Rachel Reeves comments on Government response

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee has commented today on the publication of the Government’s response to the Committee report on Carbon Capture Usage and Storage and on the new administration’s overall approach to achieving net zero carbon emissions by 2050.

Given the Government’s ‘disappointing’ response on Carbon Capture Usage and Storage (CCUS), which ‘appears to row back from statements made by former Ministers’, the Chair has also written to the Minister Kwasi Kwarteng with a series of questions seeking to establish the Government’s policy direction on CCUS.

Chair’s comments

Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee said:

“The Secretary of State is happy to reiterate the Government’s commitment to net-zero by 2050 but fails to give any sense that her Government is dedicated to the urgent actions necessary to achieve it.

“It’s easy to set a target. The harder challenge is putting in place the measures needed to get to net-zero by 2050. Unfortunately, the Secretary of State’s letter gives little confidence that the Government has a clear idea of the policies it wants to pursue to make UK net-zero carbon emissions a reality. Given the UK is hosting COP26 next year, it’s important that we provide international leadership by getting our act together at home on climate change policy.

“It’s encouraging that the Treasury’s review will look at the benefits, as well as the costs, of net zero. Ending the UK’s contribution to climate change has the potential for major health and environmental benefits. It is also crucial the Treasury examines where costs will fall, how the transition can be funded, and how to manage the impacts on bill-payers, motorists and carbon-intensive industries.”

“The Minister’s response to our Carbon Capture Usage and Storage report is very disappointing and sits in contrast to the initial enthusiasm to our findings displayed by the previous Minister, Claire Perry. The Government’s response barely engages with the specific recommendations of our report and it is worrying that the Government now appears to be rowing back on previous commitments. This must be concerning for industry and investors and I hope the Government will rethink its approach and come forward with a clearer indication of what it is doing to ensure CCUS technology is able to deliver on its potential.”

In July, Rachel Reeves MP, Chair of the Business, Energy and Industrial Strategy (BEIS) Committee wrote to Rt Hon Andrea Leadsom, the then new Secretary of State for DBEIS, to press for action on a series of policy fronts such as electric vehicles, carbon capture usage and storage, and energy efficiency, to ramp up UK efforts to meet future carbon budgets and the net-zero 2050 target.

In April, the BEIS Committee published its report, Carbon capture usage and storage: third time lucky? The report urged the Government to give a clear policy direction to ensure the UK was able to seize the industrial and decarbonisation benefits of carbon capture usage and storage (CCUS). The report noted that although the UK has one of the most favourable environments globally for CCUS the technology had suffered 15 years of turbulent policy support, including the cancellation of two major competitions at a late stage. No commercial-scale plant for CCUS has yet been constructed in the UK.

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UK–EU power links vital

While politically the UK may soon be decoupled from the EU, it is busy building power grid links with mainland Europe. And some say it should build more, creating offshore wind hubs and network systems to help with green power balancing, exports and imports. For example, the planned 1.4 GW HVDC Viking inter-connector between Denmark and Lincolnshire will pass through or near some big offshore wind farms. And more are on the horizon.

National Grid has done comparative connection studies for the proposed 1.6 GW Eurolink to the Netherlands and 1.5 GW Nautilus link to Belgium (completion expected by around 2025 and 2027, respectively) with the proposed Sizewell C nuclear plant area in mind, but also local offshore wind projects. Some say the UK should be looking to build many tens of gigawatts of offshore wind in the mid-North Sea and also offshore connection hubs, like the artificial island proposed for Dogger Bank, almost 100 miles out from Hull.

Grid upgrade needed

Certainly, the resource is vast, and the study of European grid issues (PDF) produced by ENTSO-E, the European Network of Transmission System Operators for Electricity, sees the UK as one of the key hubs in the network. The ENTSO-E study of EU grid issues up to 2040 updates its 2016 “Ten Year Network Development Plan” (TYNPD). It says that there will be a need for increased transmission capacity in some places, both internally and to other countries, to make the system work in 2040. This is largely due to the increasing levels and use of renewables to supply all areas of the European grid; the report says that up to 75% of the total demand of renewable energy will be reached by 2040, so that “European countries will more than ever need to rely on each other through cross-border exchanges”.

Physical connector links with the EU energy system could mean having to comply with internal EU energy market rules

Dave Elliott

However, interestingly, it suggests that there will be different balances in net supply across the EU. From ENTSO-E’s studies, it looks like NW wind, offshore especially, dominates, with a lot of surplus power shifted east at times. Much of that will presumably be from the North Sea. But it will be variable, so there will be technical, regulatory and market challenges to ensure stability, with increased system flexibility. And a need for new grids.

ENTSO-E says that, overall, the benefits of the expanded network far outweigh the necessary efforts that will need to be mobilized for its realization: “A lack of new investments by 2040 would hinder the development of the integrated energy market and would lead to a lack of competitiveness.In turn, this would increase prices on electricity markets leading to higher bills for consumers. By 2040, the ‘No Grid’ extra bill (€43 billion a year in the average case) would be largely above the expected cost of the new grid (€150 bn in total in the TYNDP 2016 plus internal reinforcements, 25% discount rate)”. A lack of investments would also affect the stability of the overall grid and could, in some regions, “threaten the continued access to electricity which also has a cost for society”. And finally, in all the scenarios the organization looked at, “without grid extension, Europe will not meet its climate targets”.

UK benefits

The UK has to be part of this, if only for parochial reasons. It will have a lot of surplus renewable power to export at times, as the renewable capacity builds up to 40, 50 and 60 GW, more than enough much of the time to meet the country’s needs (summer night-time demand is around 20 GW, peak winter demand under 60 GW).  At times though, when UK renewable availability is low and demand high, it may need some top-ups via the grid interconnectors. That said, the exports are likely to dominate, so the UK would be a net earner of substantial income, assuming the surplus can be sold at reasonable prices. That would help offset the cost of building up renewables, and the links can also clearly help with balancing. As the climate policy think tank E3G said earlier this year, the UK government must continue to work closely with the EU to develop cross-border power grid interconnections after Brexit, if it is to ensure the lowest-cost decarbonization pathway. More linking of the UK to EU power grids could help boost its energy security and flexibility as renewables grow.

Last year, interconnectors provided 6% of UK power supply, via the four existing links, making the UK a net importer of power across these links. However, as I noted in my last post, its wind potential is very large, so that pattern should change as more renewables are installed in the UK. Indeed it already has, with the UK being a net exporter to France for much of this year. The government currently plans to have at least 9 GW more grid link capacity. However, the ability to trade profitably depends on many factors — not just the availability of capacity and grid links, but also demand patterns, prices, the regulatory framework and wider policy context. The E3G paper warned that leaving the EU will “severely reduce” the UK’s ability to influence EU energy policy in line with its interests, which may make reaping the full benefits of greater inter-links harder. It could render the UK a rule-taker from the EU in some respects, as physical connector links with the EU energy system could mean having to comply with internal EU energy market rules, such as those covering energy, environment, state aid and competition. Sounds like a familiar issue…

The UK has some of the key resources needed for the emerging Europe-wide grid system (including its vast offshore wind resource) and the power engineering and marine technology expertise (including for offshore wind and undersea links). It may not like the EU single power market any more, but it may nevertheless need to get into it. At least that is the logic of the energy system. Political logic may be different, although it is perhaps worrying that, reportedly, Ireland is looking to a new 500 mile under-sea HVDC power link to France, and the EU market, by-passing the UK, with some funding from the EU.  It may also be worrying that, post-Brexit,  the UK will presumably miss out on EU funding for grid development – like the €800 m available  under the Connecting Europe programme for interconnectors. That’s supporting some of the already-planned and agreed UK links, but the UK may not be eligible for more after Brexit. So it’s all a bit uncertain and a bit of a mess, whereas the need for links is getting ever clearer and UK green power capacity is building up — offering an export potential.

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North Sea gas pioneer makes case for UK to maintain output

NORTH Sea-focused Cluff Natural Resources has said the UK must maximise the production of gas in its waters to minimise reliance on supplies from overseas amid efforts to tackle climate change.

The company’s chairman Mark Lappin noted the Committee on Climate Change had recognised oil and gas would account for the bulk of the country’s energy needs while efforts are made to reduce net carbon emissions to zero by 2050.

Mr Lapping said the Committee had produced a report that was generally thorough and thoughtful and that recognised ‘net zero’ did not mean the end of hydrocarbon production.

However, Mr Lappin observed: “ The key difference between the Climate Change Committee and our own view is that instead of becoming increasingly reliant on imports from overseas we should be focussing on national production and consumption of natural gas from the United Kingdom Continental Shelf.”

He added: “A domestic supply of natural gas is good for jobs, good for tax receipts and the balance of payments, as well as being better for the environment compared with importing gas from as far afield as the Middle East and South America.”

Mr Lappin made his comments on a day the Brent crude price surged 20 per cent in early trading after drone strikes on Saudi Arabian facilities at the weekend led to the interruption of 5.7 million barrels of crude oil production per day. That is equivalent to more than five per cent of the world’s daily supply.

Analysts said the long term impact of the events in Saudi Arabia on oil prices may be limited given the uncertain outlook for the global economy. The events could lead to renewed debate about the importance of UK production nonetheless.

An Australian firm yesterday showed belief in the potential of the United Kingdom Continental Shelf (UKCS) by agreeing to buy in to acreage west of the gas-rich Morecambe Bay.

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Fuel prices: A really simple guide to why they go up and down

When you pull up at the pumps, you’re probably not thinking about the knife-edge, geo-political tensions between Saudi Arabia and Iran.

You’re thinking about how much it’s going to cost to fill up and which bag of sweets to get for the glove box.

But what’s happening thousands of miles away in the Middle East has an impact.

So here’s a really simple guide on what causes the price of fuel to go up and down.

Tax is the big one

An attack on Saudi oil facilities has knocked out 5% of the world’s oil supply.

It’s got people worried we’re about to see a big jump in the price of petrol and diesel.

Not necessarily.

“The biggest thing isn’t what’s going on in Saudi or Iran, it’s the Chancellor of the Exchequer,” says Phillip Gomm from the RAC Foundation.

That’s because around 60% of the price you pay for fuel is tax – a mixture of fuel duty and VAT. So just because the price of oil doubles, that doesn’t mean we’ll see the same jump at the pumps.

It’s too soon to say how much the price will go up

The wholesale price is how much the oil costs when it leaves the refinery – that’s the price retailers pay for it.

When supply is disrupted – such as an attack on an oilfield – wholesale prices go up.

“We’ll see the wholesale price go up quite quickly but then it takes a couple of weeks for that to get passed on to drivers,” says Philip.

But because we don’t know how long the supply will be disrupted, it’s impossible to predict how much fuel costs will increase, or for how long.

The exchange rate is important

Oil is priced and traded in dollars. So if you have a weak exchange rate – how many dollars you can buy with sterling – it’s going to cost more in pounds to buy that fuel.

Instability doesn’t always mean big price rises

“If other suppliers think there’s a chance to sell more fuel because the Saudi supply has been interrupted, they will flood the market with more of their stock. If they’ve got spare oil, they’ll try and shift a bit more,” says Philip.

He says there isn’t a shortage of oil across the globe, it just depends what’s going on.

“The market has adjusted without blinking over the last two years to the loss for political reasons of over two millions barrels a day of production from Venezuela and Iran,” says Prof Nick Butler, who’s an expert in international energy policy.

Of course, if tensions in the Middle East spill over into conflict, it’s a different story.

Production facilities, trading routes and pipelines which thread through the region could all be vulnerable to future attacks – which could push up prices long-term.

The cost of a barrel of oil is soaring since the Saudi attack – roughly $65 (£52.20) a barrel, depending on when you read this.

But, according to Philip Gomm, “we’re miles off the $143 (£114) a barrel in 2008 – so we’re a long way from historic highs.

“It’s a brave person who’ll predict how much prices will go up.”

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Future Charging and Access programme – consultation on refined residual charging banding in the Targeted Charging Review

In November 2018, we published our minded-to decision and draft Impact Assessment on the Targeted Charging Review (TCR) covering proposed reforms to residual charges and non-locational Embedded Benefits. In June 2019, we consulted on further matters, including updated analysis on the Capacity Market and system costs, and the findings of the Balancing Services Charges Task Force.

We received over 130 responses to our minded-to decision, and a further 23 representations to our supplementary consultation. Having considered these responses, we wish to update stakeholders on refined proposals for reform of residual charges and provide the opportunity to comment on them, before we make our final decision.

Alongside this letter, and following requests from some industry participants, we are also publishing a sensitivity analysis we have undertaken on the implications of our proposed reforms on renewable generation.

We welcome any stakeholder feedback on the proposals and additional analysis outlined in this letter by email to TCR@ofgem.gov.uk by 25 September 2019.

Great Britain power system disruption review

Details

On Friday 9 August 2019 a power disruption resulted from the operation of Low Frequency Demand Disconnection relays on the Great Britain power system at about 4.54 pm. It impacted hundreds of thousands of customers, and caused significant secondary impacts in particular to the transport network. Though demand was fully restored within 90 minutes, the secondary impacts continued to be felt for much of the day.

The Secretary of State for Business, Energy & Industrial Strategy has commissioned the Energy Emergencies Executive Committee (E3C) to undertake a comprehensive review of the incident. The review should identify lessons and recommendations for the prevention and management of future power disruption events. In particular E3C will:

  • assess direct and secondary impacts of the event across GB electricity networks
  • Identify areas of good practice and where improvements are required for system resilience
  • consider load shedding in regard to essential service customers and prioritisation
  • consider timeliness and content of public communications during the incident
  • make recommendations for essential service resilience to power disruptions

E3C will submit a final report to the Secretary of State within 12 weeks, with an interim report within 5 weeks. These will be published here. BEIS will provide the secretariat for the review.

E3C is a partnership between government, the regulator, and industry, which ensures a joined up approach to emergency response and recovery.

Documents

French regulator puts EDF Flamanville nuclear plant on safety watch

PARIS (Reuters) – French nuclear regulator ASN said it has put EDF’s Flamanville 1 and 2 reactors under increased surveillance following a series of shortcomings in maintenance and contractor oversight

The ASN’s action is the latest in a long series of technical and operational issues that have bedevilled EDF in recent months and raised new concerns about the state-controlled utility’s safety culture.

The regulator said in a statement there had been a high number of significant shortcomings in the Flamanville plant’s maintenance and in the oversight of contractors in the plant, as well as insufficient quality of documentation. It added that it had summoned the plant’s director and ordered him to submit an action plan to improve plant operation.

EDF (EDF.PA) did not dispute the ASN’s ruling.

“We accept the ASN’s diagnosis and we accept its decision. That is why we submitted an action plan in August to resolve the problems,” an EDF spokesman said.

EDF’s Belleville nuclear plant on the Loire river has also been under increased surveillance since 2017.

The problems at the Flamanville 1 and 2 reactors are not directly related to the many problems with a third nuclear reactor that EDF is building on the same site. Flamanville 3 is a decade behind schedule and its cost has tripled to nearly 11 billion euros and is likely to rise further.

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French regulator puts EDF Flamanville nuclear plant on safety watch

PARIS (Reuters) – French nuclear regulator ASN said it has put EDF’s Flamanville 1 and 2 reactors under increased surveillance following a series of shortcomings in maintenance and contractor oversight.

The ASN’s action is the latest in a long series of technical and operational issues that have bedevilled EDF in recent months and raised new concerns about the state-controlled utility’s safety culture.

The regulator said in a statement there had been a high number of significant shortcomings in the Flamanville plant’s maintenance and in the oversight of contractors in the plant, as well as insufficient quality of documentation. It added that it had summoned the plant’s director and ordered him to submit an action plan to improve plant operation.

EDF (EDF.PA) did not dispute the ASN’s ruling.

“We accept the ASN’s diagnosis and we accept its decision. That is why we submitted an action plan in August to resolve the problems,” an EDF spokesman said.

EDF’s Belleville nuclear plant on the Loire river has also been under increased surveillance since 2017.

The problems at the Flamanville 1 and 2 reactors are not directly related to the many problems with a third nuclear reactor that EDF is building on the same site. Flamanville 3 is a decade behind schedule and its cost has tripled to nearly 11 billion euros and is likely to rise further.

Separately, EDF said on Tuesday it had found problems with weldings on the steam generators of some existing reactors, sending its shares down 6.8% on fears that the faults could lead to reactor closures.

The shares recovered some of the losses to rise 5% on Wednesday. They are down 28% over the past 12 months, making EDF the second-worst performer in the Stoxx European Utilities index .SX6P

SAFETY CULTURE

“There is a chain of control from reactor builder Framatome, to nuclear plant operator EDF and regulator ASN, but it has been demonstrated over and over again that this chain of control is malfunctioning. Every few months there is a new problem,” World Nuclear Industry Status Report author Mycle Schneider said.

Schneider said there had been no follow-up to a 2018 French parliament investigation into nuclear safety and security.

A parliament report reut.rs/2kE2IQ7 published in July 2018 concluded that France’s nuclear plants are a safety threat because of their excessive reliance on outsourcing, the risk of terror attacks and a lack of operational rigour.

Unlike the US, Russia and Japan, France has had no major nuclear nuclear accidents such as Three Mile Island, Chernobyl or Fukushima and its regulator ASN is seen as independent.

But EDF’s long series of problems – both at its existing fleet of 58 nuclear reactors and at the EPR reactors under construction in Flamanville and in Olkiluoto, Finland – have tarnished EDF’s image as a leader in nuclear technology and weighed on its ability to sell nuclear plants abroad.

While Russian rival Rosatom here has a $133 billion order book here reactors worldwide, EDF’s only foreign project is for two EPR reactors at Britain’s Hinkley Point, in a contract with its own UK arm, EDF Energy.

“Sometimes there are weak signals, but we are putting in place procedures. Safety is our number one concern, it is in our DNA,” the EDF spokesman said.

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Eversmart Energy collapses to leave 29,000 customers without supplier

A green energy firm with more than 29,000 customers has collapsed, becoming the sixth supplier this year to go bust.

Eversmart Energy confirmed it had ceased to trade in a short note on its website on Friday.

Industry regulator Ofgem said it would appoint a company to take on all of Eversmart’s customers, advising them not to switch to a new provider until this process was completed.

The collapsed firm supplied energy to 29,000 households and “a very small number” of businesses, Ofgem said.

 

Philippa Pickford, the regulator’s director for future retail markets, said: “Eversmart Energy customers do not need to worry, as under our safety net we’ll make sure your energy supplies are secure and domestic customers’ credit balances are protected.

“Ofgem will now choose a new supplier for you and whilst we’re doing this our advice is to ‘sit tight’ and don’t switch. You can rely on your energy supply as normal. We will update you when we have chosen a new supplier, who will then get in touch about your new tariff.”

Eversmart did not say why it had ceased trading, but the Energy Ombudsman said complaints about the Manchester-based firm had soared from 55 last year to 225 in the first eight months of 2019.

Energy Ombudsman chief executive Matthew Vickers said: “We have seen a significant increase in complaints about Eversmart Energy, receiving four times as many complaints so far this year as we did in the whole of last year.

“Billing and switching problems have been the main drivers of unresolved complaints about the company.”

Eversmart was named the second worst supplier for customer service in a report by the Energy Ombudsman last year.

Last year the firm was criticised for launching a low-cost tariff in which households had to pay about £1,000 for a year’s worth of energy up front.

Bosses said at the time claimed the tariff was “better value than an Isa or a high street savings account”, but Citizens Advice warned the rest of the industry would be forced to pick up huge outstanding debts if the supplier went bust.

It is not known if the supplier who picks up Eversmart’s customers will honour the 12 per cent interest they were promised, or how many of the 29,000 customers were on the tariff.

Eversmart is the 13th supplier to drop out of the UK market since the beginning of last year. Its collapse comes three weeks after competitor Solarplicity ceased trading.

Gillian Guy, chief executive of Citizens Advice, said: “Our research shows this unlucky baker’s dozen of failed companies has left behind at least £172 million in unpaid costs. These will be picked up by other consumers through higher bills.

“When a supplier goes bust, customer credit balances are protected. But all of us will eventually pay for honouring them through increased bills.

Ofgem warned last month more providers are to go bust or merge after a huge increase in the number of small firms entering the market in recent years. The regulator announced stricter tests on new suppliers’ financial health earlier this year under proposals designed to stem the rising number of failures.

Emma Bush, energy expert at price comparison service uSwitch, added: “With yet another supplier going out of business, Ofgem needs to press ahead with its reforms for regular health checks on existing energy companies to ensure each and every one can finance its operations while upholding a high level of customer service.

“Regular stress-tests for suppliers and ongoing fit-and-proper person assessments would help that.”

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Small energy companies risk going bust in financial shock

Suppliers must pass renewable subsidies to Ofgem in August

Thousands of homes could lose their energy supplier in the coming months as a result of a financial shock looming over the industry’s smaller companies.

Suppliers are due to pass on millions of pounds’ worth of renewable energy subsidies, collected via energy bills, to the energy regulator, Ofgem, by the end of the month.

This deadline has in the past proved fatal for financially unstable energy suppliers, and it is feared that a string of collapses may follow in the coming months. Suppliers have until 31 August to pay their share of the renewable energy subsidies, or can opt to pay the amount owed – plus interest – by 31 October.

In the past week, Solarplicity has gone bust, leaving 7,500 homes without a supplier. URE Energy was stripped of its supplier licence for failing to pass on its renewable energy funds from last year’s deadline. In total, 14 suppliers have crashed out of the market since the start of last year, and some predict the same number will fail in the years ahead.

A spokeswoman for Ofgem said that given the “huge growth in the number of suppliers” it expects there to be a “period of consolidation” as some exit the market or merge. The energy market has grown rapidly, from 12 suppliers in 2010 to 70 last year, thanks to policies designed to encourage startups into the market as possible.

“Given the large number of suppliers, it’s also more likely that one may collapse – but Ofgem’s safety net will ensure that their customers are already protected,” she added.