Utility Week

UTILITY Week 10th June 2016

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UTILITY WEEK | 10TH - 16TH JUNE 2016 | 9 Policy & Regulation This week Removal of benefits could mean blackouts KPMG says removing 'embedded benefits' for distributed generators could increase blackout risk Removing "embedded benefits" for distributed generators to prevent small-scale diesel from securing capacity market contracts could increase the risk of blackouts, a new report from KPMG has warned. The study, commissioned by UK Power Reserve – which owns and operates a number of small gas generators – said getting rid of the embedded benefits entirely and suddenly would result in distributed generators "struggling to make a positive rate of return". The report said these generators have "played a criti- cal role in reducing UK peak demand in recent years", and added that if fewer of them were running at times of peak demand "there would be a greater chance of black- outs", particularly as "National Grid is forecasting an increased number of NISM [notice of insufficient system margin] events as a result of lower capacity margins". Larger, transmission-connected plants, such as combined cycle gas turbines, could not be built quickly enough to replace distribution-connected plants if they immediately withdrew from the market, it added. Embedded benefits refer to the current exemption of distributed generators from National Grid's Transmission Network Use of Service charges, as well as Triad payments they can receive by helping others to avoid charges. The government and Ofgem announced in March they would review the benefits, aer a significant proportion of the contracts for new capacity awarded in the first two auctions went to small-scale diesel generators. TG GAS Scottish parliament votes in favour of fracking ban The Scottish parliament has voted in favour of a ban on hydraulic fracturing in the country. The amendment to the current environment, climate change and land reform bill called on the parliament to recognise that "to meet Scotland's climate change goals and protect the environ- ment, there must be an outright ban on fracking in Scotland". The motion was passed by 32 votes to 29. Labour, the Lib Dems and the Greens joined forces to defeat the Tories aer the SNP's members abstained. The motion is not binding on the government. Labour environment spokes- woman Claudia Beamish, who tabled the motion, said aerwards: "The SNP govern- ment must now clarify whether or not they will respect the will of parliament and introduce an outright ban on fracking." WATER Set up of Water Plus JV is complete United Utilities and Severn Trent have confirmed that all condi- tions relating to their Water Plus joint venture have been satisfied and the transaction is complete. Operations will be transferred to a head office located in Stoke- on-Trent over the course of 2016. The joint venture will com- bine the two companies' non- household water and wastewater retail businesses into one busi- ness, combining skills including sales, customer service, business strategy and credit management, to deliver an "attractive proposi- tion" for business customers. ENERGY Ofgem details plan to change regulation Ofgem has outlined plans to reform the way the domestic electricity and gas markets are regulated in a move towards more principles-based regula- tion over the next year. In an open letter, the regula- tor set out the "key milestones for 2016/17", including aims for when a significant amount of "unnecessary prescription" will be removed from the supply licence and how the operating model, currently used to enforce rules, will be adapted. The letter follows a consulta- tion in December that discussed ambitions to reform the regula- tory framework. Ofgem said: "To fulfil our role effectively, we need to reduce the amount of prescription we use and increase our reliance on principles. If this increased reliance on principles is to result in suppliers taking responsibility for treating consumers fairly, it is vital that we also adapt the way we operate as a regulator." Diesel generators: did well in capacity auctions Political Agenda Mathew Beech "A recalibration of coal closures could be forced" Energy secretary Amber Rudd must have thought she had put the coal debate to bed when, in her energy reset speech in November, she pledged to phase out all unabated coal by 2025. Since then, there have been further setbacks to the Hinkley Point project and according to some reports, a change of heart at the Department of Energy and Climate Change (Decc). Press reports have suggested that those in 3 Whitehall Place are considering reneging – at she has taken, and one that Decc has been at pains to reinforce, could be severely tested. With coal plants closing, little or no new capacity com- ing online, the 2016/17 winter margins already deemed to be tight, and the realisation that National Grid has issued two notices of insufficient system margin (NISMs) in the past year, a recalibration of coal closures could be forced upon Rudd – or the unfortunate energy secretary dealing with a capacity crisis. least partially – on this promise and that partially abated coal generation could be continuing to generate electricity into the latter half of the next decade. Decc responded with this hard-hitting statement: "Unabated coal is the dirtiest, most polluting way of generating electricity. The government is absolutely committed to phas- ing out power production from unabated coal by 2025 and it is nonsense to suggest otherwise. We made this clear last year and nothing has changed." However, with Rudd saying on more than one occasion that "energy security has to be the number one priority", the stance

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