The Energy Transition | Transport Decarbonisation Plan released, Ofgem consults of charge notification periods, and upcoming Capacity Market targets

Written on 16 Jul 2021

This week, we focus on the release of the government's Transport Decarbonisation Plan, Ofgem's consultation on charge notification periods, the release of the targets for the upcoming Capacity Market auctions, and more.

The Department for Transport publishes roadmap to decarbonise domestic transport by 2050

With under four months to go until the UK hosts the COP26 Summit, the UK government has launched its Transport Decarbonisation Plan to reach net zero across the transport sector by 2050.

The plan covers a wide range of transport methods, and includes proposals to:

  • Create a net zero rail network by 2050.
  • Support the development of low and no emissions vehicles, including the delivery of a "green bus revolution" and the first all-electric bus town or city. Measures to ensure that private electric vehicle chargepoints meet certain smart charging standards will also be introduced later this year.
  • Introduce a phase-out date for new diesel and petrol fuelled heavy goods vehicles by 2040 for vehicles weighing 26 tonnes or above, and 2035 for those weighing less than 26 tonnes.
  • Promote an increase in active modes of travel, building on an existing £2 billion investment pledged into cycling and walking.
  • Accelerate maritime and aviation decarbonisation.

The breadth and ambition set out in the plan (which was delayed from its original target publication date of autumn 2020) has been largely welcomed by many green experts. Criticism has however been levelled at certain assumptions in, and omissions from, the plan. Commentators have for example pointed to a perceived over-reliance in the plan on technologies that are still in development.

Ofgem consults on distribution use of system charge notification periods

Ofgem has released a consultation on temporarily allowing distribution network operators (DNOs) to set Distribution Use of System (DUoS) charges on shorter notice than the current 15 months during 2023 and 2024, the first two years of the RIIO-ED2 price controls.

DNO's have called for these notice periods to be disapplied to avoid the need to set prices for the 2023/24 period and potentially the 2024/25 period before the publication of final determinations on allowed revenues under RIIO-ED2 at the end of 2022. This is intended to avoid the risks that may arise should there need to be significant corrections after the publication of these revenues.

The alteration requested would permit DNOs to publish DUoS charges for 2023/24 with 60 days' notice or 20 working days after Ofgem publishes its final determination on the RIIO-ED2 plans. In addition, DNOs would publish DUoS charges for 2024/25 with at least six months' notice, and no later than 31 December 2023.

The consultation is seeking views on the following three alternative proposals to implement these changes:

  • Ofgem enacts the changes by directing that Distribution Connection and Use of System Agreement (DCUSA) clause 19.1A does not apply.
  • The current notice period is retained, but a “letter of comfort” is issued by Ofgem to DNOs confirming that it would not apply a penalty interest rate for 2023/24.
  • The notice periods are altered through a DCUSA code modification.

The consultation will close on 9 August 2021.

Parameters for upcoming Capacity Market auctions released

The Department for Business, Energy and Industrial Strategy (BEIS) has released targets for the upcoming T-4 2025/26 and T-1 2022/23 Capacity Market auctions.

BEIS is targeting a total capacity of 44.1GW for 2025/26 which is a slight increase on the 40.1GW targeted for T-4 2024/25 which cleared at £18/kW/y. Of the 44.1GW capacity targeted in 2025/26, 2GW will be set aside for the T-1 auction of that year. This will leave a target of 42.1GW for the T-4 auction.

For the T-1 auction taking place in 2022/23, BEIS is targeting 4.5GW, which follows the analysis set out in National Grid ESO's 2021 Electricity Capacity Report, and that of BEIS' own Panel of Technical Experts. The target of 4.5GW for the T-1 auction in 2022/23 is an increase on the 2.4GW target for T-1 2021/22. These targets have been upgraded since National Grid ESO released an analysis on the impact of Covid-19 in 2021.

BEIS has confirmed that the figures for the T-1 2022/23 and T-4 2025/26 auctions may still be updated following prequalification. The targets will be confirmed in early 2022.

Ofgem request dialogue with network operators in open letter

Martin Cave, the chair of Ofgem, has written an open letter to the Chairs of DNOs requesting that they provide input in relation to effective leadership, governance and transparency in the energy sector.

In 2014, Ofgem introduced licence conditions that required the appointment of Independent Non-Executive Directors (INEDs) to company boards. The letter states that Ofgem will seek direct involvement directors and INEDs to better understand how board leadership is ensuring that consumer views are heard. Additionally, the letter outlines Ofgem's suggestion to alter current board disclosure requirements ahead of the RIIO-ED2 price controls, with proposed changes to Regulatory Financial Performance Reporting placing a greater emphasis on transparency and accountability. Cave specifically states that Ofgem will engage with network operators on "dividend policies, executive remuneration and the resilience and diversity of the workforce".

Ofgem expects informal engagement with companies to begin in summer 2021, and will hold round-table discussions with INEDs in the coming months.

Guidance on the Carbon Capture, Usage and Storage competition

BEIS has published guidance on its upcoming Carbon Capture, Usage and Storage (CCUS) innovation 2.0 programme. The £20 million programme aims to accelerate the utilisation of CCUS technology in the UK, so that it can be deployed at scale by 2030.

The programme will continue to fund innovation focussed on using CO2, or on capturing CO2 and storing it for a geologically long timeframe. However, the programme will not fund direct air capture technology, as this will be the subject of BEIS' separate Green Gas Removal Programme. The CCUS Innovation 2.0 programme will be split into two lots:

  • Lot 1, which has a total £3 million of grant funding, will be targeted at projects developing and piloting mid-stage CCUS innovation. BEIS will consider grant applications of up to £1 million in Lot 1.
  • Lot 2, which has a total of £10 million of available funding, will be targeted at projects developing late stage CCUS innovation, which demonstrate 100 tonnes CO2 per day or greater at site. BEIS will consider grant applications of up to £5 million in Lot 2.