Energy and Utilities

Energy and Utilities Update | 24 April 2020

Published on 24th Apr 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at the upcoming Contracts for Difference (CfD) auction predictions, the National Grid annual report into demand side flexibility, plans for the first zero-carbon gas grid, and more.


Upcoming Contracts for Difference auction predictions

Following the confirmation from BEIS that the 2021 Contracts for Difference (CfD) scheme auction will not be postponed due to COVID-19 (as we reported here), industry analysts predict that the auction will be extremely competitive. Energy sector analytics company Cornwall Insight has estimated that 13GW of projects are likely to compete in Allocation Round 4, based on a study of eligibility and consideration of when planning permissions for projects were submitted.

This expected surge in bidders into the 2021 Allocation Round can in part be attributed to the expansion of the eligible technology classes entitled to participate in the 2021 auction. Traditional Pot 1 technologies – solar and onshore wind - are entitled to participate in the upcoming auction following a five year block and analysts anticipate that almost half (5.5GW) of the estimated 13GW of applicants is likely to be from Pot 1 projects.

These figures have been broken down by Cornwall Insight further to give a total solar capacity of 1.3GW and an onshore wind capacity of 4.2GW. It is anticipated that the remainder of projects will include 6GW of offshore wind and 1.5GW of applications from Pot 2 less-established technologies, of which a "significant proportion" is likely to be remote island wind.

Cornwall Insight expect most of the competing projects will be based in Scotland, due to the eligible pipeline being located there. However, this position may continue to evolve, as some sites continue to look at subsidy-free and merchant options.

Read more here.

National Grid ESO publishes report into demand side flexibility

National Grid Electricity System Operator has published its Power Responsive Demand Side Flexibility (DSF) annual report for 2019. The report analyses the key regulatory and market developments over the last year and provides an overview of trends in participation in DSF schemes. It defines DSF as including demand-side response by flexible load shifting, onsite generation, onsite energy storage, distributed generation for export and distributed energy storage for export.

Three key headlines were identified in the annual report. The first is that continued uncertainty around DSF remains largely due to shifts in the market, changes to charging regimes and the regulations affecting the revenue streams of DSF providers, particularly the changes to network charges introduced by the Targeted Charging Review and the temporary suspension of the Capacity Market due to legal challenge.

In addition, the report identified that markets are continuing to provide opportunities for DSF providers and that DSF providers' share of the market is therefore continuing to increase. DSF providers have been assisted by the lowering of the minimum unit size in the Fast Reserve market and the greater volumes of power being bought from DSF providers by National Grid.

Finally, the report highlighted "mixed success" for DSF in the Capacity Market. Although market share and cleared price remained stable in the T-4 and T-3 auctions, the participation and success of DSF projects has fallen in the T-1 auction, with a total of less than 100MW of projects being successful in 2019.

Read the report here.

Electric Vehicle Charging Infrastructure consolidations and developments in project finance 

In a move representative of the level of M&A activity in the global Electric Vehicle Charging Infrastructure (EVCI) market, infrastructure investment company 3i Infrastructure has acquired charge point operator GreenFlux through its energy infrastructure business Joulz.

The acquisition is consistent with the trend for large institutions acquiring independent EV charging providers in order to bolster their market position. Other prominent examples include EDF's acquisition of Pivot Power in November 2019 and Pod Point in February 2020.

The financial backing of these large corporations in the EV charging sector has helped to increase the number of EV chargers being deployed on the road network. It is also spreading awareness of EV charging businesses, which is beginning to open up access to debt capital.

For example, following Pod Point's acquisition by EDF, it received debt funding from Triodos Bank for the launch of 600 chargers located in car parks of Tesco stores throughout the UK (see our previous report on this deal here).

Project finance developments in EVCI may help to resolve locational issues for EV chargers, as it allows operators to secure financing from large corporations who have a strategic position in providing EV chargers across their locations.

Read more here.

Power Purchase Platform Zeigo raises £800,000 in seed funding

Zeigo, the energy tech platform founded in 2018, has closed on an £800,000 seed funding round.. Zeigo intends to use the capital to scale up its power purchase platform, which connects corporate energy buyers with renewable energy generators and suppliers.

The funding round was led by Naruhisa Nakagawa, founder of multi-asset investment firm Caygan Capital. Zeigo commented that the funding demonstrates the "real market opportunity to become a scalable tech platform which can deliver a comprehensive renewable energy solution".

In addition, Zeigo has attracted a second round of investment from new and existing angel investors, including Green Angel Syndicate, ClearlySo, the Syndicate Room and Earlymarket.

Read more here.

Plans announced for the first zero-carbon gas grid

The Energy Networks Association has convened the UK's gas distribution network owners –Cadent Gas Limited, Northern Gas Networks Limited, SGN and Wales and West Utilities Limited – together with National Grid, to launch a programme aimed at delivering the world's first zero-carbon gas grid.

Under the 'Gas Goes Green' initiative, gas operators will explore how to research and co-ordinate a national switchover to hydrogen-based boilers and to accelerate the use of biomethane across the grid.

The programme's coordinators argue that these measures are the most cost-effective way to achieve the decarbonisation of heat and to meet the broader net-zero emissions target by 2050. However, critics have questioned the viability of a total shift from natural gas to hydrogen, highlighting the potential demand issues which could arise.

Cadent's involvement in the initiative forms part of its on-going work to reduce greenhouse gas emissions. As we previously reported here, Cadent recently announced plans to issue the UK's first transition bond to invest in the retrofit of gas distribution networks.

Read more here and here.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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