Consultation on the methodologies for RIIO-ED1 closeout

The RIIO-ED1 price control runs from 1 April 2015 to 31 March 2023. Within RIIO-ED1 there are a number of cost areas that require specific mechanisms to account for their uncertain nature. As a result of these mechanisms, some areas of the price control need to be settled (“closed out”) once the price control has ended.

We are proposing methodologies to closeout six elements of RIIO-ED1:

  •  Load Related Expenditure;
  •  Net contributions from customers towards gross reinforcement costs, known as Net to Gross;
  •  Network Output Measures/Network Asset Secondary Deliverables;
  •  High Value Projects (HVP);
  •  Expenditure associated with Link Box Replacement Volumes; and
  •  Expenditure associated with Shetland Extension Fixed Energy Costs, Shetland Extension Battery Costs, and Shetland Enduring Solution Process Costs.

We welcome views from stakeholders on our suggested approach outlined in the consultation, by 1 May 2019. The final versions of these methodologies will be included in the RIIO-ED2 Financial Handbook.

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Energy efficiency scheme for small and medium sized businesses: call for evidence

Consultation description

This call for evidence seeks views on various proposals for a new Business Energy Efficiency Scheme focused on SMEs.

We are keen to hear from anyone with an interest in how a new scheme for SMEs could be designed, including:

  • energy companies
  • network operators
  • SMEs
  • financial institutions
  • Energy Service Companies (ESCOs)
  • academics

SMEs account for 99% of UK business and have a very low awareness of the benefits of energy efficiency. The additional documents here provide summaries of findings from 2 projects which explored how to engage SMEs in energy efficiency:

  • Digital Discovery: funded by BEIS and delivered through external contractors (completed November 2017) considers the demand for a website targeting SMEs with information about energy efficiency
  • Digital Alpha: a 12-week project (completed July 2018) to build 3 prototypes with the aim of motivating SMEs to make a significant contribution to the 20% ambition

We have issued the government response to our previous call for evidence, Helping businesses to improve the way they use energy, in parallel with this call for evidence.

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Energy price cap set to keep inflation low in February

Inflation is expected to have held steady below the Bank of England’s target in February, thanks to the cap on energy prices.

Consensus estimates predict Office for National Statistics (ONS) figures will reveal on Wednesday that the Consumer Prices Index (CPI) rate of inflation was flat at 1.8% last month.

It is set to match January’s rate, which fell after the introduction of a cap on standard variable tariffs by energy watchdog Ofgem at the start of the year.

This is likely to continue to be the main factor keeping inflation low in February, putting it below the Bank of England’s 2% target.

But some factors could cause a surprise in February’s rate, according to Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

“The upside risk partly reflects the fact that January’s rate was just 0.002pp from rounding up to 1.9%,” he said.

“Inflation also likely will come under upward pressure in February from the food component, which we expect to rise to 1.2%, from 0.9% in January.”

According to the British Retail Consortium (BRC), food shop price inflation in February was 1.6%, up slightly from January’s 1.5%.

Falling petrol prices have also been holding inflation back in recent months, with the trend set to continue in February.

But Victoria Clarke, an economist at investment firm Investec, said this was unlikely to have a major effect.

“While this trend continued in February, it did so at a more modest pace and will therefore have a marginal effect on overall CPI when set against a similarly small decrease a year earlier,” she said.

“In fact, its impact ought to be neutralised by the uprating of duty rates on both wine and high-strength cider by RPI that was announced in the Autumn Budget.”

Services inflation is expected to be steady at 2.5%, without its usual boost from the half-term holidays.

Wednesday’s inflation figure follows weak manufacturing output in February, when the Markit/CIPS UK manufacturing purchasing managers’ index showed it fell to a four-month low.

The rate of job losses in the industry also grew, hitting a six-year high amid low optimism.

The February CPI rate will be the first to include goods added to the ONS’s representative basket, which reflects changing consumer habits.

Last week the agency announced the inclusion of baking trays, owing to the popularity of The Great British Bake Off.

Smart speakers, flavoured tea and electric toothbrushes also made it on to the list, while washing powder and envelopes were scrapped.08

Australian oil and gas event ‘presents new opportunities’ for UK subsea firms

The Australasia Oil and Gas Conference (AOG) is Australia’s largest oil and gas exhibition, and Subsea UK attended the event with five member companies to promote UK expertise and learn about the opportunities in this continent.

Neil Gordon, chief executive of Subsea UK, shares his thoughts on the three day event.

This year’s show was very positive compared to recent years.

The Australian market had been badly affected by the downturn.

Prior to that, the industry had seen more than $260billion of investment over 10 years in big capital projects. However the downturn came as many of those developments were nearing completion.

As a result, the region is now going through a transitional period, moving from a CAPEX intensive phase into an OPEX environment.

This presents new opportunities for the future of the industry and there was a definite feeling of optimism at AOG.

At the end of last year, Australia overtook Qatar to become the world’s largest exporter of Liquified Natural Gas (LNG), and has set out to establish Western Australia as a global LNG hub.

This development, and the region’s investment into the offshore industry, present opportunities for UK companies.

With much of the major infrastructure now in place, the region is focussing on the operations and maintenance of these assets.

With this comes ongoing opportunities for the subsea industry, in particular, because of the nature of LNG operations, there will be a constant requirement to add new subsea tiebacks over the next 20 to 30 years.

The major infrastructure developments require subsea tie-backs to be added to maintain the constant volume of LNG required to “feed” the facilities within their optimum operational windows.

In many cases, although the North Sea is a much more mature province, the technological challenges being faced are very similar and the UK subsea sector has the experience and expertise to help provide the solutions.

There are however some unique challenges to the region which include large pipelines over great distances with some challenging seabed conditions.

Due to the geographical spread and distances between operations across the basin, there is a need for innovative technology to help make maintenance of the assets as efficient and cost effective as possible.

As a recognised global hub for subsea engineering, there is potential for UK SMEs to work with companies in Australia to deliver solutions to these challenges through the development of new technology and innovation.

All of these elements mean that the Australian market is a very attractive one for UK companies.

The five member companies who travelled to AOG with Subsea UK – Rotech Subsea Limited, Ashford Instrumentation Limited, Viper Innovations Limited, Neptune Engineering and Vulcan SFM – reported positive conversations along these veins at the exhibition. I am very optimistic that this will have opened doors and created opportunities for them.

As well as forging new relationships, attending AOG is about sharing knowledge. I was invited to give a presentation at the Collaboration Forum and participate in a discussion exploring the future of jobs in oil and gas.

In this session, I highlighted some of the work OPITO and Robert Gordon University are doing around UKCS Workforce Dynamics which looks at the changing skills requirements for the industry over the next 20 years with a focus on the future impact of digitalisation across the sector.

This is an issue being faced across the industry as companies look to develop new skills to keep up with the next steps in digital innovation such as remote intervention, automation, robotics and artificial intelligence. Ensuring there is a strong workforce for the future with the right skills is vital for the region as it seeks to capitalise on the opportunities and investment in projects.

As a greenfield basin moving to brownfield, Australia is looking to learn from the experience and lessons learned from operating ageing fields. As a result, there is a thirst for knowledge from the UK and Norway in terms of best practice and determining the factors for success.

With all this in mind, the coming years are going to be interesting for Australia and will continue to present exciting and profitable market opportunities for UK companies.

Subsea UK is one of the partner organisers of the AOG Subsea Forum Conference along with SEA (Subsea Energy Australia) and SUT (Society of Underwater Technology).

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UK invests £1.7m in two Kenyan solar energy plants

The government is investing KES220 million (£1.7m) in the development of two solar energy plants in Kenya.

The Foreign and Commonwealth Office is providing the money through InfraCo Africa, a private infrastructure development group (PIDG) company, for the solar facilities in Smburu and Transmara, each with a capacity of 10MW.

Work is also underway to explore the potential for one or both of the projects, which will boost access to green electricity in the rural Kenya, to take part in a local currency power purchase agreement (PPA) pilot.

The new projects will support the Kenyan Government’s ambition to achieve universal electricity access by 2022.

Minister for Africa Harriett Baldwin said: “Transforming Energy Access is using the UK’s expertise in technology and finance to provide power for people across Africa and tackle one of the world’s biggest challenges, climate change.

“The UK Government’s investment in clean energy and waste reduction for people and businesses will help millions of people across Africa. It’s a win for the developing world and a win for the UK.”

The announcement follows the government’s pledge to invest £30 million in energy access projects across Africa.

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Australian oil and gas event ‘presents new opportunities’ for UK subsea firms

The Australasia Oil and Gas Conference (AOG) is Australia’s largest oil and gas exhibition, and Subsea UK attended the event with five member companies to promote UK expertise and learn about the opportunities in this continent.

Neil Gordon, chief executive of Subsea UK, shares his thoughts on the three day event.

This year’s show was very positive compared to recent years.

The Australian market had been badly affected by the downturn.

Prior to that, the industry had seen more than $260billion of investment over 10 years in big capital projects. However the downturn came as many of those developments were nearing completion.

As a result, the region is now going through a transitional period, moving from a CAPEX intensive phase into an OPEX environment.

This presents new opportunities for the future of the industry and there was a definite feeling of optimism at AOG.

At the end of last year, Australia overtook Qatar to become the world’s largest exporter of Liquified Natural Gas (LNG), and has set out to establish Western Australia as a global LNG hub.

This development, and the region’s investment into the offshore industry, present opportunities for UK companies.

With much of the major infrastructure now in place, the region is focussing on the operations and maintenance of these assets.

With this comes ongoing opportunities for the subsea industry, in particular, because of the nature of LNG operations, there will be a constant requirement to add new subsea tiebacks over the next 20 to 30 years.

The major infrastructure developments require subsea tie-backs to be added to maintain the constant volume of LNG required to “feed” the facilities within their optimum operational windows.

In many cases, although the North Sea is a much more mature province, the technological challenges being faced are very similar and the UK subsea sector has the experience and expertise to help provide the solutions.

There are however some unique challenges to the region which include large pipelines over great distances with some challenging seabed conditions.

Due to the geographical spread and distances between operations across the basin, there is a need for innovative technology to help make maintenance of the assets as efficient and cost effective as possible.

As a recognised global hub for subsea engineering, there is potential for UK SMEs to work with companies in Australia to deliver solutions to these challenges through the development of new technology and innovation.

All of these elements mean that the Australian market is a very attractive one for UK companies.

The five member companies who travelled to AOG with Subsea UK – Rotech Subsea Limited, Ashford Instrumentation Limited, Viper Innovations Limited, Neptune Engineering and Vulcan SFM – reported positive conversations along these veins at the exhibition. I am very optimistic that this will have opened doors and created opportunities for them.

As well as forging new relationships, attending AOG is about sharing knowledge. I was invited to give a presentation at the Collaboration Forum and participate in a discussion exploring the future of jobs in oil and gas.

In this session, I highlighted some of the work OPITO and Robert Gordon University are doing around UKCS Workforce Dynamics which looks at the changing skills requirements for the industry over the next 20 years with a focus on the future impact of digitalisation across the sector.

This is an issue being faced across the industry as companies look to develop new skills to keep up with the next steps in digital innovation such as remote intervention, automation, robotics and artificial intelligence. Ensuring there is a strong workforce for the future with the right skills is vital for the region as it seeks to capitalise on the opportunities and investment in projects.

As a greenfield basin moving to brownfield, Australia is looking to learn from the experience and lessons learned from operating ageing fields. As a result, there is a thirst for knowledge from the UK and Norway in terms of best practice and determining the factors for success.

With all this in mind, the coming years are going to be interesting for Australia and will continue to present exciting and profitable market opportunities for UK companies.

Subsea UK is one of the partner organisers of the AOG Subsea Forum Conference along with SEA (Subsea Energy Australia) and SUT (Society of Underwater Technology).

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Up to £2.5bn a year potential energy savings for small businesses

The government has launched a call for evidence on various proposals for a new Business Energy Efficiency Scheme

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£100m tab for failed energy suppliers

Energy suppliers may face another big Renewables Obligation (RO) bill after a spate of market exits.

Cornwall Insight forecasts a potential shortfall in the RO Buyout Fund of up to £43.8m for 2018-19.

Under the Renewables Obligation, energy suppliers are obliged to buy a certain amount of power from renewable sources. If they do not, they pay into a buyout fund.

The cost of the RO is added to the customer bill and the suppliers then pay into the fund at the end of the year. The problem is, many of the 14 small suppliers that have gone bust since the start of last year spent the RO money.

The resulting shortfall is mutualised – or smeared – across all other suppliers. It was £58.6m light for the 2017-18 period, leading Ofgem last November to announce it was tightening rules for new market entrants. Within days, several more firms that owed millions in RO payments had ceased trading.

Solvent suppliers picked up that tab. Should Cornwall’s estimates prove correct, it will mean customers end up paying around £100m in total through their energy bills, effectively subsidising the unsustainable prices with which the failed suppliers gained customers.

That will add further pressure to smaller suppliers already struggling with cashflow issues, rising prices and tougher terms imposed by traders in the wake of market failures.

Meanwhile, renewable generators that qualify for RO payments will have to wait many months longer to get paid the full amount they are due, said Cornwall Insight team lead, Tim Dixon.

Dixon urged policymakers to think about collecting payments more regularly to avoid repeat episodes.

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Tory energy failures ‘raise fears of energy shortage and lights going out’

Britain will struggle to keep the lights on and could face power cuts after the government has cancelled crucial energy projects, Labour have warned.

Labour’s Shadow Energy Secretary Rebecca Long Bailey said the government risked failing “in one of the first duties – keeping the lights on”.

The government has scrapped nuclear power plants planned for Moorside, Cumbria, Wylfa Newydd in Anglesey, and Oldbury, Gloucester all in the last six months.

They would have generated enough power for 17 million homes.

Tory Ministers also killed off plans for the world’s first tidal lagoon power plant in Swansea Bay – enough to power nearly 150,000 homes each year.

Ms Long Bailey continued: “When the Wylfa plant was cancelled Greg Clark announced an energy white paper for summer 2019 – six months down the line.

“That’s the sign of a Government absorbed in its own meltdown, not the real issues facing our country.

“Ministers should come clean to the public about the gaping hole in their plans and what that means for our energy security.

“Labour has been consistent in its support for nuclear as part of our energy mix, calling on the government to take a public stake in new nuclear projects. We would end the short-sighted and ideological Tory ban on onshore wind and mobilise huge investments in renewable energy.”

The Government’s ban on onshore wind, introduced in 2015, is blocking nearly 800 shovel-ready onshore wind projects – enough to power more than three million homes each year.

The combined lost capability would have been enough to quarter 20 million homes – or three-quarters of the UK’s households – Labour said.

A Conservative spokesman told The Sun : “The UK’s energy security is at its highest level in five years. Today and in the past, governments of all colours have understood they have a duty to ensure security of supply whilst protecting taxpayers and consumers.

Jeremy Corbyn’s energy policies would saddle families with sky high energy bills by committing billions of pounds to renationalising vast swathes of the energy system – leaving families with nowhere to turn if things went wrong.

“Last week through our modern Industrial Strategy the government committed to a third of UK electricity being produced from offshore wind by 2030.”

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African energy gets £30 million UK aid boost

The finance aims to give people and companies across Africa improved access to affordable, clean electricity