Energy and Utilities Update | 30 April 2020

Written on 30 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 proposed extension to the Climate Change Agreement Scheme, the Government consultation on the Capacity Market rules in response to the Covid-19 crisis, a new grant scheme for energy innovation, and more.

Government consults on extending the Climate Change Agreement Scheme

The Department for Business, Energy & Industrial Strategy (BEIS) has launched a consultation on a proposed two-year extension to the Climate Change Agreement Scheme.

The scheme aims to reduce the energy usage of organisations from a wide range of industrial sectors by setting targets which, if met, will result in a discount on the climate change levy applied to an organisation's energy bills. The expected consequence of the extension is that existing participants of the scheme will save between them £300 million a year.

The proposed extension will guarantee cost savings for those organisations which carry out one of the "eligible processes" (see the list here), and who are already participating in the scheme. In addition, the consultation will allow new businesses who are eligible to apply to the scheme from January 2021, marking a reversal from the restriction on new entrants to the scheme since October 2018.

The consultation opened on 16 April the is open to all and can be accessed here. BEIS is particularly interested in hearing from:

  • sector associations and businesses that participate in the scheme;
  • operators of facilities who are eligible but not currently participating in the scheme; and
  • interested bodies such as trade associations, non-governmental organisations, consultants and academia.

Read more here.

Government seeks to relax Capacity Market rules in response to Covid-19 crisis

On 24 April, the government opened a consultation seeking views on ways to relax requirements of the Capacity Market scheme during the Covid-19 pandemic. The objective of the consultation is to minimise the likelihood of capacity agreements terminating and the imposition of termination fees on capacity providers for failing to meet obligations due to the pandemic.

Further detail on the government's consultation can be found here and a copy of the consultation document can be accessed here.

The deadline to respond to the consultation is 30 April 2020. This is significantly shorter than the usual consultation response period due to the temporary nature of any modifications and the need for the proposals to come into effect as quickly as possible.

New platform launched by European consortium

Some of Europe's largest transmission system operators (TSOs) are collaborating to launch a new cross-border blockchain-based platform called Equigy. The new platform will allow the integration of smaller, distributed customer-based units to participate in the energy balancing market. For example, owners of electric vehicles may be paid to offer the flexible capacity of their car batteries to the market to help stabilise the electricity system.

While many TSOs are historically reliant on fossil fuel-fired thermal power plants to keep the grid in balance, the ability for decentralised energy producers and consumer-based assets to play a role in the balancing process will assist with new sources of flexibility to balance the grid and provide a real opportunity for smaller electricity users to participate in this innovative space. Equigy is a non-exclusive free of charge platform which can be used in conjunction with other balancing systems.

Swissgrid, Tennet and Terna are currently rolling the platform out in the Netherlands, Germany, Italy and Switzerland. With Denmark's Energinet already expressing an interest in joining the consortium, there are expectations that other European TSO's will join, creating a wider pool of flexible and sustainable electricity.

Read more here.

Grant scheme for energy innovation funded by solar feed-in-tariffs

Centrica has launched a new grant scheme for energy innovation, funded through feed-in tariffs from solar panels installed on 250 schools across the UK.

Energy for Tomorrow will offer financial support to start ups with innovative ideas to tackle climate change, reduce energy bills and "deliver real value to people and communities". Between six to 10 organisations will be selected and each will receive a financial boost of between £100,000 and £500,000 over a three-year period.

As well as financial support, Centrica will offer commercial advice to the winning organisations and will continually monitor performance. For organisations which exceed expectations, there is the possibility of additional funding.

The application process has begun, with the first theme for potential applicants is "innovations that help make people's lives easier and more sustainable". Applications will be accepted from charities, community-interest companies, not-for-profit organisations and for-profit companies with a "clear social mission". Priority will be given to UK-based projects, organisations with a turnover under £1 million, and entrepreneurs from diverse backgrounds.

Read more here.

Energy projects likely to weather Covid-19 crisis, says UK tech group.

Energy technology company Upside Energy remains confident that the majority of energy projects in the UK will continue despite coronavirus-related disruptions. Upside Energy has predicted that projects with major battery installations and gas-fired peaking plants are the most susceptible to delay, however, due to restrictions on non-essential work during the lockdown and the increased likelihood that these projects rely on international supply chains.

Read more here.

Innovation necessary for transition to low carbon heating

With 14% of the UK's greenhouse gas emissions from homes attributed to gas boilers, a transition to low-carbon heating is widely recognised as essential to reduce the nation's carbon emissions.

However, a report published on 17 April by the Energy Systems Catapult (ESC) on the perceptions of climate change showed that only 49% of the participants surveyed believed that gas-central heating contributed to climate change and only 20% said they would consider switching to a low carbon alternative.

The ESC report concluded that innovation will be necessary to ease the transition and to make low carbon heating effective and affordable. Perception around costs for low-carbon solutions was recognised as a key challenge across a number of sectors and thus innovation in reducing the cost of low-carbon heating is paramount.

The ESC reasserted the conclusion of its previous report, Innovating to Net Zero, published on 10 March 2020 (as we reported on here), that achieving net-zero carbon emissions by 2050 will require "unprecedented innovation" across the economy.

Find a link to the report here.

Ofgem orders InterGen to pay £37 million after misleading the National Grid ESO

Ofgem has ordered power generator InterGen to make payments of £37 million following a finding of market manipulation in 2016. This includes the repayment of £12.8 million to the parties affected by InterGen's actions, plus a £24.5 million penalty payable to Ofgem. The payment originally proposed was nearly £48 million, but this was reduced by 30% as a result of measures introduced by Intergen, including additional compliance training and surveillance.

Ofgem found that across four days in October and November 2016, InterGen breached Article 5 of the European Regulation on wholesale Energy Market Integrity and Transparency. The regulation prohibits any "engagement in, or attempt to engage in, market manipulation on wholesale energy markets", by:

  • sending misleading signals to the National Grid Electricity System Operator (NGESO) about how much energy its power stations would supply during the critical "darkness peak" evening period when demand is highest, by submitting false or misleading "physical notifications", indicating to NGESO that they would not be generating at the peak-demand periods; and
  • providing false or misleading data on its power supply capabilities over high-demand periods, meaning that NGESO had to use the balancing mechanism to ensure there was enough power supply to meet demand, resulting in an increase in price.

Ofgem chief executive Jonathan Brearley said that the response "sends a signal that Ofgem will not tolerate any form of market abuse".

Find the Ofgem decision here.