Energy Policy Dates for 2019

As we look ahead to 2019, we’ve outlined key energy industry changes and dates to take action by.

EU ETS – Market Stability Reserve (MSR)

1 January – MSR Implementation

The European Commission is introducing a solution to the oversupply of allowances in the carbon market, which will take effect in January.

EU carbon allowances, or European Allowances (EUAs) serve as the unit of compliance under the European Emissions Trading Scheme (EU ETS). In response to a build-up of these allowances, following the 2008 global financial crisis, the European Commission has introduced a long-term solution known as the Market Stability Reserve (MSR). With Brexit looming, there’s uncertainty as to whether these changes will affect the UK.

 

Energy Price Cap

1 January – Price Cap implementation

Price protection for 11 million customers on poor value default tariffs will come into force on 1 January 2019. Ofgem has set the final level of the price cap at £1,136 per year for a typical dual fuel customer paying by direct debit.

When the price cap comes into force suppliers will have to cut the price of their default tariffs, including standard variable tariffs, to the level of or below the cap, forcing them to scrap excess charges. The cap will save customers who use a typical amount of gas and electricity around £76 per year on average, with customers on the most expensive tariffs saving about £120. In total, it is estimated that the price cap will save consumers in Great Britain around £1 billion. Read more here.

 

Ofgem’s Targeted Charging Review (TCR) – the end of Triad season?

4 February – Consultation conclusion

Ofgem has launched a consultation, due to conclude on 4 February 2019, into how the costs of transporting electricity to homes, public organisations, and businesses are recovered. Proposed changes could remove the incentive for Triad avoidance.

Costs for transporting electricity are currently recouped through two types of charges:

  • Forward-looking charges, which send signals to how costs will change with network usage
  • Residual charges, which recover the remainder of the costs

In order to ensure that these costs are shared fairly amongst all users of the electricity network, Ofgem are undertaking a review of the residual network charges, as well as some of the remaining Embedded Benefits, through the Targeted Charging Review (TCR). Ofgem are exploring the removal of the Embedded Benefit relating to charging suppliers for balancing services on the basis of gross demand at the relevant grid supply point. This is important as it would eliminate the incentive of Triad avoidance.

 

Brexit

29 March – Scheduled date to leave the EU

Whilst not a specific energy policy announcement, the UK’s departure from the EU is a significant event that has raised a lot of questions concerning UK energy security.

We put together a Q&A on how Brexit may impact the UK energy industry and climate change targets. Read more here.

 

Closure of the Feed-in Tariff (FiT) scheme

31 March – Scheme Closes

The Government has confirmed plans to remove the export tariff for solar power, which currently provides owners of solar PV panels revenue for excess energy that they generate. This will coincide with the closure of the Feed-in Tariff (FiT) scheme.

The FiT scheme was introduced in April 2010 in order to incentivise the development of small scale renewable generation from decentralised energy solutions such as solar photovoltaics (PV), wind, hydro, anaerobic digestion and micro Combined Heat and Power (CHP). Generators were paid a fixed rate determined by the Government, which varied by technology and scale.

The scheme will close in full to new applications from 31 March 2019, subject to the time-limited extensions and grace period.

 

Streamlined Energy and Carbon Reporting (SECR)

1 April – SECR implementation

Streamlined Energy and Carbon Reporting (SECR) is on the way, due to come in to effect from 1 April 2019. The introduction of this new carbon compliance scheme aims to reduce some of the administrative burden of overlapping schemes and improve the visibility of energy and carbon emissions when the CRC scheme ends.

EIC can help you achieve compliance. Read more about Streamlined Energy and Carbon Reporting (SECR) by clicking here.

 

UK Capacity Market

Early 2019

The UK Capacity Market is currently undergoing a temporary suspension, issued by the European Court of Justice (ECJ), on the back of a legal challenge that the auction was biased towards fossil fuel generators.

The ECJ’s decision means that payments made under the Capacity Market (CM) scheme will be frozen until the UK Government can obtain permission from the European Commission to continue. In addition, the UK will not be allowed to conduct any further CM auctions for energy firms to bid on new contracts.

The UK government has since iterated that it hopes to start the Capacity Market as soon as possible and intends to run a T-1 top-up auction next summer, for delivery in winter. This is dependent on the success of a formal investigation to be undertaken by the European Commission early in the New Year.

 

Spring Statement and Autumn Budget

The UK Government’s biannual financial updates are always worth looking out for.

The Spring Statement will be delivered in March and the more substantial Autumn Budget is scheduled for October. The 2018 budget had a very heavy focus on Brexit, with very little to say concerning energy policy. It is likely this will be the case for the Spring Statement and potentially going forward.

 

Energy Savings Opportunity Scheme (ESOS)

5 December – ESOS Phase 2 compliance deadline

ESOS provides a real chance to improve the energy efficiency of your business, on a continual basis, to make significant cost savings.

In Phase 1 of ESOS we identified 2,829 individual energy efficiency opportunities, equivalent to 461GWh or £43.9m of annual savings across 1,148 individual audits. Our team also helped over 300 ESOS Phase 1 clients avoid combined maximum penalties of over £48million.

With EIC you can achieve timely compliance and make the most of any recommendations identified in your ESOS report.

 

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

LNG over Christmas – let it flow, let it flow, let it flow

Here we look at why imports to the UK have increased in the last few months and where they’ve come from.

Liquefied Natural Gas (LNG) is natural gas or methane that has been chilled down to liquid form at -162°C. In this state, it takes up 1/600th of its normal volume, allowing it to be put onto tankers and transported around the world. Here we look at why imports to the UK have increased in the last few months and where they’ve come from.

 A standard tanker carries around 143,000 cubic metres of LNG. When this is re-gasified, that equates to around 85 million cubic metres (MCM). The largest Q-MAX tankers can hold nearly double this.

The last three months have seen a huge increase in the amount of LNG coming to the UK and Europe, with import volumes at their highest since the Japanese Tsunami in 2011.

 

Why is the UK seeing more LNG?

There has been a big increase in Atlantic supply and more of that gas is now heading to Europe. During winter the Northern Sea route to supply Asia is closed due to ice, which makes the Isle of Grain one of the closest markets for Russian LNG.

Last year Europe received very little LNG. Those tankers that did come from the newly commissioned Russian export facility at Yamal, had their gas reloaded onto new tankers and sent on to higher priced markets. There remains a limited number of the ice breaker class LNG tankers, required to cross the Arctic Ocean, and as a result ship-to-ship transfers are now taking place in northern Norway. This enables the terminal to run closer to its capacity, which continues to grow as the third LNG train has just come online. This will lead to a similar jump in Russian supply as the one seen in June 2018.

Europe also received very little gas from the US last year, largely because other markets were paying more and drawing the gas away from Europe.

Even this year when we have received a lot more Russian LNG, a high proportion of that has been shipped on to higher priced destinations.

 

Further growth in US LNG expected

Looking at the forward prices for the UK and Asia, the spread is set to remain relatively tight for the next six months, which will keep more Russian LNG in the Atlantic (while the Northern Sea route is closed during winter).

The recent supply growth may have almost peaked in Russia with the commissioning of Yamal train three in December. However, we’re only halfway there from the US with a huge growth in supply due in the near future.

With journey times to the UK being half that of Asia, and the future prices showing a marginal Asian premium, some of this gas will come to the UK.

Current shipping rates from Sabine Pass stand at around $1.4 million British Thermal Units (MMbtu) to the UK while they are almost $3MMbtu to Japan.

 

Market size

For the time being we could see more LNG, but that largely depends on what happens in Asia, which has an LNG market four times the size of Europe’s.

Looking forward, the price difference between Asia and the UK supports the case that the near term surge in supply will take some time for demand or import capacity to catch up, with the market not tightening until the early part of 2020.

Whilst nothing can be guaranteed, the growth in supply that had long been expected is finally having an effect on the UK energy market. However, the increasing demand for cleaner fuels will mean that any surplus we see over the next twelve months is likely to be quickly absorbed.

 

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

Government confirms closure of Feed-in Tariff

The Government has confirmed plans to remove the export tariff for solar power, which currently provides owners of PV panels revenue for excess energy that they generate. This will coincide with the closure of the Feed-in Tariff (FiT) scheme.

Though a large proportion of respondents to the governmental consultation disagreed with the plans, the Department for Business, Energy and Industrial Strategy (BEIS) has decided that both the Feed-in Tariff subsidy scheme and the export tariff will close to new participants after March next 2019.

 

What was the Feed-in Tariff (FiT) scheme?

The Feed-in Tariff scheme was introduced in April 2010 in order to incentivise the development of small-scale renewable generation from decentralised energy solutions such as solar photovoltaics (PV), wind, hydro, anaerobic digestion, and micro Combined Heat and Power (CHP). Generators were paid a fixed rate determined by the Government, which varied by technology and scale.

Payments to the small-scale generators were made quarterly by FiT-licensed suppliers and recovered from all consumers. A levelisation process also took place every quarter, as not all suppliers were required to offer FiTs and their exposure to the scheme varied.

 

The Government response

The response from the Government argues that the closure of the FiT scheme represents their “desire to move towards fairer, cost reflective pricing and the continued drive to minimise support costs on consumers”, adding that the current scheme does not support the vision set out in either the Industrial Strategy or the Clean Growth Strategy.

The scheme will close in full to new applications from 31 March 2019, subject to the time-limited extensions and grace period.

The Government has decided to provide a 12-month grace period for “Renewals Obligation Order Feed-In Tariff (ROO-FiT) scale” (all hydro and anaerobic digestion, solar PV, and wind with a declared net capacity over 50kW) installations that apply for preliminary accreditation on or before the cut-off date, are accepted into the cap, and then suffer grid and/or radar delay beyond their control. This means they are unable to accredit during their preliminary accreditation validity period.

It’s also been decided that projects in oversubscribed deployments caps at the close of the scheme will not be eligible for either generation or export tariff payments under the scheme, and so Ofgem will not grant them preliminary or full accreditation.

 

How will this impact you?

The results of these closures will mean that anyone that adds solar generation from April 2019 will not be paid for any excess power that is exported to the grid. These changes will not affect the circa 800,000 homes that have already solar panels fitted since the Feed-in Tariff scheme launched in 2010.

The Government is reportedly preparing to announce a market-based replacement to the export tariff early in the New Year, which would see new rules on how suppliers could purchase the excess power.

However, there will likely be a gap between the closure of the Tariff and the implementation of any new plans, meaning any new solar generators will be affected during this time.

 

We can help you realise the benefits of decentralised energy

Solutions such as Solar, Battery Storage, and Combined Heat & Power (CHP) can be an integral part of your wider energy strategy, as well as generate additional revenue through lucrative Demand Side Response (DSR) schemes.

To find out how, visit our webpage, call us on 01527 511 757, or email info@eic.co.uk.

EU temporarily suspend UK carbon permit processes

EU temporarily suspend UK carbon permit processes

The European Commission has implemented a “no-deal” Contingency Action Plan across specific sectors to help mitigate the continued uncertainty in the UK surrounding the ratification of the Withdrawal Agreement.

The main talking point, regarding energy policy, is the Commission’s plans for the UK’s access to the EU Emissions Trading Scheme (EU ETS).

EU carbon allowances, or European Allowances (EUAs) serve as the unit of compliance under the EU ETS. EUAs are auctioned for use by energy-intensive industries that fall under the scheme, namely power generators, oil refiners, and steel companies, entitling them to emit one tonne of CO2.

How this affects the EU ETS in the UK

The Commission has adopted a number of actions in the area of EU climate legislation to “ensure that a “no-deal” scenario does not affect the smooth functioning and the environmental integrity of the Emissions Trading System.”

This involves a decision to temporarily suspend the free allocation of emissions allowances, auctioning, and the exchange of international credits for the UK effective from 1 January 2019.

The Commission has also elected to allow an appropriate annual quota allocation to UK companies for accessing the EU27 market, until 31 December 2020. This will be supplemented through regulation to ensure that the reporting by companies differentiates between the EU market and the UK market to allow a correct allocation of quotas in the future.

The full Contingency Action Plan can be read here.

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

Will Ofgem’s Targeted Charging Review bring an end to Triads?

Ofgem has launched a consultation into how the costs of transporting electricity to homes, public organisations, and businesses are recovered. Proposed changes could remove the incentive for Triad avoidance.

Costs for transporting electricity are currently recouped through two types of charges:

  • Forward-looking charges, which send signals to how costs will change with network usage
  • Residual charges, which recover the remainder of the costs

In order to ensure that these costs are shared fairly amongst all users of the electricity network, Ofgem are undertaking a review of the residual network charges, as well as some of the remaining Embedded Benefits, through the Targeted Charging Review (TCR).

 

Proposed options for residual charges

On setting transmission and distribution residual charges, Ofgem has conducted an analysis of different approaches, leading them to two primary options that they are consulting on, the first of which is a ‘Fixed Charge’. This is highlighted as Ofgem’s preferred option, in which charges would be set for individuals in customer segments, with these segments being based on an existing industry approach.

The second option is an ‘Agreed Capacity Charge’. This would see a charge calculated directly for larger users who have a specific agreed capacity. Capacity for smaller households and businesses would be based upon assumed levels.

Ofgem’s assessment is that a reform of residual charges would result in potential net system benefits up to 2040 between £0.8bn and £3.2bn, with benefits to consumers as a whole in the range of £0.5bn to £1.6bn. In addition to this, Ofgem assess that the proposed changes would save around £2 a year for households in the longer term.

Either scenario would see a fixed rate for Transmission Network Use of System (TNUoS) charges. However, under the Agreed Capacity Charge option, as charges would be based on capacity, there would potentially be some room to reduce contribution to the residual charges.

 

Changes to Embedded Benefits

There are a some notable points within the TCR regarding Embedded Benefits; notably, Ofgem are consulting on setting the Transmission Generation Residual to zero, subject to maintaining compliance with the current cap on overall transmission charges to generators. This will remove a benefit to larger generators that receive a credit from these charges at present.

Another key point is that Ofgem are exploring the removal of the Embedded Benefit relating to charging suppliers for balancing services on the basis of gross demand at the relevant grid supply point. This is important as it would eliminate the incentive of Triad avoidance. Currently, National Grid identifies three Triads each year in order to calculate the TNUoS charges an organisation will incur. Such transmission costs can be reduced if demand is decreased when a Triad Alert is called (a warning that demand will be high that day). Find out more about what Triads are and how you can avoid them here.

For both of these points, Ofgem believes that whilst these benefits reduce costs for individual companies or consumers, they don’t reduce the total network costs that users need to fund collectively. This can lead to greater costs for other users and, if not addressed, Ofgem say this will lead to less efficient outcomes that are not in the best interests of consumers as a whole.

 

BSUoS changes

The Review outlines a proposal for Ofgem to set up a Balancing Services Use of System (BSUoS) task force. The task force would be responsible for considering how cost-reflective and effective the current charges within BSUoS are. From this, they would evaluate the potential to provide a better system in the future, looking to make it more cost-effective. This would come with the responsibility of assessing how feasible any improvements to BSUoS charges are.

Ofgem are deliberating between two reform options; a partial or a full reform of BSUoS. A partial reform would see a reduction in suppliers’ contributions to BSUoS charges, while a full reform would see the removal of BSUoS payments, and require smaller embedded generators to pay BSUoS charges.

Under the current system, suppliers are charged BSUoS based on net demand. A bill is calculated on gross demand and then any embedded generation reduces this cost to the supplier, which is recouped from consumers via a separate non-commodity cost (NCC) charge. Under the proposed full reform, embedded generators would be considered the same as transmission connected generators, leading them to be charged for BSUoS with no savings.

 

The impact to Triads

Triads are currently evaluated based on average demand during the three highest half-hourly peaks of electricity use between November and February. These periods can be forecast, allowing network users who employ Triad avoidance to reduce their electricity consumption in anticipation, for example by instead using on-site generation, Demand Side Response (DSR), or storage. Ofgem argue that whilst this reduces their own costs, the total network cost doesn’t change, meaning that those unable to employ the same avoidance methods pay a larger cost.

Under the proposals by Ofgem, charges will remain roughly the same to users where no Triad management is in place. However, it is expected that large increases will occur for those who use Triad avoidance to reduce the impact.

The new system would see single fixed charges applied based on voltage level. Ofgem believe this will result in reductions in charges for larger SMEs, whilst SMEs at the lower end of consumption will see moderate increases. Importantly, users with on-site generation will pay the same charge as those without, in contrast to the current arrangements.

The Triad period this winter will be unaffected, as will winter 2019 going by Ofgem’s timetable. However, this will have a significant impact on how businesses may seek to recover operating costs in the future. No replacement could see a lack of incentive for DSR, resulting in adverse constraints on the market.

 

Stay informed with EIC insights

Our Market Intelligence team keep a close eye on the energy markets and industry updates. For the most timely updates you can find us on Twitter and LinkedIn Follow us today.

Visit our website to find out more about EIC Market Intelligence and how we keep our clients informed at a frequency to suit them.

ESOS Phase 2 – stay ahead of the deadline

The compliance date for ESOS Phase 2 is fast approaching. Make sure you’re on track to meet the 5 December 2019 deadline.

With under a year to ensure your compliance with ESOS Phase 2, it’s critical to make sure you’re ready to complete all compliance activity within the next 12 months.

The qualification date is 31 December 2018. This means that if you know your business will fit the ESOS criteria, you can start some compliance activities now.

ESOS applies to large organisations, classified as those with:

  • More than 250 employees or;
  • A turnover of more than €50,000,000 and an annual balance sheet total of more than €43,000,000 or;
  • Part of a corporate group containing a large enterprise.

ESOS compliance can help you get a head start with upcoming Streamlined Energy and Carbon Reporting (SECR) compliance – find out more here.

 

Three reasons to comply with ESOS Phase 2

1 – avoid paying over the odds

Many organisations delayed the start of their compliance journey until close to the Phase 1 deadline. This led to a squeeze in service provision, leading many suppliers to increase the cost of their services. Environment Agency (EA) data shows a significant spike in compliance notifications around one month prior to the 5 December 2015 deadline. What’s more, 33% of all who complied by July 2016, did so in the final week of Phase 1. A further 30% of notifications were logged by the end of January 2016.

Had demand for ESOS compliance support been smoothed over the course of 2015, costs may have been more reasonable as the deadline approached.

The lesson here is not to wait until the final months of 2019 to get started with Phase 2.

 

2 – ESOS Lead Assessor numbers are limited

There were almost 950 ESOS Lead Assessors accredited across 14 approved registers by the Phase 1 deadline. BEIS suggests there were enough Lead Assessors to help organisations reach compliance. By 5 December 2015 there were 7.3 qualifying undertakings per Lead Assessor. This is based on an estimated 6,933 organisations that met the ESOS qualification criteria.

However, this doesn’t take into account the Lead Assessors that become accredited purely to certify their own organisations alone. So, in fact, the 900+ Lead Assessors would’ve been spread far more thinly. There’s also a broad scope of the size of organisations (by employee size) and number of sites per qualifying business, meaning not every organisation would have been as easy, or as quick, to assess as another.

Our advice would be to seek guidance from compliance partners you already know who have a proven track record with Phase 1 compliance.

 

3 – Acting now enables you to seize your energy saving opportunity

Delaying compliance for as long as possible means by the time you comply you’ll simply be ticking a box and more than likely paying an unreasonably high cost.

Acting now allows your organisation to really invest in the compliance process by ensuring you have strong and accurate reporting of your energy consumption data. Accurate data is the start of being able to visualise and truly understand when, where, and how you use energy and, more importantly, how you can improve your efficiency to increase savings. EIC can assist you with implementing any energy saving measures identified as part of your ESOS recommendations report. We’ll also ensure these measures work in harmony with each other as part of a bespoke, joined-up Strategic Energy Solution.

 

Why make EIC your trusted compliance partner?

Whether it’s ESOS, SECR, or CCAs, EIC will work with you to reach compliance deadlines and targets. In Phase 1 of ESOS our team identified 2,829 individual energy efficiency opportunities, equivalent to 461GWh or £43.9m of annual savings across 1,148 individual audits. We also helped over 300 ESOS Phase 1 clients avoid combined penalties of over £48m, based on maximum fines.

With under a year until the ESOS Phase 2 deadline, we’re urging you to make a start with compliance. To find out more about how we can help you comply, call us on 01527 511 757 or email esos@eic.co.uk

Update on EU ETS

The Government has directed the Environment Agency (EA) to proceed with preparations for the next phase of emissions trading which will operate from 2021 – 2030. Due to ongoing Brexit negotiations the full detail of the future scheme is not yet known. However, one thing we do know is that NIMs will take effect from January.

In preparation for future reporting, the EA has notified participants in EU Emissions Trading Scheme (ETS) Phase 3 that the data collection exercise, National Implementation Measures (NIMs), will take place between January 2019 and September 2019.

 

What is the EU ETS?

The European Union Emissions Trading Scheme started in 2005 and is the world’s largest carbon-trading scheme. It was introduced to help the EU meet its targets under the Kyoto Protocol which stipulates an 8% reduction in greenhouse gas emissions from 1990 levels. Organisations that meet the qualification criteria – typically large combustion sector and manufacturing processes – are obligated to take part.

The scheme works on a ‘cap and trade’ basis, so there is a ‘cap’ or limit set on the total greenhouse gas emissions allowed by all participants. This cap is converted into tradable emission allowances and provides an incentive for installations to reduce their carbon emissions, giving them the opportunity to sell their surplus allowances.

Participants in the carbon market are allocated traded emissions allowances via a mixture of free allocation and auctions. For each one allowance, the holder has the right to emit one tonne of CO2 (or its equivalent). Those covered by the EU ETS must monitor and report their emissions each year and surrender enough allowances to cover their annual emissions.

 

What are NIMs?

There is a requirement to benchmark participants in the ETS to ensure a fair and equitable distribution of free carbon allowances. The NIMs is a method of benchmarking the emissions of participating installations.

The NIMs data collection requires gathering energy or production data over four years (2014 – 2018), which must be collated, verified by an approved body, and submitted by 31 May 2019.

 

EIC is here to help

We’re experienced in managing EU ETS compliance across a broad range of sites and industries. We’ve also worked with the Environment Agency in the delivery of legislative compliance across all carbon schemes and systems, including ESOS.

We can assist with your EU ETS and NIMs requirements; we’ll review the data held on record and complete the necessary submission to your appointed verifier and the verified data to the Environment Agency. We would also deal with any correspondence between the verifier, Environment Agency, and your organisation.