Utility Week

12 | 12TH - 18TH JANUARY 2018 | UTILITY WEEK Policy & Regulation Analysis: 2018 The past year was action packed for energy and water businesses, and this one looks to be just as eventful as the Brexit negotiations unfold and utilities are asked to account for their legitimacy. Utility Week invited four experts from the utilities industry to get out their crystal balls and tell us what companies from the gas, electricity and water industries should expect as we head into 2018. Keep calm and carry on… The last year was an interesting one for the GB power market – with coal generation falling to all-time lows, renewables growing to all-time highs, and significant announcements from government such as the Clean Growth Strategy, the outcome of the contracts for difference auction (CfD), and more clarity on carbon prices and future renewables subsidies. This year looks set to be just as busy as the market continues to evolve. Richard Howard high- lights six key areas of interest. 1) Capacity market auction Prequalification results indi- cate that both the T-1 and T-4 auctions are heavily oversub- scribed, and are therefore likely to be highly competitive: 53.2GW of existing (derated) capacity and 24.5GW of new-build capac- ity has prequalified for the T-4 auction, against a procurement target of 49.5GW. We expect the clearing price in the T-4 auc- tion to be lower than previous auctions, with a relatively small amount of new-build generation capacity winning a contract. A key uncertainty is the bid- ding behaviour of coal stations and the extent to which they withdraw from the auction, leav- ing more space for new-build. 2) Grid-scale battery storage Last month saw the successful completion of Tesla's 100MW battery storage project in Aus- tralia – currently the world's largest – which has already proved its worth by responding to a coal plant fault. In the UK, batteries are already mak- ing headway in the frequency response market, with over 400MW of battery capacity securing enhanced or firm frequency response (EFR/FFR) contracts to date. We expect to see more battery capacity enter the FFR market, putting further downward pressure on prices. Although 4.8GW of battery storage originally prequalified for the capacity market auc- tion, 1GW of this has already Six key events and emerging trends are likely to affect power generators over 2018. Electricity Richard Howard Head of research, Aurora Energy Research withdrawn from the process – likely due to the derating factors announced in December. We expect that only a small proportion of projects will take a capacity market contract now. Project developers will increas- ingly move towards alternative business models like energy arbitrage, which require more sophisticated optimisation and forecasting capabilities. 3) Subsidy-free renewables The UK has already seen its first subsidy-free project in the form of the 10MW solar +6MW battery project built by Anesco at Clay- hill. We expect to see more solar and battery projects emerge dur- ing 2018. Hive Energy is working up plans for a 350MW project in Kent, while Elgin Energy is seeking planning permission for a 50MW project in Scotland, and there are a ra of other similar projects in scoping – typically around 10-50MW each. Subsidy-free wind is also on the horizon, with increased developer interest. Innogy recently submitted a capacity market rule change proposal which would allow unsubsi- dised onshore and offshore wind projects to access the capacity market going forward. Nearly 900MW of onshore wind capacity was granted planning consent during 2017, the major- ity in Scotland. 4) Changes to network charges Ofgem's proposed reforms to embedded benefits are due to be implemented from April, with the residual element of triad avoidance payments cut substantially over a three-year period. However, the proposals are still subject to an ongoing legal challenge – for which a court date is yet to be set. More broadly, we should expect to see progress on wider reforms to network charges. For example, in an update to the ongoing significant code review, Ofgem revealed that it intends to shi the burden of residual network charges to suppliers (as opposed

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