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MPs launch inquiry into future of UK energy investment

LONDON (Reuters) – A committee of British MPs has launched an inquiry into the outlook for future investment in energy infrastructure in Britain after two nuclear projects were halted, it said on Thursday.

Last month, Japan’s Hitachi put a $28 billion (£21 billion) nuclear power project in Britain on hold, dealing a blow to the country’s plans for the replacement of ageing plants and coalplant closures.

Another Japanese firm, Toshiba Corp., scrapped its British NuGen project last year after its U.S. reactor unit Westinghouse went bankrupt and it failed to find a buyer.

The Business, Energy and Industrial Strategy Committee said it will look at whether the government needs a new approach to accelerate investment in a future low-carbon energy system.

The inquiry will also likely examine ways of financing future nuclear plant new-builds and concerns over foreign investors in the sector.

“In the wake of investment decisions over nuclear plants at sites such as Moorside and Wylfa, a giant hole has developed in UK energy policy,” said Rachel Reeves, chair of the committee.

“A bigger shift in our energy infrastructure to a low-cost, low-carbon energy system is necessary,” she added.

The committee has invited interested parties to make submissions on its website until April 3.

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SCOTTISHPOWER ANNOUNCES RECORD £2BILLION UK INVESTMENT IN 2019

  • £2billion clean energy investment in UK in 2019 – record commitment in UK by ScottishPower
  • ScottishPower announces plans for large-scale battery storage at UK windfarms
  • New public electric vehicle charging business to start installations in 2019
  • Investment plan will support 300 new ScottishPower jobs in 2019

ScottishPower has announced it will spend up to £2billion in the UK in 2019, the company’s biggest ever investment in the country in a single year. The announcement came as ScottishPower updated its investment plans following the sale of its thermal generation business and transition to 100% renewable energy in 2018.

ScottishPower CEO, Keith Anderson, said: “Our first investment plan since leaving coal and gas behind is a historic milestone for ScottishPower and is a vote of confidence in the UK’s commitment to decarbonising the economy. In a time of uncertainty the UK needs to deliver its Industrial and Energy strategy and that’s what we’re providing with our biggest ever investment in a single year.

“Consumers want and need access to reliable, clean and affordable energy. That is what ScottishPower is focused on delivering and as long as Government climate change commitments stay firm, with sensible policies to support them, this investment will continue.

“Now that we have sold our gas power stations our growth plans are about cleaner and smarter power that will help the UK to decarbonise faster and we have set out the part we will play in the transition to electrify the economy where it matters most now – in transport and in heating.”

Between 2018-2022 ScottishPower will spend £6billion in the UK with 40% on new renewable energy generation, 42% on smarter enhanced networks and 15% on innovative services and products for customers.

ScottishPower will invest in smarter services for customers, including products to unlock the market for electric vehicle ownership.

As part of its strategy for growth ScottishPower announced plans for a new public electric charging service based within the company’s Retail division. The new business will install fast chargers across the UK at strategic commercial locations from winter 2019.

The company also announced plans for a 50MW battery storage project at Whitelee the UK’s largest onshore windfarm. The large-scale battery project will be the first of a series of storage schemes, mainly located at windfarms and at strategic points on the network. ScottishPower believes the combination of renewable energy and flexible storage are the most cost effective low carbon solution for consumers.

In renewables ScottishPower set out plans to develop a 1GW pipeline of onshore wind projects by 2025. Onshore wind remains the lowest cost technology for new electricity generation in the UK and ScottishPower sees substantial opportunities for the continued development of onshore wind projects across Scotland and other areas of the UK.

Construction continues at pace for the East Anglia ONE offshore windfarm located 43km off the Suffolk coast. The £2.5billion project will see 102 Siemens Gamesa turbines deployed, each with a capacity of 7 megawatts; which could in total provide enough clean energy to power the equivalent of more than 630,000 homes annually. Over 50 percent of the project’s total investment will be spent  in the UK, ensuring the benefits of East Anglia ONE are felt across the country.

ScottishPower has also gained planning consent for East Anglia THREE windfarm for up to 1,200MW and planning consultations on the company’s next two large offshore windfarms in the East Anglia zone have begun. If consents are granted, it is anticipated that East Anglia TWO will commence construction in 2024 and East Anglia ONE North will commence construction in 2025.

SP Energy Networks will continue to deliver smart and efficient grids capable of supporting the UK’s future energy needs. In 2019 the networks business will focus investments on continuing the company’s leading role in connecting renewables in Scotland, Wales and England.

Investments will also target the digitalisation of the grid including ground-breaking artificial intelligence systems that will control and balance the network in areas with high penetration of low carbon technologies enabling the transition to widespread use of electric vehicles.

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Clarity needed on impact of decommissioning on public finances

  • Significant uncertainty over costs to taxpayers of decommissioning offshore oil and gas assets
  • Government has a poor understanding of potential liabilities to decommission assets used in fracking
  • It needs a clear plan to maximise economic benefits from UK decommissioning skills and resources

Report summary

Significant uncertainty remains about the future costs to taxpayers of decommissioning offshore oil and gas assets.

HM Revenue & Customs (HMRC) estimates that oil and gas companies will pass on £24 billion of decommissioning expenditure to taxpayers through tax reliefs, but there remains a wide range of possible future costs as most companies are still improving the certainty of their cost estimates.

If oil and gas companies can reduce their decommissioning costs then, in turn, UK taxpayers will benefit through a reduction in the value of tax reliefs that the government provides.

The Oil and Gas Authority (OGA) claims to have helped oil and gas companies to reduce the expected cost to decommission their offshore assets by 7%, and we recognise the value it has added by benchmarking performance, making data more widely available and encouraging the sharing of best practice.

But the direct impact of the OGA is hard to isolate from other factors influencing company decision-making, particularly the wider economic situation.

There is potential for the UK to become a global leader in decommissioning skills and technology but we are concerned that the Department for Business, Energy and Industrial Strategy (the Department) does not yet have a clear plan for maximising the potential economic benefits.

The Department must ensure taxpayers are protected from the risk of footing the bill for decommissioning fracking assets, where there are fewer protections than for offshore oil and gas.

The Department also needs to ensure its support for oil and gas remains compatible with its other activities aimed at achieving climate change goals, including ensuring alignment with the development of carbon capture, usage and storage, which could potentially reuse offshore oil and gas assets.

Chair’s comment

“Taxpayers will incur costs running to billions for oil and gas decommissioning, but it is far from clear what these costs will be in practice.

“The Oil and Gas Authority must bring greater certainty to its cost estimates. Together with the Department for Business, Energy and Industrial Strategy it should be transparent about how these estimates measure up to reality, and explain exactly what impact it is having on reducing costs.

“It is concerning that the Department has not yet properly set out the terms for how fracking assets will be decommissioned. It must do so before this industry grows further.

“It would be wholly unacceptable for taxpayers to pick up a hefty bill that could have been reduced had more timely action been taken by the Government.”

Conclusions and recommendations

There is significant uncertainty over the potential costs to taxpayers of decommissioning offshore oil and gas assets.Future decommissioning costs are uncertain because oil and gas companies are at the early stages of decommissioning and are still learning about how much different activities will cost. The OGA forecasts that the cost of decommissioning to companies will be between £45 billion and £77 billion. HM Revenue and Customs (HMRC) estimates that the cost to taxpayers from tax reliefs associated with decommissioning will be £24 billion based on the central estimate of the OGA’s range. But it has not estimated what the costs to taxpayers would be if decommissioning costs are at the top end of the OGA’s range. At the same time, oil and gas companies are commissioning new assets in line with the government’s objective to maximise recovery of remaining oil and gas reserves. New projects could generate tax revenues for the government but will also add to the total decommissioning bill and increase the future cost of decommissioning to taxpayers.

Recommendation: As part of its next estimate of decommissioning costs, expected in June 2019, the OGA should set out how it is making its estimate more certain and what the expected impact of new and as-yet uncosted projects could be.

It is unclear how actions taken by the Department and the OGA are reducing decommissioning costs for oil and gas companies.The Department established the OGA in 2015 to encourage companies to reduce their decommissioning costs. The OGA says it has helped oil and gas companies to achieve a 7% reduction in their expected costs of decommissioning through benchmarking performance, making data more widely available and encouraging the sharing of best practice. The OGA estimates that if companies achieve its target for reducing expected costs by 35% by 2022, UK taxpayers will benefit by £8.6 billion through a reduction in tax reliefs. But it is difficult to isolate the impact of the OGA’s activities from wider economic conditions that influence oil and gas companies’ decisions. Additionally, the OGA has only published estimates of future costs and has not compared costs already incurred with its previous estimates to demonstrate whether savings have actually been achieved.

Recommendation: The Department and the OGA should set out by July, and report to Parliament annually thereafter, on: the direct impact it has had on reducing decommissioning costs; and the actual decommissioning costs incurred during the previous year set against what the OGA had forecast.

The Department does not yet have a clear plan to ensure the UK maximises the benefit of developing exportable decommissioning skills and resources. The UK is one of the first countries in the world to start decommissioning its offshore oil and gas assets on a large scale. This presents an opportunity for the UK to become a global leader in decommissioning skills and technology that can be exported to other regions. The government announced in the 2018 Budget a call for evidence to identify ways the UK can become a global hub for decommissioning. Since then, the UK and Scottish governments (in partnership with Aberdeen University) have helped fund the creation of the National Decommissioning Centre as part of the drive to become a world-leading centre for decommissioning research & development (R&D). But industries that have been nurtured with UK tax incentives and R&D funding can take intellectual property and move abroad, reducing benefits from taxpayer-funded schemes. We are concerned that the Department does not yet have a clear vision for how the benefits for taxpayers of government support for decommissioning industries will be realised.

Recommendation: The Department should set out by July its strategy for maximising the economic benefit of the development and export of decommissioning skills and resources.

The Department has a worrying lack of understanding of the potential for government liabilities to decommission assets used in fracking. In offshore oil and gas, the government is ultimately liable to decommission assets that the operating companies cannot afford to decommission themselves. There is some protection given by the fact that partner operators and previous owners of assets are liable before it falls to the government. The Department focuses its monitoring on the 20% of assets which it considers to be highest risk because they have never been owned by one of the largest companies and has required nine companies to set aside £844 million for future decommissioning costs. In contrast, backers of fracking schemes may often be small companies with limited financial resources. The Department tells us that landowners are liable if project backers cannot decommission their assets, but we are concerned that determining liability may not always be as straightforward as the Department believes, and that the liability will ultimately fall to the government. The Department must ensure it sets the terms for how fracking assets are decommissioned before the industry grows further.

Recommendation: The Department should write to the Committee by the end of June 2019 explaining the decommissioning arrangements for fracking, including a full and clear explanation of the responsibility for subsequent costs once licences have been returned to the Government, and what it is doing to prevent liabilities falling to taxpayers.

Government support for oil and gas may become incompatible with its long-term climate change objectives. As well as providing tax reliefs for decommissioning, the government has reduced tax rates and made trading assets easier to encourage oil and gas companies to invest in maximising the extraction of the UK’s remaining reserves. The government is committed to supporting oil and gas companies due to the industry’s role in generating direct tax revenues, supplying energy and providing employment. The Department says that oil and gas will remain an important part of the energy supply: it estimates that oil and gas will provide nearly 70% of total energy required in 2035 and will remain particularly important fuels for transport and domestic heating. But the role of oil and gas in the economy is expected to decline as the government switches support to cleaner renewables to achieve its climate change targets.

Recommendation: The Department should set out as part of its energy White Paper, expected during 2019, how it will continue to ensure that government support for oil and gas remains compatible with its wider energy objectives.

There is uncertainty over whether carbon capture, usage and storage (CCUS) will become a viable option for reusing oil and gas assets. CCUS could be essential for decarbonising the economy at the lowest cost, but it is currently too expensive to be commercially viable. The Department has stated that the costs of the first CCUS projects could be reduced if oil and gas assets are reused, such as repurposing pipelines to transport carbon dioxide and using wells to store it. This could also defer part of the bill for decommissioning. But, as this Committee has previously reported, the government has tried and failed to support deployment of CCUS twice in the past and there is no imminent prospect of a large-scale CCUS facility being in operation in the UK. There is a risk that oil and gas assets are decommissioned before they can be used for CCUS schemes due to the Department’s slow progress at bringing forward CCUS.

Recommendation: The Department should, as part of its Treasury Minute response, set out its expected timetable for CCUS deployment and how this aligns with the latest indications of when oil and gas companies will decommission their assets.

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No-deal Brexit wouldn’t disrupt gas, power flows from Europe: UK National Grid

LONDON (Reuters) – National Grid, which runs Britain’s energy systems, said on Tuesday that electricity and gas flows from continental Europe would continue as normal even under a no-deal Brexit as it has made preparations for all scenarios.

“We anticipate no additional operability challenges for this summer as a result of the UK’s planned exit from the EU,” National Grid said in its Summer Outlook, covering the period from April to October.

Britain imports around 5-6 percent of its electricity via interconnectors with continental Europe.

“Should the UK leave the EU with no deal, cross-border trading of energy would take place outside of the (EU) single market framework, i.e. under World Trade Organisation rules for the majority of countries,” National Grid said.

There are no tariffs on electricity or gas shipments between the EU and other WTO members.

Nearly three years after Britain voted to leave the EU, and three days before it was supposed to leave the bloc, it remains unclear how, when or even if Brexit will take place.

Britain also imports more than half of its gas via pipelines from continental Europe and Norway and through shipments of liquefied natural gas (LNG) from countries such as Russia, the United States and Qatar.

LNG is more widely available on the world market as Russia and the United States have been ramping up deliveries. National Grid said it expects higher deliveries of LNG than last summer and that it expects there will be sufficient gas supply to meet demand. It also said it would be able to meet electricity demand.

It forecast gas demand during the summer period will total 36.1 billion cubic meters, almost 6 percent higher than summer gas demand in 2018, once weather related adjustments were made.

Electricity demand in Britain is expected to peak at 33.7 gigawatts (GW) this summer while the minimum summer electricity demand is forecast at 17.9 GW.

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Brexit Delays Leave U.K. Facing Risk of Higher Power Prices

Some projects to develop new power cables between the U.K. and France are on hold because of uncertainties related to Brexit, throwing into question the delivery of infrastructure intended to reduce electricity costs in the U.K.

Work continues on two new interconnectors that were already under construction between the countries. However, talks on three other subsea power lines have been suspended due to the prolonged wrangling between the U.K. and the European Union over their divorce.

The pause, caused by the French energy regulator’s decision not to rule on the benefits of new interconnectors with the U.K. until the final conditions of Brexit have been clarified, could mean higher power prices on the British market for several years.

“As the U.K. often benefits from low power prices from France, less interconnection with that country can inadvertently translate to higher power prices,” said Andreas Gandolfo, a London-based analyst at BloombergNEF.

Increased connectivity with neighboring countries is becoming more important as the European power market undergoes rapid change. Utilities are becoming reluctant to invest billions to replace coal-fired and nuclear plants that are edging closer to retirement age, while wind and solar power can experience significant fluctuations.

On Pause

Ofgem, the U.K. energy regulator, has so far approved nine interconnectors, which would more than triple capacity from the current 5 gigawatts, a spokeswoman said. Developers will need to work with governments and regulators in connecting countries to ensure that final approval is granted in those countries, she said.

French regulator CRE’s concern over Brexit uncertainty is delaying progress of the Fab Link, Aquind and GridLink.

Prime Minister Theresa May is still struggling to gather enough support to get her EU withdrawal agreement through a vote in the House of Commons by Friday. If her deal fails for a third time, the U.K. will be forced to choose between a potentially long delay to its departure and falling out of the EU without a deal on April 12. Either of those outcomes would deepen the uncertainty that’s affecting the development of this vital infrastructure.

“There is a pause on talks for new interconnectors in development to France until Brexit is sorted,” National Grid Plc said in response to questions from Bloomberg. The U.K. power-grid operator said it’s continuing with projects that are already underway, amounting to a 2.1 billion-pound ($2.8 billion) investment in cables to France, Norway and Denmark.

“There are significant benefits for consumers from greater interconnection, no matter what the Brexit outcome,” National Grid said.

Slipping Timetables

The construction of Fab Link, a 1.4-gigawatt subsea link between the South of England and the Normandy region in France, is due to start in 2020 and to be completed in 2023, according to its website. The project is being developed by French power-grid operator Reseau de Transport d’Electricite, Transmission Investment and Alderney Renewable Energy.

Achieving that timetable will ultimately depend on the review by the French energy regulator, an RTE spokeswoman said by email. A spokesman for Transmission Investment declined to comment on any delays to Fab Link.

GridLink, a 1.4-gigawatt power transmission cable between Kent and Dunkirk developed by Icon Infrastructure is due to be built between the end of 2020 and the end of 2023, according to its website. GridLink didn’t respond to a request for comment through its website.

The 2-gigawatt Aquind project is “progressing on all planned activities,” said a spokesman for the company, while declining to comment on the details of talks with the French and U.K. regulators. Based on environmental and permitting time lines, the company aims to make its final investment decision by the end of 2020 and commission the cable at the end of 2023. In a statement last October, Aquind said its target was to complete construction in 2022.

Insufficient Capacity

The only power link between France and the U.K. is the 2-gigawatt IFA 2000 interconnector. That cable has been in service since 1986 and isn’t sufficient to meet the highest demand for power trading between the countries.

In the short term, Franco-British interconnection capacity will double to 4 gigawatts — the equivalent of more than two nuclear reactors — as Channel Tunnel operator Getlink expects to commission its ElecLink project early next year.

National Grid and its French counterpart RTE plan to complete the IFA2 cable between Southampton and Caen in the fourth quarter of 2020. National Grid also expects to complete its North Sea link with Norway at the end of 2021.

RTE and its Irish counterpart are continuing studies for the 700-megawatt Celtic Interconnector, which could bypass the U.K. and link France directly to Ireland from 2026. A final investment decision would happen around 2021, according to Eirgrid’s website.

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Smart meter rollout must be extended says Citizens Advice

Citizens Advice, in its role as the official consumer watchdog for energy, has responded to the publication of the latest figures from the Department for Business, Energy and Industrial Strategy (BEIS) for smart meter installations.

Gillian Guy, Chief Executive of Citizens Advice, said:

“It’s worrying that at this key moment, when the switch to second generation smart meters should be accelerating, installation rates overall are actually slowing down.

“This is adding to the confusion for customers. Millions of people who have had a smart meter fitted may find it doesn’t work properly when they switch supplier, while millions more are not able to get a smart meter installed even if they want one.

“Customers on prepayment tariffs, in rural areas, and in large parts of the north of England and in Scotland, are in danger of being left behind.

“Smart meters will provide benefits for customers, but with the rollout beset by technical problems, the current timetable is unrealistic. There’s little chance that the 2020 deadline will be met, it should be extended to 2023.”

Background:

The government has set a deadline for smart meters to be installed in all domestic homes and small businesses by the end of 2020.

In 2018, Citizens Advice called on the government to extend the rollout deadline to 2023, citing poor consumer experiences, a lack of transparency over costs and ongoing technical problems that have resulted in far fewer meters being installed than projected.

The government’s deadline for the installation of first generation smart meters (SMETS1) passed on March 15th. This means that from that date only second generation (SMETS2) will count towards suppliers’ roll out targets.

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Fracking decision delayed for government consultation

A final decision on a fracking ban in Scotland has been delayed for a further government consultation.

Ministers announced an “effective ban” on the oil and gas extraction technique in 2017.

Following a legal challenge from petrochemical firm Ineos, a Court of Session ruling last June found no prohibition against fracking in Scotland.

The Scottish Government had said it would inform the Scottish Parliament of its finalised policy on the development of unconventional oil and gas in the first three months of 2019.

Now, Energy Minster Paul Wheelhouse has announced that a further eight-week public consultation will be held, expected to start after April 21.

He announced the new consultation in response to a parliamentary question on fracking, adding: “Our final policy on unconventional oil and gas will be confirmed and adopted as soon as possible after this process is complete.”

Scottish Labour’s environment spokeswoman Claudia Beamish said: “The SNP government is kicking this issue into the long grass yet again.

“This would be the third government public consultation on fracking and the fourth overall including the consultation on my member’s bill.

“This looks like a cynical attempt to try and keep a ban on fracking out of the upcoming Climate Change Bill. That would be unacceptable.”

She said Scotland “has the power to ban fracking” and her party is looking at the best way to do so, either through the Climate Change Bill or her member’s bill.

Environmental charity Friends of the Earth Scotland called for a full legal ban.

Head of campaigns Mary Church said: “Communities on the frontline of this dirty industry who have been waiting for over four years for the Scottish Government to bring its long drawn-out process on unconventional oil and gas to an end, now face even further delay.

“Holyrood has the power to ban fracking – it’s time for the Scottish Government to stop dilly-dallying, have the courage of its convictions and legislate to stop the industry for good.”

Last week, a legal opinion by Aidan O’Neill QC, commissioned by Friends of the Earth Scotland, suggested the Scottish Parliament has the legislative competence to pass a fracking ban.

It indicated doing so would be less likely to result in successful legal challenges from companies with an interest in the industry.

UK consumers hit by energy and council tax bill rises

As Ofgem raises its price cap, cost of postage stamps and dental checkups also rises

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Energy price cap ‘could see £1.67 billion added to UK bills on the 1st of April’

uSwitch believes this could happen if suppliers increase their rates to match the level of the cap

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EDF and Anesco partner for ‘sector first’ storage floor price

Anesco has turned to EDF Energy to optimise its landmark Clayhill solar-plus-storage farm, including the provision of an “industry first” guaranteed floor price for storage.

EDF will work alongside its technology partner Upside Energy to secure contracts with network operators and generate revenue using Clayhill’s generation assets.

And in what’s been described as a significant step forward for the UK renewables scene, EDF has offered a guaranteed floor price for Clayhill’s services.

EDF will operate Clayhill within the firm’s proprietary demand side response platform PowerShift. The utility will make decisions on whether to consume or sell energy based on real-time wholesale market prices and other market signals.

The duo, alongside technology partner Upside Energy, will also test new business models and work to connect additional Anesco assets to PowerShift.

Anesco has more than 100MW of operational battery storage at its disposal with a pipeline of 380MW to connect by 2020.

Vincent de Rul, director of energy solutions at EDF Energy, said the companies had been working closely over the past few months to develop the contract structure, describing it as a “crucial” step towards balancing renewable generation on the grid.

Steve Shine, executive chairman at Anesco, said the addition of a floor price and 24-hour trading capability for Clayhill represented “crucial new developments” for the storage sector.

“This is a partnership between three fantastic organisations, we’re already achieving great results and I am sure we will be working together ever more closely in the future,” Shine added.