Week in Energy
Monday 25/06 – Business and Energy Secretary Greg Clark announces that the government has decided not to go ahead with the Swansea Bay tidal lagoon project on value for money grounds.
Tuesday 26/06 – The International Energy Agency predicts that global gas demand will grow at an average rate of 1.6% a year to 2023. At its Power Responsive conference National Grid reveals that its target of procuring 30-50% of balancing from demand-side response could be met two years early.
Wednesday 27/06 – Business and Energy Secretary Greg Clark announces a £200mn sector deal for the nuclear industry. Plans for a £685m investment at a renewable energy facility in Pembrokeshire are rejected on planning grounds.
Thursday 28/06 – The Committee on Climate Change releases its annual report to Parliament warning of tougher challenges ahead to meet the next carbon budgets, particularly in buildings and transport. Trade associations including Energy UK and Renewable UK back the CCC’s calls for a route to market for low cost renewables.
Friday 29/06 - National Grid announces that solar output has exceeded 8GW every day for the last seven days.
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Policy 1 | Government rejects plans for Swansea Bay Tidal Lagoon
It was announced by Business and Energy Secretary Greg Clark on Monday, 25 June that the government had rejected plans a proposal for the Swansea Bay Tidal Lagoon.
In his statement, Clark said the government’s analysis of Tidal Lagoon Power’s (TLP’s) proposal to build six tidal lagoons – of which the 320MW Swansea scheme would have been a pathfinder project – did not meet the government’s requirement of value for money. It therefore could not justify committing public funds to their development.
Clark said the Swansea Bay scheme would cost £1.3bn to build, and if successful would provide a maximum of 0.15% (0.52TWh) of GB’s current annual electricity demand. In comparison, the construction of the Hinkley Point C nuclear station is expected to cost around £20bn and supply around 7% (26TWh) of current demand. It was also noted that at £1.3bn, the capital cost per unit of electricity generated from Swansea Bay would be three times greater than that of Hinkley.
If the full programme of six lagoons were built, the total cost was estimated to be over £50bn. This would be around two and a half times greater than the cost of Hinkley to generate a similar level of electricity output. Clark noted that constructing enough offshore wind capacity to provide the same level of output as the lagoons would cost at least £31.5bn less to build. When total costs were considered, the analysis found that by 2050 the lagoon programme could have cost up to £20bn more than generating the same amount of electricity through a combination of offshore wind and nuclear.
Clark concluded: “The inescapable conclusion of an extensive analysis is that however novel and appealing the proposal that has been made is, even with these factors taken into account, the costs that would be incurred by consumers and taxpayers would be so much higher than alternative sources of low carbon power, that it would be irresponsible to enter into a contract with the provider.”
Ian Price, the Confederation of British industry’s (CBI’s) Wales Director, said it was “disappointing” that a viable financial model for the development could not be found. He acknowledged the efforts that had been made to facilitate the lagoon but that “at the end of the day any project has to be affordable for consumers.” He added: “All major infrastructure projects require large amounts of time, energy and money, only for many to then fail to get the green light. There must be a smarter way of approaching such projects that does not discourage innovative entrepreneurial new firms from entering the marketplace.”
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Policy 2 | EU sets new 32.5% energy efficiency target
A new overall EU-wide 32.5% energy efficiency target for 2030 has been set by EU lawmakers and national representatives. It forms part of a wider agreement on new rules for improving energy efficiency in Europe and is the third of eight legislative proposals in the Clean Energy for All Europeans package.
The informal agreement, reached on Tuesday, 19 June by the European Parliament and Council, includes an upward revision clause by 2023 that will consider “significant cost reductions resulting from economic or technological changes”. The ruling effectively means that the target can only be raised further, not lowered.
The energy efficiency guidelines oblige EU Member States to increase their energy savings by 0.8% every year for the period 2021-2030, requiring them to have in place “transparent, publicly available national rules on the allocation of the cost of heating, cooling and hot water consumption in multi-apartment and multi-purpose buildings.” The EU says that the target will deliver real energy savings that come from new energy efficiency renovations; will strengthen rules on individual metering and billing of thermal energy by providing consumers with clearer rights to receive frequent and useful information on their energy consumption; and will tackle current market and regulatory barriers to increase security of supply, reduce energy bills and address energy poverty.
Commissioner for Climate Action and Energy Miguel Arias Cañete called the deal “a major push for Europe’s energy independence”. He added that “the new target of 32.5% will boost our industrial competitiveness, create jobs, reduce energy bills, help tackle energy poverty and improve air quality… this deal shows Europe’s determination to build a modern economy that is less dependent on imported energy and with more domestically produced clean energy.”
A second related deal was reached on 20 June to establish the working mechanisms for the EU’s Energy Union project and a new framework in which Member States can deliver on climate goals. Under the former, each EU Member State is required to deliver an “integrated national energy and climate plan” by 31 December 2019, and then every ten years after this date. The first of these plans must include strategies covering the period 2021 to 2030, with following plans covering subsequent 10-year periods. According to the EU, plans must include targets, policies and contributions for decarbonisation, energy efficiency, energy security, the internal energy market and research and innovation.
On Thursday, 14 June the EU announced a new provisional target that will see at least 32% of the bloc’s gross final energy consumption come from renewable sources in 2030. This forms part of a wider package of “ambitious targets” that includes rules stating a minimum share of at least 14% of fuel for transport must come from renewable sources, and an agreement on renewable self-consumers. The latter states that consumers are entitled to generate renewable energy for their own consumption and can receive remuneration for any energy that is fed into the grid.
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Policy 3 | Climate advisors urge government to pursue simple, low cost decarbonisation options
The Committee on Climate Change (CCC) released on Thursday, 28 June its annual report to Parliament, assessing progress towards reducing UK emissions.
The report highlighted achievements in decarbonising electricity generation and waste – overall, UK emissions are down 43% compared to the 1990 baseline while the economy has grown significantly over the same period.
However, it also said there were tougher challenges ahead to meet the next carbon budgets, particularly in buildings and transport. Using lessons from the past 10 years, the CCC set out four key messages to put CO2 reductions on track: support simple, low-cost options, commit to effective regulation and strict enforcement, end chopping and changing of policy and act now to keep long-term options open.
CCC Chairman, Lord Deben, said: “Although the UK seeks to lead the world in tackling climate change, the fact is that we’re off track to meet our own emissions targets in the 2020s and 2030s.”
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Policy 4 | Community Energy England finds 2017 a “challenging year”
Community energy faced a challenging year during 2017, says a new report from Community Energy England (CCE). Community Energy: State of the Sector Report 2018 is the second annual review of community energy generation, energy savings and CO2 reduction projects in England, Wales and Northern Ireland.
It states that only one new community organisation was established last year, with 30 fewer successful projects and 31% less generation capacity installed or acquired compared to 2016. The reduction in new community groups, says the report, is “likely attributable to the decreasing viability of energy projects, which in turn may be affecting communities’ enthusiasm and motivation to investigate energy projects.”
The study identified a total of 302 projects in 2017 – including energy generation, heat generation, energy efficiency and demand management, energy storage and low-carbon transport – with 16 new projects commenced during the year. Across England, Wales and Northern Ireland 168MW of community-owned electricity generation capacity was identified, which represents an increase of 47MW on the previous year. The report also found that community renewable projects generated more than 202GWh of electricity in 2017, offsetting 71,000 tonnes of CO2 and providing enough energy to meet the annual electrical demand of 67,000 homes.
Despite challenges, the report notes the resilience of the industry but calls for clearer strategy and policy decision saying “dramatic changes are needed if the benefits of community energy are to continue to be felt in communities across the UK. Clearer government strategy and support are critical in overcoming the barriers seen in 2017.”
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Industry 1 | Payment cuts to small generators upheld in court ruling
A key decision by regulator Ofgem on revenue for smaller generators that had gone to a legal challenge has been upheld by the courts.
Following a consultation in March 2017, the regulator decided in June 2017 to act on concerns over the electricity transmission network charging arrangements for smaller embedded generators, including the exemptions and payments collectively referred to as “embedded benefits”. These relate to power generators that are connected at the local distribution grid level, rather than the national high voltage grid level.
Ofgem had previously indicated that the ability of a supplier to use sub-100MW embedded generation to reduce transmission use of system charges (TNUoS), and for these to be paid to help others avoid them, is a distortion. Ofgem decided to implement a proposal to reduce TNUoS Demand Residual (TDR) payments to smaller embedded generators to the level of avoided Grid Supply Point costs as of 1 April 2018. This equates on average to a cut from £45/kW to around £3/kW over three years to 2020.
This prompted a group of companies with interests in such generators to mount a legal challenge to have the decision judicially reviewed. However, a high court judge decided against such a move.
Ofgem commented in a statement: “Our view is that it is good news for consumers that the Court has upheld our decision. These payments cost customers around £370mn in 2016 alone and, without the changes following our decision, this amount would have increased further. The reduction in this payment will make sure costs are kept as low as possible for consumers.”
At the hearing, the claim was developed that Ofgem had misunderstood the arguments made to it and therefore did not truly take account of them. This related to the nature of the locational charge and that transmission network costs avoided by using embedded generators are in the residual charge. The judge said Ofgem adequately understood the points which were being made by the claimants and others, but just did not agree with them.
Of a claim that Ofgem had wrongly put the burden on the claimants to provide evidence that embedded generators result in additional savings in the costs of the transmission network, the judge ruled this fell foul of the principle that the decision maker decides on the manner and intensity of any inquiry undertaken into any material consideration.
A third argument, developed later in the process, related to the treatment of embedded generation in the Security and Quality of Supply Standard (SQSS). The judge concluded that Ofgem’s decision demonstrated that it did consider arguments concerning the SQSS.
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Industry 2 | National Grid may hit DSR targets two years early
National Grid has revealed that it believes over 50% of balancing services came from demand-side response (DSR) providers last month. If this trend continues the System Operator (SO) will have reached its target of sourcing 30-50% of balancing actions from DSR two years ahead of schedule.
The announcement came at the recent Power Responsive conference, held on Tuesday, 26 June. The SO explained that as well as simplifying the suite of contracted DSR products, it is also now focussing its attention on enabling more sources of flexibility to participate in the Balancing Mechanism (BM). Currently, only transmission connected generation and licensed suppliers are able to participate in the BM, although National Grid is aiming to allow independent flexibility providers to participate by the end of the year. Some aggregators have noted the potential opportunities of the BM and have acquired supply licenses in order to participate.
It was noted that as the SO’s BM requirements could potentially double by 2022, there could be more than £500mn of revenues available to flexibility providers.
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Industry 3 | “Future looks bright” for gas: IEA
The latest annual gas market report by the International Energy Agency (IEA) has predicted that strong growth in Chinese demand, combined with greater US supplies, will transform the global natural gas markets over the next five years.
The research, published on Tuesday, 26 June, said that global gas demand is expected to grow at an average rate of 1.6% per year, reaching a total of just over 4,100bn cubic meters in 2023. This compares to 3,740bn cubic meters in 2017. Chinese gas demand is expected to grow by 60% between 2017 and 2023 as a result of policies aimed at reducing local air pollution by transitioning from coal to gas. The IEA noted that China alone is predicted to account for over a third (37%) of the growth in global demand over the next five years and become the biggest single natural gas importer by 2019, overtaking Japan.
Amongst end-users, industry is expected to become the largest contributor to the increase in global gas demand to 2023, overtaking power generation which has traditionally been the largest source. Overall, the IEA said industry will account for over 40% of growth in global gas demand over the next five years, with power generation accounting for a quarter (25%).
The IEA noted that Liquefied Natural Gas (LNG) will take a large share of the global gas trade, particularly in Asia. LNG’s share of global gas trades is expected to rise from a third in 2017 to nearly 40% in 2023. Emerging Asian markets are expected to account for around half of global LNG imports by 2023. The report warned that the continued growth in the LNG market “will have significant impacts on trade flows, pricing structures and global gas security.”
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