The Energy Transition | updates from Ofgem, Mer enters the UK electric vehicle market, parliamentary committee pushes the Treasury to clarify their net zero vision and more

Written on 30 Apr 2021

This week we look at the closure of the Non-Domestic RHI, changes to the short-haul gas transmission discount and Mer's entry into the UK electric vehicle (EV) market and more.

Green heat subsidy scheme to close

Ofgem has announced the closure of the Non-Domestic Renewable Heat Incentive (NDRHI) scheme to new applicants from 31 March 2021, subject to some limited exceptions with respect to replacement plant, tariff guarantees and extension applications.

The scheme was launched in 2011 and provided subsidies to renewable heating systems such as biomass boilers, heat pumps and solar installations, as well as subsidising biogas produced for heat generation. With decarbonisation of heat key to reaching Net Zero, Ofgem will continue to support low carbon heat via two prospective schemes:

  •  the Green Gas Support Scheme, intended to increase the proportion of green gas injected into the gas grid and intended to launch in Autumn 2021; and
  •  the Clean Heat Grant, aimed at helping domestic and small commercial properties install primarily heat pumps and in limited circumstances, biomass systems, and intended to launch in Spring 2022.

Participants who are already active in the scheme will continue to receive support lasting up to 20 years, provided they meet their ongoing obligations. Notably, Ofgem has introduced rules to allow biomethane producers to claim payments from NDRHI and the Department for Transport’s Renewable Transport Fuel Obligation (RTFO) within the same quarter, although RHI and RTFO cannot be claimed for the same biomethane. Ofgem have yet to determine how this will be verified and will be working with participants and industry to finalise the position.

Ofgem approve reinstatement of short-haul gas transmission discount

Ofgem has approved a modification proposal to the Uniform Network Code that will introduce a conditional discount on gas transmission charges for users connected within 28km of a transmission network entry point. This modification is aimed at discouraging users from bypassing the transmission network by using or constructing alternative pipelines to avoid charges, leading to higher overall costs and inefficiencies.

The proposal (UNC728B) will apply a discount of between 10% and 90% on gas transmission charges for qualifying users. While some parties to the consultation on UNC728B argued that the discount would not be enough to discourage bypassing the network along some routes, Ofgem said that a majority of respondents agreed with the discount offered.
Ofgem has set an implementation date for 1 October 2021.

Mer enters the UK EV charging market

Mer, a European electric vehicle charging company owned by Statkraft, Europe’s largest renewable energy producer, has announced that it will enter the UK's EV charging market with the specific intention of focussing on previously underserved areas of the country.

Mer will focus on high-use public areas like workplaces, key retail locations and areas managed by local authorities where Mer expects usage to be high, in particular residential streets where people do not have off-street parking and require on-street solutions. Mer highlights the need for work-place charging as salary sacrifice schemes and other incentives mean an increasing number of company vehicles and fleets are switching to electric, and points to its success in running a similar EV charging rollout in Norway, where 54% of new car sales in 2020 were electric.

Anthony Hinde, Managing Director of Mer UK, said that "installing EV chargers into workplaces and more broadly into community locations, and switching fleet vehicles to electric, will be a critical element to the success of the green-vehicle transition".

Ofgem lists its criteria for intervention in market-wide half-hourly settlement

As part of its recent consultation, Ofgem has listed five scenarios in which it would intervene in the implementation arrangements of market-wide half-hourly settlement (MHHS). As discussed in our previous edition of the Energy Transition, Ofgem approved MHHS last week and confirmed that the new system is expected to go live in October 2025.
Elexon has been named as being responsible for the MHHS programme. Ofgem has said that it will only intervene in response to the following five triggers, or where the independent assurance provider recommends that an issue be passed on to Ofgem as regulator.

  • If there is a proposed “material or fundamental change” to the target operating model baseline. The consultation sets out examples of such changes.
  •  If there is a significant proposed or forecast shift in either costs (materially higher) or benefits (materially lower) than its impact assessment suggests.
  •  Where significant delays to planned implementation are experienced or forecast.
  •  Where a situation arises in which a party or parties argue that their interests are being treated less favourably, without good reason, than those of other parties. This would include where there are issues relating to Elexon’s own conflicts of interest.
  •  Where a situation arises in which a stakeholder argues that the design process is not taking proper account of the interests of end consumers, or a change would have a material impact on consumers.

A spokesperson for energy supplier E.ON commented that the programme "sets the foundation for a range of positive measures that will help customers take control of their energy and allows energy suppliers to bring forward better services and technology – all of which contribute to reducing emissions and helping to deliver the UK’s net zero target".

Parliamentary committee pushes the Treasury to clarify net zero vision

The Parliamentary Public Accounts Committee (PAC) has criticised the Treasury for being too slow in producing its net zero funding review, and in its review of how the tax system supports the government's target of reaching net zero. The interim report of the review was postponed following its launch in 2019, but was eventually published in December 2020. According to the PAC, the final report is expected soon.

The PAC has also noted that the Treasury and HMRC have failed to monitor the impact of other pro-environment tax measures (such as those bolstering clean technologies and energy saving) or the effect of tax measures affecting fossil fuel consumption. PAC concluded that environmental assessments should be made for all taxes.

Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit, said that “rectifying a tax system that subsidises high carbon heating and favours higher-emitting modes of transport will avoid steeper emissions reductions in other parts of the economy. It will also provide clear market signals to allow the private sector to take on a lot of heavy lifting in cutting carbon, removing costs from state books…"

National Grid calls for a heat delivery board

National Grid's director of COP26 (the next UN climate change conference), Duncan Burt, believes that the first step in decarbonising heat lies in the heat and buildings strategy that is being unveiled by the government next month. Speaking to Utility Week, Burt acknowledged that although rapid progress is required if we are to install 600,000 heat pumps a year by 2028,"it’s more important to get it right and build once and carefully a policy framework for heat that can be as successful as the policy framework for offshore wind”.

Burt noted that he supports the establishment of a body to oversee heat decarbonisation – both in terms of leading the communication of the strategy to the public, and in developing the technical aspects. According to Burt, “…we see the real need for the establishment of a heat delivery body that would work very much like Digital UK did on the digital switchover. We need a body that can work both strategically, to plan and work with government policy, but can also then do the heavy lifting on public engagement. Without such a body it’s very difficult to see how we get the alignment of consumer messaging with the right policy that delivers that really large investment..."

Big energy suppliers call on the government for a carbon tax

Several big energy suppliers have called on the government to redistribute policy costs from electricity bills, and introduce carbon taxation to achieve its green heating targets. To that end, Centrica, EON, EDF, Ovo and Scottish Power have commissioned the Options for Energy Bill Reform Report by Public First.

The report highlights that policy costs like contracts for difference, renewable obligation certificates and feed-in tariffs are currently levied on electricity bills but not on gas bills. Public First concluded that without policy changes, by 2030 households using air source heat pumps will pay an additional £305 a year in energy bills when compared with households using gas boilers.

Public First suggests transferring appropriate policy costs away from electricity bills and into government expenditure and then introducing a carbon tax. The tax would be levied across gas and electricity, starting at £54/tCO2e at a steadily increasing rate of up to £75/tCO2e by 2030. Public First argues that this route provides a balance between the following competing factors: not penalising the fuel poor or the average consumer; properly pricing gas emissions; incentivising heat decarbonisation; and limiting the impact upon the Treasury.