Wednesday, 5 July 2017

The Big Six vs local energy providers >>> Or: how to keep new entrants out of the energy market

You could say that control over how you gets your energy is pretty important:
Futures Forum: Local energy can be very profitable: "Seizing the opportunity of decentralised energy generation can provide new income streams for communities and councils."

You could also say that the 'Big Six' energy providers somewhat dominate the market:
Futures Forum: "Community energy offers a long-lasting solution that protects against ‘big six’ price rises and pumps money back into local areas.”

And that there might be various ways of opening up the market:
Futures Forum: How to beat the Big Six >>> deprivatise energy

Including a 'price cap':
Theresa May panned for ditching energy price cap amid claims Big Six are not passing on £150 fall in prices - The Sun
Big six hopes rise as Ofgem is ‘set to limit energy price cap’ | Business | The Times & The Sunday Times
Energy price cap: How the Big Six abandoned their cheapest deals since May suggested price cap - Telegraph

Ofgem, which monitors the energy sector, is proposing to change market conditions:
UK energy watchdog proposes severe subsidy cut to small generators - Decentralized Energy

This is how the Telegraph is reporting things:

Small power plants clobbered by Ofgem subsidy change

Iain Withers 20 JUNE 2017 • 12:15PM

Energy watchdog Ofgem has decided to slash generous subsidies paid to small power plant owners in a move it says will cut consumers' energy bills. Ofgem has cut subsidy payments for small plants producing electricity at peak times from £47 per kilowatt to between just £3 and £7 per kilowatt. The change will be phased in from next year, to be fully implemented by 2021.

The regulator believes the changes will prevent market distortion and reduce consumers' energy bills by up to £370m a year. But small power plant owners immediately criticised the decision, saying it would threaten the UK's ability to keep the lights on and deter smaller players from entering the market.

Mark Draper, chairman of the Flexible Generation Group, said: "This decision poses a significant challenge to our growing industry and makes it even more difficult for new entrants into the energy market to compete with established players. Its impact will inevitably push up prices for consumers, stifle innovation and investment in the energy sector and put existing Capacity Market agreements at risk, threatening security of supply."

Mr Draper said his organisation was "considering our options" regarding potential challenges to the decision.

The Government had previously backed the move as it wants to see a new generation of big gas plants built.

The drastically reduced band of possible subsidy payments is only slightly more generous than the proposed £2 per kilowatt recommended by Ofgem in a consultation paper in January.

The current network charging system affords benefits to small power plants that are not available to bigger players. It has led to a boom of small generators, including polluting diesel generators, which thanks to the subsidies have been able to undercut larger rivals.

Dermot Nolan, chief executive at Ofgem, said: "We are concerned that the current level of the payment is distorting the market and is set to increase further. Our role is to protect customers and make sure costs are kept as low as possible. That is why we are taking action by reducing this payment."

Small power plants clobbered by Ofgem subsidy change - Telegraph

And this is how the 10:10 campaign group is reporting things:

The empire strikes back: how the Big Six are quietly stitching up local energy

5 July 2017

Local energy is the future. But the Big Six don’t like it. Now they’ve used their influence over the regulator, Ofgem, to make yet another stand against the tide of change.

The truth is that the energy system is complicated. It is also dominated by the Big Six energy suppliers. To challenge the latter, we need to get to grips with the former

The latest example of this is a recent decision by Ofgem, the energy system regulator, to dramatically cut payments known as ‘embedded benefits’ to local energy projects. Let us explain...

For most of the post-war period, energy has come from hulking great power stations - owned first by the state and later by privatised energy companies - the Big Six. Now, things are changing as citizens, community energy groups, the public sector and smaller private developers invest in local renewables like wind and solar.

Because these projects are smaller and spread across the country, they produce power closer to where people actually live.

This means we need less energy from the big (mainly fossil fuelled) power stations. And that means we use the big overhead power lines (known as the ‘transmission network’) less to transport energy from those big power stations to local areas.

This is broadly a good thing for energy consumers - it means that the costs of running the transmission network are lower because it requires less maintenance and fewer upgrades. As a result, local generators receive rewards for producing energy locally at peak times - like early evening. These are called ‘embedded benefits’. These are not subsidies, they are rewards for lowering the overall cost of electricity to the consumer.

Adding more local energy challenges the profits of the owners of the big power stations - the Big Six. Simply put, cheap renewable energy reduces the prices power stations can get for their energy.

But the empire strikes back

Unsurprisingly, the big boys aren’t so keen on this challenge. After all, their traditional dominance of the energy system (AKA how they make money) is at stake.

If embedded benefits are cut, local energy projects wouldn’t be as attractive to build - and the growth of local (mostly renewable) energy could be slowed.

Well, that’s just what has happened. The largest component of embedded benefits will be cut by 95%, removing revenue from existing - and future - local energy projects.

This is a direct challenge to the local, clean, flexible and more democratic energy system that we need to tackle climate change and create a fairer society. In particular it makes it harder to install local storage, such as batteries, a key component of a renewable future.

And don’t forget - this comes hot on the heels of two years of slashing and burning of policy support for renewables and community energy. It’s a sector under siege.

But we shouldn’t be surprised that the decision turned out this way.

Shining light into the dark (side

In the UK we have a system of ‘self-regulation’ for the energy system. That means that although Ofgem - a government department - officially makes any final decisions, in practice change is driven by industry representatives. 

But because of the expertise, time and resources needed to have a seat at the table, it’s only really the big players - the Big Six and a few others - who are able to participate.

And that’s why you have decisions being made to favour the status quo, not the future we want to see.

In this case, the panel that developed the proposal to cut rewards to local generators didn’t have any renewables or community energy representatives. It seems it’s still the Big Six running the show.

This doesn’t mean that everything should stay exactly as it is. The way rewards and incentives are given out will have to shift as the energy system rapidly changes. But that change needs an accountable, long term approach, and renewable and community energy need a seat at the table.
The resistance

In the long term, this is not only this decision we need to challenge. We’ll need to challenge the way our energy system is regulated, take power away from the Big Six and hasten a local, clean and fair energy system that serves the public and fights climate change.

Stand with local energy. Sign our urgent letter to the regulator Ofgem and the government asking them to slam the brakes on this terrible decision before it’s too late.

The empire strikes back: how the Big Six are quietly stitching up local energy — 10:10

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