Energy and Utilities Update | 21 April 2020

Written on 21 Apr 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at how renewables became Britain's main power source at the start of 2020, delays to the Sixth Carbon Budget, an extension to the UK government's heat networks consultation and more.

Contracts-for-difference auction to go ahead as planned

The Department for Business, Energy and Industrial Energy (BEIS) has confirmed that the Contracts-for-Difference (CfD) auction will not be delayed as a result of COVID-19 disruption. The current position is that the CfD auction will go ahead as planned, although this situation does remain under review. As we previously reported here, the CfD process this year is expected to also include onshore wind, floating wind and solar projects among the assets eligible for a CfD contract award.

BEIS opened a twelve-week consultation on proposed amendments to the CfD scheme on 2 March 2020. The consultation period expires on 22 May 2020 and BEIS has confirmed that this deadline will not be pushed back. BEIS has urged its stakeholders to make contact should there be any concerns about responding within this deadline due to disruption caused by COVID-19. We understand that during the consultation period there will be a number of webinars which will, according to BEIS, allow the "dialogue to progress" in place of the typical face to face stakeholder events.

Read more here.

COVID-19 could constitute a force majeure event for low carbon electricity generators

The Low Carbon Contracts Company (LCCC) has confirmed that COVID-19 is capable of constituting a force majeure event under the Contracts for Difference (CfD) scheme.

A force majeure clause operates to absolve or postpone one or both parties obligations under a contract on a no-fault basis, on the occurrence of certain events which are beyond the control of the party or parties affected.

The CfD standard terms and conditions all contain force majeure provisions. The LCCC has confirmed that it will assess on an individual contract basis whether a generator is able to seek relief due to force majeure, as a result of delays caused by COVID-19. However, LCCC has outlined that, for force majeure relief to be granted, the generator must:

  • demonstrate that the relevant elements for a force majeure claim are satisfied;
  • use reasonable endeavours to mitigate the effects of the force Majeure event and comply with CfD obligations as far as possible; and
  • give notice of any force majeure event to the LCCC as soon as reasonably practicable.

Holders of CfD contracts should consult the CfD standard terms and conditions in relation to force majeure.

Read the LCCC's publication here.

Sixth Carbon Budget Delayed as a result of COVID-19

The Committee on Climate Change (CCC) has announced that the Sixth Carbon Budget, which was due to take place in September, will be delayed until December due to COVID-19. The delay is to enable the CCC time to include the impact of the pandemic on its assessment of the UK's progress in reaching its carbon targets.

The Sixth Carbon Budget will provide minsters with advice on the level of greenhouse gases the UK can emit from 2033 to 2037 and will help shape the framework for achieving the UK's net-zero emission target by 2050.

The CCC is also updating its annual Progress Report to Parliament, which is currently anticipated for publication in June. The report is expected to include advice on how to resiliently recover from COVID-19 while supporting a transition towards net-zero emissions.

Read more here.

Ofgem urges networks and suppliers to prioritise emergency works

On the afternoon of 8 April Ofgem released open letters to energy network operators and energy suppliers outlining the activities that they should prioritise during the pandemic.

The regulator stated that high-priority activities for energy networks include emergency responses and critical repairs, the operation of network control rooms and call centres, essential connections work, and planned work that is necessary for short- or medium-term supply security.

Ofgem has urged energy suppliers to consider governance and customers' best interests when prioritising works.

Links to those open letters can be found here and here.

UK government's heat networks consultation is extended

You will recall that we reported on the government's heat networks consultation (a link to our previous article is here) which is seeking views on policy options for regulating heat networks to protect customers and support market growth whilst de-carbonising heat.

The consultation sets out:

  • measures to increase levels of investment in the sector;
  • policy options for establishing a market framework for consumer protections;
  • proposals relating to the regulatory approach;
  • proposals for protecting consumers;
  • proposals for developing technical standards to improve the quality and cost of heat networks;
  • proposals for giving heat networks statutory rights and powers; and
  • proposals to drive the decarbonisation of heat networks.

The consultation period was scheduled to end on 1 May 2020, but this deadline has now been extended to 1 June 2020 to allow additional time for responses in the light of COVID-19.

The government has also announced that it is planning to launch a consultation on the Green Heat Networks Fund by the end of the year. The Green Heat Networks Fund is a new scheme to support the deployment of low-carbon heat networks, which the government committed £270 million to in the recent Budget.

Read more here.

Energy suppliers and consumers given more complaint handling time by ombudsman

Matthew Vickers, chief executive at the Energy Ombudsman, has written to energy suppliers summarising how the Energy Ombudsman will prioritise the way it handles complaints during the COVID-19 pandemic.

Under the current process, the parties have 10 working days to gather relevant evidence, followed by up to two days to check evidence provided by their counterparty and four days to comment on it. The new approach taken by the ombudsman means that energy suppliers and customers have 28 days to submit any evidence.  In addition, all new cases received by the ombudsman after 20 April 2020 will be subject to prioritisation via a "more intensive manual triage", meaning that – apart from instances of an immediate threat of loss of supply or of customers about to enter debt collection procedures – any new cases will be put on hold until normal investigations can continue.

Read more here (£).   

Renewables become Britain's main power source at the start of 2020

In Q1 2020, renewable electricity became Britain's primary power source for the first time.

Between January and March, renewables generated 35.4TWh, which is a 30% increase from Q1 2019. This represented 44.6% of the total generation and more than fossil fuel generation combined.

Other power sources were gas-fired plants (29.1%), nuclear plants (15.3%), power imports (7.4%) and coal plants (3.5%).

The increase in renewable generation is largely due to the consistent high winds throughout the period and the recent drop in energy demand due to COVID-19.

Read more here.