Energy and Utilities Update | 12 June 2020

Written on 12 Jun 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at changes to the Electricity Supplier Obligation Regulations, Germany's electric vehicle market stimulus, BEIS' roundtables on green recovery from Covid-19, and more.

BEIS confirms changes to the Electricity Supplier Obligation Regulations in response to Covid-19

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response to a consultation which looked at how to minimise the impact of the increased costs resulting from Covid-19 on electricity suppliers who participate in the Contracts for Difference (CfD) scheme.

BEIS has confirmed that it will protect suppliers from 80% of the increase in suppliers' obligations under the CfD scheme (up to a maximum of £100million) in the second quarter of 2020. This protection will take the form of a loan to the CfD counterparty, the Low Carbon Contracts Company (LCCC). This represents an increase from BEIS's original proposal to protect suppliers from 67% of the increase. BEIS's agreement to provide protection for a higher proportion of, but not the total amount of, additional costs is aligned with its view that "suppliers should share some of the additional costs relating to Covid-19".

The consultation response also confirms that the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 will be amended to:

  • defer the increase in suppliers' obligations by an additional quarter, so that the total level of the obligation will be increased in quarter two of 2021 rather than quarter one of 2021;
  • calculate the reduction in suppliers' obligations for quarter two of 2020 based on their market share over the quarter;
  • calculate the increase in suppliers' obligations for the future quarter on the basis of their market share over that quarter;
  • enable the LCCC to repay the loan that BEIS is providing to suppliers, as outlined above; and
  • allow the LCCC to consider anticipated receipt or repayment of the government loan when setting the interim levy rate and/or the total reserve amount for a quarter or making in-period adjustments. Interim levy rate payments provide the LCCC with funds to make expected 'difference payments' to CfD generators. Total reserve amount payments are designed to ensure that the LCCC has sufficient resources to make all payments due to CfD generators.

The amended Regulations were laid on 4 June 2020 and it is anticipated that Parliamentary approval will be secured before 9 July 2020.

As a result of these changes, the LCCC will consider the need to collect the additional obligations offset by the loan in quarter two 2020 when setting the interim levy rate for quarter two 2021. The government has also noted that the provision of the loan to LCCC is an isolated response to the unprecedented circumstances.

Germany and France announce electric vehicle market stimulus packages

The German government has announced a €130 billion (£115 billion) stimulus boost to the electric vehicle (EV) industry as part of its Covid-19 recovery. Under the stimulus bill, all petrol stations will be required to install EV charging points and €2.5 billion euros will be invested directly into the expansion of EV charging infrastructure and battery cell production. Incentives for EV buyers will also double from €3,000 to €6,000 for cars costing less than €40,000. This measure is intended to boost EV sales, the sluggish nature of which have been attributed to the economic impact of Covid-19.

The French government has also announced its decision to increase support for EVs. In May, Emmanuel Macron announced that the government would be adding €100 million to its EV infrastructure charging programme to aid the deployment of 45,000 EV charging stations by 2023. Incentives for EV buyers will increase from €6,000 to €7,000 from June until the end of the year.

It is hoped that other governments will similarly seek to boost their EV and EV charging industries as part of their Covid-19 recovery packages. In the UK, new research published by Delta-EE, an energy consultancy firm, shows that the UK EV charge point market is set for 29% annual growth until 2030. The research considered that government policies – as well as EV uptake rates, technical developments and customer behaviour – will contribute to this growth.

BEIS to run roundtable on green recovery from Covid-19

BEIS has set out its plans to host a series of 'recovery roundtables' to consider measures to support the UK's economic recovery from the Covid-19 pandemic. The series will include a roundtable focused on green recovery. One of the main themes to be discussed at the roundtable is how to best capture economic growth opportunities amid the shift to net-zero carbon emissions. Business secretary Alok Sharma commented that the roundtable "will undoubtedly lead to a cleaner, greener, more resilient economy which will create new jobs".

Each of the roundtables will aim to unify businesses, business representative groups and leading academics. The business-focused groups will also consider local and international challenges which could threaten a green and resilient recovery from Covid-19, as well as the opportunities for the UK to be at the forefront of emerging industries.

 

Electrified heat can offer flexibility

With heating accounting for 30% of UK emissions, companies are increasingly in search of smart solutions which electrify heat in a way that can help to reduce emissions and contribute to balancing the electricity grid. The reduction in electricity demand in the UK in response to the Covid-19 lockdown has also driven the urgency of ensuring increased flexibility within the energy system.

In March, energy platform Kaluza and consumer electrical goods firm Dimplex collaborated with EDF in a trial to install Dimplex's heat storage pumps in homes that are intelligently controlled using Kaluza's software. The connection of Dimplex's heat pumps to Kaluza's platform relies on EDF's electricity price data as well as live information from the heaters to optimise electricity use and minimise the grid's carbon output. The initial trial of 30 EDF customers saw more than 100 storage heaters installed as a result of the project.

More companies sign up to The Climate Group's initiatives to tackle climate change

The Climate Group, a not for profit organisation aiming to accelerate climate action and reduce global warming, has reported receiving an influx of support on World Environment Day from over 20 large companies. The new signatories have been added to The Climate Group's existing network of businesses and governments, who have, by signing up to its RE100, EV100 and EP100 initiatives, pledged to do more to address the climate emergency.

Five companies from Japan, Germany and Denmark joined the RE100 renewables initiative, thereby pledging to use 100% renewable power. New signatories included: e-commerce company Zalando, which has pledged to reach 100% renewable power by 2025 with the use of rooftop solar and PPAs; and Novozymes, the world's largest provider of enzyme and microbial technologies, which has committed to using 100% renewable power by 2030.

The EV100 electric vehicles initiative was bolstered by the inclusion of five UK businesses including electricity supplier, Ovo, and construction company, Tarmac, who have both committed to transition their fleets to EVs and to provide EV charging infrastructure.

The EP100 initiative promotes smart energy use and an increase in energy productivity. New signatories included Ovo, which pledged to double energy productivity by 2030.

The new corporate signatories were joined by the Japanese Ministry of Defence which became an ambassador for the global RE100 initiative, the third Japanese government ministry to do so.

Ripple Energy launches first wind farm to be owned by its customers

Ripple Energy, a UK energy start-up, has launched its first consumer-owned wind farm: a single turbine project located at Graig Fatha Farm near Cardiff. Ripple Energy hopes to crowdfund the £4.3m construction costs for the project from 2,000 UK households, in return for shares in the Graig Fatha Co-operative, which will have a right to a proportion of the electricity produced.

When the turbine starts generating in 2021, the households involved will be supplied with electricity at a rate that only covers the running costs of the turbine, which is substantially cheaper than if the electricity was bought at commercial rates on the wholesale market.