In this week’s Energy Perspective, we dissect a week that has seen three suppliers from very different backgrounds effectively stop trading.
With five forced exits from the retail market since November 2016 there is little doubt that suppliers are facing more challenging conditions. However, we believe these events have also brought the operation of the Supplier of Last Resort (SoLR) mechanism to the fore. Ofgem intends to make changes to the SoLR process, but we still await the statutory consultation to bring changes into effect.
We believe that the events of this week will undoubtedly be reflected in this when it does arrive. We also argue that, while recent change has focussed on protecting customers of failed suppliers, the process for interacting with the supplier community is due for reform and the process for potential SoLR parties should also be more transparent. We conclude by suggesting that further supply failures may occur and, as a result, clarity is needed urgently.
POLICY
In this week’s Policy section, we look in more detail at a recent report on the deployment of carbon capture, usage and storage (CCUS) from the CCUS Cost Challenge Taskforce.
The report urges the government to recognise the opportunities presented by CCUS, and says it must act to deliver the technology at scale and low cost. We believe that the information presented in the document, which is both wide-ranging and informative in its scope, significantly ups the ante in the field of CCUS development recommendations for the government to follow.
The section also details the outcome of BEIS’s consultation on the third phase of the Energy Company Obligation (ECO3), which will see the participation threshold reduce to 200,000 domestic customer accounts from 1 April 2019 and 150,000 domestic accounts from 1 April 2020. We argue that, while a reduction had already been announced, this is a major departure from the initial consultation that was not expected.
REGULATION
This week, our Regulation section examines Ofgem’s consultation on moving towards a Significant Code Review to reshape network access and charging. Comprehensive in its detail, the consultation takes in access arrangements, forward-looking charges and cites the regulators seven “desirable features” for future arrangements. We suggest the changes, which won’t occur until 2020 onward, could fundamentally redefine charging and energy supply arrangements for years to come.
This section also analyses the regulator’s inviting of views on electricity DNOs’ submissions for the incentive on connections engagement, particularly the impact of increasing electric vehicle uptake. We believe that while this focus is undoubtedly timely, other areas of focus should also be considered, such as energy storage systems behind the meter.
INDUSTRY STRUCTURE
In our Industry Structure section, we look at Drax’s half-year results, which point to a drop in profits due to unplanned outages. The results highlight the developing retail and pellet arms of the company. We surmise that the generation side is likely to deliver improved performance in the second half of the year.
The section also covers a tranche of industry responses to the government’s consultation on the proposed closure of the Feed-in Tariff scheme and call for evidence on the Future for Small-scale Low-carbon Generation. Several concerns have been raised and, while the call for evidence suggests a last resort route to market, we argue that trade associations are right to be indignant when it is unclear what will happen at scheme close-out in eight months’ time.
NUTWOOD
This week’s Nutwood gives a report on the recent All-Party Parliamentary Group for Renewable and Sustainable Energy (PRASEG) annual conference which took place on 10 July. Under the theme of the opportunities in clean growth, the event saw several industry figures discuss topics such as industry taking a leading role in the energy transition and how best to achieve future carbon budgets and empower local energy.
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