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Ofgem publishes 2019 Annual Iteration Process for network price controls

Publication date29th November 2019Information types

  • Press releases

Policy areas

  • Electricity – distribution
  • Electricity – transmission
  • Gas – distribution
  • Gas – transmission

Ofgem has today published the results of the 2019 Annual Iteration Process (AIP) for energy network companies under its network price controls. 

As part of the ‘Revenue = Incentives + Innovation + Outputs’ (RIIO) price controls for network companies, we make annual adjustments to the revenue that we allow the energy network companies to collect through the AIP.

The AIP updates base revenues across Ofgem’s four price controls (electricity distribution, gas distribution, electricity transmission, and gas transmission) for the next regulatory year (2020/21).

This year’s AIP has reduced the allowed revenue that network companies will collect relative to the assumptions made at the start of the price controls by around £965 million (2018/19 Prices), saving consumers money on their bills. This reduction is driven by the following factors:

  • Cost of Debt – Lower interest rates in debt markets have resulted in a lower cost of debt allowance compared to the level set at the start of the price controls.
  • Allowed Expenditure – On the whole, network companies are spending less than the amounts assumed at the start of the price controls, therefore we make a proportionate reduction to their allowed revenue.

We have published updated price control financial models (PCFMs) for the four price controls, here:

RIIO-ET1 Financial Model following the Annual Iteration Process 2019

RIIO-GT1 Financial Model following the Annual Iteration Process 2019

RIIO-GD1 Financial Model following the Annual Iteration Process 2019

RIIO-ED1 Financial Model following the Annual Iteration Process 2019

For media queries contact Ofgem media manager Ruth Somerville 0207 901 7460/ 07766 511 470 ruth.somerville@ofgem.gov.uk 

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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.

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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Wind and gas projects keeping the southern North Sea busy

It is arguably leading the energy transition way for the UK, with multi-hundred to gigawatt class wind farms rubbing shoulders with significant gas production.

“We’re very much in the ascendancy,” said Simon Gray, chief executive of trade organisation East of England Energy Group (EEEGR).

“We now have off the east coast of England something like 56% of the UK’s offshore wind generation capacity and this is expected to go on increasing through to 2030.

“As the UK’s offshore wind capacity increases, we’re set to remain around the 50%-plus level.

“The reasons for that are simple and include shallow waters, a decent seabed for installing turbines, a good wind resource and easy access to the largest electricity markets in Britain: London, the south-east and the Midlands.

“And of course considerable quantities of natural gas are still being produced from the Southern Gas Basin, where new field discoveries continue to be made, albeit those are tight resources and therefore harder to develop and produce.

“We still have some of the largest volumes of decommissioning on the UKCS.

“The SNS is where the UK’s offshore story began in terms of gas and a considerable number of the platforms still out there are 30, 40, 50 years old.”
Change is in the air for the membership of EEEGR, whose supply chain membership is probably the most diverse of any energy trade body in the UK.

“Transition is the word on everyone’s lips,” Mr Gray said. “And that’s exactly where we are.

“We’re the part of the UK that is experiencing the greatest migration from fossil fuels towards renewables. And that process in theory needs to have been completed by 2050.

“Although gas is currently on the back foot because of weak prices, it still accounts for 28% of UK electricity generation compared with 2.3% from coal, 20% from nuclear and wind nearly 30%.”

In terms of indigenous UK gas production, the SNS accounts for around 30% via the Bacton terminal in Norfolk.

A major operation is under way to protect this strategically important facility from being engulfed by the North Sea as sea levels rise.

The £20 million-plus “sandscaping” is intended to protect a 5.6km stretch of coast by rebuilding beaches using huge volumes of sand.

Bacton is absolutely vital to current gas basin production and future development potential. And it handles significant volumes of imported gas via the North Sea’s hugely important interconnector network.

Gas has a critical transitional role to play for the next couple of decades at least and the SNS current revival is being usefully stimulated by the Oil and Gas Authority’s Southern

North Sea Tight Gas Strategy published in June 2017.

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UK energy minister questions future of National Grid

UK energy minister Kwasi Kwarteng has questioned whether National Grid should retain its flagship role operating the country’s electricity system following a power cut last month that disrupted more than 1m homes and businesses in England and Wales.

Mr Kwarteng, who assumed his role after Boris Johnson became prime minister in July and visited National Grid’s control centre following the blackout, told the Financial Times: “Frankly I think there is a question about the ESO [electricity system operator] and its role within the National Grid.”

National Grid, which was privatised in 1990, has seen off previous demands that it should be broken up but calls for a rethink have intensified following the outage last month that caused widespread rail disruption, particularly in and around London, and also affected a hospital in Ipswich and Newcastle airport.

The opposition Labour party intensified its demands for National Grid to be renationalised after the power cut but more moderate voices, such as Oxford university professor Dieter Helm, who authored a 2017 report on energy for the government, have also said the job of managing the system should be transferred to a publicly owned body.

The FTSE 100 company avoided a break-up in 2017 when Ofgem, the energy regulator, ruled it should be allowed to keep the electricity system operator role but it should be hived off into a legally separate business. However, it remains within the wider National Grid group.

Mr Kwarteng said he not believe the Ofgem decision was “envisaged as a permanent solution to this question”.

“I think it was seen as perhaps a staging post to another iteration where the two entities might be separate,” Mr Kwarteng said.

“As you know they were very much as one body and then we’ve had this separation within the same institution and people are saying now that there may well be the case that the ESO . . . should be separate. And again, this is a question that we’re looking at.”

National Grid both owns energy infrastructure in the UK and has overall responsibility for balancing electricity supply and demand, which critics say presents a conflict of interest. It has also been developing interconnectors — subsea cables that allow electricity to be traded with countries such as Belgium, France and the Netherlands, which compete with domestic power generators.

Analysts have privately suggested stripping National Grid of the electricity system operator role and creating a public body responsible for keeping Britain’s lights on would be an easy way for the Conservative party to counter Labour’s renationalisation agenda. 

Prof Helm suggested such a move would not only be in the public interest but “arguably also in National Grid’s interests”. 

He said the system operator role was a very small part of National Grid’s overall business, which also includes owning energy networks in the US. However the recent power cut had caused the company reputation damage, even though it has argued the events of August 9 were “extremely rare and unexpected”.

“There is little upside to its shareholders from owning the SO [system operator], and lots of risk, especially reputationally, as the recent power cut has revealed,” Prof Helm wrote in a recent blog.

The government and Ofgem are both investigating the power cut. National Grid has also been conducting its own internal inquiry, the final results of which were presented to Ofgem on Friday and will be published by the regulator on Tuesday.

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Bristol launches ambitious £1 billion net zero energy finance bid

Bristol has launched an ambitious plan to raise up to £1 billion of investment to turn it into the UK’s first carbon neutral city.

Bristol City Leap, a project co-led by Bristol City Council and local energy supplier Bristol Energy, has launched a global search for organisations willing to invest in a joint venture that will help deliver a net zero energy system in the city by 2030.

The project is more than a year in the planning, having first been unveiled in May last year. It was then approved by Bristol City Council in April this year, prompting more than 180 organisations – including tech firms, investors and energy companies – to get in touch.

Bristol City Leap has now formally launched the procurement process, which is expected to run for a number of months. More information, as well as an investment prospectus, is available on the Bristol ESCO website.

Bristol’s mayor Marvin Rees described the project as a “world first”, adding that while it would lead the way on carbon reduction, the project would also address “important social and economic challenges”.

“The inclusion of Bristol Energy is integral to delivering smart energy propositions utilising City Leap’s projects by weaving a number of technologies together, helping to ensure that the company continues to deliver clean energy and social value for local people,” he said.

Bristol Energy is to play a pivotal role in the City Leap project, the council said, and the utility is to bring forward and deliver smart energy propositions – including localised tariffs and new, innovative services – for the benefit of Bristol’s residents.

The supplier will benefit from additional investment, aimed to reduce its reliance on council funding.

Marek Majewicz, managing director at Bristol Energy, said that City Leap had “social value at its heart”.

“From community heat networks, to energy innovation in social housing, the substantial investment from the partnership will enable everyone in Bristol to benefit from low carbon, renewable energy projects.

“Bristol Energy is already working on a wide range of innovative projects and we’re looking forward to harnessing low-carbon technologies for the good of our city and our customers.”

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Octopus Energy buys out rival to propel it into the big time

Octopus Energy has struck a deal to become one of the UK’s fastest growing energy suppliers after agreeing to buy a smaller rival.

The energy challenger brand told its staff on Wednesday that it has agreed to buy Co-op Energy, which supplies gas and electricity to about 300,000 homes.

Octopus, which supplies 850,000 customers, is expected to confirm early on Thursday that the deal will nudge its business past 1 million customers after only four years in the market.

The deal, thought to be worth more than £30m, propels Octopus to within a whisker of rival supplier Bulb Energy, which supplies 1.4 million customers and is the UK’s fastest growing new supplier.

It follows a flurry of deals within the energy market which is beginning to consolidate after a flood of new suppliers joined the market in recent years, many of which have proved financially unstable.

Co-Op Energy snapped up 160,000 customers from GB Energy Supply after it collapsed in 2016, and then gained another 130,000 customers after its takeover of Flow Energy last year.

The company, part of the Midcounties Co-op, has since run into financial trouble. It revealed deepening losses earlier this year in the Co-op’s financial report, which hinted that the supplier might be sold to protect the wider business.

Octopus Energy, which is owned by Octopus Group, is also loss-making but has the full support of its investment fund owner which has ambitions to grow the business to compete with the big six.

Octopus Group was an early backer of the property site Zoopla and backs Big Gym, Secret Escapes and Eve mattresses through its investment arm Octopus Ventures.

Its fast-growing energy supplier bought smaller rival Affect Energy last September and took on the customers of failed energy start-up Iresa in December last year.

It also won a lucrative contract to supply energy to M&S Energy customers that was previously held by SSE for nine years.

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Turning Natural Gas Into Fuel Just Became Cheaper

The advantages of natural gas over the other two fossil fuels—coal and crude oil—seem to be indisputable when it comes to carbon emissions. Natural gas is a much less carbon-intensive fuel, which has drawn attention to it as an alternative to oil-derived liquid fuels. However, there have been challenges that now a team of Chinese scientists claim to have come closer to solving.

Natural gas consists mostly of methane and some propane. Methane is a sticking point between the industry and environmentalists because it is a much more powerful greenhouse gas than carbon. But if this methane can be turned into fuel it would be a win-win situation since the byproducts of burning natural gas are water vapors and carbon dioxide.

Processing natural gas into liquid fuel is tricky, Phys.org reports in an article on the Chinese scientists’ breakthrough. This processing involves the introduction of oxygen-hydrogen compounds into the gas, which rearranges its atoms. However, not all atoms react to the oxygen and the hydrogen at the same speed and this could ruin the resulting alcohol that would be used as a fuel.

What the Chinese researchers did, essentially, was increase their control over the conversion process, which allowed them to manipulate the speed at which the carbon and hydrogen in the methane and propane rearranged themselves to create alcohol molecules. This, according to the team, would make gas-derived fuel more economical to produce.

The potential of natural gas as a replacement for gasoline and diesel should not be underestimated especially amid the current abundance of natural gas, notably in the United States, thanks to the shale revolution.Related: Why Oil Prices Plunged Today

“Our conclusion is that natural gas as a transportation fuel has both adequate abundance and cost advantages that make a strong case to focus interest in the technology as a real game changer in U.S. energy security.” This is what one engineer from the Argonne National Laboratory told Talking Points Memo, a news outlet, seven years ago, a few months after the Obama government launched a US$30-million grant program for research into making natural gas a more popular fuel for vehicles.

Since then, however, little progress has been made and part of the reason is that challenging conversion process. A simpler form of natural gas—compressed natural gas or CNG—is already in use for some countries’ public transport vehicles and also in passenger vehicles, but it has yet to become a real challenger for gasoline and diesel. While cheaper and more efficient, CNG gets burned up more quickly, it requires a larger tank, and has less torque than gasoline and diesel.

This is where the potential of liquid natural gas fuels lies. In liquid form, natural gas would probably be more competitive with oil-derived fuels but only after the challenges with its conversion into liquid are overcome.

It’s a positive that scientists are working on this. If research is successful it could eventually motivate oil producers to seek ways to reduce gas flaring, which in the U.S. last year grewby 48 percent driven by the shale boom. That’s a lot of methane being burned for no revenues when it could be captured and turned into fuel at some point in the future.

By Irina Slav for Oilprice.com

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Low-carbon energy makes majority of UK electricity for first time

Rapid rise in renewables combined with nuclear generated 53% in 2018

Low-carbon energy was used to generate more than half of the electricity used in the UK for the first time last year, according to official data.

A rapid rise in renewable energy, combined with low-carbon electricity from nuclear reactors, made up almost 53% of generation in 2018, the government’s annual review of energy statistics revealed.

Renewable energy sources set a new record by meeting a third of the UK’s power generation last year after the UK’s capacity to generate power from the sun, wind, water and waste grew by 10%.

The UK’s use of coal fell by a quarter to a record low of just 5%, according to the report.

The government’s annual “energy bible” confirms a string of record green energy records broken in recent years, as the UK undertakes more renewable energy projects and shuts down old, polluting coal plants.

National Grid said earlier this year that the UK had recorded its greenest ever winter due to windy weather and dwindling coal-fired power.

This followed the second greenest summer, which fell narrowly short of the 2017 record for renewable energy due to a long heatwave. Very hot weather can have a negative impact on renewable energy generation because high pressure weather systems can suppress wind speeds, and solar panels produce less electricity if temperatures climb too high.

The rise of renewables has edged out coal and gas plants which together made up less than 45% of the UK’s electricity last year.

Gas generation fell to 39.5% of the generation mix last year, from 40.4% in 2017. Coal generation continued to decline, falling to 5.1% last year after the Eggborough coal plant shut and Drax converted one of its units to burn biomass instead.

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Only five coal plants will be left running by the end of the coming winter after SSE announced plans to shut its last coal plant at Fiddler’s Ferry near Warrington, Cheshire, in March 2020.

Emma Pinchbeck, the deputy chief executive of Renewable UK, said the record-breaking figures “clearly show that investment in renewables and the government’s championing of offshore wind is delivering rapid change to our energy system”.

“As well as helping keep prices down for consumers and boosting the competitiveness of our businesses, renewables are a huge economic opportunity, bringing employment and investment to all parts of the UK,” she said.

The government threw its weight behind the offshore wind sector earlier this year by promising developers the chance to compete for a share of £557m of state subsidies in exchange for industry investment of £250m over the next 11 years.

The deal could help offshore wind grow to 30% of the UK’s electricity by 2030 as the UK works towards a 2050 target to cut emissions from the economy to net zero.

But ministers have refused to lift a block on support for new onshore wind farms, which are unable to compete for subsidies despite being one of the cheapest forms of electricity.

“To achieve its net zero ambitions, the new government needs to go further and faster – and the first steps should be removing the barriers to onshore wind which is our cheapest source of power, and building on our successes in innovative technologies like tidal energy and floating wind where the UK can be a world leader,” Pinchbeck said.

Source: https://www.theguardian.com/environment/2019/jul/25/low-carbon-energy-makes-majority-of-uk-electricity-for-first-time