the Electricity Systems Operator, stating that the lack of resources for these organisations is the "single biggest blocker to the deployment of new, low-carbon power".

Other key components of RWE's response included the following recommendations:

  • Taking a more holistic approach to grid expansion planning, ensuring analysis takes into account the wider benefits of carbon savings and reduced wholesale costs.
  • Designating all grid infrastructure and reinforcement for low-carbon projects "Critical National Policy", rather than just those relating to the offshore wind.
  • Conducting a review of the RIIO Price Control Framework to ensure it extends to the current longest-dated connection offers, instead of the current five-year cycle.

Long-duration energy storage for net zero inquiry launched

The House of Lords Science and Technology Committee has launched an inquiry and call for evidence into the use of long-duration energy storage to achieve net zero. The committee is seeking the opinions and evidence of stakeholders to assist policy development and investment decisions on large-scale long-duration energy storage infrastructure.

The UK government has acknowledged that in order to meet current decarbonisation and net zero targets, there needs to be a large increase in both renewable energy generation and energy storage technologies. The call for evidence speaks briefly on the range of technologies that are being considered, such as hydrogen, redox flow batteries, and synthetic fuels, and asks specific questions about which technologies could be scaled up to meet the storage demand. It will also look to establish whether the government has sufficient policies in place to support medium- and long-duration energy storage.

This article was written with the assistance of David Herron and Sophie Myatt 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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