DESNZ cranks up its plans for changes ahead

Geoff Davies of WWAM Writers Ltd. picks a way through a complex flurry of announcements.

The Department for Energy Security and Net Zero (DESNZ) and the Ofgem energy regulator jointly published an update on their statutory consultation, seeking views on two licences for the new National Energy System Operator (NESO), covering its obligations regarding electricity and gas functions. DESNZ and Ofgem had previously set out their commitment to create a publicly owned body, the Future System Operator, now called NESO, with responsibilities across both the electricity and gas systems.

The two licences, to be regulated by Ofgem, will be as follows:

? An Electricity System Operator (ESO) licence covering obligations regarding electricity functions.

? A Gas System Planner (GSP) licence covering obligations regarding gas functions.

The licences will include conditions for:

? The business conduct and independence of NESO.

? Strategic and operational functions.

? Roles including the provision of advice and information to government.

? Obligations concerning energy industry codes and charging. DESNZ and Ofgem have been consulting on two elements not covered in their previous consultation, but which are required for NESO's Day 1 licences. These are:

? A proposal to grant (or treat as granted) an Electricity System Operator licence and a Gas System Planner licence.

? Modifications to various licence conditions which will be impacted by the creation of NESO and the designation of the Independent System Operator and Planner (ISOP).

Prior to this, ESO published an investment plan for a future energy system. Named 'Beyond 2030', it proposed a ￡58 billion investment in the electricity grid to meet the growing and decarbonising demand for electricity in Great Britain by 2035, including connecting a further 21GW of offshore wind off the coast of Scotland 'in an efficient and coordinated way'. This would mean there would be 86GW of offshore wind, compared with the International Renewable Energy's statement that there was currently 63GW of offshore wind installed globally. ESO additionally recommended an expansion of the offshore grid and a new North to South electrical spine spanning potentially from Peterhead to Merseyside. Energy UK Chief Executive, Emma Pinchbeck, commented: 'The proposals set out by the ESO capture the necessary level of ambition to get the UK on track for economic growth, job creation, and a more cost-efficient energy system which best uses new technologies and manages demand from today's customers.’

Meanwhile, the Energy Security and Net Zero (ESNZ) Committee began a new enquiry to examine how the structure of the energy sector might be reformed to encourage greater decarbonisation, keep prices affordable for customers, and maintain a secure and reliable supply. Its intention is to look into the approach to regulation, identify any barriers to reform, and ascertain whether enough resources are being allocated to implement the right long-term energy policies. Alongside this, the Government published a summary of responses to its 2022 Review of Electricity Market Arrangements (REMA) consultation, ruling out several options for reform.

Energy- and transport-related measures included in Chancellor Jeremy Hunt's widely reported budget included:

? An extension of the windfall tax levied on North Sea oil and gas companies for another year, until 2029.

? ￡160 million allocated to buy the site of the proposed Wylfa nuclear power station.

? ￡120 million allocated to a government fund established to invest in green energy projects.

? Retention of the 5p cut in fuel duty on petrol and diesel until 2025.

? Increase in air passenger duty for business class tickets.

DESNZ commented that the Chancellor had confirmed the sixth Contracts for Difference (CfD) allocation round would feature a record subsidy of over ￡1 billion. Of this total, ￡800 million would be allocated for offshore wind, as a separate funding pot four times bigger than in the previous round. ￡120 million would go to the Green Industries Growth Accelerator to support advanced manufacturing of established technologies such as onshore wind and solar, while ￡105 million would support emerging technologies such as floating offshore wind and geothermal, including a ringfenced ￡10 million budget for tidal for a second consecutive year. Energy Security Secretary Claire Coutinho commented: 'In 2010, just 7 per cent of our electricity came from renewables; this is now up to over 40 per cent today. We have the second-largest renewables capacity in Europe, which is backed by ￡300 billion of investment since 2010, with ￡24 billion since September alone.' The Chief Executive of trade body Energy UK, Emma Pinchbeck, commented: 'A big increase in the budget for AR6 (Allocation Round six) means investing more in homegrown sources of clean power that will bolster our energy security and reduce emissions.’

With the backing of the Prime Minister, DESNZ announced that the Energy Secretary had taken a 'common-sense decision' for the Government to shore up the UK's energy supply by supporting the building of new gas power stations 'to maintain a safe and reliable energy source for days when the weather doesn't power up renewables’. The controversial announcement described the decision as 'the latest step in efforts to reach Net Zero in a sustainable, pragmatic way that rids the UK of the need to rely on foreign dictators.’ The Prime Minister referred to “the need to reach our 2035 goals in a sustainable way that doesn't leave people without energy on a cloudy, windless day”, while the Energy Secretary commented: “There are no two ways about it. Without gas backing up renewables, we face the genuine prospect of blackouts. Other countries in recent years have been so threatened by supply constraints that they have been forced back to coal.” She urged the need to be realistic.

As part of the second REMA consultation, the Energy Secretary also set out a plan to boost gas power capacity – first, by broadening existing laws requiring new gas plants to be built 'Net Zero ready' and able to convert to low-carbon alternatives in the future, and second, by running these gas power plants less frequently. National Gas's Chief Executive, Jon Butterworth, welcomed the statement.

DESNZ additionally opened a consultation for REMA, with zonal pricing put forward for further exploration. A movement away from a uniform price across markets towards stronger locational signals in Britain's wholesale market could be considered as an attempt to incentivise the development of renewable assets around cities, allowing densely populated areas to access cheaper renewable electricity. A zonal market would split electricity prices across a few large regions, with all consumers within a defined zone then charged the same price. Meanwhile, Solar Energy UK and RenewableUK both warned zonal pricing could introduce 'additional uncertainty' into the market.

A boost for major energy users

The Department for Business and Trade said via a 'rollout' of the 'British Industry Supercharger' announced last year, targeted measures would bring energy costs down for key industries in line with other major economies. The support would be available to sectors particularly exposed to the high electricity costs, including steel, metals, chemicals, cement, glass, and paper. It was 'expected' that around 370 businesses in energy intensive industries would save an estimated ￡320 million to ￡410 million in 2025. The measures would fully exempt companies from certain costs linked to renewable energy policies, including the small-scale Feed-in Tariff, Contracts for Difference, and the Renewables Obligation, as well as GB Capacity Market costs. There would also be a 60 per cent reduction in network charges – the costs that industrial users pay for their electricity supply. Taken together, the support was 'expected' to be worth around ￡24 to ￡31 per MWh (1,000 kilowatts of electricity generated per hour) to the industry on average, with the most electricity-intensive industries such as steel benefiting the most.

Nuclear developments

The Office for Nuclear Regulation (ONR) is to begin the Government's Climate Adaptation Reporting later this year, publishing a first report in December will outline

How climate change could impact UK nuclear facilities.

? The industry's response, and

? Any potential impact on regulation.

The on-going Chief Nuclear Inspector's Themed Inspection on climate change will also ensure effective regulation in this area. The new reporting will encompass ONR's internal and external approaches to ensure effective regulation and will provide a 'high-level' summary of the industry's developing arrangements, monitoring its level of preparedness for this issue, as an ONR priority. After being submitted, the Adaptation Reports will be analysed by Cranfield University, DEFRA's Adapting to Climate Change Programme, and lead government departments.

The Great British Nuclear (GBN) government body, responsible for delivering the country's nuclear renaissance, announced it had reached an agreement to buy land from Hitachi for new nuclear development at Wylfa in Ynys/ Anglesey and at Oldbury-on-Severn in Gloucestershire. This announcement was the first of a series it planned to make as it supports the long-term Civil Nuclear Roadmap commitments and the Small Modular Reactor selection process. GBN also stated that the six companies participating in its Small Modular Reactor Technology Selection Process could now access tender documentation, enabling them to bid for potentially multi-billion-pound technology development contracts. They have until June 2024 to submit their tenders. GBN will assess them and negotiate final contracts before the targeted announcement of successful bidders later this year. These bidders' technologies will be allocated sites and incorporated into projects, and the bidders will receive funding to develop them further. The Chief Executive of the Nuclear Industry Association, Tom Greatrex, commented: 'This is a pivotal moment for the future of nuclear in the UK.'

The ONR announced that, together with the Environment Agency and Natural Resources Wales, it had developed a process for a new early regulatory framework for interested parties to deploy nuclear reactor technology in Great Britain. The parties could include reactor technology vendors, developers, aspirant holders of licences and permits, or consortia of these. ONR specified three approaches, or tiers, to this early engagement:

? A one-day engagement – a single event for regulators to set out the UK regulatory framework, explain the available pathways, and highlight risks and opportunities, as a pre-requisite for subsequent tiers.

? Regulatory process and technical engagements – a series of structured engagements on a range of topics to be agreed between the applicant and the regulators, explaining in much greater detail the specific matters of interest.

? A preliminary design review – a technical review of certain aspects of a reactor design, based on regulatory submissions provided by the applicant. ONR further noted that early engagement was a voluntary process, designed to be flexible, and the approaches were not mandatory, nor prescriptive, nor fixed in scope.

This article appears in Buying and Using Utilities Summer 2024 issue

Read more ??https://meucnetwork.co.uk/buu-summer-24/