Newsletter April 2017
Welcome to our quarterly energy and water market review and legal updates.
Get ready to open the floodgates
Water market competition in retail water and wastewater services for all non-domestic customers started on 1st April 2017. Water Retailers will be able to buy wholesale services and package it with billing, meter reading and other customer service add-ons. This is expected to provide the benefit of choice through switching, better value for money, flexibility of services and improved service levels. It is expected that up to 40 retailers will operate in the market.
Encouraging new entrants into this retail space is the challenge for the Open Water programme overseeing the market implementation; which is being developed and delivered through Defra, Ofwat and MOSL. MOSL (the Market System Designer) having the responsibility for implementing the core systems and processes that will enable customer switching.
Picking out the new entrants from existing Water Suppliers will be of interest, especially as many are rebranding their retail arms to differentiate from their wholesale responsibilities. To cite a couple of examples: Three Sixty will be the retailer undertaking to supply services to business customers from Yorkshire Water and Water Plus will be the retailer supplying business services from both United Utilities and Severn Trent.
Water competition in this vein has been open in Scotland since April 2008 to 130,000 business customers. By 2015 around six percent had switched retailer compared to 50% who had negotiated a better deal with their existing retailer/supplier. Business Stream reported benefits to customers in excess of £50m in consumption savings and £70m in discounts. Anglian Water Business having gained the public sector contract in 2016, has seen switching increase to circa 30%.
Whether customers gain benefit from switching or by negotiating a better deal with their existing supplier, it should provide savings not just in costs of water supply but also in consolidating bills and admin across a wider portfolio.
Read also our previous guide on water market reform.
In the light of Brexit
The European Council set out in 2014 to reduce primary energy consumption by 27% (compared to the 2007 baseline) by 2030 (with a review in 2020), current projections are that this will fall some way short of its target and so a proposal to amend the Energy Efficiency Directive to increase the 2030 target for energy consumption to 30% and converting it from an indicative to a binding target which will be further reviewed in 2023, with additional measures to be recommended for Member States falling short.
Metering and Billing
Heating and cooling is seeing efforts already undertaken to drive compliance and opportunity in this sector. Further proposals surrounding meters are looking to amend the Directive to introduce transparent rules on the allocation of the cost of heating, cooling and hot water consumption in multi-apartment and multi-purpose buildings. This a previously optional requirement and not taken up by the UK, is now proposed by the Commission that all new meters and heat cost allocators from 1 January 2020 must be remotely readable and by 1 January 2027 all meters and heat allocators must be remotely readable. Where such remotely readable meters or heat cost allocators have been installed, monthly billing information including details of fuel mix, climate correction of comparisons in final energy consumption and comparisons with normalised users must be made from 1 January 2022.
Read also our previous article on Brexit and energy market.
Energy Performance of Buildings Directive (EPBD)
Introduced more than a decade ago the EPBD has raised awareness of energy use and aimed to encourage the improvement of the energy performance of buildings and to reduce energy consumption in both residential and non-domestic buildings. Last amended in 2010, there are now new proposals to support the EU Commission’s – ‘Clean Energy for All Europeans’ package which is looking to achieve further reductions in greenhouse gases by at least 40% by 2030 compared to 1990. The EPBD proposals are to accelerate the cost-effective renovation of existing buildings.
Whilst still proposals, their effect will be wide-ranging. From requirements for electric vehicle charging infrastructure for new (and existing undergoing major renovation) non-residential buildings with more than 10 parking spaces to assessment of overall energy performance once a technical building system, such as a heating system or lighting is installed. In addition, it is proposed that national databases and registers for Energy Performance Certificates, including the requirement that public buildings over 250m2 disclose their energy performance.
The impact of these proposals as they currently stand could in the example of assessing upgrades to building systems result in a burden on installers, with associated costs passed through to owners or landlords, or in separate costs through accredited energy assessors. The size or proportion of the installation or upgrade is yet to be understood.
The above amendments and considerations from the EU, comes at a time when uncertainty over future UK policy in the light of Brexit is at hand. Whilst future timelines and targets are not ones that can be currently addressed with any certainty, any timetable post Brexit can be looked at as an opportunity for non-compliance, however, it is worth understanding that EU specified policy already in place and written into UK legislation will need to be overturned. It is therefore important to maintain the interest, understanding and position new policies will have.
For more information on the 2010 Energy Performance of Buildings Directive and the 2012 Energy Efficiency Directive visit EU Commission Buildings topic.
All things metering
As we all know smart meters are being implemented in domestic and therefore in some circumstances micro-business and SME’s that use the same-size meters.
The benefits: to provide more intelligent functions providing information on energy consumption, eradicating estimated billing, allow for smoother switching but foremost providing near real time information to be able to manage energy use more proactively.
Currently there are 4.9 million smart meters already operating across Britain and recent research has shown that almost 80% of those with a smart meter would recommend one and the same percentage of people have undertaken some form of energy management to help reduce their energy usage.
Two considerations for non-domestic consumers should be highlighted however. The first is to check if an advanced metering system is already installed and being used as part of an energy management system, any changes to the metering need to be understood from your current systems providers. The second, during the early rollout, installed smart meters may not continue to operate at their best on a later switch of supplier, placing the meter into ‘traditional’ mode. Whilst energy consumption data may still operate, it is worth taking advice if installing smart meters if you regularly change supplier.
Although, a few delays and teething troubles with the roll out can be expected for a project of this size, the Department for Business, Energy and Industrial Strategy (BEIS) who are implementing the initiative updated their estimated expectations from the programme which is set to deliver a net present value benefit to consumers of £5.7 billion.
Legal updates - Proposed changes to landfill tax legislation
Proposed changes to landfill tax legislation will result in all materials sent to landfill site being taxable ‘unless expressly exempt’ from 1st April 2017. On 5th December, follow an HMRC consultation on simplifying landfill tax, the HMRC confirmed that it will repeal the existing Prescribed Activities Order, which specifies actions subject to the tax rather than materials that are exempt.
HMRC is proposing two new exemptions covering materials that can legally be deposited outside of the landfill cell, and an exemption for the ‘drainage layer’ of the landfill cell, as well as any pipes inserted in the cell for the purpose of extracting surplus gas or liquid. The HMRC say the changes, which have been set out in the draft Finance Bill 2017, will simplify the tax system and are aimed at stopping the number of legal cases brought by landfill site operators against HMRC in the past few years, challenging the definition of what is taxable. The new rules will be brought into force as soon as is practicable and will apply to landfill disposals in England, Wales and Northern Ireland but not Scotland.
Legal updates - DEFRA trims data collection
The Department for Environment, Food and Rural Affairs (DEFRA) has confirmed that collection of some datasets on environmental protection, farming, greenhouse gases and waste will be scrapped or scaled back. In February 2016, DEFRA launched a consultation on a suite of proposed changes to the official statistics outputs produced by the group. DEFRA’s response to the consultation revealed that collection of local pollution control statistics would cease. These cover light industrial process, such as printing and respraying, that are regulated by councils. DEFRA will stop compiling data for the Campaign for the Farmed Environment, a voluntary scheme to encourage farmers and land owners in England to enhance the environmental value of farmland. Data on UK expenditure on environmental protection will not be gathered in 2016 and the Office for National Statistics would take on the task from 2017. Local authority waste data will now be collected annually instead of quarterly. However, the Environmental Services Association opposed this. DEFRA is still reviewing consultation responses on proposals around the data collection for air quality and agricultural emissions.
Read more about trimming of the datasets on environmental protection, farming, greenhouse gases and waste.
Legal updates - HazDoc website for hazardous waste
The Scottish Environment Protection Agency, the Environment Agency, Northern Ireland Environment Agency and Natural Resources Wales have launched a website, named HazDoc, which allows businesses to follow progress and comment on the development of a new electronic consignment note system for hazardous waste. The four agencies conducted a series of workshops through the summer aimed at informing businesses on their plans for the development of the new system. HazDoc aims to develop an electronic system for tracking hazardous waste in the UK which is simple to use, removes the reporting burden for businesses, supports effective regulation and provides all parties with good quality data. HazDoc is the complementary system to eDoc, the electronic Duty of Care, which captures information on transfer of non-hazardous waste.
More information on HazDoc website