Energy and Utilities

The Energy Transition: National Grid sells gas business and UK government publishes EV Strategy

Published on 4th Apr 2022

This week, we look at National Grid's pivot to electricity, the UK government's proposed amendments to the Contracts for Difference regulations, the National Grid IFA2 interconnector, the UK's strategy on increasing electric vehicle chargepoints, and more.

National Grid sells majority stake in gas business to focus on electricity

National Grid has agreed to sell a 60% equity interest in its UK gas transmission and metering business to a consortium of long-term infrastructure investors. The consortium is comprised of Macquarie Asset Management, a global asset manager and the world’s largest infrastructure manager, and British Columbia Investment Management Corporation, one of Canada’s largest institutional investors.

Completion of the sale is subject to certain antitrust and regulatory conditions and, subject to these clearances, is likely to take place in the second half of this year. The 40% minority interest will remain with National Grid for the time being (through a newly incorporated holding company) but is the subject of a sale option agreement which the consortium may exercise in early 2023.

The sale of the majority interest forms part of National Grid's strategic shift towards a focus on electricity and follows last year's acquisition of Western Power Distribution, the UK's largest electricity distribution business. Completion of the sale will increase the proportion of electricity assets in National Grid's portfolio from circa 60% to circa 70%. It will also significantly enhance National Grid's central role in the delivery of the UK's net zero targets.

John Pettigrew, Chief Executive of National Grid, said: “This transaction further enhances our role in delivering the UK’s energy transition, pivots our portfolio towards electricity, whilst ensuring the security of the energy supply for the country."

Government sets out proposed amendments to the Contracts for Difference regulations

The government has set out its proposed amendments to the Contracts for Difference (CfD) regulations following its review of the responses to the 'Carbon capture usage and storage: Amendments to Contracts for Difference Regulations' consultation issued last summer. The consultation sought views on amendments for facilitating power carbon capture, usage and storage (CCUS).

As part of its Ten Point Plan, the government has committed to investing in CCUS, and aims to establish two industrial clusters by mid 2020s and two further clusters by 2030 to enable the capture of 10Mt of carbon dioxide per year. To facilitate this, design of the Dispatchable Power Agreement (DPA) is currently underway and once finalised, DPAs will be offered to generators to encourage low carbon dispatchable electricity generation.

The proposed amendments to the CfD regulations will accommodate power CCUS projects and the DPA payment mechanism and terminology, as well as allowing for future developments in respect of non-pipeline transport, all to facilitate the award of DPAs. These will be implemented through a statutory instrument which the Department for Business, Energy and Industrial Strategy (BEIS) aims to put before Parliament this year. BEIS has also confirmed that the responses to last year's consultation will be taken into consideration whilst the statutory instrument is being drafted.

National Grid's IFA2 interconnector pays off carbon cost in first year

National Grid has revealed that it's IFA2 interconnector has paid off its carbon cost within the first 12 months of operation. The 1-gigawatt electricity cable,  which was commissioned on 21 January 2021, runs 120 miles along the seabed of the English Channel, connecting the British and French transmission systems.

The interconnector enables 1 million UK homes to be supplied with clean electricity and has saved 300,000 tonnes of carbon in less than a year. This equates to 100,000 tonnes more than the amount of carbon emitted during the four years taken to build the high-voltage direct-current link and the amount that will be used in the future to run it.

IFA2 was developed in partnership with French system operator RTE and is the second link between the UK and France. National Grid is currently developing its sixth interconnector, known as the Viking Link, which will connect Bicker Fen in LincoInshire to Revsing in Denmark. This is expected to complete by the end of 2023 and will supply a further 1.4 million UK homes with clean electricity. By 2024, National Grid's portfolio of interconnectors will operate enough capacity to power 8 million UK homes.

Managing Director Interconnectors for National Grid, Nicola Medalova, said: “This is fantastic news and highlights the critical role that interconnectors like IFA2 are playing in delivering a cleaner, more secure and more affordable energy system for UK consumers. By 2030, we estimate our interconnectors, including IFA2, will have saved the UK around 100 million tonnes of CO2 by enabling the fast and flexible sharing of clean and green energy with our European neighbours.”

Ofgem launches new consultation on competition in the electricity distribution connections market

Ofgem has launched a new consultation seeking input from interested stakeholders on its minded-to proposals for increasing competition in the electricity distribution connections market.

The current price control mechanism imposed on Distribution Network Operators (DNOs), known as RIIO-ED1, is in force until March 2023 and will be replaced by a new price control mechanism (RIIO-ED2) from April 2023 until March 2028. This new consultation seeks to collate the views of interested parties to ensure the suitability of any new price control incentives in enabling and increasing effective competition on electricity distribution connections.

In providing connections to the electricity distribution network, there are two classes of activity:

  • "Non-contestable" activities which can only be undertaken by a DNO; and
  • "Contestable" activities which can be undertaken by parties other than a DNO, such as Independent Connection Providers (ICPs) and Independent Distribution Network Operators (IDNOs).

For contestable activities, effective regulation arises naturally as the DNOs, ICPs and IDNOs compete with each other to deliver their services to customers. As a result, Ofgem limits the application of direct regulation on the DNOs.

However, for non-contestable activities, effective competition does not exist naturally and Ofgem instead imposes price control incentives to ensure that the DNOs meet their customers' expectations. Financial consequences are levied against the DNOs in the event that they do not provide an acceptable level of performance.

In June 2021, Ofgem commenced a review into the level of competition in the electricity distribution connections market. The intention was to enable a better understanding of the level of effective competition that existed in the market and to ensure that any future incentives on electricity connections were applied appropriately. The minded-to proposals which form the basis of Ofgem's new consultation are the result of the initial 2021 review. The consultation opened on 25 March 2022 and will close on 20 May 2022.

Government pledges "convenient, affordable and reliable" electric vehicle charging points across the UK

Last week, the government published the UK Electric Vehicle Infrastructure Strategy, setting out its vision and action plan for the increased rollout of electric vehicle (EV) charging infrastructure across the UK. A total of £1.6 billion has been pledged to achieve a target tenfold increase in chargepoints by 2030.

The strategy seeks to expand the UK's EV charging network so that it is robust, fair and covers the entire country. It is also operates alongside the government's pre-existing commitments to end the sale of new petrol and diesel vehicles by 2030 and to ensure that all new cars and vans are fully zero-emission by 2035. The aim is to reach 300,000 public EV chargepoints by 2030: almost five times the number of fuel pumps on our roads today. There is also a significant focus on improving consumer experience by supporting those without access to off-street parking and facilitating fast charging for longer journeys.

As part of the £1.6 billion pledged, £500 million has been set aside for investment into high quality and competitively priced public chargepoints. The vast majority of this - £450 million - forms part of the Local Electric Vehicle Infrastructure (LEVI) fund. It is the intention that the LEVI fund will help enable strategic local provision of public EV infrastructure ahead of demand, such as large scale EV hubs and commercially sustainable on-street charging. At present, a £10 million LEVI fund pilot scheme has been launched with local authorities and partnerships eligible to apply for funding.

The Strategy also states that that operators of EV charging points will be legally required to provide real-time data, ensuring that consumers can compare prices and pay for their charging seamlessly through contactless payments. Apps will also be used, enabling consumers to find their nearest chargepoint. Rapid chargepoints will be required to operate at 99% operability.

Transport Secretary Grant Shapps has stated that: "No matter where you live – be that a city centre or rural village, the north, south, east or west of the country – we’re powering up the switch to electric and ensuring no one gets left behind in the process. The scale of the climate challenge ahead of us all is well known and decarbonising transport is at the very heart of our agenda. That’s why we’re ensuring the country is EV-fit for future generations by the end of this decade, revolutionising our charging network and putting the consumer first."

 

 

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