The Energy Transition | UK government considers fixed-price certificates for Renewable Obligation schemes

This week we look at proposals to introduce fixed-price certificates into Renewable Obligation schemes, the Electricity Networks Commissioner's independent report on accelerating electricity transmission, the proposed consumer protection reforms for heat-network customers, and more.

Government considers fixed-price certificates for RO schemes

The government has launched a call for evidence on proposals to introduce fixed-price certificates into Renewable Obligation (RO) schemes from 2027.

The RO scheme incentivises renewable electricity generation by requiring UK electricity suppliers to present a specified number of RO certificates (ROCs) to Ofgem for each MWh of electricity supplied to customers. Renewable energy generators are given ROCs in relation to the green energy that they generate, and those ROCs are then purchased by suppliers in order to comply with their obligations to Ofgem.

Though the RO is closed to new applicants, stations that were accredited prior to the closure will continue to receive support. This support will continue until the final closure of the scheme for some stations (31 March 2037), though stations that were accredited in the early years of the scheme will see support end in 2027.

The government anticipates that ROC prices may become volatile as generating stations start to retire from the scheme. The call for evidence has been issued to consider how to provide cost and revenue certainty for stakeholders. The government is seeking views on:

• the potential models introducing fixed-price certificates within RO schemes from 2027 including the role of a central counterparty and administrator, and the need for trading certificates;
• the frequency and order of generator payments;
• reconciliation system options to ensure funds are available for advanced settlement payments by suppliers;
• the appropriate price for fixed-price certificates and other factors to consider; and
• the timing and need for further consultations to implement a fixed-price model.

The government will also assess whether any changes in legislation are necessary to enable the options stated above. The consultation closes on 9 October 2023.

Electricity Networks Commissioner recommends how to accelerate electricity transmission network deployment

Nick Winser, the commissioner of the UK’s electricity networks, has provided recommendations on how to accelerate the deployment of electricity transmission infrastructure. Winser's findings were supported by the work by Energy Systems Catapult, which simultaneously published its companion report and proposals.

Winser made a total of 18 recommendations in his 4 August letter to the secretary of state, including:

• The creation of a strategic spatial energy plan (SSEP) to forecast demand and supply of energy to assist with future policy and investment decisions;
• Endorsing the UK government and Ofgem's previous commitment to create an independent system operator, the new public body, the Future System Operator (FSO), tasked with planning a decarbonised energy system; 
• The creation of two centralised strategic network plans (CSNP) – one short term and the other long term – to be based on the findings of the SSEP; and
• Ensuring that the Department for Energy Security and Net Zero (DESNZ) provides information including public policy priorities to help with the formulation of the SSEP.

Additional proposals include providing regular updates to the National Policy Statement and National Framework, suggesting that reviews should take place every five years. 

Winser highlighted that the recommendations made could reduce strategic transmission to an estimated seven years if implemented, which will halve the current total development time.

The UK government, in an accompanying press release, stated that it welcomed the recommendations and announced its intention to publish a connections action plan this year, which will touch on the recommendations developed by the commissioner.

Government unveils plans to ensure fairer prices for heat network customers

The UK government announced plans to reform consumer protections for customers on heat networks in the proposals contained in its consultation published on 4 August. The consultation, which is a joint endeavour between DESNZ and Ofgem, also seeks the views of stakeholders on Ofgem's enforcement mechanisms and role in regulating the heat sector.

The consultation identified the importance of heat networks in the UK's route to decarbonisation. In anticipation of the predicted rapid sector growth, it highlights the need for consumers on heat networks to benefit from the same consumer protections afforded to those on gas and electricity contracts. Lord Callanan, minister for energy efficiency and green finance, affirmed in the press release that "[a]s more homes and businesses are connected to these innovative systems, it's only right we ensure consumers are properly protected, pay a fair price for their energy, and are given the best service possible."

Consultation questions are based on provided proposals on how DESNZ is planning to ensure adequate consumer protection, specifically covering "subtopics" including fair pricing, quality of service and supply of heat, and protecting vulnerable consumers. Examples of the reforms proposed include granting Ofgem the power to impose fines on network operators if there is evidence of disproportionate pricing or poor customer service and requiring networks to keep and maintain a register of vulnerable customers.

The consultation on heat networks regulation and consumer protection is to be the first in a series that will assist the UK government with creating policy to regulate the sector. The consultation invites stakeholders to submit responses by 27 October 2023.

New service to expand balancing options for smaller generators

National Grid ESO (NG ESO), UK Power Networks and National Grid Electricity Distribution have developed the Megawatt Dispatch Service to provide a route to grid connection for smaller electricity generators. The service is also intended to manage transmission constraints by obliging distributed energy resource providers to allow "visibility and commercial control" as part of their connection agreement.

The new ancillary service provides that, during periods of system constraint and within two minutes of receipt of a dispatch instruction from NG ESO, the energy provider will reduce the output of their assets to zero. Utilisation payments will then be made to providers for the electricity they would have generated. Failure to meet required performance and response times will lead to the reduction in the utilisation payments for the time that the failure occurred.

This service provides an alternative route for small electricity generators to access balancing options. NG ESO highlighted that the service, “will provide a cheaper alternative to the existing constraint management process used within the Balancing Mechanism, helping to reduce costs for consumers".  

This article was written with the assistance of Amy Lewis and Sophie Myatt trainee solicitors.