Capacity Market (CM) Suspended
The European Court of Justice surprised the UK electricity market by ruling Capacity Market (CM) payments constitute illegal state aid. Payments to energy firms under the £1bn capacity market scheme have been halted until the government can win permission from the European commission to restart it.
CM was an important part of the government’s electricity market reform that passed into law in 2013. The CM scheme subsidised owners of coal, gas and other power stations so sufficient plant are ready to ensure that electricity for businesses and homes is available at peak times in winter.
The UK has also been blocked from holding any Capacity Market auctions for energy firms to bid for new contracts to supply backup power in the future. National Grid said ministers had instructed it to indefinitely postpone auctions that had been planned for early 2019. Business and Energy Secretary Greg Clark said the UK government was already in contact with the European commission and seeking state aid approval, so the capacity market could be reinstated.
Medium Combustion Plant Directive (MCPD) Introduced
This is the first deadline imposed by the Medium Combustion Plant Directive (MCPD) which was translated from European into UK law in January 2018. New boilers and generators 1MW to 50MW have to comply with compliance with the new emission limit value for nitrogen oxides of 190mg/Nm3. The “MW” values are measured as thermal input, not electrical output.
This January 2019 deadline may also apply to older generators who have certain capacity mechanism or balancing agreement (STOR) contracts.
One practical issue is making sure that we can continue to trade electricity and gas cross-border, particularly with France. National Grid has assured the industry that cross-border trade is not at risk.
In the last Budget the government set out their plans for replacing the European Emissions Trading Scheme (ETS) which taxes power stations and heavy industry for their CO2 emissions. “In the unlikely event no mutually satisfactory agreement can be reached and the UK departs from the EU ETS in 2019, the government would introduce a Carbon Emissions Tax to help meet the UK’s legally binding carbon reduction commitments under the Climate Change Act.” The tax would apply from 1 April 2019 at £16/tonne.
We believe a hard Brexit could harm the UK economy and further weaken the exchange rate. That could put upward pressure on wholesale energy prices.
Carbon Reduction Commitment (CRC) Ending
Companies that fall under the remit of the Carbon Reduction Commitment (CRC) scheme will be happy to see it abolished for energy consumed after 31 March 2019. The final year CRC payment and final CRC evidence packs will have to be submitted in summer 2019.
Climate Change Levy (CCL) Increasing
Climate Change Levy (CCL) rates go up for all customers on 1 April 2019 to make up for the loss of the CRC tax to the government. The electricity tax goes up from 0.583p/kWh to 0.847p/kWh and the gas tax goes up from 0.203p/kWh to 0.339p/kWh. Heavy users that have a Climate Change Agreement (CCA) will see their discounts go up from 90% to 93% (electricity) and 65% to 78% (gas) to offset the increase in CCL.
The net impact is that costs will increase for most customers but the larger “CRC” and “CCA” customers should be unaffected or better-off in the long-run.
Energy Intensive Industries (EII) Tax Exemptions Extended
The UK government is reviewing responses to its consultation looking into the possibility of widening eligibility criteria for the current exemption schemes supporting Energy Intensive Industries (EII) – potentially lowering the threshold from 20% to 10%. Changes could be introduced as soon as 1 April 2019 for CfD and FiT and 1 April 2020 for RO. An exemption for energy intensive industries (EIIs) from FIT is on target to be introduced from 1 April 2019, subject to EU State Aid approval. The FIT scheme will remain compensation-based until further notice.
Streamlined Energy & Carbon Reporting (SECR) Introduced
New legislation passed on 6 November 2018 will extend carbon reporting from large listed companies to include ≈12,000 large unlisted companies. It will apply “in respect of financial years beginning on or after 1st April 2019” to all quoted companies, and large UK incorporated unquoted companies with 250+ employees or turnover £36m+ and balance sheet £18m+. (Two or more of the criterial apply in a financial year).
Companies will need to report their UK energy use and associated “scope 1 and 2” CO2 emissions and include electricity, gas and transport (road, rail, air and shipping). Further details are in our earlier report.
Feed in Tariffs (FIT) Ending
The FIT Scheme pays smaller renewable energy generators and exporters for electricity they produce for the grid. The plans propose a strict cut-off date of 31 March 2019, with no special provisions for projects in oversubscribed areas. Without the closure, the FiT scheme would continue to see costs to consumers growing.
Medium Combustion Plant Directive (MCPD) Second Deadline
This is the second deadline imposed by the MCPD which was “gold-plated” when translated into UK law to address a particular air-quality risk. It specifically covers existing generators 5MW to 50MW. Again the “MW” values are measured as thermal input, not electrical output. If the generators produce >500mg/m3 NOx (i.e. they are diesels) and they run for >50 hours per year then they need to apply for a permit (process TBC) and may have to pay for a complex air quality model.
Energy Savings Opportunity Scheme (ESOS) Phase 2 Deadline
Approximately 6,800 organisations are required to employ a qualified energy assessor and sign-off and submit their report of energy used in a particular year and the assessors’ views of opportunities to reduce energy consumption. The data gathering and site audits are both time-consuming so organisations should start the process now rather than waiting until 2019.
Beond can support your organisation by advising on all legislation to ensure our clients remain clearly focused on the key issues and opportunities which materialise as the UK energy market continues to evolve and pursue its low carbon agenda and manage the changing nature of the UK generation mix.