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UTILITY Week 4th March 2016

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UTILITY WEEK | 4TH - 10TH MARCH 2016 | 9 Policy & Regulation This week Decc unveils capacity market overhaul One-year ahead auction in January 2017 will bring the market on stream a year earlier The capacity market is set to be brought forward to begin in win- ter 2017-18, as part of a package of potential reforms unveiled by government on Tuesday. In a consultation paper, the Department of Energy and Climate Change (Decc) proposes holding a one-year ahead auc- tion in January 2017 to procure capacity for that winter, bringing the market on stream a year earlier than planned. The Contingency Balanc- ing Reserve, comprising the Supplemental Balancing Reserve and the Demand Side Balancing Reserve, would close that year in consequence. The reform package also includes proposals to buy more capacity through the capacity market; to buy it earlier; to increase the penalties faced by auction winners that back out of their contracts; and to end the advantage enjoyed by diesel generation in the auction. The consultation said the exact amount of capacity to be bought in the next auction, the four-year ahead auction in December 2016, would be set in the summer – but would likely be as much as 3GW more than would otherwise have been procured. This would include capacity bought four years ahead that would otherwise have been bought one year ahead – a move designed to create investor confidence and bring forward new plant. Announcing the proposed reforms, secretary of state for energy Amber Rudd said: "I'm taking further action to tackle the legacy of under-investment and ensure our country's long-term energy security." The consultation closes on 1 April. EB WATER Ofwat and CMA sign competition MoU Ofwat has signed an agree- ment with the Competition and Markets Authority (CMA), setting out how the two organisations will work together within the framework of competition law. Under the Memorandum of Understanding (MoU), the CMA and Ofwat will meet to discuss matters of mutual interest, both through the UK Competition Network and bilaterally. The main purpose of the MoU is to "establish an under- standing" between the CMA and Ofwat as to how this closer working will operate in practice. It also sets out the organisations' bilateral commitment to work together to promote competition for the benefit of consumers. The MoU also lays out arrangements for the pooling and secondment of staff. ELECTRICITY Solar industry submits 20 requests The solar industry has put forward a series of requests to the Scottish government to help Scotland meet its target of 100 per cent electricity demand from renewables by 2020. The Solar Trade Association (STA) Scotland published 20 requests including a proposal for a Solar Action Plan and recom- mendations on business rates, social housing and community energy. Chairman of STA Scotland, John Forster, said: "We are also keen that the Scottish government looks at options to establish its own financial support mechanisms for solar to bridge the gap between now and the early 2020s when we hope to see mainstream solar projects become subsidy-free." ENERGY EUA questions heat networks target The Energy and Utilities Alliance (EUA) has said it is "doubtful" heat networks will reach the 40 per cent coverage by 2050 predicted by the coalition government. EUA chief executive Mike Foster said 40 per cent coverage is "conceivable" but also "so impractical" due to the massive retrofit required. "It's an enor- mous infrastructure project… you have to question whether that's worthwhile," he said, adding that the general public is "unlikely to accept" the level of disruption such coverage would require. Foster added: "I do not think they are a practical solution for everyday use when there are technologies coming down the track which can prolong the life almost indefinitely of a gas net- work, such as green and renew- able gas, or possibly hydrogen." Steps to change: Decc has a package of reform Political Agenda Mathew Beech "Leadsom cast doubt over the timing of CfD auctions" Energy minister Andrea Leadsom brought the financial constraints of the Levy Control Framework (LCF) to the fore last week. Speaking in a Westminster Hall debate on biomass, Lead- som referred to the £1.5 billion LCF overspend on its £7.6 billion budget, attributed to the suc- cessful deployment of solar and onshore wind resulting in higher than expected payments. She was stating that the next Contracts for Difference (CfD) auction, due by the end of this Leadsom also came out with some caveated praise for biomass. She acknowledged its renewable and low-carbon credentials, calling it "very valuable" because of its abil- ity to be dispatchable and to deliver baseload electricity. But the energy minister warned it does not "rely on an inexhaust- ible fuel" like other renewable technologies, such as wind and solar, and that any further bio- mass expansion in the UK would need to be carefully managed. year, will include dedicated biomass technologies. However, Leadsom reiterated energy secretary Amber Rudd's comments from November, and appeared to cast doubt over the timing of the next set of three CfD auctions, by saying "if, and only if, the government's condi- tions on cost reductions are met" would funding for the three rounds be made available. So while on the surface it was good news for biomass genera- tors – and companies thinking of shiing to co-firing or a full con- version – it was made clear the potential support is conditional on further subsidy cuts and savings elsewhere in the sector.

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