New Power » Annabel Andrews

CMA wants to act faster on competition failings, to restore confidence in markets

Annabel Andrews — Wed, 11 Mar 2020 09:59:35 +0000

“The existing [competition and markets] framework, in the years ahead, just won’t do. It has to be substantially improved”. That was the summation from Andrew Tyrie, chair of the Competition and Markets Authority (CMA), at a recent Policy Exchange debate over the regime’s future. “Doing nothing is not an option,” he said, adding that the CMA must “do its bit” to bolster consumers’ failing confidence in markets.

CMA chief executive Andrea Coscelli admitted, “the focus on mergers and enforcement has meant that sometimes we have missed opportunities to get more leverage out of the evidence and knowledge we have accumulated, by efecting change through others – whether government or regulators.” He promised more action on advocacy, using new metrics on competition and markets (see below) to prioritise action and the CMA has promised to work with Citizens Advice and its 2.7 million customer touchpoints.

This is an extract from a report on the Policy Exchange debate in the March issue of New Power Report. Subscribers can click here to read all participants’ views on the role of the CMA in a rapidly changing industry.

Not yet a subscriber? New Power is a specialist report for anyone with an interest in the UK energy industry. We look in-depth at all the issues that have to be addressed to rebuild our industry – moving from our centralised high-carbon power system to one that will provide heat and power securely, affordably and with minimal carbon dioxide emissions. Contact subscriptions@newpower.info to find out more.

Expect failures in corporate PPAs, says solar investor

Annabel Andrews — Mon, 02 Mar 2020 10:07:11 +0000

The opportunity to sell power direct via corporate power purchase agreements has sparked interest but one investor has warned many will fail to proceed.

This is an extract of an interview with Mike Bonte-Friedheim, founding partner and group chief executive of specialist investors of NextEnergy Capital, where his specific roles include being on the investment committee of the NextEnergy Solar Fund (NESF), which has raised £700 million to invest in UK solar and currently owns 87 solar plants with a total capacity of 691MWp. Subscribers can log in to read the full interview here.

Bonte-Freidheim agreed that there is an emerging market for PPAs in the UK but said: “What we have found is that most of those tenders take place at very unattractive prices for the electricity seller. They are well below what the market is, so we have shied away from those. In the bidding we put the numbers that we like and if someone is willing to offer lower prices that’s fine.”

Bonte-Friedheim identified two drivers for such low prices. One of those is the PR effect, “so if you are a big energy company and you want to show that you have won a PPA with a blue chip offtaker, you bid whatever price you want because you want to have a big press release and you want to get on the front page of your company report to hide all the other ugly stuff that you are doing.”

As for the second reason: “Business that are bidding so low, so aggressively, … they don’t have capital to build those assets and they think that by locking in a PPA they can then find the capital.” Neither applies to NESF. “We have sufficient capital to build those assets so we wouldn’t give up value to secure capital to build them… and we don’t need the PR of being green and hiding the oil and gas activities,” he said.

When I asked how many of the low-priced PPAs will fail to proceed, Bonte-Friedheim says: “There is a good chance that either they won’t be delivered or they will try to renegotiate the price and we have heard of some of that renegotiation of price already.”

He points out that in some cases the CPPA is “nearly a free option for the asset owner” with no penalty at all, or no significant penalty, if it is not delivered. A developer can hope that the price of building assets will continue to fall so he low price becomes deliverable. But if not, he says: “You can say sorry I didn’t make it and you don’t have any money on the hook – so it’s a free option to see what happens.”

With no penalty – Bonte-Friedheim says, of say £20 million or £30 million – for not supplying, “the buyer of that electricity, the other party of the PPA, is going to be naked in terms of the electricity supply”.

How widespread is the problem? “I think that most of the CPPAs that are significantly below the current market price of power are at risk. From our analysis, selling the electricity at those rates generates an investment return which is sub optimal for investors,” he said.

This is an extract from an interview in the February edition of New Power Report. Subscribers can log in to read more about his views on the maturing solar energy landscape.

DNO flexibility markets still “too small a market size”, says Limejump CEO

Annabel Andrews — Tue, 25 Feb 2020 11:07:13 +0000

Erik Nygard, CEO and co-founder of energy aggregator and trader Limejump, has said the DNO flexibility market is too small for companies like his to focus on.

Limejump “dabbles a little bit in DNO fexibility projects”, Nygaard said. But it’s not a major focus for the company. “They are too small as a market size. We want to make a change and get customers on this journey – focusing on DNO stuf there is not enough for us to go into it. Even National Grid ESO, which spends about a billion pounds a year on balancing the system, does not have that much value to ofer in its markets.

“For anyone taking out of that [Balancing Markets] what are they getting, 10%? Then you have to compete against gas, compete against other aggregators, – it’s not a market that is big enough to only focus on, you have to compete in energy markets.”

This is an extract from an interview in the February edition of New Power Report. Subscribers can log in to read more about changes in the aggregation sector and the options opened up by the company’s acquisition by Shell a year ago.

Embedded plants: new scrutiny after blackout

Annabel Andrews — Thu, 20 Feb 2020 08:30:12 +0000

Operators of embedded generation will come under more scrutiny as a result of the blackout on 9 August, according to the outcome of an investigation by the Energy Emergencies Executive Committee (E3C).

This is an extract from an article in the February issue of New Power Report. Subscribers can read the full report here (login required).

E3C wants to see detailed investigation into whether embedded generation complies with Distribution Code requirements, as well as further monitoring. It wants trade associations and the Distribution Code Review Group to review embedded generators’ understanding of, and compliance with, the Distribution Code; and assess whether the current governance, monitoring and enforcement processes are ft for purpose. The E3C will report to BEIS on this in March. It said this will be “a key focus in the Distribution Network Operators’ transition into their roles as Distribution System Operators”.

This is an extract from an article in the February issue of New Power Report. Subscribers can read the full report by clicking here and logging in. Not yet a subscriber? New Power is a specialist report for anyone with an interest in the UK energy industry. We look in-depth at all the issues that have to be addressed to rebuild our industry – moving from our centralised high-carbon power system to one that will provide heat and power securely, affordably and with minimal carbon dioxide emissions. Contact subscriptions@newpower.info to find out more.

Distribution markets make a slow start

Annabel Andrews — Wed, 12 Feb 2020 14:39:09 +0000

Markets for fexibility run by distribution network operators (DNOs) have made a very slow start, according to comments made at NGESO’s recent Power Responsive forum. There have been bidders available for just 20% of the requirement so far offered. However, there have been dramatic differences in the response to offers, which are very location-specific. Some locations have received bids covering more than 100% of the need, while some received no bids at all.

This is an extract from an article in the February issue of New Power Report. Subscribers can read the full report by clicking here and logging in.

Comments – most anonymous – at the meeting suggested some reasons why. On hardware, they cited high connection fees from DNOs and the cost of meeting new ‘G99’ regulations for fault ride-through. They said DNO connection requirements were inconsistent and in some cases had legacy protection requirements that were too onerous. The cost of meeting MCPR (medium combustion plant regulations set by the EU) on emissions also were a barrier. As regards the new market offerings, companies that considered bidding had found little visibility. They wanted to know how often they might be called on and what total utilisation they might expect. They said that recent changes made to the charging regime by Ofgem had made flexibility less attractive. The DNOs’ price control regime was equally damaging: since DNOs are currently making submissions for the next RIIO price review and determinations have yet to be made by Ofgem there were no contracts available beyond 2023. A three-year visibility was not long enough to be practicable, one commentator said. The potential providers also wanted consistency across DNOs: similar products, contracts that were identical as far as possible, and a common platform to bid for where all the options available across all the DNOs.

From the archive: Emma Pinchbeck

Annabel Andrews — Thu, 30 Jan 2020 13:54:06 +0000

Last year, New Power editor Janet Wood spoke to Energy UK’s new chief, Emma Pinchbeck, then at Renewable UK. See some highlights below and login to read the full interview.

What’s exciting the future of the energy industry? “What would happen if we ran onshore wind auctions at scale; what is happening on the merchant side, with subsidy-free renewables coming on line; electric vehicles coming through and new market entrants suddenly being interested in the sector”.

What are some of the challenges facing the sector? “The biggest intellectual challenge to energy now [is] how do you get a set of infrastructure and market designs that develops that big picture and centralised kit at the same time as rewarding, developing and supporting emerging technologies and different markets.”

Plus: “How do you make sure that people who are going off-grid aren’t opting out of regulatory charge for networks? How do you make sure that if you are thinking about doing EV or vehicle-to-grid that it deploys where it will be needed on the grid, and not just where consumers want it? How do you make sure you are funding enough capacity to meet the carbon budgets and keep the lights on?”

What’s the future of the capacity market? “How we define capacity and how we procure it is going to be one of the things that changes over the coming decades. Allowing full flexibility is really important.” She argues strongly that the definition of firm power has to change. “We are pushing for renewables plus storage to be able to bid in.

Revolution or evolution? “Because everything is changing so rapidly, working with what we have, and tweaking it so it allows more innovation, is probably where we are at”. There are some basic principles to be decided before making bigger changes. “We have to decide what capacity is and what flexibility is.”

What does flexibility look like? Looking to the long term she sets out a world with variable renewables as incumbents, at about 60% of the mix, and storage at every level. Wind farms would have batteries alongside and there would be consumer participation. “As far as they are concerned, the system would be secure and as far as we are concerned renewables and storage is predictable baseload capacity, just as gas will be. You will treat those things very similarly. That’s a very high-level view, because they are different technologies, with different funding mechanisms that do different things in the system.”

Click here to read Pinchbeck’s views on the long-term future for energy and for UK Plc.

What’s the future of E-serve, Elexon and the Low Carbon Contracts Company? LCCC chair says organisations could be rationalised “tomorrow”

Annabel Andrews — Tue, 28 Jan 2020 10:24:49 +0000

In the January issue of New Power Report, editor Janet Wood spoke with Regina Finn, the new chair of the Low Carbon Contracts Company, about the many changes facing the power industry. Finn has been regulator and participant in utilities across several sectors.

This is an extract from an interview in the January issue of New Power Report. Subscribers can read the full interview by clicking here and logging in. Not yet a subscriber? New Power is a specialist report for anyone with an interest in the UK energy industry. We look in-depth at all the issues that have to be addressed to rebuild our industry – moving from our centralised high-carbon power system to one that will provide heat and power securely, affordably and with minimal carbon dioxide emissions. Contact subscriptions@newpower.info to find out more.

The Low Carbon Contacts Company (LCCC) is just one of many organisations managing payments across the energy sector, together with Ofgem’s e-serve arm (managing the RO and feed-in tariffs) and Elexon (managing settlements). Do we need so many?

Finn says, “You could roll one of them into the other tomorrow… It’s a really complicated landscape and there is a lot of institutions there and yes I personally believe you could rationalise. Somebody has got to have the will to do that and it can’t just be the institutions because it needs some legislative change.”

I ask whether now is the time to unpick it, as we move out of the supplier hub and towards half hourly settlement for domestic customers. She says, “The first is we have to get really good at coordinating between these different organisations and different systems now. Already there are changes to half hourly settlement. It has implications for our systems and we have to know that we are ready and able to make those changes.”

That is equally true where another body has changes to make and LCCC is interdependent. “You have to do that now, there is no choice.”

As for seeing if there is a rationalisation, “I think that’s perfectly feasible thing to do.” The caveat is, “One would need to look at it in a way that takes into account the impact of institutional change so it is a trade-off. You could step back and rationalise all these fragmented bodies and it would look much cleaner, but what amount of disruption is that going to bring to the day job.”

If you did, the value “would be in stepping back and thinking quite seriously about what is the right institution. What footing should it be on? Should it be a gov[ernment] co[mpany]? …that is where you would get the value. Just mashing organisations together doesn’t usually deliver value.”

A major complaint from industry participants is the ‘friction’ in providing different information for different instruments.

“What industry would like is streamlined data and effective coordination that reduces the burden on them. Whether putting everything into one institution would deliver that I would question.”

She recalls the same call in sectors she has regulated. The Financial Conduct Authority was one example where functions were brought together. It has 4500 staff, and Finn says, “people still complain that they get constant different requests from different bits of that organisation that are not co-ordinated properly.”

Click here to read Finn’s views on whether there is still justification for sector regulators.

HVDC: The future of ancilliary services?

Annabel Andrews — Thu, 23 Jan 2020 09:44:43 +0000

What are the best ways to connect between different electricity grids? The changing mix of the electricity system and the advent of long-distance links sent grid companies back to HVDC technology. Now its providers suggest it could have many more advantages for grid operators. New Power’s Janet Wood caught up with Athanasios Krontiris, ABB’s product manager for HVDC about how the technology’s offer is set to expand to ancillary services.

Krontiris argues that in combination with a grid management system, HVDC, and the semiconductors that are the core of HVDC Light version, can provide fast-acting grid services based on its micro-second response time and the ability to control the system.

“Previously the best stability came from larger grids,” he says. But as the synchronous system becomes very large – and the European market is set to add the Baltic grids into a synchronous system that reaches across the continent – the system becomes more difficult to control.

That is where an HVDC connection can help, Krontiris says, because it can provide frequency support and, in the newest versions, voltage support as well. It is tapping into power from adjacent markets, and software control allows it to ‘ramp up’ much faster than thermal plant.

ABB even proposes using the link for ‘black start’ in the event of major power outage, using the same microsecond-level control of active power. That option was tested using the link to an otherwise isolated island off the Finnish coast and power was brought back successfully within a few minutes.

Finally, ABB argues that the ability to finely measure electrical flows around the HVDC Light link means that parts of the AC network in the vicinity are much more visible to system operators. That visibility means that cables considered likely to be overloaded can be operated closer to their limits, increasing their effective capacity.

These services are not sufficient financial incentive to build an HVDC connection within a network, Krontiris says, but where a connection exists – such as the onshore converter station for an offshore wind farm – they can be offered in competition with other grid service providers such as batteries or demand side response.

To read the rest of the article, click here.

Opinion: Tackling the cartel damages question

Annabel Andrews — Tue, 14 Jan 2020 11:18:56 +0000

How will courts handle damage claims where a cartel has been found to be operating? A recent decision gives some indications

BritNed v ABB is the first competition damages action, based on a European Commission cartel decision, to reach judgment and an award of damages in the UK. All other so-called ‘follow-on’ cartel damages cases have been settled before judgment.

As such, a recent decision from the Court of Appeal provides long-awaited clarity on how the courts will award damages in cartel claims. Broadly, the decision affirms that the principles on recovery of damages in competition cases are similar to other claims for damages under English law.

In April 2014, the European Commission found that a number of power cable manufacturers, including ABB, had infringed European competition laws by forming a cartel involving market-sharing and customer allocation. Based on the findings of fact in the European Commission decision, BritNed brought a ‘follow-on’ damages claim in the English High Court against ABB in relation to a UK-Netherlands submarine electricity cable system BritNed had purchased from ABB during the cartel period.

The High Court awarded BritNed just over €13 million but this was a small fraction of the €180 million in damages BritNed had claimed. Both BritNed and ABB appealed this decision: BritNed unsurprisingly sought an increase in damages, and ABB challenged a certain proportion of the award relating to so-called ‘cartel savingså’.

Examining the damage claims

The Court of Appel slashed BritNed’s damages by €5.5 million. In so doing it clarified two key points: First, in reviewing the ‘cartel-savings’ head of damages, the Court of Appeal made clear that a claimant can only recover losses it has actually incurred and not ‘savings’ that another party may have made due to their participation in a cartel or otherwise. BritNed, the Court of Appeal found, was not entitled to the €5.5 million awarded based on ABB’s ‘cartel savings’ because it had not proven that these savings amounted to a loss it had suffered.

The Court of Appeal found that damages can only be awarded on a compensatory basis and rejected calls for a more strict and punitive approach to damages in cartel claims.

Second, the decision serves as an important reminder that the burden of proof of loss remains on the claimant, a general principle of English law. Claimants routinely claim large sums in alleged losses in competition claims, often without much analysis, assuming a cartel necessarily leads to inflated prices. BritNed’s final award of €7.5 million represents just 4% of the €180 million of damages it claimed, and highlights the stark reality that for some claimants the cost of litigation simply may not be worth the relatively small return in damages.

The Court of Appeal’s decision showed that the courts should look carefully at the facts, and may deter future claimants from bringing unmerited competition claims. It is a welcome confirmation of the rules around damages in competition litigation under English law, especially because some recent cases had begun to show a trend of claimants arguing that different standards of proof should apply in cartel cases.

The Court of Appeal’s decision serves as a reminder that breaches of competition law do not necessarily lead to an overcharge, and therefore, loss to customers.

Marc Israel, Partner, White & Case
Charles Balmain, Partner, White & Case
Ellen Campbell, Trainee, White & Case

“Regulators have to continually change”: Views on the future of utility governance by former regulator Regina Finn

Annabel Andrews — Fri, 10 Jan 2020 11:15:47 +0000

In the January issue of New Power Report, New Power’s editor, Janet Wood, spoke with Regina Finn, the new chair of the Low Carbon Contracts Company, about the many changes facing the power industry. Finn has been regulator and participant in utilities across several sectors.

It looks as though the policymaking structure may shift, with energy and potentially climate change back in its own department. Asked whether that would be an improvement, Finn says, “You can cut and paste government department any way you like, and people have seen it in so many different ways over the years, but you are just moving jigsaw pieces around. That’s not the important thing. The important thing is coordination across government.”

When I ask Finn’s view of another perennial question – whether there is still justification for sector regulators, as opposed to, say, a functional split with an infrastructure regulator and consumer champion – she says, “It doesn’t come back to the institutions, it comes back to their co-ordination and remits. One thing I used to say at Ofwat [as chief executive] is that we’re an economic regulator but we’re here for customers.” She thinks Ofgem is waking up to the net zero climate change being part of the wider framework within which it has to operate.

“I think regulators have evolved over the decades. In the purest days of Stephen Littlechild they were very much about opening up markets and regulating the bits that can’t be opened up and that was all – everything else is government or social policy. I think we have moved a long way from that and we should live a long way from that, because regulatory frameworks cannot exist in a separate policy environment …

“I remember at Ofwat having a board that was nervous about me saying that climate change was real. So, things have changed, and I think regulators have to continually change and reassess their role in that.”

Regulators have already changed to consider outcomes, not just markets, and now she says they need to consider Net Zero and the climate change emergency and how we operate within that.

And as for a consumer regulator, when I ask about changing needs, for example in pan-utility ‘home services’, she says, “I don’t think it’s acceptable for any existing regulator not to have a very strong focus and remit around that consumer side of their role, so I just see that as the day job.”

That should evolve too. For example in telecoms, “What I thought was a good consumer outcome 10 years ago is very different from what I think it is now. My expectations have changed. Ofcom is good at that: they track consumer outcomes and consumer sentiment and how it changes over time. Other regulators are maybe not so good.”

She warns that “If you as an infrastructure regulator don’t have to internalise that any more I think you take it away from the economic regulator to include consumer outcomes in everything that it does. There is a risk of that.”

Similarly, there is a danger in separating environment. “When I joined Ofwat there was constant fighting between the economic regulator and the environment regulator because they both saw themselves a different remit. I put a lot of effort into changing that – hence the strapline for the regulator changed to ‘sustainable water’ – because I thought we are not separate we are additive we need to deliver both a decent environment and affordability for customers.

“There was an attitude that they had to be separate to call out each other and that’s not very constructive. It is not in the Environment Agency’s interest that water or energy becomes unaffordable to the degree that good environmental outcomes cannot be paid for.”