26/08/2019: Questions, not answers

Last week, two important reports dominated the media headlines. First there was the release of the Interim Technical Report from National Grid ESO assessing the cause of the power failures on 9 August. This was followed on Thursday by the Science and Technology Committee’s report on Clean Technologies.

Ofgem published the first of these on 20 August, looking into the power failures that occurred on 9 August 2019 disconnecting over 1mn customers from the network. National Grid ESO had delivered its Interim Report the previous Friday, the 16th, and attributed these to a lightning strike on a transmission circuit. The report said: “two almost simultaneous unexpected power losses at Hornsea and Little Barford occurred independently of one another – but each associated with the lightning strike.” The protection systems on the transmission system operated correctly to clear the lightning strike and the associated voltage disturbance was in line with what was expected. But the strike also initiated the operation of loss of mains protection on embedded generation in the area and added to the overall power loss experienced.

While the report was taken as demonstrating an orderly response by National Grid, the industry’s reaction has been to suggest it creates more questions than it answers. Richard Black, director at the Energy and Climate Intelligence Unit (ECIU), in an excellent critique* said that the report raised “several important questions”, chief among them being how a lightning strike caused two generators to take themselves offline given, as the report states, that strike was dealt with in a routine fashion. But there was general agreement with his view that the report “makes clear however that the power cut cannot be blamed on the increase in renewables, as some people have claimed; multiple factors were involved, so highlighting just one is misleading.”

Meanwhile the regulator has launched an investigation into the power cuts. It announced the same day that the investigation will seek to establish whether any of the parties involved (National Grid ESO, National Grid Electricity Transmission, the distribution network operators in England and Wales, as well as generators RWE Generation (Little Barford Power station) and Orsted (Hornsea)) breached any licence conditions. It will also liaise with other parties, including the rail regulator, to try to understand why the cuts proved so disruptive.

Ofgem will initially focus on the ESO’s requirements to hold sufficient back-up power to manage the loss of generation supplies; and whether distribution network operators complied with their low frequency demand disconnection obligations and the circumstances leading to the loss of power to critical infrastructure. But what is becoming clear is that many of these arrangements were set in place years ago and almost certainly do not reflect the transitioning system over recent years.

Some reported that this was a sign of Ofgem showing its teeth, but give the level of disruption that ensued and evident political concerns, this seems to be a logical response. And some have asked the question: is the regulator investigating a system which its own actions or inactions have made less resilient than it might be?

Looking ahead, National Grid ESO will be producing a Final Report expected on the 6th September, with the E3G report for ministers to be delivered early autumn. No clear timetable has been set out for the Ofgem investigation.

On Thursday of this week the Science and Technology Select Committee published its report Clean Growth: Technologies for meeting the UK’s emissions reduction targets. The committee is chaired by local MP Norman Lamb.

The report has an expansive sweep and highlighted ten key areas of shortfall as well as ten recommendations to ensure the UK can achieve net zero by 2050. They span across heat, transport, power, energy efficiency and greenhouse gas removal with decarbonising heat listed as the number one priority. Other key areas include ensuring strong policy support for onshore wind and solar power, bringing forward the ban on new ‘conventional cars’ to 2035, introducing new incentives for energy efficiency home improvements, greater clarity on carbon, capture usage and storage, and financial support for local authorities. It also called on electricity distributors to adopt the NGESO target of a net zero grid by 2025.

A particular area of interest for us is the recommendation that the government must ensure that it reviews the functioning of the Smart Export Guarantee (SEG) scheme by the end of 2020. It should be ready to include a minimum price floor if there is evidence of a lack of market competitivity—for example, if uptake of tariffs is not significantly greater than the current number of tariffs or if the tariffs offered are significantly lower than wholesale electricity price.

All in all, I think this is a very good report with lots of very sensible recommendation – including the SEG one – for the government to consider. We are not, however, expecting an early formal response.

Also last week Liberal Democrat Leader Jo Swinson announced her shadow cabinet on Wednesay 21 August, appointing Sir Ed Davey as Shadow BEIS Secretary, as well as Shadow Chancellor of the Exchequer. Ed was, of course, the Secretary of State for Energy and Climate Change from 2010 to 2015 during the Conservative-Liberal Democrat coalition government, and he has since worked with us as part of Pixie Energy’s local market work before he returned to parliament in 2016. Responsibility for speaking on climate change remains with Wera Hobhouse.

On the regulatory front, Ofgem announced last Monday that it has appointed NERA Economic Consulting to assess the options for the future of its liquidity policy. This will investigate whether current interventions designed to support liquidity – essentially the Secure and Promote licence conditions – will continue to be required, and if so, whether they can be improved. The three-month project will also consider a range of options, including suspending the current market-making obligation without replacement, re-designing it, or creating a tendered market maker role.

The review is very necessary as the obligation imposed on the then Big Six utilities in early 2014 is clearly out of date given sectoral change in generation ownership since. At the same time the rise of the independent suppliers and their ability to grow their businesses and manage the associated risks is highly dependent on liquid wholesale markets.

There’s nothing particularly notable to report on Smarter Norwich and related projects from last week, but I am hoping to have something more positive to report next week. Meanwhile I am fast approaching 600 followers on twitter – please follow me at @newangliaenergy if you don’t already – and Blackpool FC continues its great start to the new season with two very credible away draws at Gillingham and Rochdale.

* https://eciu.net/blog/2019/power-cut-five-big-questions