Utility Week

UTILITY Week 17th March 2017

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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UTILITY WEEK | 17TH - 23RD MARCH 2017 | 15 Policy & Regulation This week Ofgem plans review of network charging Regulator is worried the current arrangements are leading to 'inefficient investment decisions' Ofgem has outlined plans for a major review of network charging to examine concerns that some consumers are paying too much towards the cost of the grid and others too little. The regulator is also worried that the current arrangements are leading to "inefficient investment decisions" that are pushing up costs for consumers across the board. The primary focus of the significant code review (SCR) will be the "residual" element of network charges, which currently make up around four-fihs of trans- mission charges and half of distribution charges. A consultation has been launched to determine whether to proceed with the review and what its exact scope should be, if it goes ahead. "We think the current way the residual charges are applied could lead to potentially detrimental differ- ences in costs for different groups of consumers, and inefficient investment decisions resulting in increasing costs for consumers overall," the regulator said in the consultation document. Residual charges cover the "sunk" costs of the existing network, which are common to all users. They are a top-up to the "forward looking" charges, which reflect users' individual impact on network costs due to additional investments and reinforcements. The review will look at whether residual charges should be set differently in future to "reduce distortions" and ensure that "everyone pays a fair contribution". TG WATER Follow Germany on leakage, firms told Utilities have been urged by water minister Therese Coffey to drive down leakage to the low levels seen in Germany. Delivering the ministerial key- note speech at Water UK's City Conference, Coffey praised the sector for its efforts to cut leak- age. As a result, she said average water use was now 10 litres per day lower per person than it had been in 2000. "It's good to see water companies taking control of leakage, particularly the visible leaks," she said. But Coffey said growing pres- sure on water resources due to population growth meant water companies had to be even more "ambitious" in tackling leaks. "If we are to meet future water needs, we expect to see companies taking even more ambitious action to reduce leakage and cap consumption further to reduce usage to levels seen in Germany," she said. Germany has the lowest level of water leaks per capita in western Europe, according to the European Environment Agency. ENERGY District heating taskforce launched The Association for Decentralised Energy has launched a taskforce on district heating, which will examine how the industry and government can work together to deliver a market framework in which heat networks can compete for investment without the need for subsidies. The taskforce will also look at how to build on an existing customer protection scheme for consumers using heat networks, Heat Trust, especially regard- ing issues such as heat pricing, contract length and contract structure, which Heat Trust is not permitted by law to address. ELECTRICITY Unused SBR still cost £180 million The supplemental balancing reserve (SBR) cost a total of £180 million over the three years it was in operation but was "never once used", a new report by the Energy and Climate Intel- ligence Unit (ECIU) has found. The think-tank raised concerns that "fear monger- ing" about the "overblown" risk of blackouts led ministers to purchase an expensive insur- ance policy that was not needed. It has urged them not to spend "billions" more to bolster the UK's capacity margin. "The clear message from this report is that paying to boost spare capacity in Brit- ain's electricity system can be very expensive, and potentially unnecessary," said ECIU energy analyst Jonathan Marshall. Primary focus: residual network charges Political Agenda David Blackman "Can energy co-operation be preserved outside the EU?" The die is cast. This week's vote in the House of Commons to endorse the government's bill to withdraw from the European Union means Theresa May is now free to give formal notice that the UK is leaving the EU by triggering Article 50. However, the momentous move won't happen instantly. Government sources were hint- ing before Utility Week went to press that the actual notice would not be served until later this month. However, it is hard to see how co-operation on energy could be preserved if Britain crashes out of the EU without a trade deal. Anything that results in a more insular UK energy market is likely to lead to more expen- sive bills for consumers, though. With ministers increasingly under pressure over power prices, evident in this week's Commons debate on the issue, this is the language the internal energy market's champions will have to talk to get a hearing. But even by then, the govern- ment is unlikely to have answers to utilities' concerns about the impact of Brexit on the UK's energy market. The biggest worry is our continued participation in Europe's single energy market. With seven interconnectors under construction to add to the four existing ones, the trend has been in recent years towards closer co-operation on energy matters across the EU. Utilities hope the self-evident benefits of the internal energy market should ensure it is in the interests of both the EU and the UK to establish the kind of transi- tional deal that will preserve the bulk of existing arrangements.

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