31 Jan 2022
January 2022 Industry Newsletter
Welcome to the Corona Energy Industry Newsletter.
At Corona Energy we believe in putting the Customer first. We use our position as one of the largest non-domestic gas suppliers in the UK to voice your needs, views and concerns at key regulatory meetings. This can involve lobbying Ofgem, The Department for Business, Energy and Industrial Strategy (BEIS) and other regulatory bodies and industry parties to ensure you are represented and treated fairly.
As part of our service to you, this monthly newsletter will keep you informed of the latest developments in the world of energy regulation in a way that is informative, easy to read and useful to our Customers.
What has been going on in the last few weeks?
Gas and Electricity
- Last Resort Supply Payment (LRSP) Process Changes: When a Supplier fails and enters the SoLR process, there are costs associated with this. For example, domestic customers have their positive balances protected and there is an administrative cost to the new Supplier of setting up new customers in their systems etc. These costs can be recovered by the new supplier via a process called the Last Resort Supply Payment (LRSP) process. The associated cost is mutualised across the market of existing Suppliers and ultimately passed through to the end user, you the Customer. Despite concerns about a large passthrough bill for consumers in April 2022, Ofgem significantly reduced the timescales for claiming Suppliers and has awarded SoLR Suppliers circa £1.6b across both Gas and Electricity which needs to be mutualised across all Suppliers in the 2022-2023 financial year. We successfully proposed and implemented UNC 0797 to reduce the cost of the gas levy to our customers, which you can read about further down in this newsletter. You can find out more about the expedited LRSP process and the Supplier claims here.
- Corona Energy Sponsored Modifications: Following approval at the October UNC Panel meeting, Corona Energy’s Modifications 0781R – Review of the Unidentified Gas process and 0782 – Creation of Independent AUGE Assurer (IAA) role have completed their first Workgroup meetings and continue to be developed and refined with the help of Xoserve. Due to the festive period, these modifications have not progressed much, and we will provide an update in our February 2022 newsletter.
- Corona Energy Sponsored Last Resort Supply Payment Modification: Corona Energy sponsored the urgent UNC Modification 0797 – Last Resort Supply Payments Volumetric Charges at the request of Ofgem late in December. We sponsored this Modification in order to reduce the cost of LRSP payments to our Customers, and apply LRSP levies on a fairer volumetric basis rather than a flat charge across all meters. This means that when a Domestic Supplier exits the market, the Domestic sector picks up the costs. Where a non-Domestic Supplier exits the market, the non-Domestic sector picks up the costs. Under existing Gas arrangements, this Domestic/non-Domestic split did not exist and thus the relatively stable non-Domestic energy sector was paying for Domestic Suppliers exiting the market – something that is not done for Electricity. Following a short but higher than average engagement consultation period, Ofgem approved our Modification for implementation for 01 April 2022.
- Automatic Updates to Meter Read Frequency: Back in 2020 we reported on UNC 0692S – Automatic Updates to Meter Read Frequency. Following a failed appeal by EDF Energy, this Modification was implemented on 22 January 2022. Where this Modification requires Xoserve to automatically update the meter read frequency of any Class 3 or 4 Supply Point to monthly if certain criteria are met, this may result in an increase to metering costs. We will be issuing guidance on this matter shortly, and if you have any questions please contact your Corona Energy Account Manager.
- Energy Balancing Arrangements for Shipperless Supplier UNC Modification: Following National Grid Gas (NGG) withdrawing UNC 0789 – Energy Balancing Arrangements During the Operation of a Supplier Undertaking to Transporters as a result of considerable concern that existing Shippers would need to pass the associated costs on to their Customers, NGG raised UNC 0791 – Contingency Gas Procurement Arrangements when a Supplier acts under a Deed of Undertaking. This Modification enables NGG to procure gas to cover the deficit in instance where a Supplier does not have a Shipper, with this time-bound role starting and stopping based on the size of the potential deficit to the system. Where this Modification is much preferred to UNC 0789 by industry, it was supported by the Panel on 12 January 2022 and is currently with Ofgem for their decision.
What are ‘Last Resort Supplier Payments’?
Over the last couple of months you have seen the term ‘Last Resort Supplier Payments’ or ‘LRSP’ being discussed in depth by both ourselves and other Shippers and Suppliers.
Last Resort Supplier Payments or ‘LRSP’ are payments made to Suppliers who take on the customers of other Suppliers who have exited the market. These payments are made to Suppliers who claim them from Ofgem, however some Suppliers may choose not to claim LRSP. These LRSP claims include amounts such as the sum of the protected credit balances (for Domestic customers only), and the administrative cost of simultaneously onboarding a large number of new customers.
The cost of LRSP payments is then spread across existing Suppliers still operating in the market who pass on these costs to their customers, and from April 2022 onwards these claims are separated into Domestic and non-Domestic.
What does this mean?
This means that from April 2022 onwards, if a Domestic Supplier exits the market and the Supplier taking on their customer’s claims under the LRSP regime, the cost of that claim is dispersed across the existing Domestic Suppliers still operating in the market. If a non-Domestic Supplier exits the market and the Supplier taking on their customer’s claims under the LRSP regime, the cost of that claim is dispersed across the existing non-Domestic Suppliers still operating in the market.
Energy Regulation Horizon for 2022
As you may be aware, 2022 is set to be another year of major reform in the world of energy. We have compiled the Top 4 items to watch out for this year.
- Market-Wide Half Hourly Settlement
This industry project run by Elexon and Ofgem seeks to utilise the output of smart metering (half-hourly consumption data) to input more accurate data into Settlements in order to reduce reliance on forecasting. The estimated benefit of this project is c.£1.5-£4.5bn. The implementation of Market-Wide Half Hourly Settlement is expected in late 2024.
- Code Governance Reform
The framework of the UK’s Energy rulebooks, called Industry Codes, is going through huge reform at the moment with the development of the Retail Energy Code (REC). The REC seeks to take complex industry processes from various industry codes and bring them together into a single, dual fuel code. This will make a more transparent repository of these key processes. In this reform it is likely that Supplier obligations will change which might have an impact on our Customers. We will keep you informed if this is the case.
- Ofgem’s Targeted Charging Review (TCR)
Ofgem are currently undertaking a Targeted Charging Review. This looks at how Networks apply their charging methodologies. This deals with the complex world of Network charging arrangements which are passed through to consumers via their Supplier. Tariffs and groupings have now been finalised by the networks, but the implementation date for these changes has now been pushed back to 2022.
- Demand and Microgeneration Management
Demand Side Response (DSR) and peer-to-peer trading means that we are heading towards a world where you can purchase your energy from your peers. These peers are people in your local area of the grid who are generating with small turbines or solar panels. Whilst this cannot currently be utilised within the UK due to existing networks and associated regulations needing to catch up with innovations, but this will open up many opportunities in the future. If you are interested in DSR, we have articles on Battery Storage and the future of the network on our website.