ENA Bulletin 3 October

Issue 278: Monday 3 October 2011  

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ENA’s long and busy summer  

It has been a long and busy summer for ENA. The bucket and spades were kept in the cupboards and the ice cream was left melting unwanted. With Parliamentary debates, radio, TV and press coverage, as well as a season Party Conference ENA events there has much to do. The Party Conferences will be covered in detail in the next Bulletin but for a flavour of some of the themes that have kept this summer busy below is a roller coaster journey through some of the highlights for ENA.  

Are the networks to key to rebuilding trust in the energy industry?  

It was a cold December evening back in 2008 when Mr Miliband set out his vision for the energy market. He described the need to move on from the Lawsonian approach, which he believed had shaped energy for a generation. Back in 1982, he said, Mr Lawson, the then Energy Secretary had challenged the prevailing orthodoxy. Mr Miliband went on to set out his vision for energy policy of ‘dynamic markets combined with a strategic role for government’. He said that a system of private firms competing with each other, with independent regulation, was “rightly a settled part of the landscape”. Then came the speech this week, no longer just confined to energy policy but as Leader of his Party Mr Miliband returned to his old policy area.  

He shot out of both barrels. “Big vested interests like the energy companies have gone unchallenged, while you're being ripped off” he stated. He acknowledged the need for investment in energy but said there was “a rigged market”. Quite a departure from the view he held back in 2008. This follows the Electricity Market Reform White Paper launched by the Government in July. But it also follows the passionate words of the DECC Secretary Chris Huhne only a week before, who had said similar things but with a different solution. Where Mr Miliband wants a return to the Electricity Pool, Mr Huhne wants the consumer to shop around more whilst beefing up the powers of Ofgem.  

None of this, of course addresses the fundamentals. As network companies ENA members are outside this debate but an issue of trust has been raised as a result of the fevered political rhetoric. The investment needed is still required but a bridge that can reengage the public is visible ahead, that of the smarter network. Something that can help mitigate bill increases, empower the consumer and address climate change and energy security too. The smart meter roll-out completion does not end the smarter networks revolution, it heralds its beginning.  

Ed Miliband’s 2008 speech can be read here.  

Mixed messages on planning from Government continue  

The summer was cold and wet and as one former adviser to a Lib Dem Shadow DECC Secretary said to the Bulletin, “it is not about global warming but climate chaos”. There have been shifts in political messages as well over the past few months in the energy policy arena. Some subtle contradictions and some potentially seismic movement can be detected. Planning the localism agenda has developed some identity problems. It used to be about passing power down to communities, nothing wrong with that, but then it was realised that national priorities are not always at the top of a local communities’ agenda. The planning quagmire, described by someone from National Grid as being like ‘jumping off a cliff blind’, still exists.  

The Chancellor has waded in as once a former Chancellor did the same and back then Mr Brown delivered a Planning Act that started to improve things. What will Mr Osborne’s intervention lead to? He is clear that UK Plc needs infrastructure fit for purpose, he wants a presumption in favour of sustainable development. He even engaged the support of the Deputy Prime Minister during the summer. However will some communities say this is a presumption too far? The National Trust seems to think so. Meanwhile, through the Localism Bill the Government still insists on local referenda for planning. ENA signed a letter in The Times pointing the folly of this. How do you reconcile a presumption in favour of development with an unfettered democratic choice?  

The fundamental contradiction between localism and the need for an infrastructure development unprecedented in its scale remains. We need to bring people with us but the fact remains that ‘not in my backyard’ is a rational response for the individual but not always for the country.  

Metal theft stays high on the political agenda  

The challenge of metal theft continues and ENA has been at the heart of addressing it. Much has happened but much more will be needed before we get to the place we need to be. Meanwhile, thefts to our transmission infrastructure imperil regions. This is not just a safety or economic issue but of energy security itself. Something the Energy Minister Charles Hendry has acknowledged. At the beginning of September Labour Whip and MP for Hyndburn Graham Jones led a debate on the impact of metal theft on the electricity industry. He called on the Government to act before it was too late. The debate showed the seriousness that MPs apply to this issue.  

We are working with the Government to get the changes we need to the scrap metal dealers’ legislation, often discussed in the Bulletin. Across Europe and the majority of States in the US legislation now exists that creates a cashless scrap metal industry model and that has proper and rigorous licensing regime. In fact, in Belgium when the legislation was introduced last year metal theft went dramatically down only to go up again when the legislation was temporarily suspended. Needless to say it was quickly reinstated and yes you guessed it the thefts went down again.  

The momentum has now built up to a point where Government will now act. Meanwhile, we are keeping the pressure up with a wide ranging media campaign and engagement on the issue including work with the Mayor of London, Local Government Association, and reputable scrap metal dealers who want to see change. In the interim, the clock is till ticking and still our infrastructure continues to be attacked in ever increasing incidents.   The House of Commons metal theft debate can be read here.  

Street works: the balanced and proportionate approach to regulation  

Street works entered into the summer agenda with ENA across the airwaves putting the case for a rational approach to the issue. The Lane Rental Consultation is to be welcomed but as we said, let’s make sure we don’t lose sight of the impacts of regulation unfettered by any concept of proportionality.  

The costs must be balanced with incentives. Later in the summer the Mayor of London encouraged us to report ‘bad street works’. Let us not forget in this that by Transport for London’s own figures the utilities represent less than 50% of works in the road. The highway authorities must face the same scrutiny as the Mayor would seek to apply to utilities.  

Meanwhile, the need to replace our aging network continues, not to mention the demands of businesses and communities across the country.  

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Brussels update  

Energy and Climate Change Committee report on a European Supergrid  

The House of Commons’ Energy and Climate Change Select Committee has just published a new report, which discusses developing an integrated and interconnected offshore transmission network, as opposed to the point-to-point connection scheme currently operating, could provide more cost efficient access to renewable energies. This helps to meet UK and EU renewables targets and at the same time prepare the ground for a future European Supergrid – “if that is necessary and feasible in future”.  

MPs have concluded that an integrated offshore network would allow the National Grid to balance supply and demand more effectively, as intermittent sources of renewable electricity grow in importance within our energy mix, at the same time providing vital support to the onshore grid and potentially reducing the need to build new transmission infrastructure onshore.  

The Committee has noted that the costs associated with the integrated approach could be very high, but also recognises that there could be a range of economic benefits – including tens of thousands of new jobs in the offshore renewables industry – and could allow the UK to become a net exporter of energy. Having an integrated and interconnected network in place could also potentially deliver a 25% capital cost saving on connecting each new offshore wind or marine energy farm individually.  

New EU external energy policy  

The European Commission, at the instigation of the Polish Presidency, has just brought forward new policy proposals focused on Member States sharing confidential information with the Commission on their inter-government energy agreements with non-EU or ‘third countries’.  

EU Energy Ministers met informally last week in Poland to discuss the concept of an EU external energy policy and what this might comprise. We know that Europe is dependent on external countries for much of its energy imports, e.g. gas from Russia, and it is generally accepted that the EU’s relationship with these third countries could be improved. There is also recognition that within EU borders, energy decisions taken by individual Member States, e.g. the decisions by Italy and Germany to phase out nuclear power, will have a significant impact on other Member States. At the same time, there is an established point of principle under the Lisbon Treaty that Member States have the sole right to determine their own fuel mix, and Member States will naturally be wary of any interference from the Commission or Presidency in their energy negotiations with suppliers from outside the EU.  

The new EU Communication has some admirable aims including developing some common energy market approaches that can be applied beyond the EU, but overall is probably too ambitious, trying to cover too much ground, and with no clear indication of priorities. The formal legislative proposals are causing a stir. Member States would have to tell the Commission before they started negotiating energy deals with governments outside the EU, and, controversially, provide the EU executive with details of the draft agreements during the negotiations themselves. It is not clear what the Commission’s proposed role in the actual negotiations would be. The EU executive would also be able to request the power to negotiate agreements on behalf of national governments, if the deals had repercussions for the whole EU.  

UK Conservative MEPs have already publicly expressed their dissatisfaction with the draft proposals “EU meddling”. ENA has been reviewing the documentation from Brussels. We would say that any exchanges of information between Member States and the Commission on intergovernmental energy agreements should be voluntary, and not mandated. Most importantly, it would clearly be completely inappropriate for the detail of commercial agreements between energy companies to be made part of this process of disclosure, and for clarity there should be an explicit exemption for all commercial agreements to be spelt out in the legislation.  

Gas target model  

ENA has responded to the consultation from the Council of European Energy Regulators (CEER) on the concept of a European gas target market model.  

In its response, ENA reviews the options for functioning wholesale markets and concludes that a market area at a national level is preferable above a trading region or a cross border market. To “merge” markets via trading regions or cross-border areas would present numerous difficulties in the alignment of regulatory and operational arrangements that currently exist in each market.  

ENA considers the first step in enabling functioning wholesale markets should be the implementation of entry/exit zones and virtual trading points within all Member States, as required by the 3rd Package. The National Regulators, in coordination with the Agency for the Cooperation of Energy Regulators (ACER), should cooperate to identify zones/market areas that could either merge or form a trading region. A full cost-benefit analysis on how best to proceed will be essential.  

CEER’s aim of implementing the trading regions or market areas by 2013 and presenting the initial conclusions of the pilot projects by 2014, is probably too ambitious, especially considering the necessary distribution system operators (DSO) and transmission system operator (TSO) developments that will need to be implemented. We believe that it is vital that DSOs are involved in the identification of cross-border market areas and trading regions, since this classification may have a profound impact on the business activities of our networks members.  

With regard to investment decisions on cross-border capacity projects, system operation is a regulated area where system operators must make investment decisions on a long-term basis. The relevant regulatory regimes of the Member States need to consider these costs and risks explicitly (and in the longer term). System operators must not be left exposed to the risk of stranded investments. Concerning the integration of renewable energy, the gas target model must explicitly take account of the important role to be played by the DSOs, and the extent of the challenges they face in this area.  

3rd Energy package – UK implementation  

The third energy package was approved in Brussels back in 2009. Two years on, implementation of the legislation is slowly underway. The UK regulations, which should have ‘gone live’ back in March, were only published in July, and will not come into force until approval has been given by both Houses of Parliament, following debates, most likely in October 2011. This is a very complex set of legislative proposals which, inter alia will require numerous changes to UK networks licences.  

The Electricity and Gas (Internal Markets) Regulations 2011 can be read here.  

At the last count, eight Member States, including Greece and Portugal, had confirmed full transposition. The Commission is being kept advised of progress by the remaining Member States and has so far accepted that some delay is inevitable. The most difficult national discussions apparently centre on securing the independence of the national regulators and the unbundling of TSOs.  

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