Energy and Utilities Update | 31 July 2020

Written on 31 Jul 2020

In this week's update we look at the launch of a consultation on changes to the capacity market rules, a consultation on the introduction of a market-wide half hourly settlement across the electricity retail market, the re-launch of an inquiry into green finance, and more.

Ofgem launches consultation on changes to the capacity market rules

On 22 July, Ofgem launched a consultation on changes to the Capacity Market Rules 2014. This consultation follows the publication of the report on Ofgem's Five Year Review of the Rules and its Forward Work Plan, which committed to bringing forward a second consultation to further consider the outstanding proposals discussed in the Review.

Eight proposed changes to the Rules are detailed in the consultation. These include:

  • Offering greater flexibility to Generating Capacity Market Units to change their components, by changing Rule 4.4.4. Currently, Rule 4.4.4 prevents any change to the physical configuration of a Capacity Market Unit.
  • Streamlining the prequalification process and removing requirements that do not provide essential assurance for the Capacity Market.
  • Removing the requirements to submit relevant planning consents at prequalification stage and replacing this with a declaration that the appropriate application has been gained.
  • Implementing amendments CP270 and CP271, which would facilitate further publication of component level data, such as connection capacity and de-rated capacity, in the Capacity Market Register.
  • Amendments to reduce the administrative burden and cost of participating in the capacity market.

Ofgem has requested feedback from those with an interest in the Capacity Market as well as Capacity Market participants. The consultation will be open until 22 October 2020, with the expectation that any implementation of amended Rules will be in summer 2021, not in the upcoming 2020 prequalification.

Ofgem consults on market-wide half-hourly settlement

Ofgem is consulting on the introduction of a market-wide, half-hourly settlement across the electricity retail market.

The aim of the proposals is to ensure that retailers pay the actual cost of serving their customers, and are therefore incentivised to develop and offer new tariffs and innovations that encourage more flexible energy use, such as time of use tariffs and battery storage. It is also hoped that the proposals will make it easier for intermittent renewable generation to connect to the network, thereby reducing network costs and lowering carbon emissions.

Alongside the consultation, Ofgem has published a draft impact assessment setting out the potential effect of its preferred option for implementation of the proposals, along with more detail around the other options that were considered. Ofgem states that its preferred option is to introduce the changes during a transition period of four years. In addition to the draft impact assessment, Ofgem has also published a paper on the potential impact of the proposals on consumers.

The deadline to respond to the consultation is 14 September 2020.

Government consults on carbon emission tax

On 21 July 2020, the government opened a consultation on how a Carbon Emissions Tax might operate if it is introduced from 1 January 2021.

In particular, the consultation seeks views on the following:

  • Proposals to introduce a payment system rewarding decarbonisation for main scheme installation.
  • A proposal that HMRC will obtain information about taxable installations from regulators, rather than permit holders needing to register for the tax; tax rates in 2021 and 2022, which the government proposes to set by reference to the EU Emissions Trading System (EU ETS) price data with a downwards adjustment if it is higher than the average EU ETS auction prices by £1 or more.
  • A range of proposals regarding the liability for tax, the payment of tax, methods to ensure compliance, reviews and appeals, and record keeping requirements.

The government is also consulting on how the carbon tax could evolve in the future to help deliver the UK's net zero target. It is seeking views on:

  • Whether the scope of the tax should be broadened to include other sectors of the economy, such as shipping and aviation.
  • How the tax could be used to incentivise negative emissions in the longer term.

The deadline to respond to the consultation is 29 September 2020.

Relaunched inquiry into green finance

Following the launch and subsequent closure of its original inquiry into the decarbonisation of the UK economy and green finance in 2019, the Treasury Committee, a select committee of the House of Commons, has relaunched its enquiry into green finance. The additional evidence being sought by the relaunched enquiry largely concerns whether and how the response to Covid-19 should take the government's target of net-zero carbon emissions by 2050 into account.

The inquiry's original mandate covers:

  • The economic opportunity that decarbonisation presents for the UK.
  • The Treasury strategy in enabling clean growth and its response to the Committee on Climate Change's net-zero recommendations.
  • The role of the Comprehensive Spending Review, which will be published in the autumn and will set out the government's spending plans to facilitate net-zero.
  • The role that financial services firms are currently playing in financing the transition to net zero.
  • The 'green' financial product landscape and its associated regulatory environment.

Evidence can be submitted to the inquiry until 28 August 2020.

European Commission publishes roadmap on its offshore renewable energy strategy

The European Commission has published a roadmap which seeks views on its offshore renewable energy strategy. The roadmap sets out the challenge the EU faces in offshore renewable energy and calls for responses on its understanding of the problem and the potential solutions.

The roadmap explains that without a strategic approach across European and national policy, accompanied by financial instruments to support the long term sustainable development of offshore development, the EU risks losing its technological and industrial advantage in this sector.

The offshore renewable energy strategy will investigate different options to leverage the potential of offshore renewable deployment in a sustainable way, whilst ensuring a holistic strategic approach as well as contributing to the Green Deal objectives and post-Covid-19 recovery measures.

The Commission is seeking views on the roadmap from citizens and stakeholders and the deadline to respond is 13 August 2020.

Good Energy to launch new heat pump tariff

Good Energy, the Wiltshire-based renewable energy supplier, has this week revealed plans to launch what it claims will be the UK's first energy tariff designed specifically for heat pump users. Good Energy says the new tariff, due to be launched in the autumn, will offer cheaper unit rates at periods during the day when electricity from the grid is greener or demand for electricity is lower. According to Green Energy, this will make it "as easy and affordable as possible" for consumers to switch from gas heating systems to using clean electricity from renewable sources.

The plans arrive shortly after the government announced a £2 billion commitment to "Green Home Grants", a scheme due to start in September 2020 that will enable homeowners to claim up to £10,000 towards energy efficiency improvements, including the installation of heat pumps. Good Energy believes that the new tariff will complement the scheme and help boost heat pump installations, which so far have seen low uptake due to high upfront installation costs and electricity running costs.