Today my energy blog, Watt-Logic is two years old!

Another interesting year…

Looking back at what I wrote a year ago proves what I’ve said before about making predictions in this market (or otherwise). Writing just a couple of weeks before the General Election, a large Conservative majority was expected, but clearly not delivered, although we have been living with a hung Parliament without any real drama.

The election promises made by the Conservatives to implement a retail price cap are being implemented with a Bill currently before Parliament, and Ofgem working on designing the mechanics of the cap. The markets are nervous with the shares of the main listed utilities falling on news of the proposals.

energy price cap

Small retailers are beginning to struggle, and there are questions being asked as to how they will manage in an environment of price caps which will undermine their ability to differentiate on price. Some minnows are feeling the effects of a low price/low margin offer, and a number have been forced to close in recent months. Others are facing pressure to address customer services failings amid criticisms that new entrants are being granted supply licences while lacking the robust operational processes to support their businesses.

Coal has continued its decline, with no coal plant firing for more than three days in a row, setting a new record for the second time in a month. Coal also performed badly in the recent capacity auction.

“Britain has clocked up over 72 consecutive hours without the need for coal powered generation. The record comes just days after the first ever two-day period where power generated from wind and gas dominated the mix of energy meeting the needs of electricity users across England, Scotland and Wales,”
– National Grid

However, this followed a period of high coal use in the cold snap in March – a period that also saw the UK exporting to France during two of the six coldest days of the period according to analysis by Imperial College. This comes as no surprise and continues previous trends of exporting during periods of high winter demand.

Energy innovation continues unabated with some ideas such as building-integrated PV being significantly closer to market than others, such as stretchy nano-tubes called twistrons. Recent developments in perovskite technology sound promising for integrating solar power into the fabric of buildings – something that could have a significant impact on the net energy consumption of larger structures in particular.

The impact of digital technologies on the energy sector is another unfolding story, one which will continue to develop over the coming years, although in the short term the risks might be more relevant than the benefits, with the growing threat of cyber attacks on energy infrastructure.

…with regulatory changes coming thick and fast

Regulatory change is high on the agenda, beyond the “big news” of retail price caps. Various changes are making life complicated particularly for battery developers, however the hype continues with Tesla’s record-breaking 100 MW battery farm in Australia.

Interest in electric vehicles is growing with EV charging and the impact on the electricity system coming more into focus. A Parliamentary inquiry is currently underway into the development of the EV market and infrastructure, and the Government recently announced £30 million of funding into innovations into vehicle-to-grid technologies. In the meantime, National Grid is exploring superfast and smart charging solutions.

energy innovationDe-carbonisation of heat is starting to creep up the agenda with a 156-page report from Frontier Economics for BEIS last month on the development of regulatory frameworks for a low carbon gas system (watch this space for more details in the coming days!), as well as an appraisal of domestic hydrogen appliances and a study on hybrid heat pumps all being released on the same day.

Work is ongoing to shape the next price controls for electricity networks with RIIO-2, while National Grid is developing its thinking around its now separated system operator activity as well as changing the way it procures balancing and ancillary services.

“Progress is precisely that which rules and regulations did not foresee,”
– Ludwig von Mises

I spent the morning at the Royal Courts of Justice listening to the final part of the three-day hearing into the challenge brought by Peak Gen and others to Ofgem’s changes to the embedded benefits regime. This has been a fascinating case and it will be interesting to see the conclusions reached by the judge in due course – however, I know better than to try to make a prediction!

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