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Weekly Industry Update – 11.06.18

Category : News


Week in Energy

Policy updates:

Industry updates:

Week in Energy

Monday 04/06 – A group of global investment companies calls on world leaders to increase efforts to tackle climate change ahead of the G7 summit in Canada on 8-9 June.

Tuesday 05/06 – The Automated and Electric Vehicles Bill completes Report Stage in the Lords. The European Climate Foundation finds that policies that look to create a more circular economy – one in which businesses reuse materials and improve resource efficiency – could more than halve Europe’s industrial emissions by 2050. European regulators group the CEER identifies emerging trends, technologies and business models in the energy sector that may have a significant impact on the functioning of the retail market and assesses the potential need for regulation.

Wednesday 06/06 – BEIS issues its response to a range of issues raised in its December 2017 Contracts for Difference consultation, including allowing islands wind into Pot 2 “less established” auctions. A joint report by the Association for Decentralised Energy and RenewableUK outlines the potential to harness the synergies offered by demand response from businesses and renewables deployment.

Thursday 07/06/08 – BEIS announces that the Nuclear Safeguards Bill has successfully completed its passage through Parliament. National Grid releases its Winter Review and Consultation, calling for views on how effective emergency gas notifications are in the wake of the “Beast from the East” event.

Friday 08/06 – The Renewable Energy Association sets out a series of pragmatic actions local authorities can take to boost electric vehicle uptake. A series of corporate buyers including Google, Microsoft, IKEA and Amazon join the RE-Source Platform, pooling resources and coordinating activities to promote a better framework for corporate renewable energy.

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Policy 1 | Government pushes forwards with renewables auction reform

The UK government has confirmed that remote islands wind projects will be able to compete in upcoming Contracts for Difference (CfDs) auctions.

A CfD is a long-term contract between an electricity generator and the government, through the Low Carbon Contracts Company (LCCC). The contract enables the generator to stabilise its revenues at a pre-agreed level (the strike price) for the duration of the contract. Under the CfDs, when the market price for electricity generated by a generator (the reference price) is below the strike price set out in the contract, payments are made by LCCC to the CfD generator to make up the difference. However, when the reference price is above the strike price, the generator pays the difference. CfDs are the government’s main mechanism for awarding renewables subsidy support. Over the coming years up to £557mn in contracts are set to be allocated, with costs passed on to energy user bills.

Views were sought in a consultation opened in December 2017 on changes to the scheme. On Wednesday, 6 June the government released its initial response to several elements of the scheme:

  • creating a new definition of ‘remote island wind’ and associated qualifying requirements to enable this technology to compete in future CfD allocation rounds
  • tightening efficiency requirements for new Combined Heat and Power (CHP) plants
  • a minor adjustment to the definition of waste used in the CfD scheme

The government justified distinguishing “remote islands” onshore wind as a “less established” technology by explaining that projects on remote islands face higher costs due to their location and transmission requirements. Onshore wind had been considered an “established technology” and therefore ineligible to compete in the pot 2 “less established” auctions.

However, with this policy shift, projects over 5MW on islands at least 10km from the mainland coast will be able to compete in the next auction. According to government research, wind projects on Western Isles, Orkney and Shetland could supply around 3% of the UK’s total electricity demand, with developers confident they would be able to lodge competitive bids.

Antony Skinner, Renewables Partner at law firm Ashurst, said while the announcement is good news, there is “a risk that such projects may find it difficult to compete against other less established technologies, that’s been the experience in earlier CfD rounds”.

The other major shift in the scheme was in dedicated biomass CHP. To compete, such projects will now have to achieve a minimum overall efficiency of 70% (net calorific value), a minimum primary energy saving of 10% (gross calorific value) and a minimum 10% heat efficiency. The same efficiency requirements will now be imposed also on plants under 25MWe as larger plants.

Legislation to implement these changes is set to be introduced in Parliament shortly.

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Policy 2 | Report highlights the importance of a flexible power system

The UK’s transition to low-carbon power system offers a number of “exciting opportunities” to British industry, says a new report jointly published by the Association for Decentralised Energy (ADE) and RenewableUK. The report, Industrial Competitiveness in a Low Carbon World, discussed the importance of decentralised and variable generation in a changing market, the importance of flexibility and the impact of decarbonisation targets.

The industrial sector has made “significant progress in decarbonising, decreasing energy usage per unit of production by more than 30% between 2000 and 2016,” it stated. Despite this, the authors explain that there is a “clear alignment” between decarbonisation and business competitiveness, proposing a flexible power system in which companies actively participate to improve the competitiveness and productivity of UK industry.

A changing energy mix that is more focused on lower carbon sources and driven by technology is giving rise to increased demand side response from industries and businesses, in which they change their electricity consumption patterns to match supply with demand when fluctuations occur. The report states that, as more renewable power generation capacity is installed in Great Britain, the need for this flexibility will increase.

Achieving greater business flexibility, whereby more businesses actively participate in flexible arrangements to help balance the system, has the potential to “enable increasing renewable power penetration, supporting the decarbonisation of GB’s grid and the whole economy”.

There are several cost benefits associated with greater flexibility. The report notes that the average electricity price of large UK consumers was approximately 20% higher than that paid by large consumers in other European countries. It adds that “higher electricity costs are one of the main drivers to rising UK industrial production costs”. Industrial users receive payment for any interactions with the grid and the participation of users can reduce the overall system cost, which in turn can reduce costs for all energy users.

In terms of future decarbonisation, the report highlighted the important role that both generators and industrial customers will play in achieving a low-carbon UK economy. Further demand response from industrial users, it says, can facilitate the increased integration of renewable energy sources to the grid in a cost-effective manner.

Concluding, the report makes a series of recommendations to government, the regulator and system operator. These include the creation of a level playing field that will encourage greater competition between supply and demand response options in the balancing services and Capacity Market; designing new policy so that it lets customers benefit from the most cost-effective and mature renewable generation; and achieving greater transparency on products and services provided by the system operator.

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Policy 3 | EAC urges government to make climate risk disclosure mandatory

The House of Commons Environmental Audit Committee (EAC) has called on the government to make it mandatory for large companies and asset owners to report their exposure to climate change risks and opportunities by 2022.

Its report, Greening Finance: Embedding Sustainability in Financial Decision Making, says that the structural incentives currently in place across the UK’s investment chain encourage a focus on short-term returns and often neglect longer term considerations such as climate change risks and opportunities and sustainability.

The EAC pointed to the importance of government considering climate change risk from the perspective of pensions. Confusion about the extent to which pension trustees have a duty to consider environmental risks can stop institutional investors addressing climate change risks, it says. This is particularly prudent given the long timescales and vast sums of money involved – said to be “many hundreds of billions of pounds”.

The EAC says that the government should make climate risk reporting mandatory for “asset owners” (pension schemes) and their investment managers, and not just listed companies. It should do this on a “comply or explain” basis by 2022 using the UK’s existing framework of financial law and governance. Finally, the report explains that “embedding risk reporting in relevant UK corporate governance and reporting frameworks could negate the need for new legislation”.

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Policy 4 | Crown Estate to consider 3GW of offshore windfarm extensions

The Crown Estate is to consider applications representing up to 3GW of new offshore wind capacity on the seabed around England and Wales. It follows the closure of its application process for offshore windfarm extension projects, announced on Friday, 1 June.

The Crown Estate said it has received eight applications since it launched the application process in February 2017 and will now embark on the process of assessing those applications. Due to there being multiple applications, the assessment process will also include considerations for the need for a “plan level Habitats Regulations Assessments (HRA)”. Following the assessment process, the Crown Estate has said that successful applications could be converted into option agreements in the summer of 2019.

“Extension projects have the potential to make an important contribution to the UK’s offshore wind pipeline, in line with the sector’s growing ambitions and in advance of potential new leasing,” said Will Apps, Head of Energy Development at the Crown Estate. He noted that over the coming months, the organisation would “work closely with the successful applications and our stakeholders to ensure careful consideration of environmental impacts and existing seabed users interests, ahead of any award of rights.”

The Crown Estate explained that closing the extensions opportunity will “pave the way” for a single and comprehensive route for awarding future offshore wind developments rights.

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Industry 1 | Decarbonisation of heating, cooling and transport not fast enough: REN21

Global progress on decarbonising the heating, cooling and transport sectors is too slow, according to a report by UN-backed global renewable energy policy network REN21.

The report found positive developments show that the renewable energy transition is possible but advances so far are uneven across sectors. During 2017 renewable power saw its largest annual increase in capacity, rising by almost over 9%. Overall, renewables accounted for an estimated 70% of net additions to global power capacity due to continued improvements in the cost-competitiveness of solar PV and wind power. Solar PV accounted for 55% of newly installed renewable power capacity, while wind and hydropower represented 29% and 11% of renewable capacity respectively.

The organisation noted that there has been little change in renewables uptake for heating and cooling during 2017. The data revealed that 10% of heating and cooling was powered by modern renewable energy sources over the recorded period; another 16.4% was supplied by traditional biomass, predominantly for cooking and heating in the developing world.

Meanwhile, the industry sector primarily uses low and medium temperatures, although some industries require higher temperatures for complex processes. Higher temperatures are harder to achieve from renewable sources, therefore REN21 noted further research and innovation will be necessary to overcome this technical challenge.

The report concluded that although bio-heat, geothermal direct use and solar thermal capacities were added over the year, growth remained slow, with renewables continuing to play a small role in providing cooling services despite its considerable potential.

Furthermore, slow progress has been reported in the transport sector with Biofuels remaining the most current renewable energy contribution, although the report suggested increased attention towards electrification. Renewable energy currently accounts for 3.1% of total energy use in the transport sector, with more than 90% of this provided by liquid biofuels. Currently, oil still supplies the vast majority of global energy needs within the transport sector (92%).

However, 2017 saw the expansion of the electrification of transport, with electric vehicles exceeding 1% of global light vehicle sales. This followed a number of announced plans to phase out sales of petrol and diesel vehicles. REN21 suggested that further electrification of the transport sector has the potential to create a new market for renewable energy and to facilitate the integration of higher shares of variable renewable energy, provided that the policy and market settings are suitable.

Executive Secretary of REN21 Rana Adib said: “Equating ‘electricity’ with ‘energy’ is leading to complacency. We may be racing down the pathway towards a 100% renewable electricity future, but when it comes to heating, cooling and transport, we are coasting along as if we had all the time in the world. Sadly, we don’t.”

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Industry 2 | Investment firms urge G7 to act on climate change

A group of global investment companies has called on world leaders to increase efforts to tackle climate change ahead of the G7 summit in Canada from 8-9 June.

On Monday, 4 June, a group of 288 investors, including companies such as HSBC, Allianz, Aviva, DWS, Nomura Asset Management, Ca1PERS and HESTA signed a joint statement calling on governments to “phase out thermal coal power worldwide by set deadlines”, to phase out fossil fuel subsidies and to “put a meaningful price on carbon”.

In addition, the group urged leaders to strengthen national plans to cut emissions by 2020 and to introduce measures to ensure that companies improve their climate-related financial reporting.

The investors added that countries and companies that implement the Paris agreement goals “will see significant economic benefits and attract increased investment”.

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Industry 3 | Hybrid and plug-in car demand rises in May

Demand for hybrid and plug-in cars grew by more than a third (36.1%) year-on-year in May to take a record 5.8% share of the UK car market.

The data published by the Society of Motor Manufacturers and Traders (SMMT) on Tuesday, 5 June, revealed that 11,240 “alternatively fuelled vehicles” (AFV) were sold in over the month, up from 8,258 the previous year.

SMMT’s research highlighted plug-in hybrid cars as the biggest driver of growth, up 72.7%, while hybrids rose 22.6% and zero emission battery electrics grew 18.7%. Year-to-date figures showed that AFV sales were up 19.5% on 2017 levels despite an overall car demand decline of 6.8% compared to last year, after diesel demand fell 30.6%.

Mike Hawes, SMMT Chief Executive said: “To ensure long-term stability, we need to avoid any further disruption to the market, and this will require sustainable policies that give consumers and businesses the confidence to invest in the new cars that best suit their needs. Fleet renewal is the fastest way to improve air quality and reduce CO2, and this applies to hybrid and plug-in technologies as well as the latest low emission petrol and diesels.”

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