Energy Update – December 2013
Print newsletter13/12/2013

Incentives Update
Further to our Energy Update last month, there have been a number of recent announcements […]
Further to our Energy Update last month, there have been a number of recent announcements worthy of note. As ever, developments continue to be fast-paced but the following may provide some season’s cheer to some in the sector.
CfD Strike Prices Update
On 4 December DECC published its ‘Contracts for Difference contract terms and strike prices’ update.
In our article ROCs or CfDs – the choice is not clear cut we considered the draft CfD strike prices published by DECC and evaluated the risk profiles between CfDs and the Renewable Obligation (RO). DECC has now set the strike prices for 2014/15 – 2018/19, declaring that “CfDs will make it cheaper to deliver low-carbon generation by lowering the cost of financing projects; reductions that cannot be achieved through existing policy instruments, such as the RO.”
DECC therefore appears to be confident that the strike prices will provide sufficient investor and industry certainty, but how certain really is this? The following table sets out the draft strike prices and the confirmed strike prices in red where they have changed (however it is noted that these are in all cases maximum strike prices and that the actual strike price may be determined with reference to the constrained allocation process if that is a lower value).
The announcement also includes some “key points on contract terms” which confirm that the overall approach to the standard CfD contract term will be for 15 years for renewable technologies, with payments indexed to inflation and obligations relating to the timing of delivery of the contracted capacity. The following has also been confirmed which the Government says supports “the ability of developers to bring forward investment at lower cost to consumers”:
Developers will be allowed to reduce their proposed capacity after signature of the CfD to allow for refinement of plans, and problems during construction and commissioning.
Developers will be protected by contract provisions anticipating certain unexpected events including delays caused by connection, geological conditions and environmental issues.
There will be extended protection in respect of change in law to include revenue adjustments should the generator be prevented from generating without receiving reasonable compensation. There will also be strike price adjustments to compensate for changes in charges covering transmission losses and balancing services costs.
The Government will provide generators with the option to switch to a year in advance reference price when it is introduced.
The announcement has placed a bit more flesh on the CfD bones however the industry will still be keen to see further detail in the publication of the EMR Delivery Plan later this month.
Non-Domestic RHI Tariff Update
The Government has also published an update to the non-domestic RHI tariff. In summary, support will be increased for renewable CHP, large biomass boilers (over 1MW), deep geothermal, ground source heat pumps, solar thermal and biogas combustion. It was also announced that there will be new support for air-water heat pumps and commercial and industrial energy from waste. The Government has made it clear that the revised tariff figures are now based on “refreshed market intelligence” rather than the pre-scheme expectations.
*These tariffs are subject to an inflation based increase in April 2014 (RPI linked) but may also be subject to degression before April 2014 in accordance with the current budget management policy.
**CHP will continue to be eligible under the large biomass tariff, which includes the proposed increase from 21st January 2013, until it becomes eligible under the dedicated CHP tariff from the date of publication.
The new tariffs will apply from Spring 2014 (anticipated to be 1 April), subject to the usual Parliamentary processes and state aid approval.
2014 will also bring the full review of the RHI and stakeholders may take some comfort from the Government’s announcement that they intend to “avoid making any changes to the new tariffs set out here and not to open up fundamental questions regarding the tariff setting methodology.”
Feed-in-Tariff Review for Small Scale AD?
Greg Barker has announced that the Government will consult on measures, including the possibility of a tariff review, to ensure that the small-scale anaerobic digestion sector is not ‘unfairly disadvantaged’ by the anticipated Feed in Tariff (FIT) degression for <500kW anaerobic digestion (AD) plants. This news follows earlier confirmation from DECC that the capacity trigger for AD plants of this scale had been reached and therefore that degression would be initiated in April 2014.
Whilst the Government has noted that the legislative timetable means that no action can be taken before the January announcement of the 20 per cent. degression to the FIT (due to take effect in April 2014), the industry has very much welcomed the news. The review acknowledges flaws in the FIT degression model for AD (largely that greater capacity plants have contributed towards the trigger point, leaving the genuine small-scale AD sector “yet to reach its full potential”), but that Greg Barker’s announcement “gives the Government a good chance of fixing the situation”.

National Infrastructure Plan 2013 – Energy aspects
Overview of the National Infrastructure Plan 2013 On 4 December 2013 the Government published the […]
Overview of the National Infrastructure Plan 2013
On 4 December 2013 the Government published the latest version of the National Infrastructure Plan (the Plan), which was referred to by the Chancellor in his Autumn Statement the following day. The Plan identifies the Government’s Top 40 priority investments, which will be given their own dedicated ‘hot desk’ in Infrastructure UK and will be tracked by a new Major Infrastructure Tracking Unit.
The Plan:
- Sets out the Government’s overall vision for UK infrastructure and the need for investment (Chapter 1)
- Analyses the state of the UK infrastructure in 2013 (Chapter 2)
- For each sector (transport, energy, communications, waste, flood, water, intellectual capital), defines its strategic objectives, policy approach, key outcomes, upcoming policy milestones and the priority investments that are central to the achievement of those objectives (Chapter 3)
- Outlines the Government’s policy approach to local infrastructure (Chapter 4)
- Goes into detail on each of the key investments identified for each sector (Chapter 5)
- Defines where finance gaps remain and the action the government is taking to address them (Chapter 6)
Sets out ways the Government will make it easier to deliver infrastructure, including changes to the planning system and the judicial review process (Chapter 7).
Energy aspects of the Plan
The UK’s primary energy supply is currently met from the following main sources:
- natural gas (35 per cent)
- oil (32 per cent)
- coal (20 per cent)
- nuclear (7 per cent)
- biomass and waste (4 per cent)
- wind, hydro and solar photo-voltaic (1 per cent)
Electricity accounts for 19 per cent of energy consumption. The closure of old power stations means that the margins will reduce to between 2 and 5 per cent in 2015-16, increasing the possibility of a disruption to supply. Large scale investment in gas and low carbon technologies is therefore vital.
Figures in Chapter 2 show that energy projects have the largest pipeline of investment by value (over £215 billion, up from £176 billion in last year’s Plan). There are 275 energy projects and 40 programmes. Of these, 90 are in the scoping phase, 55 in planning, 81 have had consents approved, 54 are under construction and 35 are active.
Key policy milestones
The Plan has a handy table of key energy policy milestones
In terms of selecting energy projects, the Government seems content to leave it to the private sector to bring forward suggestions, rather than forcing particular energy projects (other than nuclear).
The following energy projects are in the Top 40 priority investments (which are numbered and grouped by sector rather than in order of priority):
*SI = strategic importance: project delivers a significant contribution towards a wider strategic objective or government target
CV = capital value: project is of significant size / capital value within a wider investment programme
There is further detail on all these projects in the Appendix to the Plan.
Chapter 6 of the Plan emphasises the Government’s measures to combat the ‘finance gap’ where there is not enough private finance for a project, and mentions the UK Guarantees Scheme and the Green Investment Bank as ways in which the Government is continuing to help finance energy and energy efficiency projects.
Changes to planning and judicial review
Chapter 7 of the Plan announces that the Government is launching an overarching review of the Nationally Significant Infrastructure Project regime and will be setting up a specialist planning court to speed up the handling of cases, and will also introduce legislation to ensure that minor procedural claims are dealt with proportionally and allow appeals to ‘leapfrog’ directly to the Supreme Court in a wider range of circumstances. The Ministry of Justice will report further in January 2014.
In terms of local planning, the Government will consult on introducing a statutory requirement to put a Local Plan in place and will legislate so that where a planning authority has failed to discharge a condition on time it will be treated as approved. It will also consult on using legislative measures to strengthen the requirement for planning authorities to justify conditions that must be discharged before any work can start.
Comment
Energy and transport seem to be the two key sectors which the Government expects will drive the UK’s infrastructure growth. With a large pipeline of projects and Government help to close the funding gap, energy sets to remain crucial to the UK economy.