British gas prices firmed on Wednesday, with cold weather across Europe driving up demand, but the upside was limited by liquefied natural gas arrivals and a fall in U.S. business gas prices.  Gas for Thursday was up 0.10 pence to 35 pence per therm, compared with day-ahead contracts late on Tuesday, while January gained 0.35 pence to 34.50 pence and February was up 0.30 pence to 35 pence.

“The prompt is strong all the way along to the weekend, and that’s reflecting the cold weather, which is below seasonal norms,” one trader said. Britain’s forecast gas demand for Wednesday was 393.5 million cubic metres a day (mcm), higher than seasonal norms of 319 mcm, National Grid data showed.

Temperatures in northwest Europe are expected to be up to six degrees Celsius below normal for the next five days, although it could be above normal further out according to the six to 10 day forecast.

“If we have cold weather in January, it could start to see the curve shifting up as we’ll need to start refilling storage which is usually done is summer when prices are low,” he added.

But supply was strong, with the Al Sheehaniya LNG tanker expected on Jan. 1, making it three vessels due to arrive in Britain at the beginning of January.  And traders said a fall in U.S. gas prices was limiting gains along the curve, with U.S. futures contracts ending three percent lower at the end of trade on Tuesday.

Gas for second quarter 2010 was flat on 33.25 pence, while gas for third quarter 2010 firmed 0.10 pence at 33.75 pence. In power, prompt eased on lower demand over the Christmas and New Year holiday period.

Baseload power for Thursday was 34.75 pounds per megawatt hour, compared with 35.25 pounds for day-ahead contracts late on Tuesday. “There is a potential reduction of supply margins over the New Year, but gas and oil are still strong and giving power prices support,” one trader said.

Peak demand for Thursday was forecast to be 49.8 gigawatts, compared with 51.2 gigawatts peak demand for Wednesday.

Scottish & Southern Energy’s hopes of becoming the UK’s largest electricity network appear to be fading as the sovereign wealth fund of Abu Dhabi prepares to bid for assets put up for sale by EDF. Perth-based SSE was thought to be the leading contender to buy EDF’s three English electricity distribution networks, which are expected to fetch more than £4billion.

But yesterday reports emerged that Abu Dhabi Investment Authority (ADIA), the world’s largest sovereign wealth fund, had hired advisers about a bid for the assets valued at around £5bn.

According to the reports, the ADIA is investigating a joint bid with Canadian Pension Plan, a pension fund, and has hired investment bankers at Goldman Sachs and Lexicon Partners to advise on the bid.

Emerging as an early leading candidate for the sale, SSE has already appeared to play down the chances of it snapping up the assets.

Following Ofgem’s review on what utilities are allowed to charge customers of distribution networks between 2010 and 2015, SSE warned that the level of returns allowed by the energy regulator may put it off investment in the sector.

Earlier this month, SSE begrudgingly said it would accept Ofgem’s findings, but a spokeswoman told The Scotsman that the review was likely to reduce what it would be prepared to pay for EDF’s distribution networks.

The Scottish utility has already said that if it did bid it would probably do so as part of a joint venture with Borealis, a Canadian pension fund.

The networks put up for sale by EDF cover London, the South East and the East of England, distributing electricity to almost eight million homes.

SSE already owns two electricity distribution networks, one in Scotland and one in England. Buying the EDF assets would have made it the largest player in the sector, and some industry sources have warned that it could prompt competition concerns.

EDF, the majority owner of nuclear company British Energy, is thought to have put the assets up for sale in a bid to cut its debt pile, and help fund an expensive investment programme, which includes building new nuclear power plants in the UK.

Other utilities thought to be in contention to bid for the assets include National Grid and Hong Kong’s Cheung Kong Infrastructure Holdings.

As nations debate sweeping carbon-emission cuts in Copenhagen, one country has become a model of ambitious targets the U.K. Whether it has the right system in place to achieve those goals is another matter.  Britain has one of the most open, competitive energy markets in Europe. Its system has delivered real benefits to consumers in the form of lower prices for electricity and gas. But there is growing skepticism that the U.K. will be able to hit its target of a 34% cut in greenhouse-gas emissions by 2020 and 80% by 2050 with the kind of deregulated, liberalized energy system it currently has in place.

It’s still cheaper for U.K. power providers to entice consumers with inexpensive energy generated by dirtier technologies such as gas-fired power plants than through cleaner means such as nuclear or wind power. Critics of the government say Britain hasn’t yet come up with a financial framework that adequately encourages construction of cleaner plants.

Many Western governments have championed energy deregulation, even as they face doubts about whether decarbonizing an economy can be left to the market. A recent report by the U.K.’s Committee on Climate Change, or CCC, an independent body advising the government, said it was unsure the market in its current form “will deliver required investments in low-carbon power generation” through the 2020s.

“You can’t be confident that arrangements designed to deliver the efficient dispatch of a fossil-fuel fired plant can deliver a totally different objective” of big investment in nuclear and renewables, says David Kennedy, the CCC’s chief executive.

The U.K.’s record in reducing emissions leaves room for improvement. The CCC says they fell at less than 1% annually from 2003 to 2007, and will need to fall at 2% a year for the U.K. to meet its targets. The government says Britain’s greenhouse gases have come down by more than 20% from 1990 levels and that it is on track to meet its goal of a 34% reduction by 2020.

The U.K. broke up and privatized its electricity monopoly in the 1980s and 1990s, and removed controls on prices. But a big chunk of the U.K.’s electricity-generation capacity will disappear over the next decade, as high-emitting coal-fired power stations and older nuclear reactors are shut. What replaces them will have huge implications for the U.K.’s ability to keep to its carbon targets.

In theory, the price of carbon should dictate decisions on such investments. The European Union’s emissions-trading plan sets an overall cap on the output of greenhouse gases. The price of permits to emit CO2 then creates incentives to cut emissions and invest in low-carbon technology.

But the recession triggered a steep fall in the price of carbon in the EU trading system, and it has languished at about £15 a ton for months, down from around £30 in the summer of 2008. The result: the economics of capital-intensive projects like offshore wind farms still don’t add up.

Instead, companies tend to opt for gas-fired power stations, which are cheap, quick and easy to build. But burning more of the fossil fuel means the U.K. may miss its emissions target.

Sam Laidlaw, head of utility Centrica PLC, has called for a support mechanism to be activated if the price of carbon in the emission-trading system fell below a certain floor. This would provide the certainty companies need to make investment decisions, he says.

Others advocate tougher state intervention. Even the opposition Conservatives say they are looking at ways of supporting the carbon price. From the party that drove through the privatization of the U.K.’s energy sector, that is a big change.

Scottish & Southern Energy has reinforced its position as the UK’s largest streetlight manager after winning a £225 million contract in the south of England.  The Perth-based SSE, which already looks after more than one million street lights, has won a contract to manage lighting for councils in Hampshire, Southampton and West Sussex.  The largest private finance initiative (PFI) project of its kind, the 25 year-contract will see SSE replace and maintain 250,000 streetlights, illuminated signs and bollards.

SSE now monitors 500,000 street lights under PFI contracts. Chief operating officer Colin Hood praised the initiatives, saying: “The PFI approach has proved to be a successful way of replacing older street lighting infrastructure and is delivering better-lit streets that help communities lead safer and secure lives.” Under the latest deal, which begins in April, SSE will install more-efficient bulbs, as well as remote monitoring apparatus for Southampton and Hampshire, allowing lighting to be controlled and dimmed remotely to save energy.

Renewable technology that uses energy stored in the ground to heat buildings and provide hot water could be installed in hundreds of thousands of homes and offices by the end of the next decade, a report said today.

About 8,000 ground-source heat pump systems were operating in the UK – far fewer than in other European countries, such as Sweden, although the market was expanding rapidly and doubled last year, the Environment Agency report said.

The document concluded that the technology could be installed in 320,000 homes and businesses by 2020 with support from the government.

If enough support was given through the renewable heat incentive, which will be introduced in 2012 and pay homeowners and businesses a guaranteed price for generating renewable heat, more than 1m ground-source heat pumps systems could be put in place.

At the top end of its potential, ground-source heat technology could be installed in more than one in 10 homes and in 40% of commercial buildings, the report said.

Even if growth was limited to 320,000 homes and business – 1% of households and 11% of commercial buildings – it could provide 30% of the renewable heat the UK needed to produce to meet its 2020 target.

“Ground-source heating is a rapidly growing technology that has the potential to produce at least 30% of the country’s renewable heat needs – but it needs financial support in order to grow,” Tony Grayling, the head of climate change and sustainable development at the Environment Agency, said.

“We would like to see this technology given adequate financial support through the new renewable heat incentive to meet its full potential in the UK.”

As the end to another decade draws to a close, we take a look at what 2010 and the next 10 years is likely to bring for the UK energy market.  One thing is for certain that Governmental policy and social awareness will be the key drivers that influence the ever changing energy market over the next decade. 

With increased legislation and the start of the UK carbon trading market next year, through the recently introduced Carbon Reduction Commitment, large energy consumers will be obliged to enter the UK cap-and-trade scheme. 

Although nobody can accurately predict where this will end, we expect that over the next decade this will filter down to smaller and smaller business, until eventually a carbon allowance will be expected of each individual.  The signs of this change are already happening, and perhaps this is the only way the UK can meet is Kyoto obligation of reducing CO2 emissions by 80% by the year 2050. 

One thing is for certain that this legalisation will focus the mind and make us all aware of how much we depend on long term renewable energy sources. It will also produce a multi billion pound industry as we strive for new advances in technology that will allow us to harness the power of nature, to produce these sustainable energy sources. 

With the current demand expected to outstrip supply as early as 2015, we are in desperate need of additional supply, be this from traditional coal or gas fired generation through to further nuclear generation, coming online over the next decade. 

Which ever way this happens, it will cause controversy either politically, environmentally or through the “ClimateGate” debunkers. 

What ever happens over the next decade there’s going to be a different attitude towards how we obtain and use any form of energy, and this is likely to gather momentum as the next generation of children grow up in a world that would appear totally alien to us in the future.

British gas prices were firm early on Wednesday as cold weather was forecast for the weekend, though ample supply capped upside, especially as liquidity was declining in the run-up to Christmas.  Gas for Wednesday stood at 32 pence per therm, up 1.50 pence from within day contract late on Tuesday. Working day next week put on 0.60 pence to 32.10 pence and January added 1.30 pence to 32.60 pence.

“Cold weather is predicted for this weekend, which people are using to push things up,” said a trader. “There’s more uptake. Still there’s a lot of gas around. Fundamentals are still bearish.”

The National Grid said the system was short early on Wednesday, with Norwegian input via the Langeled pipeline down at around 44 million cubic metres per day from around 50 million and imports via Interconnector down to around 10 million from 20 million. A spokesman from Statoil declined to comment on the slowdown in flows via the Langeled pipeline.

Input from LNG terminals also slowed, despite many cargoes expected to arrive in the country before the year end. South Hook LNG flows slipped to about 30 million from above 40 million and input from Dragon to 7 million from more than 10 million. Isle of Grain added only 2 million.

Along the curve, the 2010 first quarter was up 0.85 pence to 32.75 pence, pushed up by stronger prompt prices.  The 2010 winter rose 0.50 pence to 31.20 pence, while the 2010 winter climbed 0.70 pence to 46.70 pence.

In the power market, prompt prices edged up, supported by firm commercial gas prices and higher exports to Continental Europe.

Baseload electricity for Thursday stood at 35 pounds per megawatt hour, compared with 34.75 pounds for day ahead contracts late on Tuesday.

The first quarter stood at 35.95 pounds, while the 2010 summer fetched 36.05 pounds.

The National Grid data showed nearly 2,000 megawatts were flowing to Continental Europe since early on Wednesday.