Regulations Newsletter - May 2016

03 May 2016

Regulations Newsletter - May 2016

In this issue...

  1. REMIT obligations effective from 07 April 2016
  2. CMA publishes provisional decision on remedies.
  3. Project Nexus still set for delivery in October 2016
  4. National Grid to develop Demand Side Response (DSR) mechanism
  5. Energy Intensive Industries– Update on compensation for renewable costs and exemption from renewable costs.
  6. CfD FiT interim rate set for 1 July – 30 September 2016.
  7. Power Guide and survey on electricity Demand Side Response (DSR)
      1. REMIT obligations effective from 07 April 2016

        REMIT is a major piece of European Legislation aimed at improving the integrity and transparency of the wholesale energy market.  If your organisation is in scope of the REMIT regulations then you were required to register from 07 April 2016 and begin reporting from this date.

        Your organisation falls within the scope of REMIT if you have: 

        • a site which consumes more than 600 GWh; or
        • multiple sites, each of which may consume less than 600 GWh/year, but in total may consume 600 GWh or more

        If you have an energy supply contract in place with Gazprom Energy for a single site which has a contracted annual consumption of 600GWh or above we will automatically identify the contract and report accordingly to ACER. We may need some information from you, including the registration code, so we will contact you if necessary. In this case you have also an obligation to report the details of the contract to ACER.

        If you believe you have an energy supply contract in place with us for a single site which is less than 600 GWh then you will need to determine if you fall in scope of REMIT and advise us accordingly.

        If you have a site with a consumption unit which is defined as “a resource which receives electricity or natural gas for its own use” e.g. plant that consumes less than 600 GWh but which could consume in excess of 600 GWh then you will need to notify us so we can identify this contract to be reportable under REMIT and provide the relevant information to ACER.

        In determining this, you should consider the maximum amount of energy that the facility could consume in a year i.e. if the facility was run fully at all times throughout the year

        energy meter

        In making the calculation you can also take into account if the network could support such operation and if any network constraints exist which constrains the maximum consumption below 600 GWh, then this would not be reportable under REMIT.

        The consumption of gas and/or electricity should be assessed separately to estimate whether it reaches the 600 GWh/year when the facility is running at all times. This is because Article 2(5) of REMIT refers to the consumption of “either electricity or natural gas” meaning one or the other.

        Our view:

        Gazprom Energy wrote out to our larger customers who may fall in scope of the obligations in March to ensure they were aware of their registration and reporting obligations.

        For more information please visit:
        Our REMIT information page
        Ofgem’s REMIT FAQ document

        A member of our Corporate Accounts team will be happy to assist you further and answer any questions you may have

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      2. CMA publishes provisional decision on remedies.

        On 10 March 2016, the Competition and Market’s Authority (CMA) finally published its long awaited ‘Provisional decision on remedies’ for its ongoing energy market investigation. A week later the full report, along with a plethora of appendices, were published.

        The provisional decision on remedies is heavily focussed on the domestic and microbusiness segments of the market, but there were a few areas of interest for the wider market as well.

        In the microbusiness sector, the CMA has put forward a number of proposed remedies to increase customer’s engagement with:

        •  greater price transparency from suppliers;
        • amendments to the rules regarding auto-rollover contracts; and
        • an online postal marketing database of “disengaged” customers for rival suppliers to compete for.

        One issue that the CMA is encouraging Ofgem and DECC to take forward is electricity half-hourly settlement of all customers following the rollout of advanced and smart meters. This could affect larger businesses with a number of small sites. In addition, on gas settlement, the CMA is proposing to recommend that Ofgem ensure Project Nexus is implemented by 01 October 2016. Further remedies around the transparency of allocating Contract for Difference (CfD) Feed-in Tariff (FiT) contracts to low carbon generators and a move to locational transmission losses are also proposed.

        The final CMA report is set to be published in June where a final decision on remedies will be taken (full timetable below)

         CMA timetable

        Our view:

        The most significant changes that were mooted earlier in the investigation, such as breaking up the Big Six, have been removed but some important proposals remain. While some of the proposed changes are likely to be introduced quickly, others could take some months (or even years) to be fully implemented.

        Visit the Government website to read the full CMA report and appendices.

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      3. Project Nexus still set for delivery in October 2016

        UK Gas central systems (referred to as UKLink) are being upgraded (circa £70m) and as a result of the program of works a number of improvements to the existing system are being implemented. These improvements are grouped under the title of Project Nexus (circa £20m) and are currently scheduled for delivery on 1st October 2016 (having been delayed by 12 months).  

        The changes are wide ranging but some of the key changes include: 

        • the introduction of four new ‘customer classes’ (Class 1 to 4) providing more access to daily settlement;
        • the introduction of a‘Rolling AQ’ which means the Annual Quantity (AQ) will be updated every month were reads are available;
        • all Independent Gas Transporters (IGTs) will use central systems;
        • central gas systems will undertake read validation on submitted reads; and  
        • Small Supply Points (SSPs) will not be subject to individual meter point reconciliation

        Comment:

        The program has been subject to a number of delays and setbacks over recent months with some functionality now having to be delivered in a later phase of the program. This has led to Ofgem having to “step in” to take direct management of the program away from the Transporters Agent (Xoserve). Hopefully this late but welcome intervention will re-energise the program and increase the confidence in the program being delivered for the 1st October.  

        For more information please visit our Project Nexus information page.

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      4. National Grid to develop Demand Side Response (DSR) mechanism

        Ofgem has required National Grid to develop a Demand Side Response mechanism which needs to be in place by winter 2016. National Grid has developed the required mechanism as it was clear that a commercial Demand Side Response market would not develop naturally.

        National Grid raised an industry modification 0504 - Demand Side Response (DSR) Methodology Implementation which was approved by Ofgem on 02 February 2016.

        In developing the proposals it was highlighted that there was little interest from customers in participating in the scheme as it is only likely to be used on rare occasions and customers are not being offered an option price for participating and will only be paid in the event that customer’s offers are exercised.

        An overview of how the scheme would operate is shown below:

        DSR end to end process flow

        Our view:

        National Grid is proposing to host a workshop on the scheme in July if there is sufficient interest. However we have, to date, seen little interest in participating in a scheme which may only be used rarely and provides no option price, to offset costs, for customers of participating e.g. providing back up fuel supplies etc.

        If you are interesting in learning more about the scheme details can be found on the Gas Governance website or contact a member of our Corporate Accounts team will be happy to assist you further and answer any questions you may have.

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      5. Energy Intensive Industries– Update on compensation for renewable costs and exemption from renewable costs.

        As noted in January’s newsletter, applications for Energy Intensive Industries (EIIs) to receive compensation for the Renewables Obligation (RO) and Feed-in Tariff (FIT) have now opened. The Department of Business, Innovation and Skills committed to backdating compensation to 14 December 2015 for any application received by 31 March 2016.

         

        Renewables

        At the beginning of April, a further consultation was published on this, moving to an exemption rather than compensation. This is still expected to be available from April 2017 but is subject to another EU state aid notification and some legislative changes so the timing won’t be confirmed for some months.

        Finally, the exemption for EIIs from Contract for Difference (CfD) FiT costs is expected to be available in October 2016.

        Our view:

        Undoubtedly EIIs will welcome some reduction in costs. The move to an exemption should reduce the admin for EIIs and speed up their receipt of the benefit. It’s hoped that the Government will not require new applications at each future stage and that certainty is given over timings as soon as possible.

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      6. CfD FiT interim rate set for 1 July – 30 September 2016.

        The Low Carbon Contracts Company (LCCC) has set the Contract for Difference (CfD) Feed-in Tariff (FiT) interim rate at £0.005/MWh and customers with an electricity contract that has CfD FiT costs passed through will be impacted from July.

        The rate has been set for the period July – September 2016 on the basis of the potential amount of CfD payments likely to be required to be made to CfD Generators under the existing CfDs and Investment Contracts. A new rate is expected to apply for the fourth quarter of 2016.

        The LCCC has also begun to publish quarterly a 15 month forecast of CFD FIT costs. An extract of the “base case” forecast is below with the full information on the “transparency tool” is available on the LCCC website.

         CFD FIT costs

        Our view:

        The CfD scheme has got off to a slow start, but a number of CfD projects are set to begin generating under the scheme in the second half of 2016. The costs are forecast to increase significantly after July 2016.

        More information about the CfD FiT rates is available on the LCCC website.

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      7. Power Guide and survey on electricity Demand Side Response (DSR)

        The Major Energy Users' Council (MEUC) in association with National Grid have published a Guide to Demand Side Response (DSR).This guide aims to provide large demand users with all the information they need to know, in order to be able to profit from opportunities in DSR.

        It includes sections on:

        • Making money and avoiding penalty charges
        • Reducing delivery and contract charges
        • Helping to balance the system
        • Accessing the schemes
        • Case studies of profitable demand side response

        To view the guide, visit the Power Responsive website.

        In addition, the industry regulator, Ofgem is seeking views on electricity DSR. If you are a large electricity user then Ofgem are welcoming respondents to their survey.

        Recent publications – for reference

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