Energy and Utilities Update | 7 August 2020

Written on 7 Aug 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this week's update we look at the government's response to a consultation on extending the Climate Change Agreements Scheme, Energy Networks Association's consultation into flexibility, provisional results for the Irish renewable electricity auction, and more.

Government responds to a consultation on extending the Climate Change Agreements Scheme

On 31 July 2020, the government committed to extend the Climate Change Agreements (CCA) scheme for an additional two years to March 2025, in its response to a public consultation on the issue.

The planned extension, which is subject to further legislation, has been announced in response to overwhelming support from business for the CCA scheme, which is worth nearly £300 million annually in Climate Change Levy (CCL) discounts to scheme participants.

The CCA scheme, which started on 1 April 2013, sets sectoral targets consistent with achieving a 20% energy efficiency improvement by 2030. The process for setting such targets begins with a target proposal from the government to sector associations which can be accepted, or a counter proposal can be submitted. Once agreed, the sectoral targets are set out in an umbrella sector agreement with the sector association. Underlying agreements are then entered into with individual operators setting out their emissions targets for a specified two-year "Target Period".

The extension will mean the creation of a new Target Period 5 for setting energy efficiency targets which will run from 1 January 2021 to 31 December 2022. There will also be an extension to certifications for reduced rates of CCL for participants meeting obligations under the scheme to 31 March 2025.

Additionally, the government has decided that:

  • The current scheme eligibility criteria will be maintained for the extension period.
  • New entrants will be allowed to apply to join existing umbrella sector agreements, with the deadline for applications by new entrants extended from 30 September 2020 (as initially proposed) to 30 November 2020.
  • The process for agreeing sectoral targets will remain unchanged, although, where required, the deadline for counter proposals has been extended to 30 October 2020.
  • Surplus (which is accumulated by units exceeding their targets in previous Target Periods) will not be allowed to be brought forward to use in the added Target Period 5.
  • The buy-out price will increase to £18/tCO2e for Target Period 5.
  • The financial penalty price will increase to be the greater of £250 or £18/tCO2e.

The government has also committed to exploring further reform of the eligibility criteria and existing rules and processes as part of a longer-term review of the CCA scheme.

Energy Networks Association launches consultation into flexibility

On 31 July 2020, the Energy Networks Association opened a consultation seeking views on its Open Networks Project and its flexibility programme.

The Open Networks Project is an initiative which looks to transform the UK's energy networks to facilitate the delivery of a smart, flexible grid. Last year, it established a dedicated flexibility work stream which aims to deliver a standardised approach towards flexibility across distribution network operators and to encourage new flexibility platforms. The work stream aims to create a competitive marketplace for flexibility, with lower consumer costs and more renewable generation.

The consultation is seeking views on both the performance of the flexibility work stream to date and its future development. It is open to all stakeholders and will run until 25 September 2020.

Provisional results for Irish renewable electricity support scheme auction

The Irish government has announced the provisional results of the country's first Renewable Electricity Support Scheme energy auction. The scheme will offer financial support to certain renewable energy projects and plays an important role in the drive to meet Ireland's target of 70% of power from renewable sources by 2030.

A total of 2,235 GWh of energy was available in the auction, with the provisional results including almost 800MW of solar and 480MW of onshore wind capacity.  According to EirGrid, the state-owned electric power transmission operator in Ireland, the provisional price which represents the average bid price of wind farms and solar projects is €74.08.

National Grid proposes a £10 million trial hydrogen transmission network

National Grid ESO (NG ESO) has announced plans for a £10 million trial project which aims to test how hydrogen gas can be used to heat homes and industrial property.

A mock hydrogen grid will be installed by risk management and energy group DNV GL at its site in Cumbria using a range of decommissioned assets to develop a representative network. The network will supply hydrogen to research houses and test blends of hydrogen up to 100% at transmission pressures to see how different assets perform. The project will then be connected to a trial distribution network that is being developed as part of the H21 programme led by Northern Gas Networks.

NG ESO has applied for funding for the project through Ofgem's Network Innovation Competition and if this is secured, it intends to begin construction in 2021 with trials the following year.

If successful, the trial will demonstrate how operators in the gas industry can collaborate together in using hydrogen, as well as highlighting the role hydrogen can play in decarbonising heat and achieving net zero carbon emissions.

Government confirms eligibility criteria for £2 billion Green Homes Grant scheme

The new Green Homes Grant scheme was announced in Chancellor Rishi Sunak's Summer Statement on 8 July 2020. The £2 billion scheme aims to improve energy efficiency and reduce fuel poverty by providing funding for home improvements for over 600,000 homes.

On 4 August 2020, the government confirmed that grants will be available for homeowners who install low carbon heating systems or insulation. In order to qualify for a grant, households must install at least one "primary measure" which includes insulation, an air source or ground source heat pump, or a solar thermal device.

Households which fit a primary measure will also be eligible for further energy savings on "secondary measures", including double or triple replacement glazing, energy efficient doors or heating controls. Grants for these secondary measures will be capped at the equivalent amount provided for the primary installation.

Most households will be able to claim up to two-thirds of the costs of installing eligible measures, subject to a maximum of £5,000 (across all measures installed), with lower income households able to claim the full costs of installation up to £10,000.

Google's owner issues £4.4 billion sustainability bond

Alphabet inc., the owner of technology giant Google, has issued sustainability bonds worth £4.4 billion that it claims is the largest corporate sustainability bond offering ever issued. The proceeds from these bonds will be used to fund new and on-going projects that are environmentally or socially responsible.

Eligible projects must fall within one of the following categories: energy efficiency, renewable energy, green buildings, clean transport, circular economy and design, affordable housing, racial equality and support for small business recovering from Covid-19.

The bond issue is the latest step taken by Google in recent years to improve its energy efficiency and to reduce its carbon footprint. It claims its data centres are twice as energy efficient as a typical enterprise data centres and last year it matched 100% of its electricity consumption with purchases of renewable energy.

WPD to trial new technology to deliver electric vehicle chargers in urban areas

Western Power Distribution (WPD) , the distribution network operator,  is trialling new technology which will use the UK's existing electricity network to deliver 217,000 electric vehicle (EV) chargers in urban spaces by 2023.

The DC Share Project aims to make smarter use of the existing network by using an 'equalisation network' that connects existing substations to vehicle charge points. The network will use bidirectional power electronic converters to connect to the substations' low voltage boards and provide connections to the vehicle charge points through a new high capacity DC cable network. It is anticipated that this will harness spare capacity and avoid the need for new infrastructure or network reinforcement.

The trial is taking place in Taunton, Somerset and will use power electronic equipment to harness spare capacity from four substations in the town centre to power 15 rapid EV chargers. The chargers are scheduled to become available for public use by spring 2022.

WPD plans to roll out the technology across its network to install EV rapid chargers in urban areas experiencing network constraints. It estimates that by 2050 the new technology could save customers up to £162 million in network reinforcement costs.

Researchers develop AI to identify energy inefficient buildings

Researchers from India and the US have developed WattScale, an artificial intelligence system which can identify the least energy efficient buildings in a town or city. The programme uses energy modelling which estimates the variable parameters which affect the energy usage of a building, coupled with a fault analysis algorithm which reports on the probable causes of inefficiency.

The technology has been proven to be effective during trials in three different areas in the US. The researchers envisage that the tool could be used by energy companies and policymakers to identify inefficient buildings and to assess the impact of subsidies on energy efficiency.

Investment in sustainable battery technology announced by Aceleron

On 28 July 2020, battery producer Aceleron announced a £2 million equity investment to scale up the production of its new battery which it claims to be the most sustainable in the world.

Batteries are central to enabling widespread use of clean technologies, but most lithium batteries have an average lifespan of eight to ten years and cannot be reused or recycled. Aceleron states that its battery is designed to be repaired and re-used and can be fitted with smart management software which can identify components in need of replacement and increase battery lifespan.