Energy and Utilities

The Energy Transition | RIIO-2 Final Determinations, UK's first Electric Forecourt, power prices spike

Published on 11th Dec 2020

This week we look at the publication of the RIIO-2 Final Determinations, a report from Green Energy on greenwashing which calls for reform, the IEA labelling energy efficiency improvements in 2020 the 'weakest in a decade', and more.

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RIIO-2 Final Determinations published

Ofgem has published its Final Determinations on its RIIO-2 price control operating regime within the transmission and gas distribution industry. The main decisions for the RIIO-2 price control period, which will run from 1 April 2021 to 31 March 2026 are as follows:

  1. Preparing the networks to meet net zero - Ofgem has approved a £40 billion investment package (£30bn upfront) in national infrastructure for a "greener fairer energy system".
  2. Low costs to consumers, with greater efficiency and lower returns - allowed returns are forecast at 4.3% to reflect an expected outperformance of 0.25%.
  3. Maintaining world class levels of customer service and reliability – rewards and penalties for customer service and a £13m investment in "ageing network assets".
  4. Making sure no one is left behind – quality of service targets and £60m funding allowance to support vulnerable customers.
  5. RIIO-2 will be extended to control the Electricity System Operator for the first time.

Keith Anderson, Scottish Power chief executive, expressed concerns that "Ofgem’s proposals on the headline rate of return will not attract the global investment our transmission business requires if we are to support the clear net zero ambitions of the UK." However, Chief Executive of Ofgem, Jonathan Brearley, defended the position and said shareholder returns needed to be closer to current market levels, to ensure that "companies can attract the vital investment we need whilst making sure that consumers don’t pay more than is necessary to achieve this."

The Final Determinations will be followed by a statutory consultation on licence modifications, with RIIO-2 taking over from RIIO-1 in April 2021.

GRIDSERVE celebrates 'major milestone' as UK’s first Electric Forecourt opens for business

GRIDSERVE has launched the UK's first 'Electric Forecourt' in Essex and has revealed its ambitious plans to build 100 more over the next five years. The launch of this site coincides with the announcement that new petrol and diesel cars will be banned from 2030.

The site offers electric vehicle (EV) drivers the fastest car charging in the UK, with 36 power chargers ranging from 22kw up to 350kw. The DC 350kw high power charger takes around 30 minutes to deliver a full charge and costs around 24p per kWh. Electricity at the Forecourt is generated by solar panels and a 6MWh battery at the site. The chargers are also supported by a connection to a solar farm network operated by GRIDSERVE. GRIDSERVE has also partnered with Hitachi in a EV leasing scheme, allowing customers to lease an EV and charge at electric forecourts without any additional costs.

Power prices spike to £720/MWh as low winds continue to stretch grid

The 5-6th of December saw a tumultuous weekend for energy prices in the UK, with an unprecedented day-ahead clearing price for a Sunday of £350/MWh. Low wind generation and falling temperatures led to National Grid Electricity System Operator turning to high priced generation to avoid a supply shortfall, raising prices to a four year high.

Prices on Sunday evening peaked at £720.41/MWh, which was even higher than 26 November prices which we have previously reported on. This was described as a "bizarre event" for a Sunday by Phil Hewitt, EnAppSys director. The demand for power on winter days often peaks as solar generation stops, and on Sunday this was combined with very low winds. The gap was bridged by a number of technologies coming together, such as pumped hydro storage, gas, biomass and interconnectors. A Drax Electric Insights spokesperson explained that "events like this underline that the net zero power system of the future will not just rely on one or two technologies, but a broad mix working together."

Greenwashing report calls for reform

Renewable power retailer Good Energy has published a report which focuses on the issue of "greenwashing" in the energy retail sector. The report makes two primary recommendations for reform to Ofgem.

The first is to update the domestic electricity supply licence condition which requires suppliers to show that a domestic customer’s choice to join a green tariff “results in an additional benefit to the environment”, beyond existing obligations. Good Energy is calling on the regulator to enforce the clause by requiring any environmental claim to be audited by either an independent body or Ofgem, outlining what qualifies as "additionality".

The second recommendation is that no tariff should be marketed as 100 per cent renewable unless the supplier is buying that power from a renewable generator.

We have previously reported on the different shades of green electricity in the commercial and industrial energy retail sector and on some of the perceived drawbacks of those options.

IEA: Energy efficiency improvements for 2020 'the weakest in a decade'

The International Energy Agency (IEA) has released its Energy Efficiency 2020 report, which records the poorest rate of improvement in primary energy intensity since 2010. Despite nations investing in retrofitting and businesses looking to make energy savings during lockdown, the IEA has warned that in 2019 the global pace of progress in reducing primary energy intensity was insufficient to meet climate targets. The report predicts that investment in energy efficiency worldwide is likely to be down 9% in 2020 on a year-on-year basis.

This lack of progress is reportedly a result of the economic impacts of Covid-19 and the shift in energy demand from commercial to residential buildings. Electricity use in residential buildings in the first half of 2020 grew by 20% in some countries, whilst it fell by around 10% in commercial buildings, according to the report. As shops and offices start to re-open, commercial buildings could become more energy intensive if occupants implement higher ventilation rates to reduce the risk of Covid-19 transmission.

While many governments have increased investments in energy-efficient buildings through programmes like the UK’s Green Homes Grant and the EU’s Green Renovation Wave, other nations have chosen not to, and the benefits of these schemes aren’t likely to come to fruition until 2021 or 2022. The IEA has claimed that improving energy efficiency can deliver almost half of the reduction in energy-related emissions that is needed by 2040 if the world is to align with the Paris Agreement.

Local electricity pricing could save consumers £2.1bn annually

Introducing local electricity pricing could reduce total electricity system costs by £2.1 billion a year from 2030 onwards, according to a new report by thinktank Policy Exchange. The report suggests that implementation of local pricing will encourage generators, energy storage asset holders and customers to respond to local changes in supply and demand.

Falling electricity demand during the Covid-19 lockdown resulted in higher system balancing costs. The report warns that these will become the new normal as the UK builds more offshore wind farms. According to the report, introducing local pricing will help to avoid balancing challenges and help offshore wind to play an increasingly large role in the country’s energy mix.

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