There’s been a flurry of government activity in the last week or so. The 10 Point Plan, whilst high level and vague in some areas, has set out the ambitions for this government and we are now seeing the detailed policies emerging to deliver that plan.

We set out our views on the 10 Point Plan last week. This week, the Spending Review and the National Infrastructure Strategy (NIS) set out the government’s vision for the energy sector – to be expanded on in the Energy White Paper. And to top it all off, there were some significant policy decisions on the Contracts for Difference (CfD) regime.

Our industry is entering a new phase where we have government commitments to ‘the bulk’ of power coming from renewables, a smart and flexible power system, 600,000 heat pumps a year by 2028, and the end of the internal combustion engine. There is a lot of detail still to be worked out, but the ambition in these new announcements is high. This blog outlines a few of the key policies and our predictions for the Energy White Paper.

Heat and Buildings

  • 600,000 heat pumps/year by 2028.
  • Green Homes Grant extended by one year, plus £320m of additional funding.  The Spending Review gives a little more detail on the cost breakdown between different grant schemes.
  • The NIS explicitly states that government policy is not yet clear on the balance of electrification or hydrogen for heating and provides a path for both.

A controversial element of the 10 Point Plan was the appearance and swift removal of a commitment to the Future Homes Standard, including no new gas boilers, by 2023. This is something that is still being wrangled internally, but positively, the NIS indicated the FHS will be introduced in ‘the shortest possible timeframe before 2025’.

Renewable Generation

  • NIS sets an ‘expectation’ (notably not a target) of 65% of our power coming from renewables by 2030.
  • The next CfD auction round will target 12 gigawatts of capacity in three pots:
    • Pot 1: onshore wind, solar PV, energy from waste with CHP, landfill gas and sewage gas
    • Pot 2: less established technologies, including floating offshore wind
    • Pot 3: offshore wind
  • Auction parameters will not be set until nearer the time, but the announcements are a guide for some targets: 1 GW floating offshore wind and 40 GW offshore wind by 2030 means it’s likely that more than half the remaining capacity will go here.
  • Negative pricing rules have changed: generators will no longer receive payments when the Intermittent Market Reference Price is negative.

Interestingly, both the CfD announcements and the NIS talk about the need to review renewables support and the CfDs in the light of the need to consider “whole system costs” and how they will function in a world of zero marginal cost generation. There are no timelines or policies announced, but veterans of Electricity Market Reform may be feeling a little uneasy that this will turn into a protracted review. The CfD document refers to a forthcoming call for evidence on renewable support which may tie into this broader review.

Transport

  • 2030 ban on new internal combustion engine cars and vans.
  • £1.9bn investment in charging infrastructure and customer incentives, including £950m to increase grid capacity along major roads to meet charging needs.
  • Other key developments include another nod that the tax system will need reform to keep pace with EVs – we expect the Treasury’s Net Zero Strategy will go some way to addressing this.

Storage

  • £1bn Net Zero Innovation Portfolio will include storage, alongside 9 other technologies.
  • £100m for storage and flexibility innovation challenge.
  • Long duration and interseasonal storage are referred to several times and it seems likely that innovation money will  be focussed on this.
  • The Contracts for Difference response dedicates substantial discussion to storage, but comes to no concrete conclusions, committing to working with key decision makers and industry to remove barriers in future allocation rounds.

An increased role for storage and flexible assets is certainly on the cards, but the question of how that fits into the CfD scheme and broader flexibility aims is not yet clear. Ultimately a clearer vision for flexibility as the system decarbonises is vital to solving these problems.

Governance networks and regulation

There is a significant amount dedicated to networks and regulators in the NIS, following on from the National Infrastructure Commission’s review of regulation in 2019.

  • The NIS points to consideration of how the role of government, regulator, system and network operator, and market participants will change over time. The Energy White Paper is expected to set out a new approach.
  • The absence of a statutory duty for Ofgem to prioritise decarbonisation has been highlighted by Regen and many across the industry for some time and we will be continuing to press for this.
  • The NIS is also proposing changes for networks, with the confirmation of long-term rumours of structural changes for the Electricity System Operator, separating it further from the Transmission Operator. This could mean public ownership in some form, and additional roles for the ESO – these will be outlined in the Energy White Paper.
  • One of our recommendations to deliver the 10 Point Plan was to allow network operators to invest properly to enable net zero. The NIS looks like it may be hinting at something similar, with moves to improve how regulators conduct price controls and plans to legislate to improve competition, in a similar way to offshore wind connections.

What to expect from the Energy White Paper

  • Structural reform for the Electricity System Operator
  • Governance changes: setting out the role for decision-makers in the sector
  • Measures to ensure ‘strategic alignment’ of policy (BEIS) and regulation (Ofgem)
  • Changes for network investment decisions, including legislation on competition
  • Clearer plans for nuclear investments

What do we want from the Energy White Paper? 

  • A clear vision of a smart, flexible and high renewables power system
  • A clear direction set out for the role of storage and flexibility role in the system as it decarbonises, with storage defined in legislation and reforms to flexibility markets.
  • Reform of the regulator and the system operator to ensure they are aligned with government policy – for example ensuring our energy infrastructure is ready for more renewables and the electrification of transport and heat.
  • Commitment to annual CfD rounds, including for ‘established technologies’
  • The end of the effective ban on onshore wind in England

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