21/08/2019: Thunder and lightening

There were two standout issues last week. The first was the “shock” challenge to BEIS third allocation round (AR3) for Contracts for Difference (CFD); the second was continuing speculation about the causes of the 9 August blackout.

BEIS confirmed that a legal challenge had been made to AR3 on Wednesday. This came as something as something as a thunder clap for those bidding. Wind developer Banks Renewables said the following day that it was the company behind the judicial review, citing the cause as the government’s “present discrimination in favour of offshore wind at the expense of onshore wind and other renewable energy technologies”.

BEIS said it would vigorously resist the challenge, which should see £60mn allocated to new projects for delivery in 2023-24 and 2024-25.  The bidding window was also extended to 29 August.

This development is extremely concerning and more than a little bit spooky, as I had done an April Fool’s Day written a piece on something like this for the Cornwall Insight Daily Bulletin. It ran:

Contracts for Difference scheme halted after EU court ruling

Contracts for Difference (CfD) auctions and payments are to be suspended on state aid grounds following a ruling by the General Court of the European Court of Justice this morning (1 April). The ruling pertains to a case brought by TempsRUs Energy in 1994 over how the Non-Fossil Fuel Obligation, a direct precursor to the CfD scheme, was not technology neutral, and in effect discriminated against demand-side response (DSR).

TempsRUs Energy CEO Barbara Sell said “our challenge has nothing to do with the merits of our argument, but we realized that BEIS’s predecessor, the Department of Energy, had failed to include an impact assessment with its application, so we win”. She added: “There is no reason why DSR can’t meet 100% of electricity demand by 2030 if we all take a bit more care about our energy use and prevent any new generation being built”.

A BEIS spokesperson said the government would be challenging the ruling vigorously but would press on with its third CfD auction.

Swap onshore wind for DSR and Banks Renewables for TempsRUs and, well that’s more or less where we have landed albeit within AR3. And just for completeness I should add that the office got more than a few worried calls and emails in response to the piece at the time. They do say reality can be stranger than fiction!

There was though a more serious point I was trying to get across in April, and that is how easy it is becoming for policy to be (at least temporarily) derailed by legal challenge. There ongoing challenge by Tempus (not TempsRUs) to the Capacity Market (not CfDs) alongside policy and regulatory interventions into the electricity market are causing havoc with revenue streams (not to mention the B***** word), and have shredded investor confidence at a time when we are told low carbon deployment needs to accelerate to meet the new net zero obligations. Its no surprise that many investors are refocusing elsewhere.

At the end of the day, I am sympathetic to the Banks argument that established renewable technologies are being disadvantaged, and with my former colleagues at Cornwall Insight we have been steadily arguing for introduction of a subsidy-free “floor and claw” CfD for onshore wind and solar schemes. But I would question whether this is the best way to expedite policy change in a market where key stakeholders are clearly already seeking to overturn the bar on onshore wind in England and where public opinion is now generally supportive.

There were multiple media reports and technical commentaries on the blackout and its implications. National Grid CEO John Pettigrew welcomed the government’s investigation by the Energy Emergencies Committee (E3C), though probably not as much as his reported £1mn bonus, news of which also inconveniently emerged last week.

E3C met for first time last Monday and will provide a full report to the Secretary of State within 12 weeks. It will:

  • assess direct and secondary impacts of the event across GB electricity networks
  • identify areas of good practice and where improvements are required for system resilience
  • consider load shedding in regard to essential service customers and prioritisation
  • consider timeliness and content of public communications during the incident, and
  • make recommendations for essential service resilience when power disruption occurs.

The media coverage of the events bounced between cock up and conspiracy, with the cockup theorists generally coming out on top. National Grid said power cuts had “nothing to do with changes in wind speed or the variability of wind”, and lightening clearly seemed to play a part at Little Barford. But why the failure of two generators caused such widespread disruption was keenly debated. The implementation of load shedding at the local level also received a lot of scrutiny, including the severe impacts on the railway network, as did levels of system inertia on an increasingly intermittent system.

And, of course, everyone had an opinion on the causes and its rectification, picking over previous load shedding in May 2008 and February 2012. The Guardian also highlighted recent close shaves (although the system worked on each of these occasions), and the battery lobby earned plaudits for its contribution to getting supplies back to normal.

Probably the most readable critique was that offered by Dieter Helm, who argued that really this sort of thing should not happen, which f course is true. He argued the solution is his proposal set out in the Cost of Energy Review for an Equivalent Firm Power auction. But I expect National Grid will take as much notice of that as they did of the last E3C review and its recommendation endorsed by Ofgem in 2009 to reconsider and modernise local load shedding.

Anyway, by the end of the week National Grid had submitted its initial technical report to Ofgem, who sat on it. We will pick up the story from hereon in next week’s review. A further, more detailed report is due to Ofgem by 6 September.

In other news, we now have clarity on ministerial roles within BEIS. Kwasi Kwarteng is confirmed as Energy and Clean Growth Minister and Lord Duncan of Springbank is appointed as Minister for Climate Change. But other responsibilities around innovation and agri-tech now sit with Jo Johnson, and Nadhim Zahawi takes on nuclear, industrial strategy delivery and local growth.

On the regulatory front, Ofgem launched a request for information on the impacts of market-wide half-hourly settlement, with decisions on adoption being pushed even further back.

On the New Anglia Energy front, I have been tweeting about last week’s Elexon meeting on the 13th about steady progress on P370 and my push to allow meter splitting. I have also been supporting Broadlands Housing in applying for funding under UKPN’s Power Partners scheme to enable them to participate in my Smarter Norwich project.

And miracle of miracles re football, both Norwich and Blackpool won on Saturday. Norwich were well deserved winners against the barcodes (3-1), which I had the pleasure of observing, while Blackpool ragged a 2-1 home win over Oxford United. But 3 points are 3 points.

As ever, please follow me on @newangliaenergy if you don’t already and look at the website. There are news posts every day except Sunday.