The Energy Transition | Ofgem increases energy price cap and application process opens for power BECCS projects

This week we look at the latest increase to the energy price cap, a new application process for power BECCS projects and Octopus Energy and National Grid ESO's vehicle-to-grid balancing trial.

Ofgem increases energy price cap level by 80%

Ofgem has announced that the price cap on default tariffs will rise by £1,578 to £3,549 per year for the typical customer. This amounts to an increase of 80% and applies to those customers who pay a dual electricity and gas bill by direct debit. Standard credit customers (who pay by cash or cheque) will pay an additional £215 per year, taking the cap to £3,764. For those customers using pre-payment meters, the price cap will increase to £3,608, with the typical customer paying an extra £59 per year. The increases will take effect from 1 October 2022 but some suppliers may increase direct debit amounts before this date to help spread costs. This announcement follows Ofgem's recent decision to re-evaluate the price cap on a quarterly basis instead of every six months.
 
The new price cap levels have been calculated by Ofgem as a reflection of the continued rise in global wholesale gas prices, catalysed by the Covid-19 pandemic and exacerbated by Russia's invasion of Ukraine. The cap establishes a maximum price per unit of energy that reflects the cost of buying energy on the wholesale market and supplying it to homes. The price cap cannot be set below the true cost of buying and supplying energy and therefore rises in line with global wholesale gas prices. 
 
Ofgem's announcement also includes additional measures aimed at tightening up rules for suppliers, such as a strengthening of provisions around direct debits to ensure suppliers set them at the right level. This change means that customers' direct debit amounts will be based on the best and most current available information on their energy usage in all cases, preventing suppliers from building up excessive customer credit balances and using them as working capital. Ofgem has also launched a review into the mechanism behind the profit margin available to suppliers under the price cap with the intention of ensuring that suppliers do not earn excessive profits and receive only a fair return for the services they provide to customers. 
 
Jonathan Brearley, CEO of Ofgem, has commented on the impact these increases will have on customers: "The price of energy has reached record levels driven by an aggressive economic act by the Russian state […] Ofgem has no choice but to reflect these cost increases in the price cap. The government support package is delivering help right now, but it’s clear the new prime minister will need to act further to tackle the impact of the price rises that are coming in October and next year. We are working with ministers, consumer groups and industry on a set of options for the incoming prime minister that will require urgent action. The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, government, industry and consumers working together, we can find a way through this."

Government call for submissions from power BECCS projects as part of the CCUS Cluster Sequencing Process

The Department for Business, Energy and Industrial Strategy has launched a call for submissions from power bioenergy with carbon capture and storage (BECCS) projects wanting to take part in the carbon capture, utilisation and storage (CCUS) Cluster Sequencing Process. 

Power BECCS involves biomass power generation alongside the capture and permanent storage of carbon dioxide (CO2). It is a form of greenhouse gas removal technology which have an important role to play in the government's plans to transition the UK to net zero by 2050. This role was set out in the government's net zero strategy (October 2021) and included balancing residual emissions from sectors that are unlikely to achieve full decarbonisation by 2050. As part of the call for submissions, the government states that, "[w]hen undertaken sustainably, BECCS can deliver negative emissions because carbon sequestered in biogenic material is captured and stored after combustion, resulting in a net decrease in atmospheric CO2 overall." 
 
The successful implementation of power BECCS technologies requires significant investment in complementary transport and storage infrastructure. The Cluster Sequencing Process, launched in May 2021, aims to deliver a minimum of two infrastructure clusters by the mid-2020s, and four by 2030 at the latest. Two CCUS clusters - Hynet and East Coast - have already been confirmed, with the Acorn Cluster announced as a reserve. Although originally included in the initial application process for the May 2021 Cluster Sequencing Process, Power BECCS projects were not invited to submit later stage applications due to the relative immaturity of the power BECCS business model. The government has now launched a new power BECCS-specific project submission process, with the aim of bringing forward projects that meet eligibility and pass deliverability assessments onto Track-1 of the May 2021 Cluster Sequencing Process. Projects that are successful will progress to a due diligence and negotiation phase before a final decision is taken on which projects will receive government support and join one of the selected Track-1 CCUS clusters. 

Various objectives have been set for the power BECCS programme, including:

• Providing negative emissions to offset hard-to-decarbonise sectors.
• Being operational by December 2027.
• Delivering the co-benefits of electricity generation and negative emissions.
• Providing sufficient certainty to investors to unlock private sector investment and expertise.

The application window opened on 24 August 2022 and closes on 19 October 2022. The evaluation period will run from 20 October 2022 to 15 December 2022, with a shortlist of projects invited to participate in the due diligence stage being published shortly afterwards. 

Octopus Energy and National Grid complete vehicle-to-grid balancing trial 

Octopus Energy and National Grid Electricity System Operator (National Grid ESO) have successfully carried out a trial which used electric vehicles (EVs) to balance the grid. In a first for Great Britain, the trial demonstrated that vehicle-to-grid (V2G) technology can be integrated into the Balancing Mechanism and used as a primary tool for balancing the demands of the UK's power system in real-time.

In a series of tests run earlier this month, Octopus charged and discharged the batteries of 20 EVs during periods of grid imbalance. Using direct signals from National Grid ESO, the vehicles were charged during times of surplus electricity generation and discharged again during peak hours to help balance the pressures placed on the grid by shifting supply and demand throughout the day.

The trial has demonstrated the potential for EVs to provide a storage solution for renewable electricity which is then exported back to the grid when it is needed the most. Octopus has said that 1 million EVs exporting to the grid for just one hour could generate the same amount of power as 5,500 onshore wind turbines.

The company also estimates that EV users could save up to £840 per year by feeding in to the Balancing Mechanism as compared to unscheduled charging on flat rate tariffs. Over the course of a year, 1 million EVs exporting 20% of their battery volume to the Balancing Mechanism just four times a week could realise a profit of around £62 million, whilst simultaneously delivering savings to non-participating customers via grid balancing cost reductions during a time of record high energy prices.

Claire Miller, Director of Technology and Innovation at Octopus Electric Vehicles, said: “[t]his is a real ‘line in the sand’ moment for V2G tech. We have shown that this technology is capable of helping to balance our future, green grid, to the benefit of people and the planet."

Jake Rigg, corporate affairs director at National Grid ESO commented that: "[t]he next steps for us are to take these learnings and work with industry on how we develop and deploy a balancing mechanism service for V2G. The trial findings will also influence future innovation projects, including the CrowdFlex project we are currently developing with industry, to establish additional routes for consumer engagement in electricity networks.”