UK: A hard Brexit would add millions to consumer electricity bills

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The UK’s All-Party Parliamentary Group for Renewable and Sustainable Energy (Praseg) hosted a debate this week titled, ‘The Future of the Capacity Market’.

The event followed the aftermath of a recent landmark ruling by the European Court of Justice (ECJ), which requested the European Commission re-examine the U.K.’s Capacity Market, fearing its design might be discriminatory and anticompetitive for demand side response (DSR) technologies.

Debating at the Praseg event were Sara Bell, founder and CEO of Tempus Energy, the firm that took the case to the ECJ and was involved in Cornwall’s sunshine tariff project, and Lawrence Slade, CEO of Energy UK, the energy industry trade association, which counts the country’s ‘big 6’ electricity utilities among its members.

Who is incentivized?

Sara Bell’s main argument is that DSR can help grids to run more cheaply, eventually saving electricity consumers money.

However, instead of incentivizing demand flexibility, she said, the Capacity Market hands money to old fossil fuel plants that need to retire. Therefore, the scheme does not make economic sense and counteracts the efforts to combat climate change.

A typical example of the Capacity Market fallacy is that it has incentivized a great amount of diesel generators, claimed Bell. pv magazine has previously reported on diesel generators winning meaningful Capacity Market contracts

An example of the technology discrimination evident in the U.K.’s Capacity Market is that the minimum level of participation for DSR technologies is 2 MW, while in the United States, for instance, it is 100 KW, argued Bell. In her view, a competitive scheme would allow for loads as small as 1 KW to provide demand flexibility.

Another example of the discriminatory nature of the country’s Capacity Market is that DSR can bid only for one-year long contracts, while other technologies can receive contracts for up to 15 years.

As a result, Tempus Energy has ceased operations in the U.K., instead moving its focus to Australia, where “it is in the customers’ commercial interest to embrace flexible technology,” said Bell.

From his point of view, Lawrence Slade argues that although the Capacity Market is not perfect, it is necessary to transition to the renewable energy era, particularly when renewable energies are unable to provide capacity.

Moreover, he argued, while some customers are happy to embrace flexible behavior, others do not want to change patterns.

Bell’s counter argument was that the U.K. needs an orderly transition, which retires old plants and embraces clean technologies, but this can be achieved via flexibility, not via anticompetitive incentives to old fossil fuel capacity.

“The flexible customers take down the overall system cost, even for those who are not or who do not want to be flexible,” she said.

Renewables bidding in the Capacity Market

One of the event’s most positive messages was that the idea of renewable energies bidding in the Capacity Market has gained great momentum and consent across the industry.

Slade, for instance, said it should be technology neutral, allowing renewables to bid.

pv magazine has offered its analysis on this front, and once more Bell seemed to agree, arguing that it is not enough for renewables to be allowed in the market; they must also be treated fairly.

Flexible networks

In other news, a conference held by the Westminster Energy, Environment and Transport Forum (WEETF), which took place in London on the same day,shed light on the ‘Future of Smart and Flexible Electricity Networks in the UK”.

According to the transmission system operators (TSO) and distribution network operators (DNOs), as well as the associations presenting at the conference, it appears that the U.K.’s stakeholders are preparing for a smarter, more flexible grid. This is happening via numerous pilot projects and through policy engagement too.

However, a rather broad conclusion is that utilities need to become more customer-centric, addressing their customers’ needs.

The customer focus is essential in the smart era, said Randolph Brazier, head of innovation and development at the Energy Networks Association.

Apart from electric vehicles, where customers tend to be more proactive in terms of understanding the products on offer, all other smart technology areas need customer engagement, he argued. In his view, this is not fully happening yet.

Eric Brown, of Energy Systems Catapult, a non-profit research organization, said that electricity suppliers need to become energy services providers.

The conference inevitably touched on the Targeted Charging Review consultation, opened by the U.K.’s energy regulator Ofgem in November.

Under the Ofgem proposals, residual charges will become fixed to all energy users making the business case for companies offering flexibility in their services less generous.

A conference attendant asked Ofgem’s representative Louise van Rensburg whether the proposals will harm solar PV and battery investment specifically.

Van Rensburg answered that Ofgem wants to ensure people who add costs to the system pay for it, adding that when you are changing the charging regime, there will be winners and losers. In the long-term, however, there will be benefit for all.

Her reply makes it rather clear that Ofgem sees residential solar as an additional cost to the system.

Hard Brexit to add costs

As if the current energy debate is not intense enough, a new report published by the U.K. Energy Research Centre three months before the country is due to leave the EU, finds that if the country exits without agreeing on a deal or “with ‘third country status’… inefficient trading could increase electricity generation costs by £270 million a year”.

The report can be downloaded via this link.