IN BRI EF NEW S
The relationship between the UK energy network companies and the public will radically change according to the latest work by global energy consul- tant KEMA. Commissioned by Energy Networks Association (ENA), the studies* show that the energy networks will be key to empowering the public to make the right decisions about energy in the future. ENAChief Executive David Smith explained: ‘The network compa- nies will increasingly come into contact with energy consumers. Initially this will be through the roll-out of smart meters. But beyond this there opens up a world of new relationships between networks and customers. This is not about the spy in the fridge. It is about the public being empowered to manage energy resources more efficiently and more effectively. It will be up to all of us to communicate this message.’ *The two reports produced by KEMA looking at The opportunities for demand response and Strategic issues and action planning are available to download from the ENA website at
http://2010.energynetworks.org/reports
The UK government has given the go- ahead for RWE npower proposals to construct a new gas power plant at Willington, South Derbyshire. The sta- tion will be built carbon capture ready. If built, the combined cycle gas turbine (CCGT) plant will take about three years to construct and will be located on the site of the former Willington A and B power stations which closed in the 1990s. The plans are for a new power station comprising of up to four CCGT generating units, each around 500 MW in capacity, and four open cycle gas turbine (OCGT) generating units with a combined capacity of 400 MW – bringing a total capacity of up to 2,400MW. This brings the total new capacity consented by the government since May to 5,456MW.
EUROPE
Ongoing fears regarding the safety of Japan’s nuclear power plants fol- lowing the devastating earthquake and tsunami on 11 March has prompted European Union countries to announce safety reviews of their nuclear power plants. Germany, for example, is understood to have shelved a plan to extend the opera- tional life of seven nuclear reactors that were built before the end of 2008, which currently account for some 35% of Germany’s total nuclear power generation capacity and 8% of total power generation capacity from all energy sources.
PETROLEUMREVIEW APRIL 2011
Ofgem has unveiled how the new per- formance-based RIIO (Revenue= Incentives+Innovation+Outputs) frame- work will encourage the £30bn of investment and innovation required for the UK’s gas and electricity transmission and gas distribution networks to meet environmental targets and secure energy supplies, while delivering long- term value for money for consumers. The price controls for these networks will run from 2013–2021. Ofgem believes that a ‘carrot and
stick’ approach of strong incentives and penalties stimulate greater efficiency from the companies. Successful compa- nies that deliver will be rewarded. Any that do not will be penalised. The package will include funding to encourage innovative investment solu- tions at low costs for consumers. To encourage greater innovation, Ofgem will set up a £400mn fund for the trans- mission and gas distribution companies. This is based on the successful Low Carbon Networks Fund already in place for electricity distribution networks. Full details of the RIIO will be pub-
lished in a Strategy Decision Document at the end of March. Companies will then have to put together detailed busi- ness plans informed by their stake- holder engagement and submit these to Ofgem before the end of July. The regu- lator will only be able to agree a price control settlement with a company once it is satisfied that its business plan pro- vides good value for money for con- sumers and contributes to a low carbon future. Key features include:
• Sustainability embedded in business planning. Network companies must outline the strategy they will use to ensure they play a full role in deliv- ering a sustainable business sector.
• Environment focused output mea- sures. Ofgem’s proposals also include a suite of measures to promote timely connection of new sources of energy, reduce greenhouse gas emissions, reduce the visual impact of the net-
downstream Revenue = Incentives+Innovation+Outputs
works, and reduce the companies’ own business carbon footprints. These will be worth around £700mn over the control period across the transmis- sion and gas distribution sectors.
• A new broad environmental measure. There will be a reputational incentive on promoting low carbon energy flows. For the electricity transmission companies, it is intended to introduce a financial reward to facilitate a greater contribution to the UK’s envi- ronmental objectives. Ofgem intends to consult further on the operation of this mechanism.
• Financing new investment. Ofgem remains committed to ensuring effi- cient companies can raise the debt and equity finance they need to invest in safe and secure future networks and that they are remunerated appro- priately. The strong financial package Ofgem is setting out includes (1) Asset lives – to ensure fairer sharing of the cost of assets between present and future consumers, new electricity transmission assets will be depreciated over 45 years. Existing electricity assets will continue to be depreciated over current lives (20 years). This policy will also apply to electricity distribution companies from 2015, the beginning of the next price control period. All post-2002 gas assets will continue to be depreciated over 45 years. (2) Depreciation – post-2002 gas distri- bution assets will be depreciated on a front-loaded basis, not just new and pre-2002 assets as was the position in December. There is no change in the depreciation profile for gas transmis- sion. (3) Cost of equity – Ofgem is set- ting an indicative range of 6–7.2% which it expects to inform the compa- nies’ business plans. (4) Cost of debt – Ofgem is providing greater certainty by using an index for determining the allowed cost of debt. It is proposing to use the iBoxx non-financials 10+ maturity index, which is more repre- sentative of the companies’ debt costs than its previous proposal.
European low carbon roadmap
Commenting on the 2050 low carbon roadmap published by the European Commission (EC) in March, Energy and Climate Change Secretary Chris Huhne said the roadmap ‘must be a first step towards Europe setting a clear, cost-effective and ambitious plan to decarbonise its economy.We need a pathway that stimu- lates jobs and growth as well as reducing Europe’s dependence on fossil fuels from other countries. The roadmap shows that Europe’s current 20% target for 2020 isn’t enough or cost effective, and shows that Europe has already got the policies and the tools to cut emissions by 25% at home. This makes the case for going to 30% stronger and more urgent.’ For further information about the Roadmap for moving to a competitive low-carbon economy in 2050, visit
http://ec.europa.eu/clima/policies/roadmap/index_en.htm
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