Energy Policy in 2020
We take a look at Energy Policies for the year ahead
Following the results of the UK General Election, it will be the Conservative Party responsible for delivering the net zero target and a green economy. The Conservatives made positive pledges to invest in green jobs, low carbon infrastructure and investment in energy efficiency.
Their Manifesto promised that the first Budget in 2020 will prioritise the environment and contain investment in research & development, decarbonisation schemes, new flood defences, electric vehicle infrastructure and clean energy. The Budget date is to be confirmed, but will likely take place in early Spring.
The Department for Business, Energy and Industrial Strategy (BEIS) intend to release an Energy White Paper, which is expected in Q1 2020. It will detail the country’s strategy to achieving net zero emissions by 2050.
Energy Secretary, Andrea Leadsom, has said that BEIS are currently evaluating a number of different approaches. This will include decisions on renewables, nuclear levels and the role of carbon capture, usage and storage.
The White Paper is expected to yield further policy indications on a range of energy and environmental issues that are currently unclear.
The 26th session of the Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC) is scheduled to take place 9-19 November 2020 in Glasgow.
The UK will host the main COP summit, which will enable world leaders to discuss actions to tackle climate change and serve as a spotlight on how far the government’s climate policy decisions have come. Claire Perry, the previous Minister of State for Energy and Clean Growth, will preside as the UK nominated president for the event.
Second Balancing Services Charges Taskforce
Ofgem formed the first Balancing Services Charges Taskforce, in collaboration with the Electricity System Operator, back in November 2018. The main goal of the Taskforce was to investigate the future direction of Balancing Services Use of System (BSUoS) charges.
The Taskforce found that the BSUoS charge does not currently provide any useful forward-looking signal. This makes the charges hard to forecast, reducing the influence of the charge on user behaviour.
With this information, the Taskforce assessed whether individual elements of BSUoS have the potential for being charged more cost-effectively and hence could provide a forward-looking signal. However, whilst it was concluded there were theoretical advantages to options suggested, it remained that the implementation would not or could not provide a cost-reflective and forward-looking signal that would drive efficient and effective market behaviour.
The first Taskforce concluded that it was not feasible to charge any of the BSUoS components in a more cost-reflective and forward-looking manner that would effectively influence behaviour to help the system and/or lower costs to customers. The group recommended that all costs included with BSUoS should be treated on a cost-recover basis.
Taskforce key deliverables
The new Taskforce will aim to assess who should pay BSUoS charges, how these charges should be recovered and how principles from the Targeted Charging Review can be applied. In order to achieve this the Taskforce has compiled five deliverables:
- Consideration and assessment based recommendation as to who should pay balancing services charges
- Investigation and recommendation for recovering balancing services charges, including collection methodology and frequency
- Produce interim report providing detailed reasoning and any relevant analysis behind the initial conclusions
- Consult on the interim report providing opportunity for stakeholder comment
- Issue a final report including consideration of stakeholder consultation responses providing a final recommendation on who should pay, the design of balancing services charges and potential timescales for implementation
The final report, containing the recommendations to Ofgem, is scheduled to be published in June 2020.
Electric Vehicle Smart Charging consultation response
On 15 July 2019 the Government published a consultation on Electric Vehicle Smart Charging. This was to seek views on the outline of the current approach and objectives for the implementation of smart charging systems for electric vehicles (EVs).
The Government believes that the encouragement of consumer uptake and innovation is necessary to meet future targets. To this effect, Government’s overall aim is to maximise the use of smart charging technologies to benefit both consumers and the electricity system, whilst supporting the transition to EVs.
The consultation states that without government intervention, it is unlikely that smart charging will be taken up at the rate required to achieve the full potential benefits. This could lead to the risk of varying standards and inadequate protections for the grid and consumers.
The long and short-term plans for smart charging
The Government provided detail on both short and long-term plans for smart charging. The approach for Phase One of the project would see new non-public charge points required to have smart functionality, compliant with the British Standards Institution.
Phase Two is a work in progress, as the Government seeks views on what the long-term approach for operational requirements should be, with some potential options. The consultation proposes that a decision should be made between 2020 and 2022.
A potential response to the consultation is expected in 2020 and would dictate the rate and method of rollout of new EV infrastructure across the country in the future.
Review of Default Tariff Cap
The initial default tariff cap came in effect on 1 January 2019. It was designed as a temporary cap on standard variable tariffs and fixed term default tariffs. In accordance with the licence requirements, Ofgem run an update progress twice a year. This is so the default tariff cap reflects changes in the cost of supplying energy.
On 7 August 2019, Ofgem updated the cap levels to come into effect for the third charge restriction from 1 October 2019 to 31 March 2020. A fall in wholesale costs saw the level of the cap reduce from £1,254 to £1,179 for this period.
The default tariff cap is intended to be a temporary measure, with an upcoming review next year on whether it is still fit for purpose. The cap will remain in place until at least the end of 2020. The government will be able to choose whether to extend the cap beyond this, up to a maximum of 2023.
Dermot Nolan, Chief Executive of Ofgem, said, “The price cap requires suppliers to pass on any savings to customers when their cost to supply electricity and gas falls.
He added, “This means the energy bills of around 15 million customers on default deals or pre-payment meters will fall this winter to reflect the reduction in cost of the wholesale energy. Households can cut their bills further in time for winter, and we would encourage all customers to shop around to get themselves the best deal possible for their energy.”
CCC to publish Sixth Carbon Budget
The Committee on Climate Change (CCC) is scheduled to publish its recommendation on the level of the Sixth Carbon Budget in September 2020.
The Sixth Carbon Budget, required under the Climate Change Act, will provide ministers with advice on the volume of greenhouse gases the UK can emit during the period 2033-2037. The Budget will set the path to the UK’s net-zero emissions target in 2050, as the first carbon budget to be set into law following that commitment.
CCC Chairman, Lord Deben, advised the Government of the Committee’s intention in a letter to the Exchequer Secretary to the Treasury, Simon Clarke MP.
The letter sets out the Committee’s expectations for the Treasury’s planned review of how the costs of the transition to a net-zero economy by 2050 can be funded and distributed fairly.
The Committee called on the Treasury to conduct the review in its May 2019 advice to Government on setting a net-zero target for the UK. The Committee sees the review as crucial in ensuring a successful transition and recommend that the review is a key input to next year’s spending review and budget, and longer-term policy direction.
Lord Deben’s letter also recommends that the Treasury review develops a plan for funding decarbonisation and examines the distribution of costs for businesses, households and the Exchequer.
STAY INFORMED WITH EIC INSIGHTS
Weekly Energy Market Update – 20 January
Gas Gas prices fell heavily again last week with contracts across the curve falling to new lows. Price drivers for the market are unchanged with...
Weekly Energy Market Update – 13 January
Gas Gas prices on the curve moved lower week-on-week, with the market close to the record contract lows seen at the end of December. However,...