Energy and Utilities Update | 7 May 2020

Written on 7 May 2020

Welcome to our latest update on regulatory and market developments in the energy and utilities sector. In this edition we look at recent consultations on the Renewable Heat Incentive and future heat policy, Ofgem's conditional approval of 600MW Shetland transmission link, emergency government bailout for UK's Contracts for Difference scheme, and more.

Government announces consultation on Renewable Heat Incentive and future heat policy

The government has recently launched two consultations in relation to heat policy and incentives, with a view to further improving energy efficiency.

Non-domestic Renewable Heat Incentive scheme

The first is a consultation on the closure of the non-domestic Renewable Heat Incentive (NDRHI) scheme to new applicants, and the future proofing of the scheme for accredited applicants. The NDRHI, which operates across England, Scotland and Wales, was launched in 2011 and aims to help businesses, the public sector and non-profit organisations meet the cost of installing renewable heat technologies. As of January 2020, the NDRHI has helped to produce a total of 42,400GWh of renewable heat. The consultation proposes that the NDRHI scheme will close to new applicants on 31 March 2021.

The proposed reforms aim to:

  • ensure the scheme offers ongoing value for money to the taxpayer;
  • improve the experience of participants;
  • maximise the contribution that the NDRHI makes to the decarbonisation of heating in the UK; and
  • ensure that robust management of the scheme continues to be delivered.

The government has requested views from the general public alongside the industry in response to this consultation.

Future support for low carbon heat

The government has also announced a consultation on the plans for successor arrangements to the current Renewable Heat Incentive scheme, including proposals for a:

  • Green Gas Support Scheme to increase the proportion of green gas in the grid; and
  • Clean Heat Grant scheme to help phase-out high carbon fossil fuel heating.

In particular, the government has requested the views of stakeholders in the low carbon heat sector, as well as those with a wider interest in the UK's net zero ambition in response to the points being consulted on.

Both of the consultations close on 7 July 2020, and you can provide your views here and here.

Ofgem approves 600MW Shetland transmission link

Ofgem has given conditional approval to Scottish and Southern Electricity Networks (SSEN), following the submission of a revised proposal to build a 600MW electricity transmission link that will stretch from Shetland to mainland Scotland. In October 2019, Ofgem refused the original proposal because the project had not won support under the Contracts for Difference scheme in the September 2019 allocation round. SSEN re-submitted its proposal in January this year, having made changes to account for the progress of planned windfarms and increased electricity demand on the Shetland Isles.

The proposed electricity transmission link will allow new wind farms on Shetland to export renewable electricity to the rest of the UK and the Republic of Ireland, as well as bolster electricity supply on the Shetland Isles. The approval is subject to SSEN being able to provide evidence by the end of the year that the 457MW Viking Energy Wind Farm project is likely to go ahead.

Read more here.

UK's Contracts for Difference scheme to receive emergency government bailout

The Low Carbon Contracts Company (LCCC), which is responsible for administering the contracts awarded under the UK's Contracts for Difference (CfD) incentive scheme, will receive an emergency bailout from the government amid the financial uncertainty sparked by the COVID-19 pandemic.

The CfD scheme is the government's main mechanism for supporting low-carbon electricity generation. LCCC is a private company owned the government and is the counterparty to the contracts awarded under the CfD scheme.

The LCCC warned the government that in order to pay CfD generators in June, it might have to increase levy rates because of the drop in energy demand during the pandemic. The LCCC had already warned suppliers of potential rate increases at the end of March.

On 24 April, the government issued a statement confirming that it will be granting the LCCC a temporary loan to ensure that CfD generators are paid without the costs being shifted to suppliers via increased levy rates.

This announcement comes shortly after a government consultation on the impact of COVID-19 pandemic on the Capacity Market scheme. The Capacity Market is the other low carbon support scheme in the UK and the sector awaits the outcome of that consultation. More details on that consultation can be found here.

Read more here.

BP Ventures leads £20 million funding round for energy tech firm FreeWire Technologies

FreeWire Technologies is a US-based tech firm specialising in electric vehicle (EV) charging and mobile battery-based solutions. In 2019, FreeWire announced the introduction of a battery-integrated ultrafast EV charger called the "Boost Charger" which claims to have 40% lower installation costs than other high power chargers.

In Freewire's latest funding round, it raised £20 million through Series B and venture debt financing to support the commercialisation of its ultrafast EV charging technologies. The round was led by BP Ventures, which previously invested over £3.5 million in FreeWire. In addition to support from BP Ventures, Freewire also attracted new investors including Energy Innovation Capital and ABB Technology Ventures.

BP Ventures's investment in FreeWire consolidates its position in the EV sector and forms part of its wider strategy  to diversify and to create "a portfolio around digital technology". BP Ventures' other recent investments in new technologies include a £2.7 million investment in Chinese energy management company R&B in January 2020 and an investment in UK energy management company Grid Edge in October 2019. These investments further support a seemingly ongoing trend of oil major investment in the clean technology and renewables sector.

Read more here.

COVID-19 disruption expected to depress power prices for years

According to a report published by energy analysts Aurora (the report can be accessed here (£) power prices in the UK may not recover before 2025 because of the disruption of the COVID-19 pandemic.

This worst-case prediction is the outcome of the most severe of the four economic models tested, being, mild recession, severe recession or two depression scenarios. In the least severe outcome, a mild recession, power prices would recover in 2022. This outcome is contingent upon the lockdown being lifted in the second quarter of this year and power prices falling at most to the high £30s/MWh in 2020 before uplifting, compared to the worst scenario (a depression), in which prices would fall below £30/MWh into 2021.

The factors that Aurora considered when compiling the four models include the duration of the lockdown in each country and demand, supply, commodity prices, investment and financing during the aftermath period. The report corroborates a warning from the Renewable Investment Group that power price forecasts showed an average reduction of 17% between now and 2025.  

Aurora has predicted that renewable energy projects, such as wind and solar, may be the most severely affected by the COVID-19 pandemic. The findings distinguish between subsidised projects, which will have subsidy revenues partly or wholly protected by the government despite the fall in market prices, and those being developed on a merchant basis, emphasising that the latter will be most severely impacted and could see revenues fall by 20-50% as a result of the COVID-19 disruption.

Read more here (£).