Utility Week

10 | 14TH - 20TH DECEMBER 2018 | UTILITY WEEK Policy & Regulation Analysis T o say that 2018 has been eventful for utilities would be a big understate- ment. As we rapidly approach the end of the year, the Utility Week team looks back at some of the highs and lows. News that the capacity market has been suspended "until further notice" was a blow to generators and adds yet another layer of uncertainty to the rest of the UK energy market. As for the regulated water and energy network companies, they have continued to grapple with the issue of legitimacy and face threats of renationalisation. For the energy networks things are begin- ning to hot up, with Ofgem soon to hold its first public meetings scrutinising network companies' business plans as part of the upcoming RIIO2 price control round. As if that line of examination wasn't enough, they also face a "significant charging review", which could see current charging arrange- ments change dramatically to facilitate the mass adoption of low-carbon technologies. The spotlight has also been unrelenting for regulated water companies, which sub- mitted their business plans for the next price review, PR19, in September. What's more, certain companies have been lambasted by environment secretary Michael Gove, and forced to wind down their Cayman Islands subsidiaries so as to win favour with the public (something they say they were doing anyway). Things in the energy retail sector have if anything been worse, as more and more sup- pliers struggle with tough market conditions and strong competition. At the small supplier end of the market, several have gone out of business, while the larger suppliers continue to lose market share and see their profits slowly slide. News of the price cap, Brexit and the smart meter rollout also continue to dominate the headlines for this sector For the water retail sector, meanwhile, switching has continued at a steady but somewhat stunted rate, and participants have continued upon the slow path to cor- recting the market's many issues. And there is still little money to be made on the cur- rent margins available, but new entrants are gradually making their way into the market. Over the next four pages, the Utility Week team rounds up some of what's happened in 2018. Energy policy Theatres are preparing for the Christmas season, but the biggest pantomime taking place is in the House of Commons. David Blackman The six-night run of the Brexit withdrawal follies was unexpectedly terminated mid- Monday aernoon this week. The prime minister's proposed EU with- drawal bill, which remains on life support following Theresa May's decision to cancel Tuesday's parliamentary vote, proved to be relatively good news for the energy sector. The political declaration, which sets out a framework for the potential future relation- ship between the EU and the UK, keeps the UK linked with the EU Emissions Trading System, which is probably the paramount concern for energy businesses about Brexit. It also signals continued technical co- operation between UK and EU energy regula- tors, which is seen as a way of maintaining alignment on energy matters. The package avoids the risk of the so- called cliff edge, which Energy UK and its counterparts at an EU wide level, have been keen to avoid. But the sheer amount of time consumed by the Brexit process within gov- ernment means little bandwidth has been available to consider other issues. The government's main initiative in the energy space this year has been its crowd- pleasing ploy to cap standard variable tariffs, which is due to be implemented in time for the arrival of the winter energy bills. Labour made a renewed push at its annual party conference to push its propos- als to renationalise utilities but has so far provided few details about how a new regime would work. For the time being, though, the heat has gone out of the energy costs debate, although it could easily flame back into life if the widely predicted rise in the price cap happens. Elsewhere, there has been a sense of gov- ernment energy policy beginning to unravel. The spectacular fall in offshore wind prices, revealed via the last contract for dif- ference auction in September 2017, has given the government some breathing space. Min- isters have been able to plausibly claim that low-carbon electricity can be generated at affordable prices. However, forests of wind turbines around the coast only gets the UK so far in its efforts to transition to a more sustainable power mix. This year has seen more low-carbon options being closed off than opened up. The self-proclaimed green energy enthusi- ast Claire Perry, who holds the clean growth portfolio, has set her face against any relaxa- tion of what is effectively an embargo on new onshore wind and solar generation. During the summer, the government finally put the costly Swansea Bay tidal lagoon project out of its misery and declared it would not back the plans. And the sum- mer also saw ministers pull the plug on the feed-in tariff scheme subsidising small-scale renewable generation – without any propos- als for a replacement scheme. The move pal- pably flies in the face of ministers' professed commitment to encourage the development of a decentralised, low-carbon electricity system. And the government seems scarcely any nearer to a solution about decarbonising heat than at the beginning of 2018. But there was happier news for the pro- ponents of carbon capture and storage (CCS), who saw the government give the green light to develop the UK's first plant equipped with the technology, albeit reversing a previous decision by then-chancellor George Osborne to abandon CCS three years ago. Perry has signalled that the government is prepared to rethink its position on a so-called export tar- iff for small scale generation. And the government appears to have taken some encouraging steps on energy Things can only get better… The Utility Week team looks back at a turbulent 12 months for utilities.

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