Public Sector Energy Editorial 1 December 2015
An analysis of the local authority energy market and the latest developments around the UK.
Policy & Strategy
The emphasis is well and truly on the Intergovernmental conference this week, as discussions start in Paris on COP 21. It is always recognisable that something is of major importance once the national news channels pick up on it and start running reports on it. Most of the reporting is good quality, although a constant reference to India burning more coal and not looking like it will want to agree targets seems a negative spin on the eve of the conference.
This time, the world leaders will meet at the start of the Summit and not at the end, as has been traditional in the past. This is seen to be important. Energy Post looks at this issue and considers the prospects for the event:
Another important policy element of world governance is the issue with stranded assets. I have reported previously on the work of the Carbon Tracker group and its claims that if we are to stick with global warming going no further than 2 degrees Celsius, then much of the coal, oil and gas still in the ground will have to stay there.
This situation will have huge implications for the balance sheets of the fossil fuel companies, as it could be said that these assets are then ‘stranded’ and should not add value to the companies’ worth. This, of course, is highly political. Here Energy Post considers Carbon Tracker’s latest news:
And Carbon Tracker will itself be reporting on the COP 21 talks from Paris:
Jamie Hailstone reports in this week’s news that there is strong support from the CBI for a robust deal, that will provide a clear sense of direction, support for carbon pricing and a drive for investment.
With the emphasis on climate change, the National Trust has featured in a blog on the Good Energy website, detailing the very real impact climate change and erratic weather patterns are having on some of its most treasured places. All the findings are in a new report released from the National Trust last week:http://www.goodenergy.co.uk/blog/articles/2015/11/20/crumbling-cliffs-flooded-gardens-and-paris-tackling-climate-change-at-the-national-trust?utm_campaign=eNews+Nov+2015+-+Customer&utm_source=emailCampaign&utm_medium=email&utm_content=
On the local government front, a group of authorities have attempted to add weight to the Paris talks by committing to being ‘100% clean’ by 2050. As Jamie Hailstone reports this week, the 60 or so Labour controlled councils, coordinated by the Shadow Secretary for Energy and Climate Change, have committed to use cleaner energy supplies, develop greener transport systems and insulate homes under their control. If the work that I am undertaking in local government at the moment is fully realised, a large number of Councils will have their own electricity and heat generation secured by then as well.
The Spending Review was reported on last week by Jamie Hailstone, but the reverberations continue and there are a number of different reports featured this week. For those with a strong constitution, you might want to read the actual detail from HM Treasury:
One of the key points that has not raised too much attention is the DECC budget being cut by a full 22%. The reason that this has not been massively newsworthy is that it comes amongst news of other huge cuts in Government budgets, including DCLG. However, it is difficult to see how DECC can perform its functions fully with 200 fewer staff. Solar Power Portal reports:
It has also rounded up responses from across industry to the Spending Review:
Solar Power Portal reports that the Committee on Climate Change has published its fifth carbon budget to cover the years 2028 – 2032:
This will require substantial deployment of solar PV, with solar capacity increasing by 2.2GW between now and 2020 as development of large-scale sites slows in the absence of subsidy support. However, this is then forecast to ramp up again in the 2020s as the cost of development reduces:
Abundance Generation has just announced the crowd funding of its first biomass project. The Monnow Valley Biomass project is now open for investment and it is looking to raise a minimum of £150,000, up to £300,000.
Monnow Valley Biomass is aiming to refinance a portfolio of six biomass boilers that are already installed at three sites in and around the Monnow Valley on the Welsh / English border and receiving revenues through the government's non-domestic Renewable Heat Incentive scheme.
Monnow Valley Biomass is a Fixed Return Debenture offering investors an effective annual rate of return of 8.0% before tax over 19 years. It is promising to see biomass projects being offered, alongside the more traditional wind and solar PV projects.
The Anaerobic Digestion and Bioresources Association is calling for clarity following the announcement that the Renewable Heat Incentive is to be extended.
As Walker Morris LLP notes in its briefing to clients, the Autumn Statement and Spending Review brought the news that the Government will continue to back the Renewable Heat Incentive with additional funding for new projects until the end of this Parliament.
The Chancellor has said that reforms to RHI will save £100m, but at what cost? In a recent blog by Head of Policy Mathew Hindle on its website, ADBA welcomed the allocation of budget for new projects but called for DECC to provide urgent clarity over how it plans to use the funding:
Walker Morris comments that the resource spending allowance for DECC is to be cut by 22% over the next four years which inevitably means that the funding allocation for RHI will face reform. Spending on RHI is set to fall by £700m over the next five years to £1.15bn, which represents a 39% decrease on current levels.
Whilst the risk of a break in the continuity of funding is not to be underestimated, DECC now has the opportunity to provide developers and investors with the certainty that they require to keep projects commercially viable.
As indicated in the Policy and Strategy section recently, the House of Commons Energy and Climate Change Committee has been looking into investor confidence in renewable energy. Here is the British Hydropower Association’s evidence on hydropower schemes:
Wave & Tidal Power
Jamie Hailstone reports in this week’s news that the Swansea Bay tidal lagoon project is still mired in negotiations with Government over financial support. The Council’s leader has urged the Government to support the deal, but the rumours are that support is slipping away.
The problem is the price of the CFD contract for the scheme. However, one of the issues that the BHA is always raising in relation to parallel hydropower schemes is the length of time over which the project is calculated. Whilst solar and wind are 20 years, a hydropower scheme can be expected to run for up to 50 years and so the amount of power per pound of financial support is actually quite high. Tidal lagoons last substantially longer than 50 years and so this should be taken into account.
Either way, the Government has to make a decision soon or the project will simply wither on the vine.
Energy Efficiency and Buildings
The Association for the Conservation of Energy has written to the Government about its policy direction on energy efficiency for new buildings. It points out the devastating effect of the decision to drop the Zero Carbon Homes policy, which, had enjoyed cross-party support for many years. It points out that countless person-hours and millions of pounds have been expended by Government and industry during the development of this policy.
As a result of the announcement, there is now no requirement for all new domestic and non-domestic buildings to achieve a zero-carbon standard from 2016 and 2019 respectively. It claims that by reversing previous policies, the Government have significantly undermined efforts to improve the energy efficiency of the UK’s new buildings:
The Government, on the other hand, has plans to improve this area. As reported in Solar Power Portal, the government has pledged to provide £295m by 2020 to improve schools, hospitals and other buildings owned by the public sector. The details of this, however, are not yet clear:
Green Deal & ECO
The Chancellor’s Spending Review last week also confirmed that there will be a replacement for the Energy Company Obligation next year. The five-year programme will run from April 2016 and will be cheaper to run. This is another example of where the Government could not afford to discontinue provisions, as energy efficiency in homes is one of the key areas requiring attention.
Before the election, there was talk that energy efficiency would be the big challenge for the next Government but this was all forgotten in the Conservative victory. The Government now has to come up with a new ECO and a replacement for the Green Deal to keep on track with its targets.
Some of the decisions that have been made in the first few months of this Parliament, may come back to haunt the Government as the next election – and the crucial 2020 deadline – approaches.
Meanwhile, the head of the Green Deal Finance Company blames the Energy Company Obligation for the failure of Green Deal. He says that a huge amount of the Green Deal’s business was to come from linked ECO deals. But then the Government slackened off the ECO targets. Next Energy News reports:
The UK District Energy Association has published a press release welcoming the news in the Chancellor’s Spending Review last week that more money will be found for district heating schemes. Its Chairman, Simon Woodward, commented that the announcement, although thin on detail, promised £300m of funding for heat networks. He argues that taking into account the Government’s recent projections, which suggest this will leverage private sector funding of £2bn for 200 schemes, this could mean a total fund per scheme of £1.5m:
And Jamie Hailstone brings news this week of the success of heating schemes in Barnsley MBC, where the cost of district heating has been reduced for 1,200 tenants for the third time, as costs of energy fall. With 24 schemes in operation, this is a good example of what can be achieved.
Finance & Legal
There has been a welcome for the decision by the Chancellor to continue funding the Renewable Heating Incentive. As reported by Jamie Hailstone in the news, George Osborne has agreed to fund RHI 2 to the tune of £1.15bn, but with a budget reduced by £700m. Whilst this sounds a large reduction, an industry that was fearing the worst has breathed a sigh of relief.
From an independent standpoint, I have said that there was never a chance in my view of the RHI not continuing, simply because the Government needs all the help it can get to reach the 12% target for renewable heat by 2020. Currently it is nowhere near this and any reduction in the number of heating schemes coming forwards would have sounded the death knell for its chances.
The key now is to use the money as wisely as possible to get as many schemes as possible implemented.
It looks like the planning treatment of fracking is going to get interesting over the next couple of years. As Jamie Hailstone reports in this week’s news, the Government has called in the two applications in Lancashire County Council and they will now be determined by Greg Clark, Secretary of State for Communities and Local Government, rather than the County Council.
The Council refused planning permission to Cuadrilla to drill in two sites in the County. However, it was anticipated that these would be heard by an independent planning inspector, not the Secretary of State from a Government that has openly proclaimed that fracking is the future for gas in the UK. All eyes will be on this decision and there will be some trepidation across local authorities. However, bearing in mind the length of time that these cases take, a decision is not likely any time soon.
Electric Vehicles & Transport
Despite manufacturers such as Tesla aiming for the luxury market, and taking some of the German luxury car manufacturers with them, Nissan intends to stay with the ‘mass market’ represented by the Nissan Leaf instead. Green Car Reports:
And BMW is to bring out a retrofit battery upgrade to the I3. That is another example of a route that Nissan has not gone down with its Leaf, although there are plans to release a new car in the next couple of years, with a substantially larger battery pack and range. Energy Storage The website
Update runs a piece on the German energy storage market, indicating that this market will be stimulated by the residential segment, until Federal Government changes kick in to remove incentives in 2017:
And in the UK, a tender by National Grid for 200 MW of enhanced frequency response capacity for the national electricity system is proving popular. The call for expressions of interest was launched by the National Grid in September 2015 and closed in mid-November. This resulted in 68 project submissions totaling 1.3 GW, according to Adam Sims, senior account manager at National Grid. Energy Storage Update reports:
And on the costs of electricity storage, Lazard has reported for some time on the levelised cost of electricity and is now producing similar reports on the costs of storage.
It comments that select energy storage technologies are cost-competitive with certain conventional alternatives in a number of specialized power grid uses, according to Lazard’s first Levelised Cost of Storage Analysis (LCOS 1.0), an in-depth study comparing the costs of various energy storage technologies for particular uses.
“Although in its formative stages, the energy storage industry appears to be at an inflection point, much like that experienced by the renewable energy industry around the time we created the LCOE study eight years ago,” said George Bilicic, Vice Chairman and Global Head of Lazard’s Power, Energy & Infrastructure Group.
“Based on our analysis of storage technologies and our experience with LCOE, we expect to see rapid declines in the costs of energy storage.”
Fossil Fuels & Nuclear
Jamie Hailstone reports in this week’s news that the mood in the oil and gas industry is currently ‘gloomy’. They should stand where we are standing for a while and then see if they think their prospects justify such a mood. Whilst the long- term future of fossil fuels is definitely in decline, as will be indicated in Paris this week, there is no sign of this in the next Parliamentary term in the UK.
Feelings amongst the community energy groups have not calmed down, since it became clear that the Government was removing key tax credits for community energy projects. Business Green reports:
I understand that a letter before claim has been served by Community Energy England on behalf of the various groups, threatening a judicial review action against DECC if the changes are not abandoned. This is a mandatory legal step that needs to be taken before JR proceedings can be issued.
Philip Woolfe, Chairman of Community Energy England wrote to its members last week in the following terms:
“I wanted to let you know that Community Energy England working with Community Energy Scotland and Community Energy Wales have today served on HM Treasury a ‘Letter before Action’ in accordance with the Pre-Action Protocol for Judicial Review about the proposed changes to EIS and SITR for community energy enterprises.
“Our purpose in taking this action is to make clear to the Government how seriously our collective members – from thousands of sustainable energy groups across the UK – view the abrupt and ill-considered decision to remove community energy schemes from eligibility for the Enterprise Investment Scheme and not replace it with Social Investment Tax Relief. Tax concessions have been a vital incentive to secure local investment in community owned projects.
“Our letter gives HM Treasury a late opportunity to reconsider its position in the light of the legitimate expectations of the community energy sector following Government statements in the 2015 Budget.
“We have not taken this decision lightly, but believe it is important to seek the regulatory consistency necessary to secure the substantial investment, which sustainable energy infrastructure needs over the next decade and more.”
Energy Services Companies
News was published last week, as reported by Jamie Hailstone on Public Sector Energy, that the first local authority owned ESCO (Robin Hood Energy in Nottingham) is now offering a ‘pay as you go’ tariff. The company says that introducing a pre-payment tariff is a rare move by an energy company with fewer than 50,000 customers. Most other energy companies have not done this until they needed to (companies with more than 50,000 customers are obliged to introduce such tariffs).
However, Robin Hood energy believes that this will assist customers on low incomes, in keeping with its not for profit and social goals. It claims that other companies are not interested in this market as there is no profit in such schemes.
Robin Hood Energy has ambitious growth goals and hopes to attract a large number of new customers over the next year. The introduction of tariffs such as this, will surely keep it at the forefront of the debate on using ESCOs for social purposes:
Also in the news this week is the London Borough of Sutton establishing an energy services company. Jamie Hailstone reports on this in the news this week, although it is not clear from what the authority has said, what nature the company actually has. There is often a misunderstanding from the use of the term ‘ESCO’ which has no definitive meaning and tends to mean all things to all people.
The benchmark, of course, is Robin Hood Energy mentioned above, which has established a wholly owned, fully licenced supply company, which is able to supply power directly to retail customers and bill them for it.
Solar Media will be familiar to most readers of Public Sector Energy. They are the publishers of a series of different publishing titles, including Solar Power Portal. The company also organises the established Solar Energy UK show each year.
In view of changes in the renewable energy marketplace, they are rebranding as Clean Energy. To celebrate this launch, they are hosting an event in London on 14 December to announce their new Clean Energy portfolio of media and events.
Despite recent subsidy announcements, the emerging industry consensus is that organisations of all shapes and sizes need to significantly increase the specification of connected, clean technologies such as solar, energy storage, energy management, energy efficiency and renewable heat. This networking event brings together expert speakers as they discuss the future for energy in the UK including: - Ray Noble, Solar BIPV - Finlay Colville, Solar Intelligence - Tim Pollard, Wolseley Plc
The event takes place between 11am and 2pm at The Building Centre near Goodge Street tube station. If you are interested in attending this free event please register at:
And finally …..
The Fiat 500 Stormtrooper has been issued to coincide with the latest Star Wars film. The photograph shows that the car has been dressed up to look like the white stormtroopers in the films, although why the manufacturers think that this will sell more is anyone’s guess: http://www.greencarreports.com/news/1101144_what-is-it-with-electric-cars-and-star-wars-stormtroopers-anyway