Bulletin 1 February

Issue 267: Tuesday 1st February 2011  

  • ENA to give evidence to Select Committee on EMR  

  • ENA respond to MPs Report on energy National Policy Statements 

  • Minister and Boris’ Adviser at ENA/SBGI Street Works Seminar  

  • Smart Grids Forum highlights key role for networks  

  • Air Source Heat Pump Report sees key role for networks  

  • Shadow minister calls for temporary halt to shale gas exploration  

  • PM backs European Supergrid plan  

  • Ofgem announces £95m upgrade to Scotland's energy networks  

  • Bidders for more offshore transmission projects announced  

  • SHE 2011

  • Forthcoming events organised and/or supported by ENA  

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ENA to give evidence to Select Committee on EMR  

ENA will be giving evidence to MPs later this month on how the networks relate to the Electricity Market Reform (EMR). This comes as part of the Energy & Climate Change Select Committee inquiry into the EMR.  

In the last Bulletin we set out some of what was in the EMR. It has been described by Chris Huhne as representing a “seismic shift” in policy. Charles Hendry has described it as setting energy policy “for a generation”.  

The proposals include introducing capacity payments, levying a pool of funds from consumers that would make pay-outs to low-carbon generators, including nuclear reactors and offshore windfarms. Also included are so-called contracts for difference to deal with the volatility of future power prices and prevent windfall profits. These contracts would compensate utilities for lower-than-expected energy prices or charge them if prices are higher, in this way locking in a price and allaying concerns that costly projects won’t get paid off.  

A carbon floor would benefit nuclear and renewable energy assets-owners. The Committee on Climate Change suggested replacing the climate change levy to introduce a carbon floor that rises to £27 a ton by 2020.  

As part of the inquiry Ofgem’s Alistair Buchanan and Andrew Wright gave evidence to the Committee on 18th January.  

On how bills were laid out Mr Buchanan said they were looking at the annual bill statement and making sure they mention and make clearer the tariff that the customer is. He also said that network companies wanted clearer network charges shown on the bill.  

Committee Chairman Tim Yeo asked whether energy companies going to become more vertically integrated? Mr Buchanan said that it depended on if they came out with a thumbs down in the management review.  

On the subject of liquidity and vertical integration, Mr Wright said that it would have an adverse impact, but it was important not to put all the blame on its doorstep. Many companies said vertical integration occurred because of a lack of liquidity, he added. Wright said that you wouldn't expect the wholesale cost would be reflected in the price and added that companied hedged their prices and often absorbed some of the increases. In response to whether vertical integration crowded out new entrants, Mr Buchanan said they were looking at these issues and a review was underway.  

Looking to the future of Ofgem Mr Buchanan said that their main role had been in guaranteeing consumers the best deal though competition, but this had changed over time. Mr Yeo said they had nearly become a hybrid organisation with a variety of duties. 

The organisation had changed significantly, Mr Buchanan said, and Ofgem had two distinct functions. Mr Yeo asked if this compromised its independence. There was a memorandum of understanding and they were monitored pretty aggressively, responded Mr Buchanan.  

Members also asked about off grid responsibility and poverty. They asked whether this should be brought under Ofgem. Mr Buchanan said that that was for government to decide and if they wished that then they would do it. Regarding working with other similar energy poverty bodies, it was important that they continued these relationships, added Mr Wright.  

Whitehead asked about increasing operating costs. Mr Buchanan said half of that was Ofgem Orange, the regulatory section, and the other increases were due to feed-in-tariffs, social tariffs, heat transfer initiative and other areas, which brought with them a price. He also said that he had reduced consultancy costs.  

Labour MP and former Minister Barry Gardiner MP asked if the energy companies claims that prices were amongst the lowest in Europe was fair. It was regarding gas, said Mr Buchanan, but it was "brave" to say it of electricity.  

The committee also asked about an extension to the gas mains. Mr Buchanan said that they had not made a decision but there was something happening.  

In a further evidence session on 25th January Professor Dieter Helm of Oxford University and veteran energy policy observer set out his vision once again for the need for an ‘Energy Agency’. Not quite Government and then again not quite Ofgem. At one time this idea appeared very attractive to the Conservatives in opposition but it is clear that they are keener now to bring back ‘in-house’ all energy policy considerations. Perhaps though there may be a role for a ‘delivery agency’?  

Professor Helm also said that developments in gas were a “transformational event”. He said the Government’s energy policy was “expensive” . He said the goal to have around 30GW of wind capacity installed by 2020 was likely to be more expensive than other strategies. Helm said replacing old coal-fired power stations with lower-emission gas alternatives would cost 10 times less than the renewables equivalent and could have a similar effect on reducing greenhouse gas emissions.  

He said that transport could be added to the carbon floor price in the future. This would have a major impact on the electrification of transport. He also said that the development of smart grids and smart meters was “revolutionising the system”.  

The EMR Consultation will last for three months. It will be followed by a White Paper in the spring and then another Energy Bill with Royal Assent expected in 2012.  

The full document can be read here.

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ENA respond to MPs Report on energy National Policy Statements  

The Chairman of the Energy & Climate Change Select Committee Tim Yeo MP said last week that the Governments National Policy Statements (NPSs) should put “the cleanest forms of energy at the top of the agenda”.  He was speaking as his Committee published its report on the revised National Policy Statements. He went on to reiterate his view on gas by saying "the UK's energy security and our prospects for creating a successful low-carbon economy depend on the Government kick-starting a dash for low-carbon technology, not a new dash for gas."  

Having said this, the Committee does see a continuing role for abated gas generation in order to provide baseload power, as well as unabated gas capacity for peak time use. However, the report warns that the development of too much gas capacity could crowd out opportunities for renewables to form a substantial component of the UK's energy mix.

Responding to the Report ENA said we welcomed the Committee’s recognition of the future role for gas in managing energy demands at peak times through unabated gas and for storage through abated gas. We made clear that the UK’s energy and climate change targets is a huge challenge but through an all-encompassing energy solution gas, alongside electricity, can act as a bridge to an affordable, sustainable and secure energy future for the UK.  

A report we commissioned from Redpoint on the future role for gas, launched by Charles Hendry last November, clearly showed that by retaining gas within the energy mix, the UK can save £700bn out to 2050 compared with scenarios where gas is phased out – that’s the equivalent of £20,000 per household. This cost-effective solution can be achieved whilst still meeting climate change targets as part of a programme that introduces renewable sources onto the network.  

This came in the same week that DECC Minister Lord Marland confirmed that in 2009, 64 per cent of the UK's gross demand (excluding exports, but including operators' own use) was still supplied from the United Kingdom continental shelf. It also came in the week that Energy Minister Charles Hendry gave the go-ahead for Scottish Power to construct a new 1,000 megawatt gas-fired power station near Hoo St Werburgh in Kent. This will have enough power to supply 1.5 million homes We welcomed the Committee’s call for political certainty and in the light of this the MPs call for the Government to publish criteria against which the DECC Secretary should exercise his or her discretion.  

The Select Committee Report can be read here

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Minister and Boris’ Adviser at ENA/SBGI Street Works Seminar  

Transport Minister Norman Baker MP will close this year’s ENA/SBGI Utility Street Works Seminar speaking at a drinks reception following the day’s proceedings. Also speaking will be the Mayor of London’s Transport Adviser Kulveer Ranger. He will be speaking about his vision for lane rental.  

This year’s Seminar takes place on 24th February 2011 between 9:15 – 5pm and is will be held at One Great George Street in Westminster.  

The seminar attracts representatives from all organisations with an interest in utility street works. Come and join delegates from the utility companies, engineering contractors, technology providers, and local and national government departments, to debate policy and share experience and best practice from across the sector.  

Confirmed Speakers include:  

  • David Jones, Director Enterprise plc  

  • Richard Buckley, Head of Street Works, DfT  

  • Phil Clarke, Head of London Operations, National Grid plc  

  • Marian Coombs, Major Projects Integration Team Leader/ClearWay 2012 Project Manager at Transport for London  

  • Martin Low, Director of Transportation, Westminster City Council  

  • Richard Wakelen, UK Power Networks  

  • Les Guest, CEO, NJUG  

  • Marc Hobell, Strategic Developments Manager for Utilities, OS obo NUAG  

Following the formal seminar you are invited to a drinks reception hosted by ENA at which Norman Baker, MP for Lewes and Parliamentary Under-Secretary of State for Transport will launch a book published by ENA on how a partnership approach to street works can deliver real results. The book by Richard Wakelen of UK Power Networks and Roger Williams of East Sussex County Council sets out how they worked together to deliver a more effective way to manage street works.  

There will be an opportunity to discuss with the authors how their approach worked and to meet the Minister and other senior DfT officials.  

BOOK NOW TO AVOID DISAPPOINTMENT  

Cost:  

SBGI/ENA Members     £265 plus VAT

Non Members               £315 plus VAT  

For further information please contact Vanessa Webster on 01926 513763 or email [email protected]   ____________________________________________________________

Smart Grids Forum highlights key role for networks  

The invitation to participate in a ‘Smart Grids Forum’ was issued last week by DECC and Ofgem. This follows an increasing focus on this key area over the past few months. Both DECC and Ofgem understand that with increasing innovative developments by network companies and the challenge of the roll-out of smart meters that this interest will continue to grow.  

ENA are keen for DECC and Ofgem to pursue strategic and regulatory policies that encourage the development of smarter networks and this is a welcome step.  

With DECC now managing the implementation phases of the smart metering programme, they want to see how this will pave the way for smart grids. Building on the rollout of smart meters, DECC is considering the potential for storage, interconnection, smart grid technologies and demand-side management, as well as more conventional technologies, to address future network management and system balancing challenges. They will publish a strategy for future networks, balancing supply and demand and smart grid development as part of the Electricity Market Reform White Paper in spring 2011.  

With an increasing focus on regulatory and policy levers to facilitate smart grids such as the Low Carbon Network Fund the broader issue of network innovation is being taken forward as a key part of the RIIO8 project and the development of the Innovation Stimulus.  

The creation of the Forum is prominent signal of the key role that networks will play in enabling a low carbon and secure energy future.   ____________________________________________________________

Air Source Heat Pump Report sees key role for networks  

Research by National Energy Action has highlighted the need for Distribution Network Operators to adopt a more central role in the implementation and distribution of low carbon technologies, such as Air Source Heat Pumps (ASHPs). The role of DNOs was identified as ‘central' to implementation of demand-side management or investment in low-carbon technologies including ASHPs.  

In delivering this research, NEA involved key agencies such as Community Energy Solutions (CES) and network operator CE Electric.  

A full copy of the report can be found here.

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Shadow minister calls for temporary halt to shale gas exploration  

The Labour Party has called for a temporary halt to drilling for shale gas while its safety is checked.  Shadow Energy Minister Huw Irranca-Davies MP (who is coming to ENA for a briefing on 15th February) has called on the government to put it on hold in England and Wales. He has written to Energy Minister Charles Hendry MP urging them to put a temporary halt on extraction of shale gas and coal-bed methane while the Energy and Climate Change Committee completes its inquiry into the issue.  

He said: "This form of energy production is new to the UK, and may well have potential for our future energy security and affordability. But ministers cannot turn a blind eye and sacrifice our natural environment, or compromise on our climate change targets.” He went on to say that "If we are to avoid the environmental problems caused by some operators in other countries, the government must assure itself, the public, and industry that the right regulatory framework and environmental safeguards are in place."  

DECC effectively rejected calls for a moratorium on shale gas development on 17th January. It said in a statement that it backed properly carried-out shale gas work. They said "We support industry's endeavors in pursuing such energy sources, provided that tapping of such resources proves to be economically, commercially and environmentally viable,". This was later confirmed in a written Parliamentary answer from the Energy Minister.   ______________________________________________________________  

PM backs European Supergrid plan  

Plans to explore linking up green energy projects in the North, Baltic and Irish Seas were backed by the Prime Minister on 20th January as part of the UK-Baltic-Nordic Summit held in London.  

The Prime Minister announced that Energy Ministers will work together through the North Seas Offshore Grid Initiative and share experience with Ministers in the Baltic Energy Market Interconnection Plan (BEMIP) to ensure planning, market, regulatory and technical challenges are properly addressed and the right framework created for industry to invest in future projects.  

An electricity supergrid could take green electricity produced in one country to another through thousands of kilometres of sub-sea cables. Wind farms built out at sea could also be connected to a number of countries. Over 100 GW of offshore wind projects are already in various stages of planning in the EU, which could produce 10% of the EU's electricity (EWEA figures). The UK is rated number 1 in the world for its attractiveness for the offshore wind industry   _____________________________________________________________

Ofgem announces £95m upgrade to Scotland's energy networks  

Ofgem has announced a £95 million investment package over the next two years to increase the capacity of Scotland's power networks.  

This is the next stage in funding the major programme of extra investment in the period to 2020 being developed by the transmission companies to help meet carbon targets. It follows on from the decision announced in January 2010 to fund an initial tranche of investment, totalling £319 million, by the transmission companies in their current price control (2007-2013).  

Scottish Hydro Electric Transmission Ltd will spend a further £11.5 million on upgrading its network to connect generation in the north of Scotland. Ofgem has also allowed National Grid to spend £1 million on initial development work on a proposed new power cable linking Pembroke and Wylfa in Wales. This link may be required to accommodate new nuclear generation in north Wales and offshore wind generation in the Irish Sea.  

As part of the current transmission price control, Ofgem agreed that Britain's transmission companies National Grid Electricity Transmission plc, Scottish Power Transmission Limited and Scottish Hydro-Electric Transmission Limited could invest £3.8 billion.  

Ofgem published a decision letter giving further details of the funding on January 21 2011.   _____________________________________________________________

Bidders for more offshore transmission projects announced  

Ofgem has announced the eight bidders which have successfully qualified to compete for three more high-voltage transmission links with offshore wind farms as part of Ofgem E-Serve's latest competitive tender process. Ultimately the winning bidders will then own and operate the links for the next 20 years.  

The list of bidders will compete for the links to the Gwynt y Môr, Lincs and London Array (phase 1) offshore windfarms. These are three of the UK's largest offshore windfarms, representing over 1.4GW of renewable power.  

The next stage of the process is to select a shortlist of bidders in spring 2011, which will then go through to the final stage to select the winning tenders this summer. The winning bidder for Gwynt y Môr will be selected later than the bidders for the other two projects, as construction is not as far advanced as for Lincs and London Array (phase 1).  

The list of bidders that have qualified to proceed to the Qualification to Tender stage are: Balfour Beatty Capital Ltd, Blue Transmission (a consortium of Macquarie Capital Group, Barclays Infrastructure Funds Management Ltd and Frontier Power Ltd), Cheung Kong Infrastructure Holdings Ltd/Hongkong Electric International Ltd, Green Energy Transmission (a consortium of Equitix Ltd and AMP Capital Investors Ltd), Mitsubishi Corporation, National Grid Offshore Ltd, Transmission Capital Partners (a consortium of Transmission Capital Ltd, International Public Partnerships Ltd and Amber Infrastructure) and Ventran Consortium (a consortium of BRITEL Fund Trustees Ltd (as custodian of BT Pension Scheme) and Universtities Superannuation Scheme Ltd) _____________________________________________________________

SHE 2011  

With unprecedented challenges facing the energy industry, the advent of a new Government and the launch of Powering Improvement, SHE2011 is set to be the best ever.  

Among the highlights are addresses from Paul Noon, General Secretary for Prospect, Dame Carol Black, author of the Working for a healthier tomorrow report and Lawrence Waterman, Head of Health and Safety for the Olympic Delivery Authority.  

We will also hear from our Powering Improvement champions for 2011, John Crackett of Central Networks and Jane Willis of the HSE.  

The Energy Industry Safety, Health & Environment Conference is unique in the way it brings together all stakeholders, from the companies through Government and its agencies to the trades unions, to focus on safety, health and environment issues.  

This is the 22nd such conference and it has established itself as ‘the event’ to attend for all those involved in safety, health and environment issues across the energy sector and beyond.  

The Conference takes place on the 13th,14th and 15th of April 2011 at the famous Belfry Hotel near Birmingham, starting with a pre-conference reception being held there on the night of the 13th April and formal conference dinner on the night of the 14th. The conference is being hosted by E.ON UK.  

As with last year delegate fees include accommodation for both nights of the conference (13th and 14th) and a discount is available for early bird bookings, on top of the special rates offered to ENA, AEP, ERA, GISG and Gas Forum members. So book early!  

For more details and to make your booking click here

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15th/16th February 2011: Energy Economy Conference - Delivering our Shared Energy Future  

The Energy & Utility Forum are pleased to announce their new conference taking place on February 15th & 16th 2011 in London. The Government is sending very clear signals with emerging low carbon energy policy; most recently with clarification of the Green Deal and the announcement of the electricity market reform consultation. It is clear that the biggest transformation of the energy sector since privatisation will continue to gain pace, and will bring with it threats for existing players and opportunities for newcomers. For more information follow the link to forthcoming events – ENA members have been offered a 10% discount.  

For further details click here.

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Brussels Update  

ACER and EU network codes  

ENA recently secured a useful meeting with ACER Director Alberto Pototschnig, as he and his team made their preparations to fly to Llubiyana to establish the Agency’s new offices in Slovenia.  

We hear that an EU Commission ceremony is planned for 3 March, with a conference, to mark not just the official launch of the Agency, but also the realisation of the 3rd Package vision.  

New recruits are set to join the ACER team in the next few weeks, which currently stands at around 10, but they will probably not reach their ultimate target of 50 staff for some time.  

ACER’s focus will be on the EU network codes, with the objective that as many as 8 consultations on various Framework Guidelines will be completed this year.  

The pilot exercises conducted in 2010, with ACER and ENTSO-E and ENTSO-G in ‘as if’ mode, were very useful in terms of testing the consultation processes. It is anticipated that the grid connection framework guideline, which will build on the pilot published by ERGEG just before Christmas, will be one of the first, perhaps the very first, FG to be issued by ACER in March, probably with relatively few changes. With a comparatively short, 2 month consultation period.  

ENA has already made the point that the DSOs need to be actively involved in the drafting of the relevant network codes. We have also pointed out that cost-benefit analysis and impact assessment when drafting network codes must be an essential part of the process. A fair balance between the anticipated benefits from European harmonisation and the cost of compliance should be guaranteed. In this context we welcome the express requirement in the pilot grid connection FG, which we assume will also be part of ACER’s FG, that a quantified analysis of the impacts on existing grid users should be made, if the benefits are not clear or are marginal, then existing users should not be affected.  

The Director assured us that he intends ACER to meet the same high standards as its regulator predecessors ERGEG and CEER, in terms of focused and transparent stakeholder engagement.  

Energy Efficiency Plan 2011  

Unofficial drafts of the Commission’s new Energy Efficiency Plan have been circulating. The new Plan is expected to be launched in early March.  

We understand that the Commission accepts that national targets for energy efficiency can be an effective way to trigger action in this area, and create sufficient political momentum. They are not currently minded to impose binding targets on Member States, as they did with renewables, but will be monitoring progress. A report will be submitted given to the European Heads of State in spring 2012. If progress is considered unsatisfactory, legally binding national energy efficiency targets to reach the EU’s overall 20% objective could become a reality.  

Proposals for the public sector want them to lead by example in terms of procurement and the refurbishment of public buildings.  

In terms of supply industry proposals, the Commission is monitoring energy efficiency levels of new generation plant, which should be encouraged by new Emissions Trading scheme and new Industrial Emissions Directive. But if progress is too slow, the Commission may require Member States to set BAT levels as a mandatory condition for the authorisation of new capacity.  

The Commission is keen to promote CHP and district heating systems combined with authorisation of new thermal plant wherever possible.  

Member States could be required to establish a national energy savings obligation scheme. Suppliers or distributors could be required to deliver a certain amount of energy efficiency improvements amongst their customers, as well as in other parts of the energy chain eg generation and “even” transport. As an alternative to delivering the savings themselves, they could instead buy them from ESCOs.   

In terms of energy savings for consumers, the Commission could introduce measures to ensure the roll out of smart meters and smart grids, to enable them to regulate their consumption and calculate their savings. Alongside measures to ensure the benefits of smart grids for consumers, we understand the Commission also intends to strengthen the basis on which national regulators take energy efficiency into account in their decisions and in the monitoring of gas and electricity grids including reflecting energy efficiency priorities into network regulations and tariffs, network codes and other technical codes.  

Smart Grids  

The Commission has indicated it will set out its approach to smart grids and smart metering in more detail in a communication in April. We know that the EU standards mandate work has almost been completed. But the Commission believes there is scope for more legislation, and that without it there is a risk that the pace of the smart grids revolution in Europe will slow down.  

We hear that the Commission intends to offer high level messages to encourage Member States to develop their smart grids, with references to regulatory incentives and other financing issues. We must wait to see exactly what the communication proposes, but ENA does not believe that central EU intervention in terms of detailed legislative proposals for smart grids would be either helpful or cost effective.   ______________________________________________________________  

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