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- Getting Started
Energy Regulation Update
DCP 228 changes DUOS methodology
The modification will have impacts on DUOS charges and the differentials between half hourly and non half hourly customers , which in some cases could be very significant. The modification was approved on the grounds that it was more cost reflective. There is currently no implementation date but the earliest that it can come into effect is April 2018. In summary, the impact is that in most distribution network areas, domestic and non-domestic "single rate" consumers would generally face a reduction in charges whereas "two rate" consumers would face a small increase in charges.
For half hourly customers the unit charges during the red period will fall but rise during the amber and green charging periods. The net effect is that charges will generally rise for half hourly customers, and those consumers connected at high voltage (HV) level will face the most significant increases.
Business energy efficiency tax review
In last year's budget, the Government announced a review of the business energy efficiency tax landscape which was followed up with a formal consultation at the end of 2015.
This included policy proposals to simplify and improve the effectiveness of the multitude of complex and overlapping energy efficiency policy measures and regulations including: Climate Change Levy (CCL), the Carbon Reduction Commitment Energy Efficiency Scheme (CRC), taxes on other fuels e.g. heating oils, Climate Change Agreements (CCA), mandatory greenhouse gas (GHG) reporting, the Energy Saving Opportunity Scheme (ESOS), Enhanced Capital Allowances (ECAs), and the Electricity Demand Reduction (EDR) pilot.
As anticipated, this year's budget on 16th March 2016 included confirmation of the following policy reforms:
- The Carbon Reduction Commitment (CRC) energy efficiency scheme is to be abolished at the end of the 2018-19 CRC year. This will leave one simplified energy efficiency levy which will be administered by suppliers and collected through energy bills. From 2019, CCL rates will be increased to compensate for the closure of the CRC scheme so that the overall amount of energy tax would be the same – i.e. a cost neutral policy reform.
- CCL will be applied to gas consumption to reflect current data on the fuel mix used in electricity generation. From April 2019, the electricity:gas ratio will be 2.5:1 with a 1:1 ratio applying by 2025.
- Existing eligibility criteria for Climate Change Agreements (CCAs) will be retained to help protect Energy Intensive Industries (EIIs) and from 2019 the CCL discount scheme will continue to help maintain the competitiveness of UK industry.
- The current Carbon Price Support cap will be maintained at £18t CO2 through to 2020 and then increased from that point in line with inflation.
- £730 million will be made available over the course of this Parliament for Contracts for Difference auctions to help support investment in renewable generation projects with £290 million allocated to the next auction.
A consultation will be issued later this year on the simplification of the proposed new energy efficiency tax reporting regime which will provide the opportunity for impacted suppliers and customers to comment on the policy proposals.
What is Project Nexus?
Xoserve is the Gas Networks' central service provider and its IT system ("UK link") interfaces with Shipper/Supplier IT systems using industry data flows. Xoserve therefore plays a critical function within the Gas industry, supporting change of supply processes, meter reading, meter asset information, transportation invoicing, energy balancing and settlement, gas allocations, nominations, and demand forecasting and estimation.
The UK Link IT system is being replaced with upgraded technology. This is a huge programme of change for the industry because at the same time as the technology is being updated, new read processes and a new settlement regime are being introduced across the industry to maximise the benefit from more granular consumption data provided by advanced and smart metering. This programme impacts all energy suppliers who will also need to make changes to their systems and processes to align them with the new central IT system.
The original implementation date was 01st October 2015 but late last year Ofgem agreed a 12 month delay to October 2016 due to issues with Xoserve's system design and build. Project Nexus has continued to slip and following advice from PwC and consultation with the industry, Ofgem asked for the programme to be re-planned to determine yet another implementation date which is now set at 01st June 2017 (with a contingency date of 01st July 2017).
Total Gas & Power (TGP) will continue to cooperate and engage with the industry in order to be ready for Project Nexus implementation.
For Project Nexus FAQ's please click here.
Draft Orders Published
The energy market was referred to the CMA by Ofgem in June 2014 for an investigation after the regulator concluded that there were reasonable grounds for believing that features of the market were proving detrimental to competition. There were several consultations during 2015 as the CMA identified market issues and provisional remedies. The scope of the investigation covers domestic and microbusiness customers only but some of the remedies (e.g. settlement reform) may impact the whole market.
The main remedies that impact the I&C market are as follows:
The creation of an Ofgem-controlled database holding information on disengaged domestic and microbusiness gas and electricity customers. Suppliers would be required to submit data to Ofgem about their customers who have been on domestic standard variable default tariffs or out of contract (deemed) microbusiness contracts for three years or more. This would allow rival suppliers to contact these disengaged customers by post with a view to offering them a better deal by switching energy supplier. Suppliers must write to customers to give them the option to opt out of this new scheme.
This remedy would require that variable transmission losses are priced on the basis of location. The aim of the remedy is to improve generation efficiency. National Grid will be ordered to raise an industry modification which will be published for industry consultation in due course.
This remedy would require suppliers to disclose prices of all their available acquisition and retention contracts to a large proportion of their microbusiness customers through an online quotation tool or 3rd party price comparison website (PCW).
Suppliers would also be required to disclose their out-of-contract and deemed contract prices on their websites.
The CMA will prohibit suppliers from rolling over contracts for a new fixed 12 month term where a customer either fails to re-contract or give notice when their current contract expires. The new rules will include certain restrictions that prohibit both termination fees and the use of no-exit clauses where a customer falls out of a contract. This means that customers will be free to leave at 30 days' notice if they take no action when their fixed contract ends. The prohibition of termination fees will also extend to evergreen contracts.
As part of this remedy the window during which microbusiness customers would be able to give their termination notice to suppliers (currently up to 30 days before the end of the contract) will be extended. In effect a microbusiness customer could terminate right up to the last day of their contract with 30 days' notice.
Ofgem are to conduct a full cost-benefit analysis of a move to mandatory half-hourly electricity settlement and consider options for reducing the costs of elective half-hourly settlement.
More information can be found at the following link:
The government introduced a policy late last year to reduce the impact of renewable levies on the cost of electricity of the most electricity intensive industries in the UK. This would enable UK industry to compete more fairly with European and Global competitors.
This policy applies to very intensive electricity users in industries such as manufacturing, mining, casting and quarrying in the UK with high energy costs that meet certain eligibility criteria. A full list is shown in Annex A in the link below:
CFD Fits under Electricity Market Reform (EMR)
Customers who use electricity for a "specified activity" as detailed in the link above can apply for an EII certificate in respect of the electricity meter which measures the electricity used. The application must be sent by the customer to the Department for Business Energy and Industrial Strategy (BEIS) and contain the information listed in the regulations (i.e. evidence of the proportion of electricity measured by the meter used for a specified activity.) The formula is a factor of energy used over a 3 year period 2012 to 2014.
If BEIS agree to the exemption following the customer's application, then the customer will be issued a certificate which will specify the level of exemption. The customer would only be entitled to the exemption once they had presented their certificate to the supplier and it would not be retrospective.
UK legislation has been passed to deliver the policy and the Government is now open to receiving applications from qualifying customers.
A further BEIS consultation was issued on 22nd July which can be found here:
CFD small scale FITS and Renewable Obligation
These renewable policy costs are included in the legislation but the EII compensation is currently paid directly by the Government to qualifying customers. However the proposal is to change this mechanism to a similar exemption certificate process through the electricity supplier.
Amended regulations are expected to be laid in parliament in autumn 2016.
DECC consult on changes to the CM
DECC conducted a review of the Capacity Market and issued a consultation on proposed changes to the mechanism in March 2016.
DECC reviewed the CM because it was concerned that the volume of capacity procured needs to rise and the clearing price increase so that there are appropriate incentives in the market to bring forward more new gas capacity. DECC said that UK energy market conditions have changed considerably since 2014 when the CM was established and this has caused more operational losses for thermal generating plant, causing plant to consider early closures. DECC (Now BEIS) has confirmed that it will:
Buy more capacity and buy it earlier
National Grid has confirmed that the next T-4 auction will be in December 2016 to purchase more capacity than would otherwise have been the case for delivery in 2020/21.
Hold a new auction this winter to bring forward the first CM delivery year to 2017-18
This auction will take place in January 2017 for delivery in October 2017 delivering the full requirement for 2017-18. This would ramp up capacity payments (and therefore supplier / customer charges) much sooner than had been anticipated.
There will also be a DSR Transitional Auction (TA) which will be held in March 2017 and will award capacity agreements which will come into effect in October 2017.
More information can be found at this link:
Ofgem determined to overhaul the change of supply process
In June 2014, Ofgem issued an initial consultation on moving to next day switching in the gas and electricity supply markets.
In November 2015 Ofgem launched the delivery programme which will deliver the regulatory and operational changes to speed up switching and make it more reliable. It will also harmonise the gas and electricity processes.
The industry is in the blueprint development stage and expects a consultation on the solution architecture of the new system in the near future.
This will be a major industry change on top of all the other major regulatory change projects that are being implemented.
Ofgem publish open letter
On the 29th July 2016, Ofgem released an open letter of consultation regarding their approach and concerns around the benefits received by embedded electricity generators.
Their main concern relates to TNUoS demand residual benefit for sub 100MW generators. Ofgem are concerned that the benefits that some generators enjoy distort competition in the generation market.
Ofgem's letter can be found at this link: