Utility Week

UTILITY Week 13th January 2017

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UTILITY WEEK | 13TH - 19TH JANUARY 2017 | 15 Policy & Regulation This week Benefit reforms risk shortfall in capacity Some developers with capacity market contracts could be better off reneging and paying penalties Reforms to embedded benefits to reduce the triad avoidance payments available to distrib uted generators could lead to a capacity shortfall, Aurora Energy Research has warned. Some developers with capa city market agreements are likely to find they are better off walk ing away from contracts, despite the financial penalties they would face. "We've heard a lot of evidence that a number of the peaking plants that won contracts in the first T4 auction two years ago are actually not going to deliver," Aurora Energy Research executive director Ben Irons told Utility Week. "They haven't officially reneged yet, but given the way triads are going and other market developments, it's frankly cheaper to just walk away and pay any penalties than it is for them to deliver an unprofitable project." Ofgem announced last January it was reviewing the network charging arrangements for distributed generation aer large numbers of diesel engines won capacity market contracts in the first two auction rounds. The financial upsides, or embedded benefits, that come with being connected to a distribution network played a large part in their success – particularly triad avoidance payments. Under the current arrangements, embedded genera tors are exempt from Transmission Network Use of Sys tem (TNUoS) charges and are also able to receive triad avoidance payments from suppliers for reducing their TNUoS charges. The regulator is focused on two possible changes to triad avoidance payments and expects to make a decision in the first half of this year. TG ELECTRICITY Batteries being overcompensated Batteries are being overcom pensated in the capacity market because of a failure to properly take account of their reliability, Aurora Energy Research has told Utility Week. The current derating factor for batteries is "phenomenally high" given concerns over how long they can provide power, whether they are charged at the right times and the 'stacking' of services, said Aurora. The firm's executive director Ben Irons said: "It's great that batteries are being incentivised but there are a lot of compli cated issues. A 15minute battery is very different from a fourhour battery in terms of its reliability." He said most battery develop ers will be looking to 'stack' revenue streams, for example by taking an enhanced frequency response contract and then entering the capacity market as well. "If they're really looking to do frequency, or arbitrage, or any other ancillary service, is it really right that in addition they can take a capacity market pay ment?" Irons questioned. WATER Companies accept licence change plans All of the English and Welsh water companies have accepted Ofwat's proposed modifications to their licences. Subject to finalisation of companyspecific dras, the regulator said it expects the changes to come into effect from 1 April 2017. Ofwat announced its inten tion to modify the conditions of 17 water company licences in November, in relation to: indexa tion of price controls by CPI or CPIH, instead of RPI; new sepa rate water resources, network plus water, bioresources and network plus wastewater price controls; market information databases in relation to water resources and bioresources; and inperiod adjustments to price controls to reflect performance against commitments. WATER More firms apply to supply licences Veolia, Everflow, and Peel Group have applied for water supply and sewerage licences, which would allow them to participate in the business retail market when it opens in April. Veolia Water Retail's custom ers will include those eligible in the Tidworth area and supplied by Veolia Water Projects. Everflow was granted its licence for the Scottish market in October 2015. It has since sold water and wastewater services to businesses in Scotland and has now applied to do so in England. Diesel engines: big winners in first two auctions Political Agenda Mathew Beech "Cash-for-ash could force an election in Northern Ireland" The finely balanced Northern Ireland political system was tipped into chaos this week as the result of an energy scandal. Sinn Fein's Martin McGuin ness resigned as deputy first minister of Stormont on Monday aernoon in protest at the Dem ocratic Unionist Party's (DUP) handling of the Renewable Heat Incentive (RHI) scheme. The controversy is about the socalled cashforash scandal, which is estimated to have cost NI taxpayers £490 million. stand down to allow an inde pendent investigation. If this does not happen, and no other compromise is reached, the Belfast executive will fall and an election campaign will begin. Energy would be at the centre of that campaign, especially because of its role in the collapse of the previous parliament. The Westminster and Scot tish governments are watching closely because this could affect public opinion of energy policy, especially renewables subsidies. The RHI offered financial incentives to farms, businesses and other nondomestic cus tomers to use biomass boilers. However, it has been alleged that these incentives have been massively inflated, with one whistleblower stating a farmer made £1 million out of heating an empty barn with one boiler. Under Northern Ireland's powersharing agreement, the DUP's Arlene Foster loses her first minister role with the depar ture of the deputy first minister. She survived a vote of no confidence in December, but McGuinness' resignation could force an election if the DUP first minister does not temporarily

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