Energy and Utilities Update | 18 March 2020

Written on 18 Mar 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at the latest report on what is needed for the UK to achieve net zero by 2050, Gridserve's plans to develop an electric forecourt, progress on Ofgem's Significant Code Review, and more.

Ofgem progresses with the Significant Code Review as it shortlists policy options

The Significant Code Review (SCR) was launched by Ofgem in late 2018 to ensure the efficiency and flexibility of electricity networks across the UK in the face of transformation as a result of decarbonisation, decentralisation and digitalisation. In particular, the SCR aims to enable customers to take advantage of new technologies while avoiding additional costs.

On 9 March, Ofgem published an update on the review, which narrowed down the policy options shortlisted for more detailed assessment. The following options were shortlisted: definition and choice of access rights; reducing and removing the contribution to reinforcement costs; addressing the potential reforms to the upfront connection charges to distribution networks; and allowing alternative payment terms for connection charges.

A spokesperson from the Energy Networks Association re-asserted its commitment to working with Ofgem on the review "to make sure the public continue to receive the best possible service and appropriate signals about the costs and benefits they incur on the network".

Read more here.

Pivot Power's Oxford Energy Superhub

Pivot Power, a battery storage developer, has begun construction on the first transmission connected lithium-ion and redox-flow hybrid battery, as part of the £41 million Oxford Energy Superhub, which is funded, in part, by the UK government's Industrial Strategy Challenge Fund.

The 50MW hybrid battery, which will support the installation of 100 ultra-rapid EV chargers, is estimated to store enough electricity to supply nearly 6,000 average homes in a single charge.

The project's developers have identified 41 potential sites where the project could be replicated without grant funding, and the project aims to deliver a saving of 20,000 tonnes of CO2 per year by 2021 and a further saving of 44,000 tonnes of CO2 per year by 2032.

Read more here (£).

Unprecedented innovation essential to achieving net zero by 2050

Innovating to Net Zero, a government-funded report published by the Energy Systems Catapult (ESC) on 10 March 2020, concluded that, at present, the UK is unlikely to reach its goal of achieving net-zero carbon emissions by 2050.

The report found that making this goal possible will require "unprecedented innovation" across the economy.

The report used the Energy System Modelling Environment (ESME) to test hundreds of routes to net zero including both government-led change and consumer-driven change. Within all of these ESME scenarios, the ESC found that the key to decarbonisation was innovation.

The ESC report also found that achieving this goal could require hydrogen production to match current levels of electricity generation.

Read more here.

T-4 Capacity Market results show a price rebound with 1.8GW of new capacity

The provisional T-4 Capacity Market results, released on 6 March, show the auction for delivery in 2023/2024 clearing at £15.97/KW/year. This was the first T-4 auction since the period of standstill following the EU court ruling. The price is the highest since the 2016 T-4 Auction and marks a significant rise from the recent T-3 auction for 2022/23, which cleared at less £6.5/KW/year.

The auction procured around 43.7GW of the total 59.4GW which entered the auction process, exceeding the target procurement figure of 43.3GW.

Of the total capacity cleared, 34GW was existing capacity and 1.8GW was new capacity. A further 8.7GW was allocated between refurbished capacity and interconnectors. The majority of new capacity was awarded to combined cycle gas turbines (812MW). New reciprocating engines and energy from waste projects secured 681MW and 153MW respectively. Battery storage applications also saw a success rate of 36%.

Read more here.

Cadent issues UK's first transition bond

Cadent, the UK's largest gas distribution network has announced that it will issue the UK's first transition bond, which is a new form of financial instrument aimed at industries that are in transition towards low emissions. They tend to have short maturities and aim to reduce carbon emissions per unit of electricity generated. The move by Cadent is a first for the UK, and one of only a handful that have been issued around the world.

The bond was 8.5x oversubscribed, which suggests an enthusiasm from investors and might mean that other network providers will follow in Cadent's footsteps. Cadent's chief financial officer Steve Hurrell commented that the move represents Cadent's commitment to "fostering the tradition to a low carbon economy".

Read more here.

Gridserve announces plans to develop electric forecourt

Gridserve, a developer of hybrid solar solutions, has announced plans to develop a forecourt for electric vehicles with supercharger devices for up to 24 vehicles. The project is the first in Gridserve's £1 billion programme to build 100 of these electric forecourts across the country.

The charging stations will be powered by a mix of solar panels, solar farms and battery storage units. Cars will be able to charge in 20-30 minutes, although Gridserve expect these timelines to shorten in the future. The forecourt will resemble a traditional service station, with amenities including a small supermarket, coffee shop, meeting rooms and high speed internet, demonstrating a commitment to enhancing consumer experience

Read more here (£).

Ofgem issues five suppliers with final orders to become DCC users

Ofgem has issued final orders to Daligas Limited, Enstroga Ltd, Entice Energy Supply Limited, Euston Energy Ltd (who trade as Northumbria Energy) and Symbio Energy Limited, which means that these suppliers will be prevented from taking on new customers until they become Data Communications Company (DCC) users. All of the suppliers – alongside four other suppliers which brings the total to nine – were required to become DCC users from November 2017, as we reported in our 13 January 2020 E&U update (here). But the five new suppliers have failed to do so, which means that they are failing to comply with Standard Licence Conditions. The DCC links up smart meters in homes and small businesses with energy suppliers, network operators and energy service companies.

The final orders are the most recent to be issued by Ofgem, with Avro Energy also being issued a final order in March 2019.

Read more here (£).