Energy policies and regulation set by DECC and Ofgem continue with the coalition’s strategy of a low carbon future for the UK. Its aim to decarbonise the grid and move more towards renewable generation only provides half the solution and it is demand side response, innovation and efficiency where the biggest challenges and opportunities lie.

Managing your energy use will now play as important a role as sourcing the best energy contracts and prices. Going forward however, the Government has understood that efficiency measures by proactive companies can only go so far and therefore the opening up of the wholesale market to small independent suppliers will help keep energy prices at the most competitive level.

The Monarch Partnership will make sure you are getting the best deal and will continue to advise on policy that will affect you.

Peter Dosanjh
Managing Director, The Monarch Partnership

In this issue:

CRC simplified to save businesses millions
Green Deal Providers – and so it begins
Road Map for Independent Energy Suppliers
Which? collective energy purchasing
Gas Theft – What should be done?
Low carbon heat plans revealed
Government plan to slash emissions from heating
Transparency for Suppliers’ energy accounts

Millions of pounds will be saved through new proposals to simplify the CRC Energy Efficiency Scheme. Participants will see their administrative costs cut by nearly two-thirds. The new proposals are aimed at retaining the energy-saving and reputational benefits of the CRC, whilst reducing the bureaucracy of taking part.

Secretary of State Ed Davey said: “We have listened to businesses’ concerns about the CRC and have set out proposals to radically cut down on ‘red tape’ to save businesses money. The benefits of the scheme are clear though. It will deliver substantial carbon savings helping us to meet carbon budgets, and it encourages businesses to take action to improve their energy efficiency.”

Key parts of the new simplification package include:

- A shortening of the CRC qualification process.

- Reducing the number of fuels covered by CRC from 29 to 4.

- Reducing the amount of reporting required by businesses.

- Reducing the length of time participants will have to keep records.

- Removing the requirement on facilities covered by Climate Change Agreements or EU ETS installations to purchase CRC allowances.

- Adopting new emissions factors for the CRC which will align it with Greenhouse Gas reporting processes.

- Removing the detailed metrics of the Performance League Table from legislation and placing them in government guidance.

Don’t expect changes overnight however, the new proposals which form part of an open consultation will see the Government amend the legislation by April 2013. We will keep you posted as to how new rules once implemented will affect you.

22 organisations have met with Climate Change Minister Greg Barker to sign an agreement with Government to work to become the first Green Deal Providers.

The organisations include big businesses, SMEs and a community group set to provide energy efficiency packages to domestic and non-domestic consumers. They will be working with Government over the coming months to ensure the move from testing to a managed launch in October works seamlessly from day one.

The Green Deal has been flexing its muscles in other areas too. New building regulations will see new buildings and extensions requiring an energy audit for Green Deal Measures, which will be required to be undertaken if practically feasible.

Extensions both in domestic and non-domestic buildings will trigger the audit via local council buildings control, which will require an evaluation of efficiency measures viable under the Golden Rule in the Green Deal. Set for a phased launch post the October Green Deal start date, it is vital that an understanding of how different policies overlap and whether any efficiency measures set to be installed and rolled out meet the Governments plans.

Ofgem is to open the wholesale electricity market by forcing electricity generators to sell capacity into an auction to drive access and competition.

The proposed mandatory auctions would require the Big Six to sell a range of different products so independent suppliers would be able to hedge their positions on the forward market and therefore compete on a more level playing field.

The three objectives that need to be met by the proposals are:
1. Availability of a range of products which support hedging; 2. Robust reference prices showing how much power would cost in forward markets; 3. Effective short/near term market.

Ofgem’s proposed mandatory auctions would see 25per cent of the Big Six’s power sold in this way. It represents almost half of all domestic power use and should allow for plenty of liquidity for independent suppliers and new entrants to expand into a market currently dominated by the big players.

The plans fall under Ofgem’s Retail Market Reforms which also covers simpler tariffs and tougher codes of conduct for suppliers. Final proposals for the reforms will be published in summer 2012.

Collective energy purchasing currently takes place on the continent, and provides consumers with more options as to how they engage with the energy market.

Which? Is suggesting using this basket buying technique to leverage consumer numbers and achieve the best deal.

As part of Ofgem’s market reforms, simpler tariffs and new rules to improve information from suppliers will make it easier for customers to understand what can and can’t be done.

Both Ofgem and DECC are examining just how collective switching can be achieved in the UK, which should assist the supplier: consumer balance that currently sees consumers losing out on £4.1Bn by not switching.

A new regulatory framework has been announced to reinvigorate industry efforts to tackle gas theft. The framework will protect consumers by giving incentives to gas suppliers to detect and prevent theft and to establish minimum standards for theft investigations.

Research suggests that gas theft could cost around £138 million a year and Ofgem wants to see the detection rate for theft at least doubled. New measures will see the introduction of enforceable obligations on suppliers through a new licence condition; a requirement on suppliers to set up a cross industry theft risk assessment service to help target investigations; principles for an incentive scheme to assist in theft detection and an industry code of practice on conducting theft investigations.

Andrew Wright, Senior Partner, Markets, Ofgem said “We want to see suppliers take more action to reduce gas theft, which threatens the safety of consumers and industry workers as well as making gas more expensive. This announcement today sets out a package of reforms that will help ensure the industry takes all reasonable steps to detect, investigate and prevent theft. We are pleased that the industry is also putting forward its own initiatives to tackle this problem.”

Announced in line with the second phase of the Renewable Heat Premium Payment Scheme are plans to manage the budget for the Renewable Heat Incentive (RHI) for commercial, public sector, industrial and community scale installations.

The £860m RHI was launched in November 2011 to make it more financially attractive to install low carbon heating systems like heat pumps, biomass boilers and solar thermal panels.

New proposals and a package of measures to ensure its long term success will be in place by the end of the financial year with a plan to control spending issue this autumn.

Greg Barker, Energy Minister said: “Putting in place cost control measures for the Renewable Heat Incentive is the prudent thing to do, given this is millions of pounds of taxpayers’ money at stake and taking on board the lessons learned from the Feed-in Tariff scheme.
“We will ask industry for its views in the summer and in the meantime will arrange for interim measures to be in place to manage the scheme’s budget”

“Renewable heat is a largely untapped resource and an important new green industry of the future. It’ll help the UK shift away from fossil fuel, reducing carbon emissions and encouraging innovation, jobs and growth in new advanced technologies.”

The RHI will be continually monitored and adjusted to maximise its aims within the market and DECC will consult on aspects of the scheme that need to be amended.

The Government has published its heat strategy, proposing a vision to cut emissions from heating
homes, businesses and industry in the decades ahead. The heat strategy part of the overall decarbonisation plan for the UK sets out long term objectives and is split into three stages, which for this decade will see the Government focus on making buildings and industry more efficient, and preparing the market by driving early take up of renewable heat, building the supply chain and supporting innovation.

In further support of this DECC has launched a new interactive National Heat Map which is an online website aimed at helping planners identify potential areas for district heating networks. The new Heat Map lays the foundation for further feasibility studies to initiate large scale projects targeting the most effective areas and will assist the Government in understanding more about the potential of low carbon heat networks to pipe heat directly into homes and businesses.

Nottingham for example has one of the largest district heating networks in the UK covering 65km and serving over 4,600 homes and 100 businesses and public sector properties, providing roughly 3.5% of the city’s entire heat consumption.

In line with Ofgem’s proposals to make energy tariffs and bills easier for consumers to understand, suppliers are to increase the transparency of their energy accounts.

An independent advisory firm BDO has recommended several changes in the way suppliers prepare their annual statements to improve transparency and cross company comparability.

Alistair Buchanan, Ofgem’s Chief Executive said “Suppliers now need to build on this report and make the radical changes needed to restore consumer trust in energy suppliers. The real win for consumers will be when suppliers provide consumers with simple tariffs and clearer bills and annual statements as proposed by Ofgem. There are clear signs that some suppliers are alive to this challenge and we are looking for full engagement by all suppliers with our reform package.”

To this end Ofgem are looking to introduce three changes.
1. Standardising how companies account for generation fuel costs to improve the comparability of the information they provide. 2. Ensuring that companies are using the same accounting standards and methodologies when producing their profit measures and 3. Proposing a checklist of functions to increase transparency on which ones are reported in the information.

ENERGY UPDATE is published quarterly by The Monarch Partnership for its clients. The publishers are not responsible for any discussion, statement, conclusion or information made available through this publication and as such is produced for information only and should not be relied upon without independent advice or investigation. Opinions expressed are those of the contributors to the publication and are not necessarily those of The Monarch Partnership, ENERGY UPDATE or its publishers.

With the festivities all but over, this may be one of the toughest years yet. It will certainly be a challenging time for the economy and the country. With pressures on costs from all angles it is vital that utilities spend is squeezed and kept as low as is practical.

In 2011 The Monarch Partnership saved £millions for our clients and we will save even more in 2012. Businesses must now look at their costs in all areas and in addition to saving you money in energy procurement we can provide effective invoice management solutions and equip our clients with the tools necessary to control their energy consumption and reduce CO2 emissions.

In it together, it is vital that we support one another to manage the volatility the energy market can bring. If you would like to know what further and additional support we can provide to your business please get in touch.

Peter Dosanjh
Managing Director, The Monarch Partnership

In this issue:

Concern over gas security?
Electricity Market Reform moves ahead
£2.5Bn boost for renewables supports economy
Smart Grids, local projects and Low Carbon Networks Fund
Green Deal, live this year, still consulting
Ofgem increases frequency of Retail and Wholesale Energy Price reports

Gas is the backbone for electricity generation in the UK. With the fall off in production from the UK Continental Shelf in the North Sea it has been imperative to secure investment in securing supplies for the long-term. Investment in LNG Terminals bringing in gas from Norway and Qatar has produced some security albeit linked to volatile global prices.

However with limited nuclear generation and environmental restrictions placed on polluting through the use of coal, is the UK vulnerable to shortages going forward either directly or due to insufficient fall back capacity needed to compliment renewable generation?

And perhaps a bigger question, are we prepared to pay for gas at any cost?

Energy and Climate Change Secretary, Chris Huhne has shown concern for this scenario “Energy security is at the heart of our energy policy but we should never be complacent, and that’s why I’ve asked Ofgem to look into whether further action is needed to ensure that medium to long-term gas supplies for consumers remain secure.”

Ofgem’s Chief Executive Alistair Buchanan said “In 2010 Ofgem’s Project Discovery identified a range of issues in both the gas and electricity markets given the need to find £200bilion of investment between now and 2020. Project Discovery also identified the challenges posed by Britain’s growing exposure to a volatile global gas market. We have seen this recently where political instability in the Middle East and the impact of Fukushima have helped push up wholesale gas prices for this winter by 40 per cent. We welcome the Secretary of State’s decision to commission Ofgem to look at the rapidly changing gas supply situation for Britain and whether further measures are needed to secure supplies.”

Ofgem has since announced a draft decision to increase security of supply incentives to suppliers to help strengthen the existing arrangements.

So what does this mean for the consumer? Some say it means higher prices for both electricity and gas in the medium to long term, as the UK becomes increasingly exposed to generation linked to volatile global gas prices, providing the capacity needed for a decreasingly diverse generating network.

The fact that gas provides almost half of our electricity generation does support the Government’s cause for concern. The Department of Energy and Climate Change produce detailed quarterly figures highlighting energy trends that compare with the same quarter a year earlier. So what is actually happening?

The nature of UK gas production, import and export is of particular interest. The UK’s production was down by nearly 30% for Q3 2011 compared to the same quarter a year earlier, however gas exports were up by 5.3% and imports by 33.5%.

Closer examination of the figures shows that exports equate to almost a third of our total gas demand, so is the UK merely becoming a pipeline to Europe for LNG via our interconnectors? And will this use of our own systems hinder the UK from receiving the gas it needs when the system becomes tight?

We begin to understand that future security of supply isn’t just about having the capacity to provide electricity generation from gas or getting gas into the country. Our security of supply issues now include competing for capacity with other countries that are making use of the infrastructure the UK has developed.

Will we be brave enough to turn off the interconnector if we need to keep gas at any cost? Or will the Government’s steps towards de-carbonising electricity generation and our dependence on gas through the Electricity Market Reform be delivered ahead of such security scenarios?

Doing more with less will certainly be the motto for some time and demand side management will become key if security of supply and/or capacity issues play out.

Reforms to the UK’s electricity market to drive low carbon investment and boost energy security took another step forward with the announcement of key decisions to help shape the future energy landscape.

Energy and Climate Change Secretary Chris Huhne said: “The UK faces a huge energy investment challenge over the coming years, with a fifth of our generating capacity coming to the end of its working life and electricity demand set to double. We want to give certainty to investors to develop the mix of clean energy sources that will power the UK in the years to come.”

Included is the Government’s decision to legislate for a capacity mechanism in the form of a Capacity Market, designed to ensure consumers continue to enjoy reliable electricity supplies and avoid the higher prices that could result from tight capacity margins.

Further updates on Emissions Performance Standards and the Feed in Tariff Contracts for Difference will be published in the spring, but the Government intends to introduce electricity market reform legislation in May2012 with the first low-carbon projects being supported by around 2014.

The electricity market reform is hoped to ensure less reliance on oil and gas via more diversity in electricity generation through greener, cleaner and ultimately cheaper mix of electricity sources through renewables, nuclear and carbon capture and storage.

The Latest research from DECC shows that for the last financial year, companies have announced plans for almost £2.5billion worth of investment in renewable energy projects in the UK, with the potential to create almost 12,000 jobs across the country.

A separate report to the European Commission on renewable energy progress showed that the UK had achieved a 27% increase in renewable energy consumption equating to 3.3% of total energy consumed, with an increase in the use of biofuels in transport to 3.33%.

Ofgem has announced that six projects are to share £57million of funding to help local power networks become smarter. The funding will be part of Ofgem’s £500million Low Carbon Networks Fund (LCN Fund).

The projects from across Britain will pilot new technology and commercial arrangements. They will create opportunities from which to learn, which will be shared amongst all local grid companies so they can develop the networks of the future. Innovation could reduce the need to invest in new network assets such as substations by making better use of those already there.

Ofgem’s Acting Senior Partner for Smarter Grids, Governance and Distribution – Rachel Fletcher said “Britain’s energy grids need to undergo a revolution in how they are run so they can connect more renewable generators and a range of low carbon technologies such as ground source heat pumps. There is a significant opportunity for companies to contain the cost of this transition by making better use of existing capacity and exploring the scope to use demand side response.”

Of the projects sharing some of the funding, one involves installing electric storage batteries in homes, schools and an office to see if customers could be encouraged to use this stored electricity at times of peak demand, reducing the load on the network and hence lower bills for those utilising this technology.

Another project looks at the better use of existing network capacity to manage congestion on the grid and how more low carbon generation can be connected without having to build new power lines.

The Green Deal will be the biggest energy efficiency drive to become available for domestic and small businesses to date. Set up so that efficiency measures can be paid through current utility bills customers should see savings over the life of the installation without the upfront initial capital investment.

Accredited Green Deal Providers and Assessors will undertake an audit, providing an Energy Performance Certificate and energy efficiency options available under the scheme. Finance will then be tied up through the Green Deal Provider who will be paid via your current energy supplier via your electricity bill.

With a launch date of Autumn 2012, there is still a lot of detail outstanding that needs to be refined in order for the ‘go live’ date to be met, not least of all, how Green Deal Providers will be assessed, what final technologies will be available through the scheme and how the bills will reflect the transfer and payment for the installed efficiency measures.

It should be noted however that smaller suppliers with fewer than 250,000 domestic and non-domestic customer are not obliged to take part in the scheme, so understanding what options you have available to you will be the first step.

With a constant pressure on businesses to reduce consumption, the Green Deal providing measures which must meet ‘The Golden Rule’ (i.e. that any proposed Green Deal measures are fundable through savings made to the current bill level so that the customer doesn’t pay more.) will be an opportunity for those with public sector or domestic housing stock and smaller premises to install efficiency measures that should assist in their overall reduction objectives.

Certainly, Government is taking demand-side efficiency measures seriously, so the only real question is will The Green Deal finance mechanism provide a most cost effective option than an independently privately funded option?

The Regulator has implemented measures to increase its quarterly reports on the relationship between wholesale and retail energy prices.

These new weekly reports will reflect the workings of the energy market where costs change frequently. Its aim is to assist consumers in understanding trends in modelled energy margins.

Although the reports are to mainly cover the relationship on prices for the domestic sector, business consumers should also take note.

The new reports can be found at:
http://www.ofgem.gov.uk/markets/retmkts/rmr/smr/pages/indicators.aspx

ENERGY UPDATE is published quarterly by The Monarch Partnership for its clients. The publishers are not responsible for any discussion, statement, conclusion or information made available through this publication and as such is produced for information only and should not be relied upon without independent advice or investigation. Opinions expressed are those of the contributors to the publication and are not necessarily those of The Monarch Partnership, ENERGY UPDATE or its publishers.

Keeping up-to-date with legislation and understanding the finer detail of current policy helps to provide and prepare for our clients’ needs and communicating this at an early stage helps to identify issues so that we can work with you on fulfilling a solution.

If you would like to raise or discuss any issues raised in this newsletter please contact us on 020 8835 3535.

Peter Dosanjh
Managing Director, The Monarch Partnership

In this issue:

The European Energy Efficiency Directive
Latest News on The Energy Bill / Green Deal / Smart Metering
More Rights for Energy Consumers?
CRC Energy Efficiency Scheme
Renewable Heat Incentive – a non starter!

Mounting pressure is being placed on the European Commission to increase activity around energy efficiency to meet binding 2020 energy reduction targets. The current economic climate has provided a stagnant backdrop to investment as companies fight to maintain market share and profitability.

Energy efficiency would bring about savings, and obligatory schemes such as the EU ETS and CRC EES in the UK are securing investment in reduction. However, projections for all member states show that Europe as a whole is way behind expectations.

The new Directive aimed at replacing three existing pieces of legislation, will drive the Energy Efficiency agenda when it comes on stream in 2014.

“Our proposal aims at making the way we use energy in our daily life more efficient and at helping citizens, public authorities and the industry to better manage their energy consumption, which should also lead to a reduced energy bill. It also creates an important potential for new jobs throughout the EU” said Günther Oettinger, European Commissioner responsible for Energy.

Many of the areas being focussed on already form parts of the UK strategy such as the Green Deal and the Green Investment Bank. However there are other interesting developments which when implemented will have a forceful impact on UK business consumers.

Articles 4 and 5 focus on public bodies, stating that ‘Member States are to ensure that as of January 2014, 3% of the total floor area of buildings over 250m2 owned by public bodies is renovated annually to meet at least the minimum energy performance requirements set in current building regulations.’ This even when standing alone will have significant impact on older buildings and could pressure local authorities in releasing its most inefficient building stock. It will also impact on current renovation work and thoughts for extensions and new service provisions as these new rules and possible changes to minimum requirements in future need to be taken on board. 3% may not seem like a huge amount until it is looked at in perspective and historically if 30% of a building has been renovated in the last ten years to meet energy efficiency standards.

In addition to this focus on public bodies is the need for purchasing to be scrutinised as well. The new directive proposes to require public bodies to meet high energy efficiency standards when procuring energy-using products such as IT equipment, tyres buildings and services from third party providers.

Returning the focus to the business sector is the need to ensure that large companies undertake an independent energy audit by June 2014 and every three years thereafter, energy suppliers are to hit an annual energy-saving target of 1.5% of their energy sales each year and accurate billing based on actual consumption is in effect by January 2015. Proportionate, effective and dissuasive penalties will be issued for non-compliance in this area.

This will effectively push energy suppliers into the energy services market place, as new systems are required to cope with new legislation as well as decreasing energy sales year on year on year based on a static portfolio.

Maintaining transparency, access to data and a vibrant independent energy services market is what consumer groups need to lobby for so that bespoke offerings, true competition and choice is maintained.

The development of an Energy Services market is outlining in Article 14 and it will be the Government’s role to ensure information provision to consumers is adequate and fit for purpose. To this end Certification Schemes will be introduced to ensure minimum standards in service provision are adhered to.

Although still three years away and only in proposal form, EU directives are an important part of UK legislation as clauses continue to be written into UK policy.

DECC is currently considering the impact and implementation and are will represent UK negotiations on the directive in the Autumn.

You could be mistaken for thinking that the Green Deal is a done deal, but both that and the Smart Meter Implementation Programme (SMIP) that make up part of the Energy Bill although coming to the end of the process are still out for consultation on various aspects of detail.

Prior to receiving Royal Assent the Bill has been passed back to the House of Lords following a final third reading in the Commons in September.

The Bill as mentioned includes the Green Deal and facilitates the Smart Meter rollout. But it also widens access to Energy Performance Certificates and introduces measures designed to help improve energy security and to encourage low carbon generation.

The Green Deal ready to go live from next Autumn still has much of the detail to be worked on and the SMIP is currently consulting on the detailed policy design of the Data and Communications Company (DCC).

The DCC will provide the hub for all smart meter data across the country, although, this is likely to be split into three geographic regions.

Concern over data access and the SMIP is still very much in discussion as fair terms are sought for independent service providers to be on a level footing with energy suppliers when offering data services. Expect to see some delays in improvements to meters until design parameters are finally agreed.

In a press release late last month, Secretary of State for Energy Chris Huhne announced that Ofgem would be given more regulatory powers. These will include requiring energy companies to provide consumer redress when consumers have lost out as a result of a company breaching a licence condition. This could be via a direct refund or a company paying into a fund that benefits consumers.

This fits in well with Ofgem’s recently appointed Consumer Policy expert Philip Cullum, formerly Deputy Chief Executive of consumer watchdog, to progress the interests of all consumers including business. Responding to the announcement an Ofgem spokesperson said ‘We are delighted with the Secretary of State’s commitment to new consumer redress powers for Ofgem. This is consistent with the findings in our retail market review in March which made clear that we would seek new powers where they were needed to better protect consumers.’

In addition to this, a working group on collective purchasing will be established to help consumer come together to obtain better deals and the Secretary of State has announced that £35m from the £200M development fund announced in the Spending Review in 2010 has been earmarked to support and develop innovative technologies and systems that can reduce carbon emissions from buildings.

Tying in to the push to improve energy efficiency will be the creation of the Energy Efficiency Deployment Office to be established within DECC which will provide a wider strategy based on evidence and analysis, strong programme management and a joined-up view of the offer to the customer.

Can we expect joined-up policy as well as joined up thinking as the demand side market begins to gain the traction and voice it needs to assist not only in energy efficiency but also in security of supply and emissions reductions.

Participants seem to have come through the first reporting period unscathed if not a little concerned over time consuming data collation, reporting tools and thoughts over league table positions. Feedback from a consumer forum has shown that not only has ‘the CRC been a very resource intensive scheme’ and that ‘a bit too much time [spent] investigating fuel data’, it appears that the provided Source List Tool had not been tested by end users and a more comprehensive tool was available but not published by the Environment Agency(EA) on its website.

That said, it seems that most reports were compiled in excel and on time and so the wait is on whilst the reporting is analysed and the league table is published.

The resource intensiveness of the scheme has not been lost by DECC, who have appointed KPMG to conduct a survey of CRC participants on the administrative time and costs of CRC compliance. This research will assist in the simplification process which is continuing.

For non-participants who may have got it wrong, the EA have been serving enforcement notices on companies who failed to register for the scheme. Due to take place early next month is an appeal against the decision in respect of the notice, and it will be interesting to see the outcome of that case which will be handled by the appeals office at DECC.

With a planned launch at the end of September the Renewable Heat Incentive has been delayed, citing the need to obtain state aid approval by the European Commission. DECC are working with the Commission over a reduction in the large biomass tariff, which will require RHI regulations to be amended and submitted to Parliament for approval. This means that the scheme will not be launched as a whole until that process has been completed.

How the delays will affect those that were gearing up for new projects is yet to be seen, but this shows that the link between UK policy and the European Commission cannot be overlooked at any stage in the process. DECC assure stakeholders though that the RHI will be launched as soon as possible to minimise disruption.

With a large proportion of the Government’s energy initiatives relying on State Aid does this means that delays in other schemes such as the Green Investment Bank are likely. With so many initiatives at different stages and overlapping, delays are inevitable as the detail is ironed out.

ENERGY UPDATE is published quarterly by The Monarch Partnership for its clients. The publishers are not responsible for any discussion, statement, conclusion or information made available through this publication and as such is produced for information only and should not be relied upon without independent advice or investigation. Opinions expressed are those of the contributors to the publication and are not necessarily those of The Monarch Partnership, ENERGY UPDATE or its publishers.

Over recent months the Government has been busy in various departments progressing policies which will impact on business consumers. The news items below highlight the latest developments circling Westminster and Whitehall which we will keep up-to-speed on so that we can provide you with the right advice at the right time.

If you have any concerns or would like to raise an issue regarding Government policy please get in touch with your Account Manager.

Peter Dosanjh
Managing Director, The Monarch Partnership

In this issue:

Changes to the Electricity and Gas Retail Market – A step in the right direction or an increased burden for certain energy consumers?
The Green Deal – Good news for Landlords and consumers?
The Fourth Carbon Budget, are you up to speed?
New Feed In Tariff levels
Red Tape slashed for small energy suppliers
Microgeneration – Is it for you?

Following an initial consultation, Ofgem has signalled its determination to push ahead with a radical overhaul of both the gas and electricity retail markets in order to increase competition and to provide an incentive for new entrant retail energy suppliers.

Ofgem’s Chief Executive Alistair Buchanan said:

“Responses to our reforms show that there is an increasing consensus across a range of consumer and business groups that in a period of rising energy prices energy suppliers have to transform the way they deal with consumers.

Our latest reports on prices also gives even more impetus to the need for radical reform as it shows that turmoil in global energy markets during 2011 has pushed up wholesale costs by 30 per cent since December 2010. Now more than ever, consumers need to have confidence that competition can operate effectively in setting energy prices.”

The consultation is a radical step forward if pursued. Not only is Ofgem looking into the practices of rogue Third Party Intermediaries (commonly known as energy consultants), in terms of both mis-use of their position and mis-selling, (something The Monarch Partnership and other Tier One Business Energy Consultants have been calling on for some time); but also how suppliers communicate with consumers; how retail competition can be increased and the increasing issue of objections to supply transfer quoting debt as a reason.

The most significant however would be the mandate for the Big Six energy suppliers to hive off a portion of their current generating capacity (10-20%) into an open auction, to encourage competition in retail supply and bring new entrants into the electricity market. This radical reform could breathe life into retail-only energy supply, which has been lacking since the demise of Independent Energy, Bizz Energy and the integration of Atlantic Energy into Scottish and Southern.

Certainly, a lot more needs to be done to make the retail-only model attractive, but with margins already squeezed and the vertically integrated players holding the lion’s share of the best contracts, either an innovative solution needs to be found or consumers will end up seeing increased market liquidity through competition but also increased prices.

Ofgem is holding a Round Table at the end of July with industry stakeholders to look at how proposals can be designed to address Ofgem’s market liquidity concerns. And by the end of the year Ofgem will publish impact assessments and detailed proposals for consultation. 2012 will see final proposals in order to put in place the market reforms.

How this initiative develops will be of significant interest to the whole energy industry.

Currently making its way through parliament under the Energy Bill, The Green Deal set to hit the industry in late 2012 will see the biggest Government initiative hit the UK for over 50 years. Designed to increase the energy efficiency of current building stock, the devil is certainly in the detail and there is a lot to take in.

Being the government’s flagship energy saving plan to transform homes to make them warmer and cheaper to run, people will be able to access up to £10,000 to pay for energy efficiency work. The scheme will be available for both domestic properties and businesses which has been welcomed across the SME and housing sectors.

Providing up front credit agreements which tag on to energy bills, the concept is simple. Borrow money to install energy efficient solutions which will decrease your energy bill by more than the amount of your credit repayments. The energy bill paid for by the consumer who in effect pays for the improvements to the efficiency of the building, with agreements which can stretch for up to 25 years.

If the theory sounds better than the practice, there could be a good reason for that. Long term credit agreements which are clawed back through the energy bill, means that the supplier will surely incorporate an admin charge for passing the payments to the credit agency. Any change of supplier will mean the agreement needs to be transferred across as well, and the deal remains with the property and so passes on, on change of ownership. It will certainly be interesting in practice to see the market areas that take up the challenge and embrace this brave new world.

However, if you think that this may not affect you, the government are providing the stick as well as the carrot to improve energy efficiency. To quote from the latest DECC press release

“From April 2016 landlords will not be able to refuse reasonable requests from tenants, or local authorities acting on behalf of tenants, to improve their property. From April 2018 the government will make it unlawful to rent out a house or business premise which has less than an ‘E’ energy efficiency rating.”

There is still some way to go before all the consultations and plans are drawn up for how the scheme will work on a practical level and to make sure industry is ready to implement the scheme. However, it does mean another initiative that will see consumers bearing the costs with no noticeable benefit, even though less energy will be used. Landlords on the other hand will be effectively getting ‘free’ upgrades paid for by their tenants.

“The Green Deal is a win-win opportunity for landlords by removing the upfront cost of work to upgrade the property making it cheaper to run, more environmentally friendly and ultimately more attractive to rent.”

says Chris Huhne, Secretary of State.

Continuing with ever increasing targets for reductions in emissions the government in it’s fourth carbon budget has proposed to cut Britain’s emissions by 50% from 1990 levels between 2023 and 2027, reinforcing the coalition’s commitment to be the greenest government ever.

The carbon budget is set to place the British economy at the leading edge of carbon reduction, whilst ensuring energy security and least cost to the consumer. The Government will continue to argue in the EU for a 30% target for 2020 (currently set at 20%), and further ambitious targets for the decade to follow. There is a caveat however in that a review will take place in 2014, which if internal policies place the UK on a different emissions trajectory than the EU ETS agreed by the EU then a revision to the budget will be put in place to bring the UK back into line.

The Government’s commitment to a low carbon economy has never been greater and with the Green Deal, Electricity Market Reform and the Green Investment Bank tools are coming online to help meet such ambitious objectives, creating significant new industries and more importantly new jobs. This hive of activity in energy policy will see many policies hitting the front lines during 2012/2013.

A decade of intensive emissions reduction is upon us and the expectation to deliver getting higher all of the time, with the three previous budgets citing 23%, 29% and 35% respectively.

Following the Government’s consultation into Feed In Tariffs earlier in the year amended tariffs for Solar PV and Anaerobic Digestion come into force from 1 August 2011. The fast track review was initiated because of unsustainable tariffs for the uptake of large scale solar PV compared to other technologies, and used to protect the money available for small scale projects supported under the scheme.

Without action it is believed that the scheme would have been overwhelmed and sustainable growth would not have been achieved.

The new tariffs are:

SOLAR PV
>50kW – =< 150kW Total Installed Capacity (TIC) – 19.0p/kWh

>150kW – =< 250 kW TIC – 15.0p/kWh

250kW – 5MW TIC and stand alone installations -8.5p kWh

ANAEROBIC DIGESTION

=< 250 kW – 14.0p kWh

>250 kW – =<500Kw – 13.0pkWh

However, the Government will not act retrospectively and these and other further changes to the tariff will only affect new installations. Installations which are already accredited for FITs at the time the changes come into force will not be affected.

Coming good on the governments commitment to reduce regulation, small energy suppliers (those with fewer than 250,000 customer) will no longer have to take part in two programmes CERT (The Carbon Emissions Reduction Target) and CESP (the Community Energy Saving Programme). It is hoped that the increase form the original threshold of 50,000 customers will provide more competition in the lower end of the industry and allow new entrants to enter the market benefiting the consumer who has seen huge increases in energy prices over the last 18 months.

Charles Hendry, Energy Minister said:

“It’s vital that we improve energy efficiency without placing disproportionate costs on small suppliers. We have listened to small suppliers, studied the evidence and gone further than our initial proposals, to give competition a boost.”

This cut in Red Tape comes at a time when Ofgem are also consulting on retail market reform in order to increase competition The affect this will have on the retail market will be borne out if new entrants like the coop remain in the market and succeed because of these new regulations aimed at assisting liquidity in the marketplace.

Will self generation make the impact that is expected? The government is putting a lot of hope in microgeneration as a way of allaying security of supply fears and boosting renewable technologies. As a result an action plan to help consumers, communities and businesses become renewable energy generators has been published following collaboration with the industry regarding a microgeneration strategy.

Energy and Climate Change Minster, Greg Barker states:

“I want to see a revolution in energy generation at a local level, giving genuine power to the people. We want to help people who are enthusiastic to generate their own energy matched by an industry with the desire, creativity and tenacity to grow in a sustainable and responsible way. The plan is divided into workstreams each with key actions, milestones and responsibilities to drive the way forward.”

The generation technologies included in the microgeneration strategy include:- Solar photo-voltaic panels (PV), Solar thermal panels, ground and air source heat pumps, wind turbines, micro-hydro, micro-combined heat and power (CHP) units and biomass and form part of the governments many policies to create a low carbon economy. How efficiently it will dovetail into current energy supplies for SMEs and local community projects remains to be seen.

ENERGY UPDATE is published quarterly by The Monarch Partnership for its clients. The publishers are not responsible for any discussion, statement, conclusion or information made available through this publication and as such is produced for information only and should not be relied upon without independent advice or investigation. Opinions expressed are those of the contributors to the publication and are not necessarily those of The Monarch Partnership, ENERGY UPDATE or its publishers.