The Department of Business, Energy and Industrial Strategy (BEIS) has launched a consultation on the Electricity Supplier Obligation Regulations payments due to the impact of COVID-19.
It will look at the option to defer the payment of part of the amount of the increase in electricity suppliers’ obligations that was expected to be collected by the Low Carbon Contracts Company (LCCC) for Q2 2020 through to Q1 2021.
This would help energy suppliers to better manage increases to obligations, given the current challenges created by coronavirus.
These increases are as a result of lower electricity demand due to lockdown measures introduced to slow the spread of COVID-19 the LCCC advised BEIS.
This, alongside “higher payments to CfD generators because of lower wholesale electricity prices”, would have led to electricity suppliers facing “an unexpected increase in their obligations for the second quarter of 2020”.
Electricity demand has fallen by around 20% since the lockdown was brought in in the UK on 23 March. Already, this has led to record breaking lows, with electricity demand falling to just 15.2GW over the Easter bank holiday weekend.
This drop has caused challenges for networks and suppliers, and led National Grid ESO to apply for an urgent modification to the Grid Code so that it could tell suppliers to switch off embedded generation if demand dipped so far that this was needed to balance the grid.
BEIS’s consultation was launched yesterday (12 May), and suppliers have until Tuesday 19 May to respond to it. This short time bracket is because BEIS hopes to take the proposal forward “as a matter of urgency”.
To implement the changes recommended following the consultation would then require Contracts for Difference (Electricity Supplier Obligation) Regulations 2014. This would be subject to parliamentary approval, which would need to be granted before 9 July in order for the changes to be brought in in time.
If it is not changed, suppliers will have to pay a higher lump sum to LCCC after the reconciliation process in July.
Additionally, BEIS has said that due to the current “exceptional circumstances” created by the pandemic that it will be provide a one-off loan to the LCCC, allowing it to pay Contracts for Difference (CfD) generators without the need to increase the Interim Levy Rate at short notice.
Regardless of the consultation BEIS would still provide the loan facility to LCCC, but the consultation paper explores how the amount of the loan from BEIS to the LCCC will be determined.