Utility Week

12 | 10TH - 16TH JANUARY 2020 | UTILITY WEEK Policy & Regulation This week Capacity market debt to be mutualised Unpaid capacity market charges worth £10.9 million will be redistributed to contract holders Unpaid capacity market charges worth £10.9 million will be recovered from across suppliers and redistributed to contract holders as part of the mutualisa- tion process following its recent standstill, the Electricity Settle- ments Company has announced. The shortfall is less than 1 per cent of the almost £1.1 billion in charges deferred during the nearly year-long suspen- sion, and around a quarter of the £38.2 million outstand- ing on 22 November. The majority – £6.1 million – is owed by the 11 suppliers that ceased trading over the period. The other £4.8 million is collectively owed by six operational suppliers – Enstroga, Euston Energy, Foxglove Energy Supply, Nabuh Energy, PFP Energy Supplies and Utility Point – and Breeze Energy, which entered the supplier of last resort (SoLR) process on 18 December. The unpaid bills will be recovered from all other operational suppliers in proportion to their share of the electricity market in terms of net demand. If a defaulting supplier subsequently pays off its debts, then the cor- responding mutualisation payments will be returned as part of the routine reconciliation process. The first invoices for mutualisation payments have been sent out to suppliers and payments were due on 20 December. TG ENERGY Ofgem minded to let Ovo recoup £13m Ofgem says it is minded to allow challenger energy brand Ovo Energy to recoup £13 million in additional costs it incurred during the supplier of last resort (SoLR) process. Ovo took on Spark Energy's 290,000 customers in November 2018, and acquired the com- pany's operating group, Spark Energy Ltd. The energy supplier's last resort supply payment (LRSP) claim is to cover the cost of 60 per cent of the credit balance liability that it assumed when it became SoLR. Ovo will self-fund the remaining 40 per cent. Ofgem says it is minded to allow Ovo to claim for a portion of the costs of the credit bal- ances owed by Spark Energy to the customers it acquired, in line with commitments given at the time of the SoLR appointment. Ovo may still be able to recover some of the costs through the ongoing administra- tion process for Spark Energy. Ofgem says it is proposing to make its final decision on the claim ahead of the conclusion of the liquidation process. Ofgem's minded-to decision is now up for consultation to allow interested parties the opportunity to make any repre- sentations to the regulator. ELECTRICITY ESO seeks inertia from renewables National Grid Electricity System Operator (ESO) has proposed a modification to the Grid Code adding minimum specifications for the provision of synthetic inertia by asynchronous sources of power such as wind, solar and interconnectors. Inertia is provided by syn- chronous generators, such as coal or gas plants, which feature large spinning masses rotating in harmony with the frequency of the electricity system. They act as shock absorbers, limiting the rate of change of frequency when there is a loss of load. As fossil fuel generation is replaced by renewable genera- tion, the inertia of the power grid is declining, leaving it more susceptible to disturbances. But asynchronous generators can mimic its effects by using their power electronics to rapidly raise or lower their output in response to frequency changes. The modification GC0137 would add a non-mandatory technical specification Grid Code for this new type of service. Over a barrel: suppliers must pay for capacity ELECTRICITY Ofgem confirms RIIO-ED2 framework for electricity distribution Ofgem has confirmed the framework for the second RIIO price control for electricity distribution starting in 2023. The framework is essen- tially the same as those adopted for transmission and gas distribution price controls, which begin two years earlier in 2021. Companies in those sectors submitted their draœ business plans to the regulator several weeks ago. CPIH (or CPI) will likewise replace RPI as the new meas- ure of inflation and the cost of equity will be calculated using the same methodology. Back in May, Ofgem said this would result in a real cost of equity of 4.3 per cent if applied at the time. The regulator will retain full indexation for the cost of debt. The price control will be shortened from eight years to five and distribution net- work operators (DNOs) will be required to create independently chaired engagement groups to give customers a stronger voice. Under the current arrange- ments, DNOs' business plans undergo an initial assessment by Ofgem and those judged to be of sufficient quality are fast-tracked, allowing them to keep a greater share of any underspends against their totex allowance. The other networks are required to submit revised busi- ness plans, which are then used alongside the regulator's own cost estimates to calculate the information quality incentive (IQI) benchmark. Their sharing factors are determined based on the divergence between their submitted costs and the benchmark. For RIIO2, the opportunity to be fast-tracked will be removed and the IQI will be scrapped. Ofgem will instead grade busi- ness plans on both their quality and cost. DNOs that excel will be rewarded with a percentage increase in their totex allow- ance. Those that fail to meet expectations will be penalised with a reduction. The sector-specific method- ology consultation will be held over the second and third quar- ters of 2020 before a decision is revealed by the end of the year. DNOs will submit their final business plans by the end of 2021 and the final determina- tions will be made by the end of the following year.

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