Energy and Utilities

The Energy Transition | UK government announces energy support package and is urged to encourage low-carbon heating

Published on 14th Sep 2022

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

This week, we look at Liz Truss's announcement of government support for energy bills, the National Infrastructure Commission and the Climate Change Committee's push for the government to deliver on low-carbon heating ambitions, the solar sector's support for fixed-price contracts, and more.

Government announces energy bills support package

The new prime minister, Liz Truss, has announced a number of government actions for the next two years which aim to help consumers with their energy bills and increase supply in the UK energy market. The government hopes that the support package announced on 8 September 2022 will be a step towards tackling the root causes of the issues faced by the energy sector. The announcement offers headline objectives, but the full details of what is being envisaged (together with timings) are missing at this stage.

The government has announced a new Energy Price Guarantee (EPG) which will limit the price that energy suppliers can charge customers for units of gas. This means that a typical household in Great Britain will pay no more than £2,500 per year for its energy for the next two years. The EPG will apply in Great Britain, but the same level of support will also be made available in Northern Ireland. Meanwhile, energy suppliers will be paid the difference between the new lower price set and what energy retailers would usually charge their customers were the EPG not in place.

The EPG will apply automatically to all households from the beginning of October and will apply in addition to the £400 non-repayable discount provided to households this winter through the Energy Bill Support Scheme. The intervention will be funded by the government, however, a new Energy Supply Taskforce, which will work together with the Department of Business, Energy and Industrial Strategy, to seek to negotiate with domestic and international energy suppliers to reduce the prices they charge and agree long-term contracts to increase the security of supply.

Green levies will also be temporarily removed from household bills, which the government predicts will save consumers around £150. Schemes previously funded by green levies will continue to be paid for by the government for the next two years. In addition, it has been suggested that nuclear and renewable generators will potentially move onto contracts for difference (CfD) arrangements, to help cut wholesale electricity costs, although we await details of how this would work.

In addition, it is envisaged that a new six month scheme will be implemented to support businesses, charities and public sector organisations, under which energy costs will be set at the same price per kWh as households are set to pay under the EPG. After the initial six-month period, a review will take place and vulnerable industries identified will continue to receive support.

The government is looking to reform the structure and regulation of the energy market and develop a new approach to address long-term supply and affordability. It intends to run a review of UK energy regulation to inform its recommendations around the potential structuring of the market. A review of whether the UK is meeting its Net Zero 2050 targets in an economically-efficient way will also take place and the government has committed to producing a report on this by the end of the year.

Government urged to encourage growth of low-carbon heating market

The National Infrastructure Commission (NIC) and the Climate Change Committee (CCC) have written a letter to the new prime minister setting out the need for action on energy efficiency, low carbon heat and renewables in order to tackle the current cost-of-living crisis.

In particular, the NIC and CCC have urged the government to use its review of electricity market arrangements, published on 18 July 2022, to incentivise a shift away from gas boilers to electricity for heating. They warn that the persistently high price of electricity will act as a disincentive to customers to switch from gas boilers and that the government must deliver on its ambition to create a market for low-carbon heating systems. The letter recommends that the government should publish new policies next year to ensure all owner-occupied homes reach a minimum standard of Energy Performance Certificate Band C by 2035.

The letter also urges the government to focus on renewables as they are currently the cheapest form of electricity generation. The NIC and CCC state that the UK cannot address the current crisis by increasing production of natural gas. Therefore, they recommend that the government takes full advantage of contract for difference auctions for onshore wind and solar by removing regulatory barriers to enable faster deployment of both technologies and reduce reliance on natural gas sooner.

They also recommend additional measures such as providing a comprehensive energy advice service for households and updating National Policy Statements for energy as soon as possible. The NIC and CCC state that finalising the revised National Policy Statement is a critical first step for supporting a low carbon energy system and reducing costs to consumers. They also stress the importance of ensuring the public are aware of how to reduce energy use by increasing awareness of low-cost actions.

Solar sector show support for fixed price contracts

The trade association Solar Energy UK has announced that it and some of its largest member companies are supporting proposals that would lower energy bills and lead to a reduction in exposure to gas price volatility. The voluntary plan was first put forward by UK Energy Research Centre, and has also been endorsed by other clean energy sector bodies such as RenewableUK. The plan intends that contracts made under the Renewables Obligation (RO) scheme are tied to a new fixed-price scheme that is based on the Contracts for Difference (CfD) system.

Under the RO scheme, which closed to new developments in 2017, generators were offered a fixed subsidy in order to cover the investment cost of their older and more expensive assets. The power generated by these assets is then traded on the open market. Over 2020/21 around 25% of the UK's electricity consumption was supplied by RO generators. The power that is produced under the RO is sold far in advance, and therefore the income received by generators currently does not reflect the increased prices on the wholesale spot market. In light of the rising costs of energy, Solar Energy UK highlights that "there is a risk that consumer costs will rise further if the regime is not reformed urgently".

The two proposed scheme options seek to ensure that costs are met while stopping consumers being hit by further market prices, and to improve investor confidence by tying-in with the government's ongoing Review of Electricity Market Arrangements. The first option would retain RO payments, in return for trading the right to sell power on the wholesale market. The second option would replace the RO payments and sales to the wholesale market with a CfD. Solar Energy UK notes that this "could lead to deeper bill reductions in the short term".

It is not clear yet how the new Energy Price Guarantee announced by government will impact these plans in the short and long-term.

Solar Energy UK chief executive Chris Hewett said:We have begun considering the proposals to reform support for renewable power, which we will need to be sure will function as intended to both support the sector and combat the rising cost of living. There is much to be worked through on the detail, but senior industry players are very supportive of the principle. Continuing to let natural gas set the price of power is not in the interests of the country. Clearly expansion of renewables such as solar is the solution to low-cost generation, energy security and reaching net zero. We are ready to discuss with new ministers as soon as they take office.”

Green Investment Group launches EV charging business

Macquarie Asset Management's Green Investment Group (GIG) has announced the launch of their new electric vehicle charging business, dubbed Fleete. Using a charging-as-a-service model, Fleete will provide the infrastructure to enable operators of buses, trucks and vans to accelerate their transition towards an entirely electric fleet.

Fleete will be a one-stop-shop, handling the financing, installation and management of the charging infrastructure and providing a subscription-based service to customers. Fleete's high-powered chargers will deliver between 60kW and 600kW for ultrafast charging (up to 100km of range in only 10 minutes). Additionally, Fleete subscribers will have access to proprietary software with smart charging functionality. This allows customers to take advantage of the lower cost of overnight charging, optimising energy consumption and helping to balance the demand on the grid.

Currently, buses and trucks account for less than 2% of vehicles across Europe, yet they account for a disproportionately large amount of CO2 road emissions (23% in 2019). Mark Dooley, Global Head of GIG, said that their aim is to "accelerate the EV transition by making it easy for operators to reap the benefits of going electric immediately, while supporting the delivery of a smart, flexible, low-carbon energy system”. By targeting commercial fleets, GIG sees Fleete as an opportunity to have a significant near-term impact on decarbonising the transport sector.

Fleete will provide charging infrastructure for three types of location:

  • single-client, large scale depots where vehicles are charged overnight;
  • hybrid hubs for smaller clients in locations such as trading estates or carparks that can be used by multiple fleets; and
  • intercity chargers built close to motorways.

Dan Bentham, CEO of Fleet, said:“The deployment of electric fleet charging infrastructure is currently in its infancy - but demand is set to grow exponentially. Fleete has been created to support this large-scale transition to electric commercial vehicles. Through a monthly subscription with no upfront costs, we are putting clients at ease as they transition to electric vehicles. All of this wrapped up in our over-arching digital platform. Achieving this can only be done in a smart, connected way with a single point of service for our clients. That is Fleete".

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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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