Utility Week

Utility Week 10th January 2014

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Page 13 of 31

Policy & Regulation Analysis EMR plan has sting in its tail DNOs to face Megan Darby asks whether the introduction storm inquiry of auctions from day one will accelerate uptake or undermine renewables. W hen the Energy Act became law on 18 December, it was an occasion more for quiet relief than partying in the streets. After years of hard work and intense debate, the foundations of a new market framework had made the statute books. It was the end of the beginning. Publication of the final delivery plan for Electricity Market Reform the very next day reminded the industry there was still room for surprises. Eggborough power station looks set to close after government decided to ration go-early support, scuppering its biomass conversion plan (see p18). Meanwhile, developers of "mature" renewable technologies including onshore wind, largescale solar and hydro were told they must compete for subsidies from day one. They had been expecting to enjoy a period of unconstrained access to support contracts. Maf Smith, deputy chief executive of Renewable UK, which represents wind and marine developers, says that decision could be "severely detrimental". "Auctions being introduced at the start of the regime risks sending shockwaves through the industry," he says. "We're talking about projects that will have been developed years previously, with substantial money having been invested in bringing them to consent. The energy market is exceedingly sensitive to any decisions that don't look to be based on robust policy and this could have an impact on all forms of much-needed energy investment." The Renewable Energy Association is rather more sanguine. Chief executive Nina Skorupska says: "The transition to auctions acknowledges and could accelerate the cost reductions of the more established technologies, which is good news for industry and ratepayers. But if it is rushed, it will undermine investment, so we are glad to see government has listened to our concerns and will consult industry before reaching a decision." Why the change? It is partly a response to signals from Brussels. In guidance published last month, the European Commission emphasised member states should increasingly expose renewable generators to market prices. The UK ignores that advice at its peril, because the Commission will ultimately decide whether to approve EMR state aid. The government claims the pipeline of development projects is strong enough to bear a little competition. The support budget is capped by the Levy Control Framework and the majority is already committed (see graph). It leaves a small pot for new developments and allocating contracts by auction should, in theory, make the money go further. Cuts to onshore wind support also play well with those affronted by the sight of turbines in rural Britain. The strike price cut was spun as a crackdown on those unsightly windmills. Paradoxically, the government's figures suggest it will have the opposite effect: it has revised its deployment projections upwards, from 9-12GW by 2020 in the draft plan to 11-13GW in the final version. It remains to be seen whether auctions can get more for less. If so, government really will have something to celebrate. 6,000 £m in 2011-12 prices Source: Decc – EMR Final Delivery Plan Levy control framework budget for low carbon generation 5,000 4,000 Projected available funds 3,000 2,000 Cap for go-early contracts 1,000 0 Committed expenditure 2015/16 2016/17 2017/18 14 | 10th - 16th January 2014 | UTILITY WEEK 2018/19 Christmas power cuts bring network operators' responses into question Strong winds and heavy rain combined to cut off electricity supplies to more than half a million properties across the south of England just two days before Christmas. Most of these customers were reconnected by the electricity distribution network operators (DNOs) within hours, but some faced Christmas Day without power. UK Power Networks, which had the worstaffected network, said the equivalent of six weeks' worth of damage was caused to its networks in just a few hours, and more than 300,000 homes experienced power cuts across its networks. Southern Electric Power Distribution (SEPD) and Western Power Distribution (WPD) also suffered in the December storms, reporting supply interruptions to 130,000 and 120,000 properties, respectively. The chair of the Energy and Climate Change select committee (ECCC), Tim Yeo, already had the DNOs in his sights when he claimed they "can get away with murder and they probably do" because of a lack of scrutiny. The ECCC is understood to be planning an inquiry into the electricity networks, but it is also due to hold a one-off hearing to examine the DNOs' response to the extreme weather. Yeo told Utility Week the hearing would be the start of ongoing public scrutiny into the transmission and distribution networks. "Because consumers don't pay bills directly to them, they don't get what you might call the tabloid scrutiny, which the big six [energy suppliers] do," he said. "I think we need to see whether we are bearing down on their costs sufficiently." Key themes the ECCC will explore include the roles of the distribution companies, their charges, and whether there is an opportunity to introduce competition into the sector. The ECCC inquiry will also examine the DNOs' contingency plans in response to the December storms "because it is a very topical issue of national importance", according to Yeo. One area he said the DNOs could improve is their communication with homeowners in these types of situations.

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