Energy and Utilities Update | 20 May 2020

Written on 20 May 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at the proposal to defer payments under the Contracts for Difference scheme, the Government's policy paper on vision for rapid charge point network in England, call for new Local Electricity Bill to solve the local energy dilemma, and more.

Government’s proposal to defer payments under the Contracts for Difference scheme

On 24 April, the UK government announced that it is granting a temporary loan to the Low Carbon Contracts Company (LCCC), which is responsible for administering the UK’s Contracts for Difference (CfD) scheme. The move will ensure that CfD generators could be paid under the scheme without increasing levy rates for suppliers, as we previously reported.

This government loan to the LCCC came in response to a warning from the LCCC that electricity suppliers could face an unexpected increase in their payment obligations in the second quarter of 2020 due to lower electricity demand during the Covid-19 pandemic and higher payments to CfD generators as a result of lower wholesale electricity prices.

The government is also now seeking views on a proposal to defer part of the increase in electricity supplier obligations (which the LCCC would have collected in July 2020) to the first quarter of 2021 by utilising the government loan. Implementation of this proposal would require changes to the Contracts for Difference (Electricity Supplier Obligation) Regulations 2014.

If the proposal does not proceed, the government will provide the loan to the LCCC, but supplier’s obligations for CfD payments will remain unchanged and they will be required to pay a higher lump sum following the reconciliation process in July.

The deadline to respond to the consultation is 19 May and details of how to respond to it can be found here.

Government publishes policy paper on vision for rapid charge point network in England

The government is currently consulting on whether to end the sale of new petrol and diesel cars ahead of the original 2040 target (read more here) and recognises that extensive public charging infrastructure is critical to reach this goal. As such, the government has reviewed how many public charge points for electric vehicles are necessary to sufficiently meet the anticipated growth in electric vehicle charging demand along motorways and major A-roads.

Rishi Sunak, the chancellor of the exchequer, in this year’s Budget announced a £500 million allocation for electric vehicle-charging infrastructure, which includes the introduction of a Rapid Charging Fund (read our report on the Budget here). In the new policy paper, the government sets out its plan to make this fund available for the upgrading of connections in strategic locations where such upgrading is not financially or commercially viable by ensuring:

  • A minimum of six high-powered, open-access charge points at motorway service areas in England by 2023. These are capable of charging electric vehicles three times quicker than existing points and will have capability of up to 350KW. Larger motorway services will have up to 12 of these charge points.
  • The charging network is able to cope with a larger-scale switch to electric cars with 2,500 high-powered charge points across motorways and major A-roads by 2030.
  • The aim is to have 6,000 high-powered charge points by 2035.

As well as setting out targets for the number of charge points, the policy paper also sets out the government’s ambition to ensure the charge points are easy to use so that:

  • Drivers are able to pay for vehicle charging with a debit or credit card.
  • Openly available information is accessible to drivers, so that they can make more informed decisions about charging.
  • Charge points are available 99% of the time with 24/7 customer support.
  • Charge points will cater for all types of electric vehicles.
  • Clear pricing information will be available in pence per kilowatt-hour.
  • If necessary, regulations to enhance consumer experience will be introduced, with the Automated and Electric Vehicles Act 2018 granting power to the government for this purpose. 

Read more here.

National Grid reduces embedded generation using its Downward Flexibility Management service

The new Optimal Downward Flexibility Management service (as reported on here) was utilised, as expected, over the early May bank holiday weekend. Energy technology platform Limejump has commented that they were asked by National Grid ESO (NG ESO) to shut down 238MW of embedded generation between 4am and 7am on the 10 May, noting that this was likely to be wind generation.

Despite predictions of large amounts of wind generation over the bank holiday weekend, the level of wind generation rather unexpectedly peaked during the early morning as opposed to in the middle of the night, meaning that demand was able to balance much of the generation. Therefore,  NG ESO have been able to confirm that they did not rely on GC0143 to disconnect any embedded generation. 

Read more here.

Call for new Local Electricity Bill to solve the local energy dilemma

Power for People, a not-for-profit organisation supporting clean energy, has prepared the Local Electricity Bill, which aims to increase community-scale renewable energy by empowering communities to sell their energy directly to local people.

Under the current regulatory regime, local energy suppliers must obtain the necessary licence to sell electricity and gas directly to consumers. The difficulties in obtaining a licence have acted as an obstacle to individuals and community schemes attempting to generate their own renewable energy, as they cannot on-supply any electricity generated to local domestic consumers without a licence.

The Bill aims to make it easier for local electricity suppliers to sell electricity and gas to consumers by introducing the idea of a “local supply licence”. It seeks to place an obligation on Ofgem to issue a licence to any “capable” electricity generator at a proportionate cost and to ensure that any regulations are as straightforward as possible.

While the draft Bill has received criticism for a lack of clarity, there is widespread support from MPs for a more appropriate licencing system. The Bill was set to be introduced into Parliament on 28 April, however, it was postponed due to current timetable restrictions. We are continuing to track this draft Bill and will report further as it progresses.

Read the draft bill here.

Government releases guidance on responsible contractual behaviour

The Cabinet Office and the Infrastructure and Projects Authority have jointly published non-binding  guidance (available here) for parties that have been affected by Covid-19 disruptions. In the guidance, individuals, businesses and public authorities are urged to act fairly and responsibly in the national interest when performing and enforcing their contracts.

Read our more detailed analysis of the guidance here.

Furloughed energy workers to be matched with low-carbon start ups

Across the energy sector, it is estimated that around 12,000 workers have been placed on the government retention scheme during the Covid-19 pandemic. On 12 May, the government announced an extension of its furlough scheme until the end of September.

A new project named Spinning Reserves, has been set up by Rosa Stewart, the head of external affairs for SSE Energy, in an attempt to harness the skills of furloughed workers, along with those workers who have lost their jobs. The project will match furloughed and unemployed workers with existing low carbon initiatives seeking new talent.

It is hoped that newly formed groups will be able to draw on the skills experience of these sector workers to enable them to eventually create their own innovative projects and source funding.

Read more here (£).

Government extends consultation on proposed amendments to the Contract for Difference scheme

On 2 March, the government opened a consultation seeking views on a number of proposed amendments to the Contracts for Difference (CfD) scheme, which aim to ensure that it continues to support low-carbon electricity generation at the lowest possible cost to consumers (as we reported here).

The consultation period was due to end on 22 May and the government had previously confirmed that the deadline would not be extended (as we reported here). However, in light of Covid-19, the government has now chosen to lengthen the consultation period to the 29 May.

Details of how you can respond can be found here.