Energy and Utilities Update | 28 August 2020

Written on 28 Aug 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this week's edition we look at Elexon's consultation on proposed changes to the Balancing and Settlement Code, a major landmark in the largest domestic demand side response trial in the UK, the reduced renewable energy costs forecast published by BEIS, and more.

Energy White Paper to propose ESO sale

The long-awaited energy white paper may propose the separation of the electricity system operator (ESO) from the National Grid group, according to Utility Week.

The ESO is responsible for balancing the supply and demand of electricity in the UK. On 1 April 2019, the ESO became a legally separate company within the National Grid group, in an attempt to provide transparency in decision making and to promote competition.

Government sources have allegedly confirmed that a formal break-up of the ESO from National Grid may be included in the white paper. The paper is also expected to include measures to accelerate the roll out of smart meters and the development of hydrogen and carbon capture.

The white paper was initially due to be published last summer but has repeatedly been delayed, most recently due to Covid-19. It is currently expected to be published this autumn, withboth the business secretary Alok Sharma and the energy minister Kwasi Kwarteng confirming that this is the government's intention.

Elexon proposes changes to balancing and settlement code

Elexon is consulting on proposed changes to the Balancing and Settlement Code , which would allow asset meters to be used for settlement purposes.

The Code currently only recognises data from meters at the boundary point for balancing services, which is the location where multi-use sites connect to the distribution network. It does not recognise asset meters which measure electricity flows to or from individual assets including embedded generators, demand side response providers and owners of electricity vehicle charging points. The proposed amendment would allow data from such meters, which are behind the boundary point, to be used for settlement purposes.

The amendment was proposed by Flexitricity and follows a decision last year to widen the balancing mechanism to include Virtual Lead Parties.

According to Elexon, the proposed change would offer more opportunities for smaller asset owners to provide balancing services. It would also give distribution network operators more control over their network by increasing the visibility of the actions of small asset owners.

Residents move into domestic demand side response project trial

The largest domestic demand side response trial in the UK has reached a major landmark, as the first trial homes in Cardiff are now operational and three households have moved in to the residential development. The Fixed Level Affordable Tariffs Led by Intelligently Networked Energy (FLATLINE) e project, which is backed by the Department for Business, Energy and Industrial Strategy (BEIS) and coordinated by housebuilder Sero, aims to illustrate that energy demand from UK homes can be "time-shifted" in order to better align with energy generation.

The households within the development will use an app developed by Sero to control and anticipate energy demand. Low or zero carbon generation and storage technologies such as ground source heat pumps, photovoltaic generation and thermal and electrical storage have also been installed in the homes. As such, the energy needs of each home will be met by low cost and low carbon energy, whilst almost completely avoiding using the National Grid. Energy provider Octopus Energy will be supporting the trial by supplying 100% renewable electricity and facilitating half-hourly tariffs.

Ofgem publishes letter launching review of offshore transmission regime

In an open letter addressed to developers of offshore wind generation, electricity transmission licensees and other interested parties, BEIS and Ofgem have requested views from the industry as to how to increase the level of coordination in offshore transmission infrastructure. Offshore wind generation will play an important role in the UK's journey to net zero, as evidenced by the 2019 government ambition to significantly increase the deployment of offshore wind by 2030.

The open letter has been published following the launch of the Offshore Transmission Network Review in July 2020, which looked into the way that the offshore transmission network is designed and delivered, as against the network requirements needed to deliver the ambition of net zero emissions by 2050. Currently, all offshore wind farms in Great Britain have been connected to the onshore system by individual point-to-point or radial links, but the open letter acknowledges this may not be the desired structure as generating capacity increases in the coming years, which may enhance pressure on coastal connection points.

In publishing the letter, Ofgem and BEIS are seeking to understand what has stopped the development of coordinated transmission assets to date. Ofgem and BEIS intend to use the information gathered in order to capitalise on opportunities that will deliver benefits for consumers and the wider energy system, and to inform future policy development.

Any responses to the letter should be provided by 30 September 2020.

Reduced renewable energy costs forecast published by BEIS

BEIS has published a report which provides updated data on electricity generation costs for renewable energy assets, acknowledging that the understanding of such costs is crucial for informing policy decisions around net zero.

In part due to the reported update to the 'learning rate', which is the rate at which capital costs decrease, the report forecasts a decrease in capital costs over time as more plants are built due to increased technical and construction experience.

The analysis also explains that technological advancements, such as increases in individual turbine capacity, have driven down costs for offshore wind quicker than other renewable technologies. The report outlines that offshore wind projects which were commissioned in 2030 may supply electricity at an average cost of £47/MWh. This figure is less than half of the rate originally predicted in its 2016 analysis at £103/MWh.

The report notes that the analysis does not account for potential effects of the Covid-19 pandemic on electricity generation costs.

Scottish government to inject £20m into low carbon heat in fast tracked fund

The Scottish government has announced the launch of a new £20 million grant scheme, the Social Housing Net Zero Heat Fund, with the aim of accelerating the installation of low carbon heating solutions in residential properties across Scotland.

The Fund, which is part of the Scottish government's Low Carbon Infrastructure Transition Programme, will provide grant funding as well as partial match loan funding to cover the installation of heat pumps and connections to existing heat networks. It will also support the installation of thermal storage, battery storage and solar panels.

The scheme is open to energy service companies, registered social landlords and local authorities and is inviting funding applications from projects with the following priority themes:

  1. Low carbon heat for urban social housing.
  2. Low carbon heat for rural and social housing.
  3. Integrated low carbon heat systems for social housing across Scotland.

Four types of capital costs are specified as being eligible for funding under the scheme, including the costs associated with: asset purchasing; construction and installation; and commissioning. The maximum grant funding intervention rate is between 45% and 50%, depending on the size of the organisation and the location of the project. Projects are required to provide 50% match funding, of which 30% can be covered by an application for loan funding by the Scottish government. A minimum of 20% of the project funding must be from the project's own capital or private financing.

Applications can be submitted between 1 September 2020 and 18 December 2020 for projects that will complete installation and commissioning by 30 November 2021.

Kaluza launches combined flexibility service in partnership with WPD

Kaluza has this week launched what it claims to be the UK's first combined grid flexibility service, in partnership with distribution network operator Western Power Distribution (WPD).

The flexibility service, which is fully automated, will harness the collective power of a range of smart home devices (including vehicle-to-grid (V2G) chargers) using Kaluza's AI optimization technology. This technology allows electric vehicle charging times to be shifted away from times of high energy demand, so that devices import energy when it is cheapest and greenest for customers and the grid.

The use of domestic V2G chargers to serve the local grid with flexibility is believed to be an industry first. The platform will also be integrated with NODES' flexibility market, which will allow it to participate in “ShortFlex” trading, where flexibility is traded much closer to real time than the standard week or month-ahead timeframes.

Kaluza has developed the flexibility service in conjunction with WPD's "Intraflex" project, with the aim of delivering scalable technologies that bring forward the prospect of cleaner and cheaper energy for customers.