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Ofgem’s recently announced goals and developments and changes to the post-Brexit state aid regime will have important implications for market players.

By John D Colahan, Stephanie Adams, and Anuj Ghai

2020 is set to be a an important year for competition law-related enforcement in the UK energy sector not least as it waits for the final contours including any material changes post Brexit. We explore in this post two areas that we consider to be of particular importance:

  • The implementation of Ofgem’s goals flagged in its 2019 Energy Market Report
  • The implications for the energy sector of post-Brexit state aid enforcement in the UK

By Beatrice Lo and Heeran Caselton

The Expert Finance Working Group on Small Nuclear Reactors (EFWG), an independent group convened in January 2018 by the Department for Business, Energy & Industrial Strategy, recently published its report with recommendations for a market framework to enable the development of small nuclear projects in the UK with private financing and investment. The report follows the publication of the UK government’s Nuclear Sector Deal (see Latham’s related blog post).

The EFWG report considered small nuclear projects ranging from micro-generation projects through to 600 MW reactors. In contrast to “megaprojects”, such as Hinkley Point C, which is estimated to cost almost £20 billion, the costs of small nuclear projects typically range from £100 million to £2.5 billion. Small nuclear projects can benefit from lower capital costs and quicker build times through modular construction and factory build (as opposed to on-site build) and are generally less complex than a GW nuclear project. These factors render a number of the risks more manageable, and the lower costs involved make the investment required for a small nuclear project within the range of a greater number of market participants (compared to larger projects).

Although the EFWG report focuses on small-scale nuclear new build projects, a number of the considerations and proposals may also be relevant for conventional large-scale nuclear power projects.

By John Balsdon and Matthew Brown

By Way of Background

Gas to power (G2P) projects provide an effective solution to power shortages around the globe. As the global demand for power continues to rise, outstripping supply in many nations across the world, existing power generation facilities cannot meet the needs of fast-growing economies and available domestic fuel sources are in many of those economies declining.  G2P has the potential to deliver cleaner, more accessible energy to power the engine of global growth, and the next generation of G2P projects will likely underpin a new era in energy production.

G2P projects span the full energy value chain — covering gas production, treatment, transport and power generation. More than 50 G2P projects have been announced across the globe, and countries continue to announce new innovative programmes. Ghana and Chile are among the countries that have recently implemented G2P projects. And the Philippines, Indonesia, and Vietnam are among those likely to turn to G2P to satisfy their future energy needs.

By Paul Davies, Bridget Rose Reineking and Andrew Westgate

At the 19th National Congress of the Chinese Communist Party, President Xi Jinping asserted his country’s emerging leadership in environmental stewardship and pledged to build a “beautiful China”. In his speech to the 2,300 delegates and guests assembled for the Congress’s opening session, President Xi lauded China’s burgeoning role as a global marshal of environmental reform.

Xi’s speech follows major efforts to reduce energy consumption and conserve resources across China — such as green finance initiatives facilitating lending to firms in environmentally friendly sectors; programmes for the development of alternative energy sources; and efforts to strengthen and enforce environmental laws and regulations. President Xi pointed to these efforts and proclaimed that China’s pursuit of sustainable development is both paying off domestically, and setting an example globally. 

By Paul Davies and Michael Green

The UK government has announced that it is bringing together a new taskforce led by senior financiers in order to encourage the growth of “green finance”. The taskforce, which will be chaired by Sir Roger Gifford, former lord mayor of London, has six months to develop proposals aimed at accelerating investment in low-carbon projects.

The UK’s climate change minister, Claire Perry, announced the initiative in New York at the opening of Climate Week. According to Perry, “The transition to a low-carbon economy is a multi-billion pound investment opportunity and a key part of this government’s industrial strategy”.

By Paul Davies, Michael Green  and Ei Nge Htut

On 8 July 2017, the G20 summit in Hamburg issued a Climate and Energy Action Plan for Growth (the Plan). The Plan reaffirms the commitment of the countries (excluding the United States (US) — which announced its intended withdrawal from the Paris Agreement) to work together to implement the UN Framework Convention on Climate Change (UNFCCC), the Paris Agreement, and the 2030 Agenda for Sustainable Development.

In summary, the Plan promotes the following measures:

  • The main commitments under the Paris Agreement, including the target to limit the temperature increase to 1.5 degrees Celsius and commitments to implement nationally determined contributions (NDCs)
  • Drafting long-term greenhouse gas (GHG) emission development strategies by 2020, for the period to 2050
  • Working towards affordable, reliable, sustainable, and low GHG emission energy systems as soon as is feasible
  • Promoting energy efficiency and improving international collaboration on energy efficiency
  • Scaling up renewable energy and other sustainable energy sources
  • Promoting access to modern and sustainable energy use for all
  • Enhancing climate resilience and climate adaption efforts
  • Aligning finance flows with the goals of the Paris Agreement
  • Mobilising climate finance by multilateral development banks (for example, the European Bank of Reconstruction and Development)
  • Phasing out inefficient fossil fuel subsidies

By Paul Davies and Andrew Westgate

On June 1, 2017, President Trump announced during a speech at the White House that the United States will withdraw from the Paris Agreement, fulfilling a campaign pledge to end the agreement that the President argued would harm the U.S. economy. Supporters of the Paris Agreement had lobbied for the U.S. to remain in the agreement, including members of the Trump Administration and 360 companies that signed an open letter to the President. In the end, President Trump was swayed by the agreement’s opponents who argued it threatened America’s energy sector. Though under its terms the U.S. cannot withdraw from the Paris Agreement until 2020, the effect of the announcement was immediate as leaders around the world condemned the decision and pledged support for the agreement.

In relation to China, the decision to withdraw is significant in two respects. First, cooperation between the U.S. and China was a key driver of the negotiations leading to the Paris Agreement and crossing the agreement’s threshold of 55% of the world’s carbon emissions to become effective. Second, President Trump has framed the decision as part of a larger pivot away from international trade and cooperation, which has left China in the unfamiliar position of a leading champion of international trade. China’s President Xi Jinping called on the world to “remain committed to developing free trade and investment” in Davos earlier this year, a position expressed by the U.S. in the past. Alex Wang, a professor of environmental law at the UCLA School of Law noted that “[w]hile the US is breaking these ties, China — which has traditionally been more reserved in international affairs — is building them at breakneck pace.”

By Jörn Kassow and Patrick Braasch

Emissions from approximately 2,900 large combustion plants in the EU, including coal-fired power stations as well as peat, oil and gas power plants, are now likely to be subject to stricter environmental performance standards. These updated standards (“Best Available Techniques Conclusions for Large Combustion Plants” – BREF LCP), based on a decision adopted by the Industrial Emissions Directive (IED) Article 75 Committee on 28 April 2017, are expected to be formally adopted by the European Commission as a Commission Implementing Decision. The negotiations leading up to the Committee‘s decision have been covered by a previous blog post on 25 April 2017.

By Paul Davies, Michael Green and Kristof Ferenczi

The Industrial Emissions Directive (IED) is the main EU instrument that regulates emissions from industrial installations (including power stations) and came into force on 6 January 2011.

Its objective is to achieve a high level of protection for the environment and human health by reducing harmful industrial emissions. It creates an obligation for all plants to operate using Best Available Techniques (BAT) and to be issued with a permit setting emission limits in line with BAT. Regular sector-based discussions then take place to update BAT to reflect new technology.

As such, by the end of April 2017, the reference document on Best Available Techniques for large combustion plants (BREF) will be subject to approval by a special commission set up by member states under the provisions of Article 75 of the Directive on Integrated Pollution Prevention and Control (IPPC Directive).

By Paul Davies, Fiona Maclean and Stuart Davis

Blockchain is more widely recognised as the underlying software technology usedVirtual Currency B - Single for the cryptocurrency Bitcoin. This technology is also being increasingly applied to alternative opportunities, including in the energy sector. In its simplest form, a blockchain is a shared, and continually reconciled, database. No central repository of the database exists and, instead it is hosted simultaneously across a network of computers or nodes. This means that each participant in the network has real-time access to a “golden source” of the data stored on the database without the need for trusted intermediaries and costly data reconciliation. Automated code-based processes called “smart contracts” can run off, interact with and update the database in a way that would not be possible without a golden source of data and real-time reconciliation. In the energy sector, this technology can be used to provide an automated transaction model with no or limited third-party intermediaries (as compared to the traditional transaction model which is multi-tiered, involving a provider, a central authority such as the National Grid and the consumer). Blockchain’s ability to track the flow of electrons on a distributed grid, for example, enables their secure and transparent trade between consumers directly. The advent of blockchain could fundamentally change the way consumers use and generate electricity.

An early adoption of blockchain in this context is TransActive Grid, a peer-to-peer distributed energy offering based in Brooklyn. TransActive Grid, amongst other things, enables consumers to buy and sell renewable energy directly to each other by utilising blockchain technology. Homes producing their own energy through solar power, can sell excess energy to neighbours. Smart meters are used to record the level of energy produced, with transactions being effected and recorded through smart contracts. There are also plans to develop an application for consumers so that any excess electricity can be traded efficiently, with consumers specifying the price they are willing to pay. This has opened up a peer-to-peer market which facilitates direct interaction between consumers and it is hoped that this will develop into a local community market for renewable energy. Grid Singularity, based in Austria, is planning to bring a similar, decentralised electricity market to developing countries, to distribute solar power.