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UTILITY Week 1st September 2017

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UTILITY WEEK | 1ST - 7TH SEPTEMBER 2017 | 13 Policy & Regulation Policy & Regulation OUT: Gas Gas is not given a mention in BEIS's terms of reference document. This is a worry for Davey, who argues gas and heating account for a "considerable portion" of an average household energy bill. Hendry, however, argues that the issues that contribute to the size of con- sumer gas bills are very different from those which determine the level of electric- ity bills. He believes it is right not to include gas in the review, because electricity bills affect all households, while gas is a "more exclusive fuel". Smart meters The review has been condemned in the national media for ignoring smart meters. Although it must be pointed out that smart meters do at least get a mention in the terms of reference, as the government says it will "take into account the roll- out of smart meters and the work already underway to underpin the transition to a smarter energy system". Certainly, Hendry is unperturbed by the exemption. He says the impact of smart meters already installed will illustrate disparities between households, and argues that the uneven impact of the smart meter is "not conducive" to an overall cost analysis. Massara, on the other hand, insists that smart meters are a "significant tech- nology", and are effectively used as enablers for consumers to regulate their costs. Meanwhile, the fact that British Gas cited smart meter programme costs as a growing burden and an important factor in its decision to raise prices, means that the exclusion of smart metering from the core of this review is surprising. Earlier this year, EY's energy partner Rob Doepel spelt out just how significant a factor smart meter costs are for suppliers. He said the programme is "sapping investment into future growth opportunities". Doepel said he can clearly see a future in which the investment demands of the smart meter rollout leads to "all the capex investment being sucked up by the deployment programme and there is nothing le for the innovation", Hinkley Point C The terms of reference read that: "The review will focus on system issues and will not comment on the status of individual projects." It's no doubt a sensible decision, especially given the interminably contro- versial nature of one particular individual energy project and its costs – Hinkley Point C. But it will frustrate those commentators who so ardently believe the pro- ject should not go ahead. Project owner EDF has admitted that, less than a year aer getting the final go-ahead, the project is already on course to breach its budget by £1.5 billion – with its overall cost now expected to be £19.6 billion. Meanwhile, the National Audit Office slammed the economic case for Hinkley in its June report. It said the deal to fund the power station has "locked consumers into a risky and expensive project with uncertain strategic and economic benefits". Embedded benefits Another hole in the review is the issue of embedded benefits. Ofgem confirmed in June that it will move ahead with plans to drastically cut the triad avoidance payments available to distributed generators, aer making a final decision on reforms this subset of so called "embedded benefits" for distrib- uted generators. Energy and Climate Intelligence Unit energy analyst Jonathan Marshall warned at the time that the ruling will "play into the hands of the big six", add- ing to energy bills and forcing planned projects to be cancelled. The decision will "undo technological progress from recent years that has kept the lights on and ensured costs stay low", said Marshall. Ofgem recently embarked on a wider ranging review of net- work charging arrange- ments which may well lead to further cuts to embedded benefits. megawatt is the one you don't use. However, government has, for many years, struggled to implement a stable long-term energy effi- ciency strategy. In 2015, it scrapped its ail- ing Green Deal – a monumental flop. The latest version of its Energy Company Obli- gation (Eco2t), although slightly more suc- cessful, has been slated as a "shadow of previous measures". Earlier this year, David Blakemore, chair of the Committee on Fuel Poverty, said the scheme was "poorly tar- geted" and failed to effectively prioritise the most energy inefficient homes. Former energy minister Charles Hendry says the review panel will have a tough job coming to useful conclusions about the rela- tionship between energy efficiency and the cost of energy. He says the variation in how households consume energy make it practi- cally impossible to deliver robust findings. But Joanne Ward, chief executive of the Association for the Conservation of Energy, disagrees, welcoming the inclusion of energy efficiency in the review. "Nothing drags prices down more than using energy spar- ingly, she says, a view backed by Energy UK's Lawrence Slade, who calls for energy efficiency to become "a national infrastruc- ture priority". Network regulation The way prices are set for the energy net- works has recently come under scrutiny, with Citizens Advice suggesting networks are making "excessive" profits thanks to their "generous" cost of equity levels, set by Ofgem – accusations strenuously denied by the Energy Networks Association (ENA). In addition, the impact of network costs on the cost of energy supply came into dis- pute aer British Gas's announcement of a 12.5 per cent increase to its standard electric- ity tariff, in part it said because of upwards pressure in the network element of the bill. Ofgem's figures for the Supplier Cost Index, however, show a decline in this area. Following on the heels of this contro- versy, the review will include an examina- tion of network regulation. Responding, ENA chief executive David Smith said he hoped it can bring "transparency and clarity" to the debate on energy costs. "Networks are already one of the most transparent parts of industry and deliver exceptional value for customers," he said. Technological advance One of the biggest impacts on energy costs will be the influx of new technologies – such as batteries, other types of energy storage, electric vehicles, artificial intelligence and smart devices. The review will consider the impact on costs of the emergence of these types of technology. Davey suggests that the CMA "missed opportunities" when it carried out its inves- tigation by failing to look into innovative business models that new technology is expediting to enable more competition in the energy market.

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