Informer Issue 491 - 08/12/20

Ofgem has finalised its price control for Britain’s energy networks over the next five years in a move it said would save customers £2.3 billion.

In its final determination the regulator has set out a spending package of £30 billion in upfront funding for network companies, around 20% more than it previously proposed in July, with more than £10 billion on standby for future green energy projects.

Ofgem said the increase came after it challenged the network companies to submit “better evidence on their spending plans” enabling it to give the go-ahead for more funding for crucial maintenance, upgrades and repairs.

However, although the allowed return on equity under the 2021-26 price control of 4.3% is slightly higher than previously proposed, it is still around 40% lower than under the previous period and the lowest ever cost of capital rate for energy network companies. Ofgem said that will enable customers to see a £2.3 billion saving over the course of RIIO-2 price control, equivalent to an average bill reduction of about £10 before inflation.

The regulator also said it was also making unprecedented additional funding available for future green energy projects, such as reinforcement along the East Coast of England to anticipate the development of 40GW of offshore wind in the North Sea.

Ofgem’s Chief Executive Jonathan Brearley said: “Our £40 billion package massively boosts clean energy investment. This will ensure that our network companies can deliver on the climate change ambitions laid out by the Prime Minister last week, whilst maintaining world-leading levels of reliability.

“These costs must fall fairly for consumers. We are reducing the amount paid to shareholders so that they are closer to current market levels.”

National Grid said it will review in detail the full package contained within the final determination to see whether it “delivers sufficient investment to maintain resilient and reliable networks, provides the flexibility required to enable the delivery of critical infrastructure to achieve the UK's net zero ambitions, and provides an appropriate overall financial package”.

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A system which allowed electricity prices to vary across Britain depending on local supply and demand would boost renewables and reduce grid costs, according to a new report.

The Policy Exchange think tank argues that local electricity pricing holds the key to integrating further offshore wind as the UK heads for Net Zero.

The ‘Powering Net Zero’ report comes in the wake of the UK Government’s commitment to quadruple offshore wind capacity by 2030. The report says the ambition poses serious challenges for the electricity market and that conditions during the summer lockdown showed that the Government needs to make reforms, otherwise costs will rise and customers won’t benefit from the falling cost of wind and solar.

It said local electricity pricing would encourage electric car drivers in Cornwall to charge their vehicle when it’s sunny and those in Aberdeenshire to charge when it’s windy, reflecting local sources of electricity.

The report added local pricing would also encourage energy intensive industries to build factories and data centres in the UK’s coastal industrial hubs, where they can benefit from abundant offshore wind resources.

Switching to local pricing could reduce total system costs by £2.1bn, saving the average household £37 every year, according to modelling by Aurora Energy Research, commissioned by Policy Exchange.

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High demand caused by colder weather coupled with low levels of wind generation saw UK system prices spike over the weekend.

System operator National Grid ESO issued an Electricity Margin Notice appealing for generators to boost its buffer of spare capacity although later withdrew it. It stressed that issuing such a notice was a routine tool and “does not signal that blackouts are imminent or that there is not enough generation to meet current demand”.

It was the second Electricity Margin Notice to be issued within days following one on 4 December.

Energy market data firm EnAppSys said the day ahead clearing price seen of £350/MWh was “unheard of for a Sunday”. Imbalance prices also hit £720/MWh.

EnAppSys said this week could see similar issues with the potential for “very high wholesale prices” during demand peaks.

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Prime Minister Boris Johnson has set out an ambitious target for the UK to cut greenhouse gas emissions faster and further than any other major economy over the next 10 years.

The targets aims to reduce emissions by 68% by 2030, compared to 1990 levels, up from the current target of 57%

Johnson said “We have proven we can reduce our emissions and create hundreds of thousands of jobs in the process. The UK is urging world leaders to bring forward their own ambitious plans to cut emissions and set net zero targets.”

The target will be submitted to the UN as part of the UK’s pledge under the Paris Agreement.

The target was broadly welcomed by environmental groups, some felt it could have gone further.

The Committee on Climate Change (CCC), which advises government, stressed the 68% target needs to be “more than just a number”.

“It should be accompanied by wider climate commitments, including the development of a policy package and net zero strategy to deliver against the UK goal; clear commitments to reduce international aviation and shipping emissions; and greater support for climate finance, particularly for developing countries.”

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The UK’s first electric vehicle charging forecourt has opened ahead of a £1 billion rollout that will see 100 built over the next five years.

The site developed by Gridserve in Braintree, Essex, is powered by solar energy and battery storage projects and has 24 charging points that can recharge electric cars within half an hour with a further six superchargers for owners of Tesla vehicles.

Toddington Harper, Gridserve’s chief executive, said: “It’s our collective responsibility to prevent greenhouse gas emissions rising further, and electric vehicles powered by clean energy represent a large part of the solution.

“However, charging has to be simple and free of anxiety, which is why we’ve designed our Electric Forecourts entirely around the needs of drivers, updating the traditional petrol station model for a net-zero carbon world and delivering the confidence people need to make the switch to electric transport today – a full decade ahead of the 2030 ban on petrol and diesel cars.”

Drivers charging at the new forecourt will initially pay 24p per kWh of energy, which Gridserve said was the lowest ultra-high power charging rate on the market. A typical charge from 20% to 80% costs under £10 for an average-size electric vehicle.

The opening came as latest figures showed market share for battery electric vehicles jumped by more than 122% in November compared to the same month last year.

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