ENA Bulletin 13 July

Issue 276: Wednesday 13th July 2011  

  • ENA says smarter networks can save money as White Paper published  

  • ENA to hold ‘forum for the future of networks’  

  • ENA metal theft campaign highlighted by Energy Minister  

  • ENA detect a political gas consensus but not quite  

  • Energy National Policy Statements to be debated

  • Brussels update  

  • Forthcoming Events Organised and/or Supported by ENA  

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ENA says smarter networks can save money as White Paper published  

With much fanfare and quite a bit of pre-warning the Government published their once in a generation Energy White Paper yesterday. Responding to it, ENA made it clear that delivering Demand Response through a smarter network could deliver lower customer bills.  

The White Paper said the “changes driven by Electricity Market Reform (EMR) will have a significant impact on future networks and the way supply and demand is balanced”. Adding that “the future electricity network will need to be able to support the new low carbon generation promoted by the EMR package”. It proposes new long-term contracts (Feed-in Tariff with Contracts for Difference), an Emissions Performance Standard set at 450g, and a Capacity Mechanism, which crucially includes demand response as well as generation. DECC are seeking further views on the type of mechanism required; either a targeted mechanism, with a proposed model of a Strategic Reserve, comprising centrally procured capacity that is removed from the electricity market and only used in certain circumstances, or a market-wide mechanism in the form of a Capacity Market in which all providers willing to offer capacity can sell that capacity.  This consultation closes on 10 October 2011.  

The one key component that had not been on everyone’s lips during the EMR process was the role for the smarter network but with the White Paper publication it did seem to be coming to the fore. There was a letter to the FT from Steve Holliday, of National Grid, and others last week calling for Demand Response to be seen as part of EMR equation. This, of course means some more complex tariffs. However, as ENA made clear yesterday this is not bad news for consumers. A combination of smarter electricity networks and continued deployment of low carbon and renewable gas will provide a low cost solution to the UK’s energy security and low carbon challenges. The cost of meeting low carbon targets could be reduced by developing a smarter network in tandem with the smart meter roll-out. Smarter networks are essential if the public are to be empowered to manage energy resources more efficiently and effectively.  

ENA also made clear that electricity is only part of the story. According to a Redpoint report commissioned by ENA with gas as a central part of the future energy mix there could be savings of up to £700bn between 2010 and 2050 – around £20,000 per household or £10,000 per person – relative to scenarios where gas is phased out of the energy mix by 2050.  

ENA raised the vital role for Demand Response as part of the portfolio of options with the Secretary of State at the White Paper launch event last night. It has been seen as the ‘poor cousin’ in the EMR process we stated. In response, Chris Huhne was clear and emphatic in his support for Demand Response and the role of the networks in facilitating this. He told ENA that it was in the Capacity Mechanism and could be delivered through the Contracts for Difference process. Jonathan Brearley, architect of the White Paper, added that they had chosen the Capacity Mechanism as this was the method used in the United States that “played best” to Demand Response.  

Mr Huhne also said there is a need for more investment in gas infrastructure and there was “a long-standing role” for gas if CCS and the market are “favourable”, which with the potential for biogas and shale gas looked possible.  

The White Paper made clear that changes to the network and growth in demand side response, storage, and interconnection will need to accompany the transformation of electricity generation that is at the core of the reforms.  

The White Paper said the Government recognised the need for strong leadership on networks and ensuring effective balancing of supply and demand going forward. They will also be setting out our electricity systems policy, focusing on challenges around balancing, and system flexibility, in the summer of next year.  

Also published as part of the White Paper were the results of the Government review into the role of Ofgem. The Review concluded that the Government should “communicate more clearly its policy goals for the gas and electricity markets and the respective roles and responsibilities of Government and Ofgem in defining and delivering those goals. It should also “define policy outcomes that Ofgem has an important role in delivering or in helping to deliver, and seek legislative provision to require Ofgem to justify its independent regulatory decisions against these outcomes”.  

A new statutory ‘Strategy and Policy Statement’ will be established as soon as Parliamentary time allows. This Statement will set out the Government’s policy goals for the gas and electricity markets, describe the roles and responsibilities of Government, Ofgem, and other relevant bodies, and define policy outcomes that Government considers Ofgem to have a particularly important role in delivering.  

Ofgem will be expected to set out annually how it plans to deliver its contribution to each policy outcome and how it will monitor progress. In some cases the delivery of an outcome will be the sole responsibility of the regulator, while in others it will not hold all the levers and will need to articulate its own contribution. Ofgem will also be expected to report annually on progress, outlining and justifying decisions, and, where progress is not on track, explaining why and what mitigating action might be needed.  

The Strategy and Policy Statement will be intended to remain stable over at least the length of a Parliament. However, to balance this desire for stability with the need to maintain coherence with the broader policy framework, it will be possible for Government to seek a change in the Statement should there be a significant change in policy.  

Network companies strongly support the continuation of independent regulation of the sector but it is important that high-level political decisions are made by government. Charles Hendry said recently that this was the key to the Government’s thinking. He said that Ofgem should be free to operate but within a framework set by Government. The problem had been the lack of clarity on what this meant. He was clear the setting of the framework must be firmly within the realm of Government.  

Also published alongside the White Paper was a ‘Renewables Roadmap’, which sets out the technologies that the Government consider will help meet our renewable targets. They were identified as onshore and offshore wind, marine energy, biomass electricity and heat, ground source and air source heat pumps, and renewable transport.  

Another Energy Bill to effect the changes proposed will be introduced next spring with implementation in 2014. As Charles Hendry remarked last night the Government were charged with making a clear statement on policy and a long-term framework. This is it and now it is up to the industry “to come up to the plate”.  

To read the full documents, click here.  

The Capacity Mechanism Consultation can be found here.

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ENA to hold ‘forum for the future of networks’  

Progress towards a smarter grid will be on show later this month as the outputs from the Government’s £500m Low Carbon Network Fund (LCNF) are presented. These research and development projects help to move the UK closer to realising our low carbon energy future.  

The first annual LCNF Conference, organised by ENA and supported by CE Electric UK and Logica, will bring together experts on Smart Grid technology and look at the work being done to enable this vital role of our future energy networks. This is the inaugural conference of what will be an annual opportunity to share the work of the networks publicly and to initiate debate from representatives of DECC and Ofgem.  

This new LCNF Conference encapsulates our desire to spread the message of the importance of the networks in delivering the low carbon economy. ENA and its members are committed to developing innovative networks for the future.  

This is an exciting time and we will be bringing together a wide spectrum of people not just from the networks sector but also from the whole energy industry. Those attending will be offered a glimpse of our energy future through fascinating projects such as ‘smart villages’, the development of a 1MW battery, and a smart fuse. We will also discuss the challenges facing the networks of the customer-led revolution in energy generation and consumption. These are just a few of the 23 projects being presented at the conference.  

We have been charged with establishing this conference by DECC and Ofgem and will be holding it annually to review progress. ENA sees it as nothing less than a forum for the future of networks where all those with an interest can come together to share their knowledge.  

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ENA metal theft campaign highlighted by Energy Minister  

Following our metal theft event at the House of Commons we held with the Home Office Minister of State Baroness Browning, we were pleased to hear that Mr Hendry has been highlighting this as a serious issue for the energy sector. This also follows our meeting with him when the issue was discussed. Additionally, he has welcomed the robust approach set out by Baroness Browning. This could not come at a more critical time as yet another death of an alleged cable thief was marked last week, this time a 16-year-old boy.  

The Crime Prevention Minister set out a range of options, which she has asked her officials to consider. These include moving to a licensed rather than registered regime, more stringent identification requirements when selling metal, a duty that the scrap metal dealer should reasonably satisfy themselves that they are purchasing legitimately owned material, the power to close scrap metal yards where there is clear evidence of sustained illegal activity, and the possibility of moving away from cash as a method of payment for the industry. The Minister is clear that the regulation reduction agenda would not impede action on this issue where clearly something had to be done.  

ENA are now engaging with the Home Office along with other affected industries as well as the Police and critically reputable scrap metal dealers. As part of this the Home Office are joining a visit organised by an ENA member to a reputable scrap dealer next week. ENA will also be visiting and engaging with other reputable metal recycling companies to build up a better picture of what is needed and as a way to form a coalition to change the current ‘Steptoe & Son’ regulation of the industry.  

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ENA detect a political gas consensus but not quite  

It is clear that there has recently been a sea change in thinking across the political spectrum on the role for gas in the future. It was not long ago that gas didn’t even get a mention in Government energy policy. Edged out by the three pillars of affordability, security, and sustainability, that is no longer the case. A report from Redpoint, commissioned by ENA last November, has helped put paid to this. Coupled with that has been the impact of shale gas and, critically, the potential for biomethane to be injected through the gas network into people’s homes. This has been reflected in a change in Government policy. Charles Hendry very kindly launched our Redpoint Report last year and we have detected in recent pronouncements a clear edging further towards a full scale commitment to the future of gas.  

Speaking at a Westminster Energy Forum Conference on 29 June, Charles Hendry was emphatic. There has been a “significant change in Government policy” on the role for gas, he stated. It had previously been seen as an “interim” fuel that could help the low carbon transition but not be a part of it. However, he now said that “gas will play a significant role in the future”. The change of words is critical and very encouraging.  

However, there is still further the Energy Minister can go. The Government still do not see a future role for gas as a source of heat and cooking. This creates an uncertainty that is unhelpful for the gas network companies as they plan their investments. ENA raised this point last week with the Shadow Energy Minister Huw Irranca-Davies at a TUC event feeding into the Labour Energy Policy Review. The Shadow Energy Minister very clearly ‘gets’ the issue. He said that gas clearly had a future, echoing what he said at ENA’s last Well Connected event. He also acknowledged that this meant “domestically as well”. He understood the need for a clear lead from government on what this role would be. Furthermore, he went on to say we need to be clear what the future is so it can be planned for. “People will use gas domestically for many years to come because of price, convenience and necessity” he concluded. Mr Irranca-Davies subsequently raised the issue of proper consultation with gas network companies in a written Parliamentary question.   ______________________________________________________________  

Energy National Policy Statements to be debated  

With Parliamentary Business getting tighter by the minute it became clear that of the two key pieces of Parliamentary energy business one would have to fail the final hurdle to the all important 19 July, the day Parliament rises. Therefore, it was no surprise that the Energy Bill was to be delayed until after the recess. The winner was the debate in the Commons on the Energy National Policy Statements. These have been a badge of honour for their ministerial pilot Charles Hendry and he has steered them well.  

There was some serious consternation at the delay to the Energy Bill. DECC said that the Green Deal remained a government priority and the delay would not affect the original timetable for the autumn Green Deal consultation on the secondary regulations. DECC Secretary of State Chris Huhne reiterated the point on the same day during DECC Parliamentary Questions. He said there would be no change to their plan to bring in the Green Deal in October 2012.  

The National Policy Statements will be debated in a full five-hour debate on 18 July.  There are likely to be votes on them separately and assuming an affirmative vote they will be designated the following day 19 July.  

ENA has long supported this full Parliamentary process and with the kind of rigorous consultation that Charles Hendry has overseen it is clear that they will have acquired a level of democratic accountability unsurpassed in previous policy statements, let alone ones on planning.  

This should ensure that they have the widest support and at least a 5-year shelf life, something that will be essential if we are to deliver on our energy targets. Critically, these will inform decision making across the planning process, whether in DECC Consents, the new Major Infrastructure Planning Unit or in local planning authorities.  

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Brussels update  

Infrastructure Package – Sosa Wagner Report for ITRE  

The Sosa Wagner ITRE report on energy infrastructure priorities for 2020 and beyond, in response to the Commission’s Blueprint published last November, has just been approved by the European Parliament, with a successful plenary vote on 4 July.  

This report will feed directly into the work the Commission is now doing, looking at strategic planning issues and permitting delays, the potential for centralised EU funding, and the leveraging of private funding for major infrastructure projects of European Interest.  

 The MEP report:

  • Asks the Commission and Member States to establish measures to ensure that TSOs are properly incentivised to examine possible interconnectors from a regional or European perspective, and that their investment plans are based on the socio-economic effects of interconnectors, rather than purely on project economy, thereby avoiding under investment.

  • Emphasises the importance of infrastructure at distribution level, and the important role prosumers and DSOs play in the integration of decentralised energy products and demand side efficiency measures.  

  • Regarding smart grids, it is believed that energy infrastructure should be more end-user oriented, with a stronger emphasis on the interaction between distribution system capacities and consumption, and emphasises the need for real time, two directional power and information flows.

  • Asks for special attention to be paid to the convergence between electricity and information and communications technologies and suggests the Commission to establish a co-operation plan between DG Research, DG Energy, and DG INFSO etc.

  • Asks for attention to be paid to the ownership of EU infrastructure by foreign companies or their subsidiaries, which do not have a transparent management structure and may be subject to undue influence from foreign governments. The Commission is requested to put in place adequate legal and institutional safeguards, in particular with regard to access to EU funding.

  • Asks that, with regard to improvements to gas infrastructure, which are compulsory under the Gas Security of Supply Regulation, the Commission should evaluate whether EU funding is needed.  

  • Proposes criteria for the selection of major infrastructure priority projects, identified as Projects of European Interest (PEIs), to include security of supply, connection of energy islands with the rest of the grid, contributions to the integration of renewables, reducing (transmission) network losses, preventing transmission bottlenecks, and relieving cross border transmission.  

  • Supports the concept of central EU funding to leverage financing of PEIs, which are not viable commercially, but necessary to achieve EU policy objectives (the new financial energy and security funding instrument is expected from the Commission in October 2011).  

  • Supports the concept of common European project bonds, and calls on the Commission to produce a legislative proposal to do this (the Commission will put forward proposals for the innovative funding of infrastructure projects in October 2011).

  • Invites the Commission to consider running an EU energy networks information and communication campaign.  

At the same time, Member States have been inputting their views on infrastructure through the Council discussions. They have generally welcomed the Commission’s initial proposals in the Blueprint, but there are some conflicts with regards to EU versus Member State competences on planning authorisations, and these arguments are likely to resurface when the Commission’s formal legislative proposals are published in October 2011.   

The full document can be read here.  

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For more information, contact Tony Glover on 020 7706 5122 or email [email protected].   Copyright © Energy Networks Association 2011. Copying, duplicating or reproducing this or any other issue of 'The Bulletin' without written consent will constitute an infringement of this work under the Copyright, Designs & Patents Act 1988. All rights reserved.  

Any opinions expressed in the Bulletin or its attachments do not necessarily reflect the opinion of any members of ENA.